Most Oakland landlords and property managers assume that they can only increase the rent at rent-controlled units by a specific percentage each month. Typically, that’s true. For a unit covered under the Oakland Rent Control ordinance where the original occupant still lives in the unit, a landlord may only increase the rent by the annual percent change in the Bay Area Consumer Price Index (CPI).
But what many landlords (or Oakland property managers acting on their behalf) don’t realize is that the local rent control ordinance outlines a number of reasons when a landlord may actually increase rents by more than the annual CPI increase.
In addition to allowable rent increases, landlords can also factor in other expenses that, with permission from the Rent Control Board, allow them to increase rents above the annual CPI limit. Those reasons include:
Banked Rent Increase
Landlords are allowed to increase rents by the annual CPI limit each year, but there are some Oakland landlords and property managers who for whatever reason decide not to do so. In exchange, the local law allows Oakland rental property owners to “bank” those rental increases each year to be applied at a later date. When a landlord decides to apply those banked rent increases, he has grounds to increase the rent above the annual CPI limit in any given year.
Capital Improvement Increase
To a limited extent, a landlord can pass the costs of capital improvements on to tenants. According to the Oakland Rent Control ordinance, capital improvements are defined as improvements that materially add to the value of the property and appreciably prolong its useful life or adapt it to new building codes. The improvements must primarily benefit the tenant and not the owner. Capital improvement costs do not include costs associated with serious code violations, repairs needed due to deferred maintenance, or improvements that are of greater character or quality than existing improvements (which the legislation calls “gold-plating” or “over-improving). Landlords may pass up to 70% of actual costs, plus imputed financing, through to tenants.
Increased Housing Service Costs
This is essentially another way of telling Oakland landlords that they can pass increased operating expenses on to tenants. The Oakland Rent Control ordinance considers “housing services” as any services provided by the owner related to the use or occupancy of a rent-controlled unit, including insurance, repairs, maintenance, painting, utilities, heat, water, elevator service, laundry facilities, janitorial service, refuse removal, furnishings, parking, security services and employee services.
Uninsured Repair Costs
If a landlord has damage to his property that is not covered by his insurance policy, he or his Oakland property manager may be able to pass those uninsured repair costs (casualty losses) onto tenants by increasing rents above the annual CPI amount.
Constitutional Fair Return
This is one of the vaguest areas of Oakland’s rent control law. The ordinance says that rental property owners are entitled to a “fair return”. Although the rent control law states that no series of increases in any five-year period can exceed 30% for any rent increases based on the CPI rent adjustment, it provides landlords with an exception if they are not otherwise able to realize a “fair return” on their investment.
Although Oakland landlords may be able to increase rents above the annual CPI rent increase for these reasons, the ordinance provides a system of checks and balances to keep landlords honest. A landlord must provide written notice to tenants about the rent increase. That notice is required to state how much of the rent increase is allowable as tied to the CPI index, and must justify the cause for any increase in excess of that. If tenants feel the rent increase is above the CPI amount is not reasonable, the can file a petition with the Rent Control Board. In that circumstance, a landlord must provide a written summary of the justification for a rent increase for any rent increase other than the one solely based on the CPI rent adjustment.
If a landlord or Oakland property manager acting on his behalf made a capital improvement rent increase, eh must include a written statement that describes (a) the type of capital improvements; (b) the total cost of the capital improvements; (c) the completion date of the capital improvements; (d) the among of the rent increase from the capital improvements; and (e) the start and end of the amortization period. If a landlord fails to provide this information, the additional rent increase is considered void and the tenant is not obligated to pay anything above the annual CPI increase.
In short, it’s important for Oakland landlords, property managers and real estate investors to understand that they can typically only increase rents at covered units by a certain amount—but that’s not always the case. Some argue that rent control dis-incentivizes landlords from investing in their rental property; this overview is intended to show that’s not the case. Rental property owners can (and should!) properly maintain, manage, operate and improve their rental properties. There are many ways to pass those costs onto tenants, contrary to popular belief.