Expect a Post-Moratorium Double Rent Increase This Year

Among the COVID protections extended to rent-stabilized households in Beverly Hills is a moratorium on rent increases. Nearly a year later all have probably escaped a rent increase. Before you pocket that rent savings know that once the moratorium is lifted you could see a double rent increase. The moratorium allows it. The moratorium allows it. Landlords could take it. And if they do tenants lose some benefit from the moratorium.

The Backstory

Beverly Hills city council last year adopted urgency ordinance 20-O–2806 to put rent increases on hold for rent-stabilized households during the COVID local emergency. The relevant section reads:

Section 3: 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. — Emergency regulations urgency ordinance 20-O–2806 adopted March 31, 2020

City council clarified the ordinance language the following month to block a rent increase “scheduled to take effect on or after March 15, 2020.” So a rent increase that would have taken effect on April 1st was no longer allowed. (Note: condominium and single-family home renters are not covered by the rent-increase moratorium.)

One Clause Changes it All

Included in the moratorium language was this clause: “Nothing in this Ordinance shall alter the date of annual rent increases in future years.” That clause is important! It allows the landlord to take a rent increase when the moratorium is lifted; and then to take another rent increase on the ‘date of annual rent increase.’

The implication of that clause is that the landlord can take a second (subsequent) rent increase fewer than 12 months after the first. That contravenes the rent stabilization ordinance which would otherwise limit the rent increase to only once per year.

Only one increase shall be permissible within any twelve (12) month period; provided, further, that a twelve (12) month period shall have elapsed since the last increase. — B.H.M.C. 4–6–3(A)

Because the landlord can raise the rent after the moratorium is lifted and then again on the ‘date of annual increase,’ households are likely to see two rent increases in a year. For some they will come in quick succession and for others those two increases are coming on the same day.

Most tenants and landlords are probably under the impression that the moratorium has denied the landlord a rent increase during the COVID emergency and that increase is forever lost to the landlord. And households will pocket some savings from the increase they would have otherwise paid but for the moratorium. The problem for tenants is that the moratorium’s ‘date of annual rent increase’ clause allows the landlord to effectively double the increase which brings the post-moratorium monthly rent amount back up to the amount that would have been charged had there been no moratorium at all.

Case Study: The Average One-Bedroom Household

Take for example a 1-bedroom household. According to the rental unit registry the average rent was about $2,000 monthly prior to the moratorium. And let’s say the rent can be raised once per year and the date of annual increase falls in April. A 3% rent increase means $60 more per month.

Without a moratorium the rent could have been raised $60 last April. But there was a moratorium in place as of March 15th and that rent increase was delayed.

Then this hypothetical: the moratorium is lifted by city council on February 28th. The landlord notifies the tenant of an April 1st increase the next day. On April 1, 2021 the rent rises by 3% to $2,060.

Remember the key clause in the moratorium allows the landlord to raise the rent on the ‘date of annual increase.’ For this tenant that date is April 1st — coincident with the day of the $60 rent hike following the lifting of the moratorium. The landlord raises the rent the first time because the moratorium is over and then raises it a second time on the same day because the moratorium clause allows an increase on the date of annual increase. It’s a double rent increase of 6%.

Here’s the important aspect of the double rent increase: the second rent increase makes up for the increase the landlord didn’t get last April. Voila! Going forward the rent is almost exactly as it would have been without the moratorium.

Moratorium No moratorium
2020 January $2,000 $2,000
February $2,000 $2,000
March $2,000 $2,000
April $2,000 $2,060
May $2,000 $2,060
June $2,000 $2,060
July $2,000 $2,060
August $2,000 $2,060
September $2,000 $2,060
October $2,000 $2,060
November $2,000 $2,060
December $2,000 $2,060
2021 January $2,000 $2,060
February $2,000 $2,060
March $2,000 $2,060
April $2,120 $2,122
May $2,120 $2,122
June $2,120 $2,122
July $2,120 $2,122
August $2,120 $2,122
September $2,120 $2,122
October $2,120 $2,122
November $2,120 $2,122
December $2,120 $2,122

The left column shows rents under the moratorium for 2020 and 2021. The right column shows rents as if there were no moratorium on the rent increase. The analysis assumes a starting rent of $2,000 with an April date of annual increase. Increases are 3% and indicated in red. The moratorium period is shaded grey. The analysis assumes a hypothetical: the moratorium is lifted on February 28th. Analysis and table by Renters Alliance.

It may seem a bit perverse that the landlord who lost his 2020 rent increase under the moratorium can still come out of the pandemic with the same rental income in the years ahead. Again that’s because the moratorium clause allows the landlord to recapture some lost ground through effectively raising the rent twice due to that key clause: “Nothing in this Ordinance shall alter the date of annual rent increases in future years.”

On one hand this hypothetical household has saved $720 under the moratorium; they’ve pocketed 12 months of the 3% increase ($60 per month). But in April 2021, after the hypothetical lifting of the moratorium, the landlord demands the double rent increase. The rent rises to $2,120 which is almost exactly what this household would have paid were there no moratorium.

This scenario imagines a doubled rent increase after the moratorium is lifted. Some households may see consecutive rent increases only months apart. (It all depends on when their ‘date of annual increase’ falls on the calendar relative to the lifting of the moratorium.) In any case it amounts to a doubled rent increase this year.

This is not a bug in the moratorium; it is a feature! This is exactly how city council crafted the moratorium to function.

How Much is That Increase?!

The case study above uses today’s allowed maximum allowed annual rent increase of 3%, which is what the rent stabilization ordinance allows now. And once the moratorium is lifted landlords will certainly ask for that allowed 3%. Because the moratorium allows the landlord an effective double rent increase, the total percentage increase will be 6% for many households.

But that 6% doubled rent increase may actually underestimate the size of the rent increase. The three percentage point allowed annual increase allowed through this June could be a percentage point or two higher. That would make a doubled rent increase that much more painful.

Why would the allowed rent increase percentage rise higher than the 3% allowed today? Because inflation and upward price pressure could drive it higher. The allowed percentage rent increase is indexed to the change in consumer prices from May to May. This year’s percentage rent increase (3%) was established in June of 2020. it is a product of the percentage change in consumer prices from May 2019 to May 2020. The pandemic depressed consumer prices so the change was small — perhaps 1.5% — but the landlord can ask for 3% even when prices change little.

This year the allowed rent increase percentage may rise because fast-rising consumer prices this spring may push the May-to-May change in consumer prices higher. When the allowed rent increase is recalculated according to federal price data we could see an allowed increase of 4% or 4.5%. We will know more in June.

If prices rise, pushing the allowed percentage increase up with it, then households could see the rent raised by a higher percentage and then increased again by that percentage because that’s what the moratorium allows. Doubling a 4% allowed percentage rent increase would be more painful than doubling a 3% allowed increase.

Bottom Line

If the economy is heating up now it will be reflected in consumer price figures. And the Beverly Hills maximum allowed rent increase percentage will reflect that too once it is recalculated in June. Then when the moratorium is lifted, renting households could see a doubled rent increase at the higher percentage. That could mean an 8% or 9% increase, but the precise percentage will depend on consumer price data.

The irony is that landlords in this scenario could actually reap a gain from the pandemic. The rent could be increased at a higher percentage than they would likely have received were there no pandemic.

Our rent stabilization division will likely get calls from tenants who ask why their landlord could raise the rent twice. Of course the city has not prepared tenants for that prospect. The outrage would be even greater if the allowed increase percentage rises after June.

Read our a deeper-dive into the potential impact of the moratorium language on the total rent paid by households after the moratorium: What a Post-Moratorium Rent Increase Could Mean to the Bottom Line. If you like data and tables you’ll love it!