SFAA Legal Q&A

It's that time of year again, when the Rent Board publishes next year's annual allowable increase and security deposit interest rate. Pursuant to the rent law, the annual allowable increase is effective from March 1 through the following February 2z8th of each year. Yearly increases are calculated by taking 60% of the Consumer Price Index for all Urban Consumers in the Bay Area. This year, the posted increase was 1%, so landlords are allowed to increase rent by .6%.

The SFAA magazine publishes the past allowable increases in every issue, which began in April of 1982. For owners who do not impose an increase each year, the law allows "banked" increases, or a combination of all past increases, to be imposed at the owner's election. As many of us know, incorrect increases can result in costly consequences (e.g., illegal rent petitions wherein the Rent Board orders a refund of excesses for the past three years), and an incorrect calculation one year poisons the chain of increases so that all subsequent rental amounts are incorrect. So let's review a few basic rules.

First, rent increases can only be given every 12 months. Thus, if the tenancy began on June 1, 2003, no increase can be imposed until June 1, 2004. The Rent Board allows owners to change the "anniversary date," but this will cause the owner to lose out on collection of increased rent for the months that are advanced. [For example, moving the anniversary date from April to July causes the owner to permanently lose collection of increased rent for May and June.] So, rule number one is only raise the rent once a year, and try to keep the same anniversary date.

Second, rent increases must be preceded by written notice. For total increases under 10% of the current base rent, a thirty-day notice is sufficient. But for increases in excess of 10% (for instance, where there are a lot of banked increases), a sixty-day notice is required. The notice should state what amount is banked and the dates upon which said banking is based, and what amount represents the current annual allowable increase.

Third, NEVER ROUND UP to the nearest dollar. The increase must be calculated precisely, or round down if you want to. Rounding up can result in the vitiation of the entire increase and all future increases.

Here is a sample of a rent increase notice imposing banked increases for a tenant who began occupancy on May 1, 1999:

"Dear Tenant: Effective May 1, 2004, which is more than thirty days after service of this notice is completed upon you, your current base rent of $100.00 shall be increased as follows:

 

Banked Increase for May 2000:	2.9%
Banked Increase for May 2001:	2.8%
Banked Increase for May 2002:	2.7%
Banked increase for May 2003:	.8%
TOTAL BANKED INCREASES:	9.20%
Annual Allowable Increase for May 2004:	.6%
TOTAL INCREASE:	9.80%

RENT INCREASE EFFECTIVE 5/1/04: 9.80% x $100 = $9.80
NEW BASE RENT EFFECTIVE 5/1/04: $109.80

 

Please note that you cannot compound the banked increases. You must total the entire amount of past increases before multiplying them against the previous base rent. This is perhaps another good reason to impose increases annually and not to bank them, as yearly imposition usually yields a higher rent over time than the compounded banked rate.

In summation, make sure that your calculations are always correct, do not round up, give proper notices of the increases, do not change the anniversary date, and try to impose the increases annually rather than bank them. Always look to the official rent increase chart either in the SFAA magazine or on the Rent Board's website, and call a knowledgeable property manager or attorney if you have any questions.

Dave Wasserman