I recently gave a tenant notice of an upcoming rent increase. He verbally told me that he has no intention of paying the new amount. What should I do?
Service of rent increase notices can create tension. Oftentimes, tenants are unaware that your operating costs continue to rise. In recessions, when people have lost their jobs or suffered salary reductions, there is a tendency to become defensive when a lawful rent increase is imposed. The popular view is that landlords are greedy profiteers, and most tenants are simply oblivious to the major expenses involved in operating a multi-family building in an expensive place like San Francisco.
When the tenant objects to a rent increase, you should immediately ensure that the increase is proper. Specifically, go back and check the entire rent increase history from the inception of the tenancy. Under the rent law, if there was an erroneous increase imposed at any time during the tenancy, the chain becomes poisoned, meaning all subsequent increases are improper. The tenant could then defeat your ability to collect the increased rent by filing a petition with the Rent Board or, if you seek to evict for nonpayment of rent, showing the Court that the rent being charged is unlawful, which will then result in judgment being entered against you. In addition, make sure that notice was properly served, and that the new rent becomes effective at least thirty days after service of the rent increase letter (or sixty days for increases over 10%).
If the current and the noticed increased rent are both lawful, respond to the tenant in writing that the rental increase will be enforced. You should be polite but firm. Make it clear that the increase is valid, and that failure to pay it may cause the tenancy to be terminated.
Lastly, you cannot take preemptory legal action against the tenant. This means that you must wait until the tenant fails to pay the increased rental amount before you can issue a three-day notice to pay rent or quit. There is a debate amongst legal practitioners about whether or not you should accept the lower rent when the new rent is due and simply issue a three-day notice for the difference, or return the lower rent payment and three-day the tenant for the entire rent due. Your attorney can assist you as to what strategic choice is appropriate under the circumstances. Yet at the end of the day, when the rent increase becomes effective and the tenant ignores the adjustment, your remedy is to demand the new rent by way of a three-day notice to pay rent or quit. Hopefully, you can resolve any adverse situation with the tenant prior to initiation of legal action.
Finally, except for certain types of rent increase (like the establishment of new base rent under the Costa Hawkins Rental Housing Act when the last original tenant vacates), you have the ability to defer, or bank, rental increases. If the tenant is experiencing economic hardship and is otherwise a good tenant, and your bottom line is not in jeopardy, you can consider banking the increase by adding it to future increases later on. Remember, being a landlord is operating a business, and you want to keep good customers happy.