License Needed to Raise Rent

Being a rental property owner in San Francisco gets harder and harder each year. There is a new law that passed in 2020 that requires owners of residential units to get a license before they can increase the rent. This law went into effect for buildings with 10 or more units on July 1, 2022 and will go into effect for all other residential buildings on March 1, 2023 with updates required by every March 1 thereafter.

The City sent out a Notification of 2023 Rent Board Fee and Housing Inventory Requirements in November of 2022 with information on how to fulfill this requirement. Owners or their representatives can log on to portal.sfrb.org to provide the information, or mail in a paper form to do so.

The information they are asking for is how is the unit being used. Is it exclusively owner-occupied? Is it occupied by a “non-owner?” If it is owner-occupied, no other information is required.

If the unit is non-owner occupied, then they ask for the number of bedrooms and bathrooms, approximate square footage, the date the occupancy commenced or vacated, rent paid by the tenants and the utilities included in the rent. It also asks for the contact information in the event that the City needs to contact someone in regard to the building. Lastly, it asks for a business registration number for units with more than five units.

When registering the property, the site asks for the parcel number and a PIN that is included in the notice. If the notice is lost or not received, you can get another PIN by calling 311.

If an owner does not report this information to the Rent Board, there is no financial penalty involved, but then is not eligible to increase the rent. If an owner tries to increase the rent without a license, the tenant can contact to Rent Board and any increases imposed at that time will be disallowed.

So why is the City imposing this housing inventory requirement at this time? They state the reason is because the City does not have an accurate list of all the units that are subject to rent control. In doing this, it will give the Board of Supervisors more data and information to go on so that they can make better decisions on housing and rent control needs.

Also, the Rent Board shall use the information it receives to create a housing inventory that may be used for purposes of inspecting and investigating the level of housing services being provided to tenants, investigating and analyzing rents and vacancies, monitoring compliance with the rent control ordinance, generating reports and surveys, and providing assistance to landlords and tenants and other city departments as needed.

This is the first step in preparing for the vacancy tax that passed as Prop. M in the November 2022 election. Starting on Jan. 1, 2024, property owners with at least three units that have been vacant for more than 182 days will be taxed between $2,500 and $5,000 per empty unit. If the vacancies continue for longer, that penalty can increase to as much as $20,000 per empty unit. The money will go toward subsidizing affordable housing.

Single-family homes and duplexes are exempt from this vacancy tax. The Controller’s Office estimates that about 4,000 units are likely to qualify for this vacancy tax. Without a rental inventory it would be difficult for the City to know which units are vacant.

Being a rental-property owner is already difficult in this town. There was a news article this month that the largest apartment owner in San Francisco just defaulted on his loan. With rent increases limited to 60% of CPI, and expenses going up and more and more unfavorable rent control laws for the owners, it is no wonder that many investors have decided to get out of the rental property market altogether.

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email at johnlee@isellsf.com.