As property managers in the red hot Sacramento rental market, we are diligent about yearly rent increases. When we take on a new building and inherit the tenants, reviewing current lease(s), comparing market rents, and identifying the date of the last rent increase are the first things we do.
Since the passage of AB 1482 in 2020, California has imposed “Rent Caps,” commonly known as “rent control,” on specific residential rental properties.
What is a “Rent Cap”?
In this case, a “Rent Cap” is the maximum percentage a landlord can legally increase a tenant’s rent within a 12-month time period.
This is where it gets tricky because the maximum percentage increase varies from year to year based on a formula. In Sacramento, that formula is based on a minimum of 5%, plus the area’s Consumer Price Index (CPI) for that given 12-month period, and cannot exceed 10%. Landlords who exceed the “Rent Cap” could be subject to a fine of up to $25,000.
Currently, Sacramento’s CPI is 4%, so the annual “Rent Cap” is 9%.
When does CPI adjust?
The California Department of Industrial Relations releases an annual CPI which is calculated as an average of each monthly CPI, from April to April. After announcing the latest CPI amount in April, the new CPI amount takes effect on September 1 of that year. It remains in effect for the next 12 months.
Does my property fall under AB 1482?
Not all residential properties are affected by California’s AB 1482. There are certain exemptions—here is a quick list of the types of properties that my be exempt:
Single family homes, condominiums, and townhouses, IF they are not owned by a corporation, REIT (real estate investment trust), or LLC where one member is a corporation
A duplex where one of the units is occupied by the owner
Rental properties built within the past 15 years
Rental properties provided by non-profit organizations
Rental property subject to pre-existing local ordinances
I recommend consulting with a legal professional to help you navigate the exemptions and ensure the status of your property.
No matter what type of property you own, yearly rent increases are an important part of maximizing your investment.
We have seen radical increases in market rents in the Sacramento area over the past few years. During that same time, California has made it a priority to protect tenants and curtail landlords from imposing excessive increases. If a landlord or property manager does not stay on top of rent increases on a yearly basis, it may be years before they can receive the market rents today’s tenant is willing to pay.