Congratulations on your rental property purchase and welcome to the housing providing business in Los Angeles!
This article serves as a guide for rental property owners in the city of Los Angeles and its purpose is to make your job easier, more profitable and to keep you out of courts or
paying unnecessary fines.
By arming yourself with knowledge and adhering to the following suggestions, you will be more likely to avoid serious legal problems, manage your property with ease and enjoy the rewards of your investment.
For those who are under the jurisdiction of the Los Angeles Rent Stabilization Ordinance, please pay close attention to those steps as special conditions and restrictions apply to you.
STEP ONE: OBTAIN YOUR BUSINESS LICENSE (if applicable)
As a property owner, if you are renting four or more units in the city of Los Angeles, you are required to obtain a business license from the city’s Office of Finance.
The initial set up to register your business is free and may be accomplished either:
- online at www.finance.lacity.org by email or
- by bringing your application to a branch location nearest you which may be found on their web site.
If you bring your application directly to one of their offices, you will receive your certificate right away. Online submissions take six to eight weeks.
Report Your Income
Once you have completed your obligation to obtain your business license, you are then required to report your income annually between January 1st and the end of February.
Currently, taxes on rental income are at $1.27 per thousand dollars collected, however, there are small business exceptions that may apply where no tax is due.
To report your income, go to www.finance.lacity.org and obtain the Business Tax Renewal form. You may submit this form online or bring it to one of their locations before the annual deadline of the last day of February.
There is a tax exemption if:
- you file on time and
- your gross receipts are under $100,000
IMPORTANT: Failure to file the informational return by February 28th will cause the loss of the exemption, and the taxes PLUS penalties and interest will then be due.
STEP TWO: REGISTER WITH L.A. RENT STABILIZATION (LA RSO)
If your building was built and certificates of occupancy were obtained before February of 1978 and there are two or more units on the same lot, your rentals are under and will be governed by the Los Angeles Rent Stabilization Ordinance – (LA RSO). As a new owner, you must now register your units with RSO.
1. Luxury Units: Landlords may be exempt from Rent Control if the building qualifies under the Luxury Exemption and a certificate must be issued from LAHD. You will have to prove that the rent collected met minimum amounts set by LARSO on certain dates. To find out if your building qualifies for this exemption, call (213) 808-8888 or (866) 557-RENT.
2. Owner-Occupied Units: Your unit may also be exempt if you or a family member occupy the premises and no rent is collected. This exemption must be requested on a yearly basis.
STEP THREE: PAY ANNUAL REGISTRATION AND SCEP FEES
For all rent controlled buildings, two annual registration fees per unit must be paid.
- Rent Registration Dues
- Systematic Code Enforcement Fees (SCEP)
To begin this process online, go to www.lahdbill.org and:
A. Register as a new owner with the web site to log on
B. Print out the Ownership Registration
C. Send a copy of your completed application with a copy of your Grant Deed to:
Los Angeles Housing Department
Attention: Billing and Collections
P.O. Box 17280
Los Angeles, CA 90017
If you are unsure whether or not your units are subject to the L.A. Rent Control Ordinance, or for online help, you may call the RSO at 877-614-6873 and give them your Assessor’s Parcel Number (APN). They will check to see if the previous owner was properly registered and is current on the required dues.
Once you are registered as the new owner of this property, you will automatically receive annual registration and SCEP bills from the Los Angeles Housing Department, which must be paid timely each year to avoid substantial late fees.
STEP FOUR: POST RENT CONTROL NOTICE AT YOUR BUILDING
You must post a notice to the tenants advising them that your building is subject to the Los Angeles Rent Control Ordinance. The notice must be posted (in English and Spanish) in a conspicuous spot, (near the mailbox area, in the building’s lobby or on the entrance to the building). The form Notice to Tenants may be found on AOA’s website at www.aoausa.com and is titled L.A. RSO Notice to Post. It looks like this:
STEP FIVE: PASS-THROUGH REGISTRATION AND SCEP FEES TO TENANTS
A. Registration Fees
Once your building is registered, you will automatically receive an annual invoice from the RSO which is due each year by February 28.
The Los Angeles Rent Stabilization Division allows owners to pass-through one half of the required registration fees with a 30-day notice, collectible in the month of June only. That means you MUST serve the notice of the one time annual rent increase in the month of May in order to collect this annual fee from your tenants. I strongly recommend you serve the notice before or on May 1st each year to collect this fee along with the rent due on June 1st.
IMPORTANT NOTE: The notice of the one-time annual charge must be accompanied with a copy of your Rent Stabilization registration certificate to show that you paid the fees.
B. SCEP Fees
The SCEP fee per unit charge for the Housing Department’s code-enforcement inspection fee may also be passed through to your tenants. This fee, however, must be amortized over a 12 month period and is collectible at a monthly rate. As an example, using the 2013 figures, ($43.32 divided by 12 = $3.61 per month).
A 30-Day Notice of Change of Terms of Tenancy must be served to each tenant after you pay your bill before you can collect this fee. That means with proper written service of this form, you can legally raise your rents (as long as you paid your bill!), $3.61 per month. Every little bit helps! Your tenants may pay this fee all at once, however, they will not be awarded a refund should they move before the end of the year. When performing this calculation, be sure to check your bill for the actual fees paid as they do change periodically.
STEP SIX: NOTIFY TENANTS OF ANNUAL RENT INCREASES
Los Angeles Rent Control only allows an annual rent increase at a percentage established by the RSO each year in the month of July. At the end of your 12-month lease and on each anniversary after that, you may raise a tenant’s rent by that percentage with a 30 Day Notice to Change the Terms of the Tenancy – AOA Form 102A.
Should a lease expire in June, you may raise the rent each June. If you miss that date and don’t raise the rent until, say for example in September – you create a new anniversary date and can only raise the rent each September after that.
STEP SEVEN: SECURITY DEPOSIT INTEREST
A set interest rate must be paid on all security deposits for units under the jurisdiction of L.A. Rent Control. The amount, which changes annually, can be obtained from the LARSO and must be paid to tenants once a year and when the deposit is refunded at the end of tenancy. This may be done as a rent credit or by sending them a check.
Separate Bank Account for Security Deposits
Separate bank accounts for security deposits are not required, however, a landlord may
pay tenants a lower, actual rate of interest earned by providing a copy of the bank statement showing the actual interest rate earned for the year.
STEP EIGHT: RESIDENT MANAGERS
In California, buildings with 16 units or more require a resident manager to live on the premises. It is highly recommended that you have a manager agreement in writing and follow all the rules for resident manager laws regarding the recording of the hours they work each week and proper compensation with taxes deducted. For all laws concerning resident managers, go to www.aoausa.com under the magazine archive section and read Attorney Dale Alberstone’s very explicit article on these rules and regulations printed each year.
NOTE: If your building is less than 16 units and you do not have a resident manager on the premises, make sure to post an emergency phone number and contact for tenants to call.
STEP NINE: REQUIRED/RECOMMENDED FORMS FOR RENTING
1. AOA’s Application to Rent or Lease – Form 100A
2. Written Criteria List for Applicants* – Having a written criteria list for your rental applicants is pertinent in your rental business and serves several purposes. By attaching a copy of your rental criteria to each blank application form, you are informing your applicant of a list of conditions that must be met for them to be considered as a future tenant in your building.
By using this list, all applicants will know exactly what is expected to qualify renting at your building and it will also help eliminate any misunderstandings.
Some other reasons professional landlords use this list are:
- It will help you to avoid discrimination lawsuits
- Applicants who have evictions on their records or unfavorable credit will not waste your time
- Those who do not qualify financially will be dissuaded
- Applicants with criminal records will choose to apply elsewhere
- With your prospective tenant’s compliance, you will have all the information you need for proper screening procedures
*For a sample copy of a Written Criteria list, AOA members may go to the forms section of www.aoausa.com.
Along with your Rental Agreement and/or Lease, (AOA Form 101) landlords are required by law to provide the EPA booklet on lead-based paint listed below. Be sure to have your tenant’s initial receipt of the booklet in the space provided on your AOA Rental Agreement and/or Lease.
Additional optional addendums which are highly recommended follow.
- REQUIREDEPA BOOKLET: “Protect Your Family from Lead in Your Home” which may be printed from the EPA’s website at http://www.epa.gov/lead/pubs/leadpdfe.pdf or from the AOA forms at www.aoausa.com.
- Bedbug Addendum: AOA Form 148.
- Addendum to Rental Agreement for Smoke and Carbon Monoxide Detectors – AOA Form 110.
- Enter/Exit Condition of Premises Checklist – AOA Form 131
- House Rules – AOA Form 108
- Pool Rules – AOA Form 109
Service Animals or Pets
If your tenant has a service animal or you allow pets, you will also want to include one of the following applicable forms:
7. Pet Agreement – AOA Form 121
8. Service Animal Agreement – AOA Form 122
If your building is smoke-free:
9. Smoke Free Addendum to Rental Agreement / Lease – AOA Form 198
STEP NINE: EDUCATE YOURSELF
- Obtain a copy of the “Landlord-Tenant Handbook for Rental Units Subject to the L.A. Rent Stabilization Ordinance” which is provided free of charge from the City of Los Angeles Housing Department. You may call 866-557-RENT to have one mailed or pick one up at one of their offices.
- I also highly recommend every landlord own a copy of Nolo’s California Landlord’s Law Book: Rights and Responsibilities which contains essential legal information that every landlord should be equipped with. (AOA sells this book at a discounted price to all its members.)
STEP TEN: JOIN THE APARTMENT OWNERS ASSOCIATION OF CALIFORNIA, INC. (AOA)
The Apartment Owners Association of California, Inc. is the largest individually organized group of apartment owners in the country. AOA membership provides you with professional guidance, support and offers the most up-to-date tools, forms and economic benefits to assist you in becoming the most successful landlord you can be. For only $79 a year, (no cost per unit penalties) AOA provides you with:
- FREE Downloadable Rental Forms – (including one of the best California Rental Agreements) for up-to-date forms to protect you and your building
- FREE Monthly Magazine – full of money-making ideas, money-saving vendor coupons, industry news and so much more.
- FREE Seminars – Our seminars will keep you up-to-date on how to run your apartment business, saving you time, money and possible lawsuits.
- Low-Cost Group Insurance Program – Save money on all of your insurance needs!
- Low-Cost Tenant Screening – Obtaining a credit, eviction and criminal report on prospective tenants is mandatory requirement for proper management of your building. AOA’s credit reporting services are available online 24 hours a day and seven days a week. Make sure you properly screen and get the right tenant!
- FREE Consultation and Advice – When you have tenant problems, we have the answers and solutions
- FREE TRADE SHOWS – Offering seminars and vendors where you will discover how to make and keep more money than ever before
- FREE Contractor Referrals – Use contractors and vendors who are dedicated to servicing the rental property industry
- Real Estate Brokerage Division – Available to assist you in increasing your portfolio or to provide you with a FREE, current market evaluation for the purpose of listing your property for sale with AOA
- FREE Attorney Referrals – As an AOA member, you may call and speak with attorneys or get your questions answered online
- Debt Reporting – If your tenant skipped out owing you rent, we can help you collect that debt!
- SIX LOCATIONS – available to serve you face-to-face
- DISCOUNT on multiple years of membership – two years for $137, three years for $197
- Money-Back Guarantee – We’re so sure that you will find your AOA Membership invaluable that if anytime during your first year of membership you are not completely satisfied, AOA will return 100% of your membership dues.
Important Phone Numbers
- Apartment Owners Association of California, Inc. (AOA) – 800-827-4262
- Los Angeles Rent Stabilization Board – 866-557-RENT – (7368)
- L.A. City Office of Finance – (213) 473-5907
- L.A. Systematic Code Enforcement Program – (213) 808-8888
Patricia A. Harris is Senior Editor of the Apartment Owners News & Buyers Guide. Copyright March 2013. This article is a general guide and has no legal representation. It is suggested that you contact an attorney for legal advice should the need present itself.