Navigating Rent Board Rules for Property Owners

Owning property in San Francisco isn’t for the faint of heart or the thin of wallet. Between historic elevators that need specialist repairs, sky-high insurance premiums (particularly these days), and all the city-mandated upgrades (hello soft story retrofits, facade inspections, and that Commercial Vacancy Tax), the costs add up fast. And with most apartment buildings in the city under rent control, making the numbers pencil out isn’t exactly easy.

Raising the rent by the annual allowable increase (currently 1.4%) barely covers property tax hikes, let alone the rest of it. The good news? The Rent Board does allow a few additional rent increases, known as “pass-throughs.” The bad news? They’re complicated, unpopular with tenants, and come with a whole set of rules you have to follow to the letter.

Here’s a quick breakdown of the legal rent increases landlords can apply for beyond the standard 1.4%:

Investments You Can Make (Note: these must go through the Rent Board petition process)

• Capital Improvements

  • Think: new roof, upgraded windows, full building repaint, mandatory fire alarm upgrade, soft-story retrofit, etc. These are upgrades that add value, extend a building’s life, or adapt it for new uses.

• Substantial Rehabilitation (According to Kim Boyd Bermingham of Rent Board Passthroughs, this one is almost impossible to get approved)

  • This one’s for big-time projects. If you’re renovating a pre-1975 building where the units were essentially uninhabitable (and must be worked on to make them safe and habitable again), you could request an exemption from rent increase limits. Costs have to equal or exceed 75% of the cost of new construction for the same number of units (per the DBI cost schedule).

Ongoing Costs & Utility Increases

• Operating & Maintenance Expenses (up to 7% of base rent)

  • This includes property taxes, insurance, water and garbage, repairs and maintenance, as well as pest control

• Utilities

  • If you (the landlord) pay for the unit’s gas, electricity, or steam heat, you may be eligible to increase the rent to cover increases in these utility costs.

Resetting Specific Units (With Conditions)

• Special Circumstances

  • If a unit’s rent is way below market and there are unusual factors (like fraud, coercion, a previous sweetheart deal between a former landlord and the tenant, etc), landlords can apply for an increase. A Rent Board Judge decides the outcome.

• Past Rent History (Prop I from 1994)

  • If you own a 1-4 unit building, live in it yourself, and didn’t raise rents between 1989 and 1994, you may qualify for an increase now. Potential increases range from 7.2% to 15.2% depending on timing.

• Post-Vacancy (Section 1.21)

  • When a tenant moves out of a unit, the price for that unit may be increased to market rate, However, a petition must be filed with the Rent Board to confirm the tenant has vacated the unit.

So, Should You File?

That’s the million-dollar question. Yes, these pass-throughs are legal. Yes, they exist for a reason. But they’re also a lightning rod. Tenants don’t love seeing increases beyond the annual 1.4%, and sometimes the PR headache isn’t worth the extra revenue. The best approach? Make sure you’ve built a strong business case, review it with experts, get the approvals then give your tenants plenty of notice, explaining the “why” (insurance hikes, mandatory work, etc.) and providing comps so tenants know it’s fair. Also, consider forgoing the passthroughs for your tenants who are on a fixed income, or who you know to have a financial hardship.

If you're thinking about going down this road, don’t do it alone. These rules are complex, and the paperwork can be a nightmare. Talk to someone who knows the ropes and can help you weigh your options, communicate with tenants, and file everything properly.

Need help? We’ve got your back. Check out our top-tier consultants and rent board experts here:

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