The renewal letter arrives and the number has jumped. Someone at work tells you California caps rent increases at 10 percent, so it is probably legal. A neighbor in the same building says her rent barely moved. Both of you are reading the same law, and one of you is reading it backwards.
Here is the rule. For covered housing, an owner may not raise rent over any 12-month period by more than 5 percent plus the percentage change in the cost of living, or 10 percent — whichever is lower (§ 1947.12). The measuring stick is the lowest gross rent charged for that unit at any point in the previous 12 months. And rent may not go up in more than two increments in that period.
Key numbers
| What | The rule | Where it comes from |
|---|---|---|
| Maximum increase over any 12-month period | 5 percent plus the change in the cost of living, or 10 percent — whichever is lower | § 1947.12(a) |
| Separate increases allowed in 12 months, same tenant | 2 | § 1947.12(a) |
| New construction exempt from the cap | 15 years from the certificate of occupancy (not mobilehomes) | § 1947.12(d) |
| Rent at the start of a brand-new tenancy | not capped | § 1947.12(b) |
"Whichever is lower" is the whole ballgame
The statute's own words:
5 percent plus the percentage change in the cost of living, or 10 percent, whichever is lower
Ten percent is a ceiling, not an entitlement. It only becomes the operative number in a year when inflation is high enough that 5 percent plus the cost-of-living change would otherwise exceed it. In an ordinary year the allowable increase is the first figure and lands well below 10 percent.
The cost-of-living component is regional and it is republished every year, so there is no single permanent percentage to memorise. What is fixed is the formula and the fact that the lower of the two always wins.
Two details in the same subdivision that get missed:
- The baseline is the lowest rent in the last 12 months, not the rent you are paying now. If your rent went down at some point in that window, the cap is measured from the lower figure.
- Discounts and concessions do not count as rent. Any discount, incentive, concession or credit the owner offered and the tenant accepted is excluded when working out that lowest gross rate, and the gross monthly rent and any such concessions have to be listed and identified separately in the lease or in an amendment. A "one month free" deal cannot quietly become a higher base to calculate next year's increase from.
Who the cap does not cover
The statute exempts several categories outright (§ 1947.12(d)):
- Deed-restricted affordable housing — units restricted by deed, by a regulatory agreement with a government agency, or by another recorded document as affordable to very low, low or moderate income households, or subject to a housing subsidy agreement.
- Dormitories owned and operated by a school or by an institution of higher education.
- Housing already under a stricter local rent control ordinance — see the next section.
- Newer construction: housing issued a certificate of occupancy within the previous 15 years, unless it is a mobilehome.
- Separately sellable homes and condominiums, but only on two conditions together.
That last one is the one people get wrong most often, so it is worth spelling out. The unit has to be alienable separate from the title to any other dwelling — broadly, a single-family house or a condo — and the owner must not be a real estate investment trust, a corporation, or a limited liability company with at least one corporate member. And the tenant has to have been given a specific written notice, whose exact wording the statute supplies, saying the property is exempt from the rent limits and from the just cause requirements. For tenancies commenced or renewed on or after July 1, 2020, that notice must be in the rental agreement.
So the single-family exemption is not automatic. An owner who never delivered the notice does not get it.
The 15-year new-construction exemption is worth a second look too. It is a rolling window measured from the certificate of occupancy, not a permanent status. A building that received its certificate in 2015 loses this exemption in 2030. If someone tells you a building is "exempt because it's new," ask what year the certificate was issued.
How city rent control fits on top
This is where San Francisco, Los Angeles, and a couple of dozen other California cities come in. The state cap does not apply to housing subject to rent or price control through a local government's valid exercise of its police power that restricts annual increases to an amount less than the state figure (§ 1947.12(d)).
Read the direction carefully, because it is the same direction that runs through all of California housing law: the state number is a ceiling on what an owner may charge, and a city is free to be stricter. Where a local ordinance caps increases below the state formula, the local ordinance governs and the state cap steps aside. A city cannot go the other way and allow more than the state permits.
What that means practically: if your unit is in a city with its own rent stabilization ordinance, the state formula above is very likely not your number. You need the local one. This post does not carry the specific San Francisco or Los Angeles figures — check your city's rent board or housing department directly.
When a tenant moves out
The cap governs increases within a tenancy, not the price of a new one. For a new tenancy in which no tenant from the prior tenancy remains in lawful possession, the owner may set the initial rent free of the cap, and the limit applies only to increases after that rate is established (§ 1947.12(b)).
The Costa-Hawkins Rental Housing Act states the same principle in broader terms: an owner of residential real property may establish the initial rental rate for a unit, subject to a list of exceptions (§ 1954.53). Those exceptions matter — they include situations where the previous tenancy was ended by the owner's own notice, and where the owner has contracted with a public entity in exchange for a financial contribution or other assistance.
One related limit: a tenant cannot get around the cap from the other side either. A tenant may not enter into a sublease producing a total rent above the allowable rate (§ 1947.12(c)).
What this does not settle
Rent rules are one of the fastest-moving areas of California housing law, and the sections quoted here are only part of the picture. Not covered above:
- Just cause eviction protections. These live in a separate section of the Civil Code (§ 1946.2) and travel alongside the rent cap but are a distinct set of rules.
- Your city's own ordinance, including which buildings it reaches and what its annual allowable increase is.
- The current cost-of-living figure for your region, which is republished annually.
- Remedies and enforcement if an increase exceeds the cap.
This is a plain-language summary of statutory text, not legal advice. If you think an increase is unlawful, your city's rent board or a local tenant counselling organisation is the right next call. The legislature's own text is at leginfo.legislature.ca.gov, and later amendments to these sections have moved through bills including the Homelessness Prevention Act (§ 1947.12, SB 567 text).
