Moratorium on the Rent Increase: What You Need to Know

City of Beverly Hills expanded its moratorium on eviction due to the COVID–19 emergency to also include a moratorium on the allowed annual rent increase. The provision is included in a new urgency ordinance which took effect on April 1st. However the rent freeze appears to apply retroactively to the date that the local emergency was declared: March 15th. Let’s take a closer look to see how it may apply to tenants who faced a rent increase.

The section that imposes a moratorium on the annual allowed rent increase is barely 50 words in Ordinance 20-O–2806:

During the period of local emergency declared by the City Council on March 16, 2020, in response to the COVID–19 pandemic, a temporary moratorium is hereby imposed on the annual rent increases authorized by Sections 4–5–303(c) and 4–6–3 of the Beverly Hills Municipal Code. Nothing in this Ordinance shall alter the date of annual rent increases in future years. — Ordinance 20-O–2806 section 3.

That’s all the ordinance says about the rent freeze. (Compare those 50 words to the 1,000 words in the sections about the moratorium for non-payment and the 200 words in the section on no-fault eviction moratorium.)

A tenant looking for guidance from the rent stabilization office will not find much to clarify how the moratorium could potentially affect tenants (beyond putting a brake on rent increases in the near future. The city’s ‘What You Need to Know’ fact sheet about the ordinance is posted on the rent stabilization website. Here all it says about the rent freeze:

During the period of local emergency, a temporary moratorium is imposed on the annual rent increases authorized by Sections 4–5–303(c) and 4–6–3 of the Beverly Hills Municipal Code. This provision shall not alter the date of annual rent increases imposed in future years.

That should look familiar because it is exactly what section 3 of the ordinance says. There is no additional guidance for tenants.

Our Interpretation of the Rent Freeze

From our reading of the Ordinance 20-O–2806 text, coupled with the city council discussion, we interpret the rent freeze this way:

The allowed annual rent increase for rent-stabilized tenants in Beverly Hills is effectively cancelled for the duration of the declared local emergency. That means only month-to-month tenancies or a tenancy that is transitioning from a fixed-term lease to month-to-month agreement. A notice of rent increase served pursuant to the rent stabilization ordinance on or after March 15th is no longer valid and no notice of rent increase can be served on rent-stabilized tenants. When the emergency declaration expires, the landlord may choose to raise the rent but must again formally notify the tenant 30 days in advance (or 35 days if the notice is mailed).
The other aspect of the moratorium on rent increases concerns a rent increase subsequent to the increase effectively delayed by the moratorium. The rent stabilization ordinance allows for a rent increase once every 12 months. While city council agreed to effectively delay a rent increase that would be payable during the local emergency, city council did not delay the subsequent year’s increase. Consequently if a landlord’s rent increase is delayed due to the emergency, that landlord can impose a subsequent increase in the next year on the same annual calendar as the delayed rent increase — rather than wait 12 months from the date that the delayed increase takes effect.

Yes, that is a lot to take in! Let’s take some examples to see how tenants may be affected.

How does the rent-increase moratorium affect tenants in practice?

Tenants will fall into one of three categories with respect to the moratorium:

1) Tenants subject to a rent increase but were not served a notice. This is an easy call: no notice during the period of the local emergency will be valid.

2) Tenants who were served a notice of rent increase after the moratorium went into effect (March 15th) but who have not yet paid the higher rent. That rent increase notice is now nullified. It is not paused. Effectively the clock on future rent increase starts again with another notice after the local emergency is repealed. The landlord again has to notify the tenant 30 days in advance (or 35 days if sent by mail).

Example: The landlord notifies the tenant of a rent increase on March 29th for a May 1st rent increase. The notice is nullified because it was served after the moratorium went into effect. There is no rent increase.

3) Tenants who were served a lawful notice of rent increase before the moratorium went into effect and have not yet paid the higher rent. The notice is no longer valid and the tenant will not pay the higher rent.

Example: The landlord notifies the tenant of a rent increase on February 29th for an April 1st increase. The moratorium went into effect on March 15th. The notice is nullified as of that date and the tenant will not pay the higher rent on April 1st.

4) Tenants who were served a lawful notice of rent increase before the moratorium went into effect and have already paid the increase. We are not sure. When the rent stabilization office was amended in January of 2017 to lower the maximum allowable annual rent increase from 10% to 3%, the city made a distinction when it set a retroactive effective date. If the tenant had not yet paid the higher rent, the notice of increase was nullified. The tenant would be noticed again and pay the top 3% increase. But if the tenant had paid on the increase already, then whatever that increase was (up to a maximum of 10%) would stand.

Example: A tenant was notified of a rent increase in early February to take effect on March 15th — the day the moratorium went into effect. But the tenant paid the higher rent a day or two earlier. Would the tenant still pay the higher rent?

What if that tenant paid her rent late. Would the rent increase to take effect on March 15th still take effect if the tenant paid the rent on the 16th? Would the moratorium have invalidated that notice of rent increase? We don’t know because we don’t have any guidance at all from the rent stabilization office.

Does the rent freeze apply only to rent-stabilized tenants?

Yes, according to the text of the ordinance. That means only tenants in rental housing permitted for occupancy before 1995 and not tenants renting single-family homes or most condominiums (which are considered single-family homes). Of course the ordinance does not say that. But among the 50 words total that address the rent-increase moratorium is this clause:

…a temporary moratorium is hereby imposed on the annual rent increases authorized by Sections 4–5–303(c) and 4–6–3 of the Beverly Hills Municipal Code.

Sections 4–5–303(c) and 4–6–3 regulates the allowed annual rent increase for Chapter 5 and Chapter 6 rent-stabilized tenants (respectively). Those sections specify the allowed increase percentage and limit that increase to once per 12-month period. (Read more: Maximum Allowed Annual Rent Increase: What You Need to Know.)

When did the moratorium on rent increases take effect?

The moratorium is so briefly described in Ordinance 20-O-2806 that it does not explicitly say when the moratorium actually took effect. It says only, “During the period of local emergency…a temporary moratorium is hereby imposed…” We interpret that to mean March 15th when the city manager declared the local emergency —- right in time for tenants who may have faced a rent increase on March 15th!

But again the ordinance is not explicit about the retroactive applicability of the rent freeze. The ordinance itself took effect a minute after midnight on the night it was adopted by city council (March 31st) From the ordinance:

This Ordinance is adopted as an urgency ordinance for the immediate preservation of the public peace, health and safety within the meaning of Government Code Section 36937(b), and therefore shall be passed immediately upon its introduction and shall become effective at 12:01 a.m., April 1, 2020.

Again, the RSO office’s ‘What You Need to Know’ fact sheet does not clarify anything in this regard. Unless we hear otherwise we’ll expect that the effective date is March 15th.

Can the landlord ‘bank’ the increase from those months during the emergency?

No. Nothing in the moratorium allows a landlord to ‘bank’ the dollar value of the delayed rent increase. There is no going back for that lost increment later. However, if the landlord had to delay an increase, the landlord is allowed to accelerate a rent increase subsequent to the delayed rent increase to 12 months from the date the delayed increase would have taken effect. The net result is potentially fewer than 12 months between the delayed rent increase and the one that follows in 2021.

Does the moratorium affect notices of rent increase served before March 15th?

A liberal interpretation of the moratorium text could suggest that the intent was that during the local emergency no tenant should have to pay a rent increase. That is different than during the local emergency no landlord should demand a rent increase.

However this too is unknown. The moratorium clearly nullifies a notice of rent increase properly served after the local emergency was declared on March 15th. Does it nullify a notice of rent increase served in early February that would have taken effect on March 15th but for the emergency declaration? There is no guidance forthcoming from the city about this.

What if a tenant has paid the rent increase and learned of the moratorium later?

The tenant will get a refund in some fashion. Unbelievably, there are landlords that did serve its tenants with a rent increase during a difficult time. While the moratorium did nullify such a notice, that notice was likely not rescinded in a timely fashion because landlords simply didn’t know about the moratorium. Our rent stabilization office delayed by one week an email that informed us. And neither of our two local newspapers mentioned the rent freeze in their coverage of the COVID–19 meeting.

No doubt some tenants did pay the unlawful rent increase. But rest assured that the landlord cannot keep a rent overcharge under state law:

In any city, county, or city and county which administers a system of controls on the price at which residential rental units may be offered for rent or lease and which requires the registration of rents, upon the establishment of a certified rent level, any owner who charges rent to a tenant in excess of the certified lawful rent ceiling shall refund the excess rent to the tenant upon demand. — Civil Code §1947.11(a)

Our local rent stabilization ordinance affirms that. “It shall be unlawful for any landlord willfully to demand, accept, receive, or retain any payment of rent in excess of the maximum lawful rent permitted for an apartment unit by this chapter” (B.H.M.C. 4–6–12(A)(1))

Would tenants in a single-family home or a condominium find relief?

No. The ordinance provision is silent on its application to residential tenancies not regulated by the rent stabilization ordinance. The family renting a single-family home or a condominium is not protected by the rent stabilization office and there would be no relief under the moratorium. Note: state law is not kind where it comes to rent increases: there is no limit on the magnitude of the increase or the frequency of increases in any year.

Does the state rent control law provide relief to those families?

No. The Tenant Protection Act of 2019 introduced a ‘weak tea’ version of rent control statewide. For example, there can be two rent increases in any 12-month period as long as they don’t more that the maximum allowed percentage increase in the 12-month period.

But the Tenant Protection Act should be called the ‘Some Tenant Protection Act’ because the law applies only to corporate owners of single-family homes and condominiums (or an entity in which a corporation is an owner). But most non-rent stabilized rental units in Beverly Hills are in individuals’ hands. They tend to be owned by families through trusts and perhaps an LLC (however those LLCs rarely include a corporate member). Thus the law makes an exception.

Where the law and local ordinance conflict the local ordinance prevails. For example, the tenant of a rent-stabilized duplex living next to the owner would see her unit exempted from state rent control because it is an owner-occupied duplex. However the Beverly Hills rent stabilization ordinance does regulated all duplexes so the duplex tenant is covered by the moratorium.

Will the landlord benefit from an accelerated timetable for the subsequent rent increase in 2021 if there was no formal notice of a rent increase during the moratorium?

This is way more complicated than what was discussed by city council and there is no guidance. But it is an important question! Because not all landlords increase the rent whenever they can. Plenty of landlords — evidently not Elm Enterprises, LLC — would not raise the rent during a health emergency when the authorities have ordered us to stay at home. But some landlords like Elm Enterprises, LLC will look for an excuse to accelerate the subsequent year’s rent increase even if that landlord never signaled an intent to raise the rent before or during the moratorium.

Example: Elm Enterprises notifies tenants in late March that the rent will go up on May 1, 2020. The moratorium nullifies that notice and/or the notice is or was rescinded by the landlord. Later, the local emergency declaration is repealed around June 15. The landlord then promptly sends out a notice for an August 1, 2020 rent increase. That rent increase can take effect. But in March of 2021 the landlord says to the city, “My May 2020 increase was delayed until August by the moratorium, so I want my 2021 increase not 12 months from the delayed August increase but instead on my original schedule, which was May 2021.”

In other words, the 2021 increase would come sooner than 12 months after the delayed increase in 2020. But it would come fully 12 months after the 2020 rent increase was scheduled to take effect but for the moratorium. It sounds like splitting hairs, but this is actually what city council intended.

Counter-example: Another landlord did not notify tenants of a rent increase to take effect in May. Once the landlord heard about the moratorium, there was no notice served for a June increase either. The local emergency declaration is repealed around June 15 and thereafter the landlord notifies the tenant for a rent increase effective August 1, 2020. The rent is raised. Next year the landlord wants to notify the tenant in March for a May 1, 2021 rent increase. However 12 months would not have expired since the last increase on August 1, 2020. Wouldn’t the city call that rent hike premature?

The difference is that the landlord in the first example signaled an intent to raise the rent but due to the moratorium had to rescind the notice. In the counter-example the landlord did not signal an intent, and instead refrained from sending any notice of rent increase until after the local emergency was repealed.

The problem: the city has no evidence that the landlord would have raised the rent for May 2020. So why should the landlord be able to raise the rent in May 2021 just 9 months after the August 2020 rent increase? The landlord would be in violation of the rent stabilization ordinance that mandates 12 months between increases. The moratorium would appear to be an exception to that mandate but the landlord in the counter-example didn’t appear to be affected by the moratorium. At least there is no certainty.

If the landlord can increase the rent in August of 2020 and then in May of 2021 without evidence of that a rent increase in 2020 was delayed by the moratorium, isn’t that like giving the landlord another bite at the rent-increase apple too soon?

We have no idea what the city thinks about that scenario — or even if it has thought about it. But with 1,100 properties in the city some landlord is bound to ask for it.

Tip: Carefully review any notice of rent increase.

Regardless of the moratorium, a rent increase is a change to the terms-of-tenancy. It must be served according to the law, which is very specific about what it should say and when it should be delivered. A notice posted with fewer than 30 days before the date of the effective increase, for example, or fewer than 35 days when the notice is only mailed is not a lawful notice. A tenant will not have to pay that increase. The clock starts over. Count those advance days carefully!

Where is the city guidance?

We’ve worked through the details of the moratorium on rent increases pursuant to Ordinance 20-O–2806 because the city has provided zero guidance to tenants or landlords. Instead the city invites tenants to call for more information. But that is contrary to the practice of nearly every other rent control city where the overriding interest is to inform tenants of their rights.

Here our department waited nearly a week to contact tenants about the moratorium even though it could affect 1-in–12 households in rent-stabilized housing. It is a mystery why the rent stabilization office has not proactively reached out to tenants earlier to explain the complexities of this aspect of the ordinance.

Disclaimer: Nobody affiliated with Renters Alliance is a practicing attorney. None of us watch a law show on TV. The following is for entertainment purposes only.