The 10% Rule Most LA Landlords Get Wrong — And the Bill That Would Widen It

Sep 14

Los Angeles rent caps for rental property

There's a rule on the books in California that a lot of rental property owners either don't know about or think expired a while ago. It didn't. And right now there's a bill sitting on the Governor's desk that would make it apply to a lot more people. Let me walk through it, because this one has more teeth than most.

First, what the rule actually is

California Penal Code Section 396 is the state's price-gouging law. Once a state of emergency is declared, it becomes illegal to raise the price of certain goods and services — including rental housing — by more than 10 percent.

Read that again: Penal Code. Not the Civil Code, where most landlord-tenant law lives. This is a criminal statute. A violation can be charged as a misdemeanor, with penalties up to a year in county jail, a fine of up to $10,000, or both. That's the part that surprises people. Most rent regulation in California comes with civil consequences — you owe money back, you face a penalty, you get sued. This one can come with a prosecutor.

Who it covers today

Under current law, the emergency rent cap applies to rental housing "with an initial lease term of no longer than one year. " So month-to-month tenancies and standard 12-month leases are in. Longer-term leases have generally been outside it. That's the carve-out, and that's what's about to change.

What SB 1365 would do

SB 1365, authored by Senator Ben Allen out of Santa Monica, deletes the one-year limit entirely. If it becomes law, the 10 percent emergency cap applies to rental housing regardless of the initial lease term. The bill cleared the Senate 27-10 on August 31 — the last night of the legislative session — and is now enrolled and on the Governor's desk. He has until September 30 to sign or veto it. If he signs, the standard effective date is January 1, 2027.

The bill also tightens up how an owner can justify going above the 10 percent cap after making repairs or improvements. Under SB 1365, you'd need to show that either:

The tenant contractually agreed to the increase before the emergency declaration, or
The increase is directly attributable to costs for repairs or additions beyond normal maintenance, incurred within the year before the declaration — and the unit was rented, advertised for rent, or offered for rent when those costs were incurred (or you can prove you intended to offer it for rent within six months of the work).

One thing worth being clear about: if a long-term lease was signed before the emergency declaration, the scheduled increases written into that lease still apply. The cap isn't retroactively rewriting existing contracts.

Why this matters more in LA than almost anywhere else

Here's the practical problem. The 10 percent cap isn't triggered by a specific event — it's triggered by a declaration. And Los Angeles County lives under emergency declarations a lot. Wildfires. Windstorms. Floods. Public health. Some of these declarations stretch on for months after the actual event is over, and a lot of them get extended.

So the question isn't really "would I raise rent 15 percent right after a fire?" Most owners wouldn't and don't. The question is: do you know, on any given day, whether an active emergency declaration covers your property?

After January 2025, a lot of LA owners found out the hard way that they didn't. The Palisades and Eaton fires put price-gouging enforcement on the front page, and the Attorney General's office was not subtle about it. Plenty of owners who had no intention of gouging anyone got caught in the wash simply because they weren't tracking which declarations were active.

Expanding the rule to every lease length doesn't change anyone's intentions. It changes how many people can get it wrong.

What I'd actually do about it

If you own or manage rental property in LA, here's my honest advice, and it's not complicated:

Know your declarations. Before any rent increase, check whether a state or local emergency declaration is active for your area. This should be a standing step in your process, not something you think about after a disaster.

Document your improvement costs contemporaneously. If you ever need to justify going above the cap, the standard under SB 1365 is specific: beyond normal maintenance, incurred within the prior year, on a unit that was rented or offered for rent. Receipts and dates after the fact are a much weaker position than a file you built as you went.

Look at your long-term leases now. If you've got tenants on multi-year leases with scheduled escalations, understand that leases signed before a declaration are protected — but leases you sign going forward would be inside the new rule.

Don't rely on memory for this one. I say this gently: the consequences here are criminal, not just civil. That's a different category of risk than being off by a point on an AB 1482 calculation.

Where this lands

The California Apartment Association and a coalition of business and housing groups opposed SB 1365. Their argument was essentially that Section 396 was built to stop opportunistic, sudden increases right after a disaster — and that stretching it into a general pricing rule adds another compliance layer on top of AB 1482, local rent control, and the existing emergency rules, without closing a clearly identified gap. Given that a violation is a misdemeanor, the risk of an inadvertent mistake carries real weight.

The counter-argument is straightforward too: a cap that only reaches one-year leases is a cap with an obvious workaround, and the people it's designed to protect don't experience a disaster differently based on their lease term.

Reasonable people land in different places on that. What isn't in dispute is the timeline — the Governor decides by September 30, and if he signs, you've got until January 1 to get your process right.

I'll be watching. If you own rentals in LA and want to talk through what this means for your specific situation, reach out.

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Sources:

SB 1365 bill text — California Legislative Information

California Apartment Association — Emergency rent-cap expansion now on the governor's desk