What is a Just and Reasonable rent increase?

3 stories multi-family building with a concrete pathway and green landscaping

Under the City of Los Angeles Rent Stabilization Ordinance, there are rent increases that do not require approval, such as the annual rent increase or an increase for additional tenants. There are also increases that do require approval, including 

•    Capital Improvements
•    Primary Renovation
•    Rehabilitation Work 
•    Just and Reasonable (J&R) rent increases

Let’s focus on J&R rent increases. The Los Angeles J&R guidelines allow an increase in rent when a landlord's current year's Net Operating Income (NOI) is less than his/her base year's NOI adjusted for inflation. This calculation is designed to ensure that landlords receive a minimum predictable amount of income from their investment property.

For example, assume that during the base year a landlord had a $15,000 NOI with 100% inflation to the current year. If, during the current year, the landlord did not receive a NOI of at least $30,000, he or she is eligible for a J&R increase. 

Here’s how to apply.

1)    Determine your base year NOI

The base year for a J&R rent increase is 1977. If the financial information for 1977 is not available, a landlord may substitute the base year with the first year following 1977 for which records are available. 

Landlords who did not own the rental property in 1977 must use the 1977 NOI of the landlord of record in 1977. If the information is not available, a landlord may substitute the first year following 1977 for which records are available. 

If no financial records are available from a previous landlord, the current landlord is eligible to apply for a J&R rent increase only when the landlord has two complete years of operating income and expenses. The first year for which records are available is the base year and the current year is the year prior to the year in which the J&R application is filed.

2)    Calculate your NOI

Net Operating Income = Gross Total Income - Operating Expenses

Calculate your Gross Total Income (GTI) by adding income from the rental units, garage and parking, stores and offices, as well as miscellaneous income. Then, subtract your operating expenses from your GTI and the remaining income is your NOI.

Please note, mortgage payments, depreciation expenses and interest expenses are NOT eligible operating expenses for this program.

3)    Apply for a J&R rent increase

The Application for Rent Increase under Just and Reasonable Guidelines has a handy checklist to help you through the process. 

If you have questions or need help, please call our toll-free hotline at (866) 557-RENT(7368) or send us an inquiry.