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How To Calculate Rent Increases

by The SF Rent Board

Owners need to understand how to properly calculate rent increases because incorrect ones can result in very costly errors. This article, though not a comprehensive review, offers some examples of several different scenarios for giving rent increases.Usingthedefinitionsandthe rules that follow, one should be able to determine how to properly calculate a rent increase. If you have any questions about this article, please speak with a counselor by calling 252-4602.

Definitions:

Anniversary Date: the date on which the tenant’s current rent became effective. This is the date that the tenant either (a) moved in and there has been no rent increase given since the tenant moved in or (b) the date of the last rent increase. Note that the owner can change or shift the anniversary date provided that it has been at least 12 months since the last allowable increase (see Examples 1 and 4 below for shiftinganniversarydates).Anniversary dates for Proposition I (passed in 1994) unitsarecalculateddifferently(see Examples 6, 7 and 8 below for more information on Proposition I units).

Banked Increases: all or a portion of past annual allowable increases that have not been imposed can be accumulated or “banked” for imposition on or after a later anniversary date. When no increase is imposed on the tenant’s anniversary date, that increase is considered banked when it has been at least 24 full months from the last annual increase or initial occupancy. When a portion of an annual allowable increase has been imposed on the tenant’s anniversary date, the remaining portion is banked and may be imposed after 12 full months have elapsed (see Examples 2, 3, 4 and 5 below for different scenarios of banked increases).

Rules For Giving Rent Increases:

Owners must give the notice of increase in writing at least 30 days prior to the effective date (60-day notice for increases where the total amount is 10% or more).
Rent increases cannot be “rounded up” to the nearest dollar.
Rent increases can only be given after 12 or more months have elapsed from the date of the rental agreement or the date of the last rent increase. (The only exception to this is an “Operating and Maintenance” expense increase and it must coincide with the anniversary date.)
Anniversary dates can be changed as long as it has been at least 12 months since the last annual increase took effect.
When giving an annual increase, and it has been more than one year but less than two years since the last increase was given, the new increase is not considered a banked increase and an owner is only entitled to the annual increase amount in effect at the time the notice of rent increase takes effect. An increase is considered banked only if at least a full 24 months has elapsed since the last increase was given or the initial rent was set.
The amount of the annual allowable increase changes every March 1. If an annual increase is imposed, the amount in effect at the time the increase takes effect is the increase amount that can be imposed. For example, if the anniversary date was prior to March 1st and the allowable amount then was higher, and the owner gives the increase after March 1, then s/he is only entitled to the lower amount in effect as of March 1. Likewise, if the amount in effect goes up after March 1, the landlord is entitled to impose the higher amount.

Rules and Regulations Section 4.12(b) requires that: (a) any rent increase notice explains the portions of the increase attributable to banking and (b) the dates upon which said banking is based. Failure to provide this information in the notice will not make the increase null and void, however

Example 1 - Shifting Anniversary Dates

Facts: The tenant moved in on February 1, 1994. The permitted increases since then were:

March 1, 1994 through February 28, 1995 was 1.3%.
March 1, 1995 through February 28, 1996 was 1.1%.

The landlord forgot to give a notice of rent increase in time for February 1, 1995, the tenant’s anniversary date, and instead gave a 30-day notice on March 1, 1995 to impose a 1.3% increase as of April 1. Is this increase amount correct?

No, the correct amount is 1.1%. The landlord did not bank the higher amount, because the banking provisions of Rules and Regulations Section 4.12 state that 12 months must have elapsed from the time of the rent increase before an increase is banked. In this case, only two months have elapsed since the increase could have been given (February 1, 1995). For banking to be applicable, the next increase could not be given until February 1996, or 24 months since the last increase or, as in this case, since the tenant moved in. Because the owner did not wait, s/he could only give a notice for a 1.1% increase because an owner can only impose the annual allowable amount in effect on the date of the rent increase. This is the most common mistake that owners make. By shifting the anniversary date to April 1, 1995, four things have happened:

The owner has lost the right to the 1.3% amount;
The owner lost the increase for the months of February and March;
The anniversary date for future increases has now been shifted from February to April; and
The owner cannot bank the 1.3% increase.

See the following example as to how the owner could have banked the 1.3%

Example 2 - Giving a Banked Increase of oneYear and Retaining the Same Anniversary Date

Using the above example how could the owner preserve the right to both the 1.1% increase and the 1.3% and not lose the increase for February and March? As shown in Example 1, a landlord cannot pro-rate for the months that have elapsed since an increase could have been given. The owner must wait a full 12 months (until February 1996) in order for banking to become available. In Example 1, the landlord could have banked the 1.3% from February 1, 1995, by waiting until February 1, 1996, at which time the owner could have imposed a 2.4% increase (1.3% banked from 1995 plus 1.1% from 1996). Banking an increase as done in this example will keep the same month (Feb.) as the anniversary date, which simplifies the calculations and helps prevent costly repayments due to errors.

Example 3 - Banked Increases for Multiple Years with Same Anniversary Date

Facts: The tenant moved into the unit in June 1987 at a base rent of $1,000. The base rent is now $1,040 per month (there was an increase of 4% given in 1989). The owner has banked increases totaling 21.3%, which are calculated as follows:

4% for 1988;
4% for 1990 (the landlord already gave 4% for 1989);
4% for 1991;
4% for 1992;
1.9% for 1993;
1.3% for 1994;
1.1% for 1995; and
1% for 1996 21.3% -Total Banked Increases +1.8% 1997 Annual Allowable Increase
23.1 % -Total Possible Increase as of June 1997

It is now April 1997 and the owner has given a rent increase notice to take effect in June 1997. How much of a rent increase is the owner entitled to as of June 1997?

As you can see, the owner is entitled to a banked increase amount of 21.3%. The owner is also entitled to a 1.8% increase for 1997, bringing the total allowable amount to a straight (not compounded) 23.1%. To arrive at the dollar amount of the new rent, simply multiply 23.1% (.231) times the base rent of $1,040, for an allowable increase of $240.24. This would bring the new base rent to $1,280.24.

Note: The 1.6% increase for the period from December 8, 1992, through February 28, 1993, is not included here because the anniversary date in this example did not fall during this period. It is not an extra increase. Do not use this amount in any calculation of banked increases unless the anniversary date occurs during this period. Remember: you cannot compound the increases—you must total the entire banked amount first before multiplying. Also, do not round up—it is not permitted

Example 4 - Banked Increases for Multiple Years with Shifting Anniversary Date

Facts: they are basically the same as in ExampleNo.3,withoneexceptionas noted below. The tenant moved into the unit in June 1987, at a rent of $1,000 per month. There has only been one 4% increase in June 1989, bringing the base rent to $1,040. However, in this example, the owner decided to impose the banked and annual increases in December 1996. The increase permitted in December 1996 is 1%.
Current base rent of $1,040. The owner has banked increases totaling 20.3%, calculated as follows:

<4% for 1988;
4% for 1990 (the landlord already gave 4% for 1989);
4% for 1991;
4% for 1992;
1.9% for 1993;
1.3% for 1994; and
1.1% for 1995
20.3% - Total Banked Increase
+1% 1996 Annual Allowable Increase
21.3% Total Possible Increase as of December 1996

How much of a rent increase is the owner entitled to as of December 1996?
A new monthly rent of $1,261.52 (21.3% X $1,040) could be imposed which includes a 20.3% banked amount plus the current annual allowable amount of 1%. In this example, the owner has: (a) lost the rent increase for the months from June 1996 (anniversary date) through November 1996 because the anniversary date was shifted to December; and (b) has shifted the new anniversary date for the next possible increase to December 1997.

Example 5 - Calculating a Partial Banked Increase

Facts: Using the facts as in Example 3, there is a current base rent of $1,040 per month and the owner has banked increases totaling 21.3%, which is calculated as follows:

4% for 1988;
4% for 1990 (the landlord already gave 4% for 1989);
4% for 1991;
4% for 1992;
1.9% for 1993;
1.3% for 1994;
1.1% for 1995; and
1% for 1996
21.3% - Total Banked Increases +1.8% 1997 Annual Allowable Increase
23.1 % - Total Possible Increase as of June 1997

Using the same figures from Example 3, the owner wants to impose 10% of the total increase amount and reserve the balance for future years. What is the increase amount?

Banked amounts do not have to be used all at the same time; and there is no limit on the amount that can be accumulated or time limitation on when these amounts must be imposed (an owner does not use it or lose it). The owner decided to give only 10% of the banked increase calculated on the base rent of $1,040, or $104 per month. This would leave a banked remainder of 13.1% that could be imposed in part or in full on future anniversary dates. Note that 1997’s 1.8% allowable increase will become a banked amount as of June 1998. Because it is easier to calculate, we recommend that any banked increase be based on a percentage amount rather than a dollar amount. However, it is possible to impose a dollar amount. For example, if the owner in the above example wanted to give a $150 increase, that would equal 15% ($150 divided by $1,000), leaving 8.1% banked. We recommend that any amounts remaining for possible imposition in the future also be enumerated in the notice of rent increase. This puts the tenant on notice and also serves as a record of what was given and/or left over in the prior year.

Proposition I Increases
1994’sProposition I repealed owner occupiedexemptionsfromtheRent Ordinance for buildings of four units or less and became effective on December 22, 1994.

Proposition I Definitions:
Proposition I Affected Unit: a Newly Covered Unit (one that became subject to the Rent Ordinance on December 22, 1994 as a result of the passage of Proposition I [see Rules Section 1.15]), as well as a unit that would have been subject to the Rent Ordinance on December 22, 1994, regardless of the passage of Proposition I (See Rules Section 1.16).

Proposition I Anniversary Date:
the date that the tenancy began or the date of the last lawful rent increase that was imposed on or before May 1, 1994, which- ever occurred later. This means that if there was a rent increase during the “Transition Period” (May 1, 1994 through December 21, 1994) which is null and void pursuant to the “rollback” provisions of Proposition I, one looks to the last lawful increase that was given prior to that time for purposes of determining when an annual allowable increase could have first been given (even if the last rent increase took effect during the period prior to Rent Board jurisdiction).

Example 6 - Rent Increases Given During the Transition Period, May 1, 1994-December 22, 1994

Facts: The tenant moved in on June 1, 1993, at a rent of $500. The owner gave a rent increase of $25 on Aug. 1, 1994, for a new rent of $525. What is the correct rent?

In this example, the correct rent is $500. The increase was given during the “Transition Period” and is incorrect and the base rent reverts to $500, with the $25 overcharge being owed to the tenant for the months that it was paid. In this example, the first allowable increase date would be December 22, 1994. A 1.3% increase could have been given to take effect on or after that date. Had the owner in this case given the notice to be effective after March 1, 1995, then the owner would have been entitled to the new amount that is determined each March—in this case, 1.1%. Remember,youmustgivetheannual increase amount in effect at the time the notice takes effect. In this example, there would be no banked amount due the owner. See Example 8 for Banked Increases under Proposition I.

Example 7 - Rent Increases Given Prior to the Transition Period, May 1, 1994 - December 21, 1999

Facts: The tenant moved in on April 1, 1993.Therent was $1,000. On April 1, 1994, the rent was increased to $1,150. What is the correct rent? What rent increase can be given next and when?

As of April 1994 the new rent of $1,150 is legal since it was imposed prior to May 1, 1994, the transition period. The next possible rent increase would be 12 months later in April 1995 when the annual increase amount was 1.1%. Generally, any increase that took effect prior to May 1, 1994 is permissible.

Example 8 - Banked Increases Under Proposition I

Proposition I landlords are not entitled to banked increases for the period of time before they came under Rent Board jurisdiction. For Newly Covered Units or Proposition I Affected Units where there had not been a rent increase for at least a year prior to December 22, 1994, the first rent increase amount the landlord is allowed is the 1.3% that was in effect on December 22, 1994. This amount became banked on December 22, 1995, if no rent increases were imposed between December 22, 1994, and December 22, 1995.

Facts: The tenant moved in on August 1, 1992, at a rent of $1,000. The owner wishes to give an increase to be effective in June 1997. There have been no intervening increases since the tenant moved in. Base rent-$1,000.

1.3% for December 22,1994(banked increase) - This amount is the first allowable increase since there had been no increase for at least the 12 previous months, hence this is the anniversary date for this unit:

1.1% for Dec. 22, 1995 (banked increase)
1.8% for June 1, 1997
4.2% - Total Possible Increase as of June 1997

How was the 4.2% amount arrived at? December 22, 1994, becomes the anniversary date for this unit because no rent increase was given in the 12 months prior to the Proposition I effective date of December 22, 1994. Note that there is no banking for theDecember22,1996annualincrease amount in effect (1.0%) since the owner skipped the anniversary date of December 22, 1996 and gave an annual increase in June 1997, which is less than 12 months from the date that an annual rent increase could have been given [Section 4.12 of the Rules and Regulations]. The owner shifted the anniversary date for increases from December to June and lost the increase amount for this period. The annual increase in effect is 1.8% on June 1, 1997.

Rent Increases Permitted Based on the Past Rent History of Proposition I

Affected Units
The Commission established a procedure for larger increases for Proposition I owners if there was a long period without increases prior to the imposition of Proposition I. However, these amounts must be petitioned for on the Landlord Proposition I petition form. Owners who did not give any increases between May 2, 1989, and May 1, 1994, could be entitled to as much as 15.2%. Please refer to Menu #92 in the Info to Go line at 252-4600 for more information. For a fax version of Menu #92, call 252-4660, enter #192 and your fax number and it will be sent immediately.

For more information on banked increases, refer to Ordinance Section 37.3(a)(2), the Rules and Regulations Section 4.12 and Menu Item #13 on the Info to Go 24-hour line at 252-4600. Copies of these sections and scripts are available via the “Fax Facts System”. Please Dial 252-4660 and enter document numbers 113, 203 and 244.