On December 12, 2025, the Los Angeles City Council approved a major amendment to the Rent Stabilization Ordinance (RSO), significantly reducing the allowable rent increase formula for rent-controlled properties. The ordinance passed 12–2, with Council Members John Lee and Monica Rodriguez dissenting.

The ordinance becomes effective January 12, 2026, with the new rent increase formula taking effect July 1, 2026.

This ordinance materially reduces rent growth potential for RSO-covered properties and further tightens operating margins for owners—especially small and mid-sized multifamily investors. Lower caps, reduced CPI application, and the removal of prior add-ons limit an owner’s ability to offset rising expenses such as insurance, utilities, labor, and compliance costs.

In short, predictable rent growth just became more constrained.

What’s Changing: Key Provisions

• Temporary 3% Cap (2025–2026)
  For rent increases not previously noticed, the allowable maximum increase is 3% for the period from June 1, 2025, through June 30, 2026.
• CPI Formula Reduced to 90% (Starting July 1, 2026)
  Annual allowable rent increases will be calculated using 90% of CPI (“All Items”), down from the prior 100% of CPI.
• Lower Ceiling and Floor
  Maximum increase (“ceiling”) reduced to 4% (down from 8%)
  Minimum increase (“floor”) reduced to 1% (down from 3%)
• Utility Reimbursement Increase Eliminated
  The additional 1% increase previously allowed for owners who pay gas and/or electricity in master-metered buildings has been eliminated immediately.
• Dependent Occupant Increase Eliminated
  The prior 10% increase for additional dependent occupants has been eliminated immediately.
• Relocation Fees Still Indexed to CPI
  Beginning July 1, 2026, relocation fees will continue to increase annually, but will be calculated using 100% of CPI, not the reduced 90% formula.
• CPI Calculation Language Under Review
  Additional CPI-related language was inserted by the City Attorney’s Office and was not publicly discussed during Council meetings. While it does not take effect until July 1, 2026, industry groups are seeking clarification.

This ordinance reinforces a growing reality for Los Angeles multifamily owners: policy risk must be actively managed, not ignored.

Lower rent caps do not reduce operating costs—they compress margins. Owners who lack a clear strategy may find themselves holding underperforming assets longer than intended or selling without proper positioning.

At Lucrum, we help owners:

• Model real-world cash flow under updated RSO formulas
• Reposition assets to protect long-term value
• Time dispositions strategically before regulatory changes fully impact pricing
• Communicate policy risk clearly to buyers during the sales process

Clarity creates leverage. Strategy creates peace of mind.

Next Steps for Owners & Investors

• Review your RSO exposure and upcoming allowable increases
• Update financial projections to reflect lower rent growth assumptions
• Evaluate hold vs. sell scenarios under the new formula
• Position assets intelligently to avoid pricing surprises during a sale

Let’s Talk Strategy

RSO changes don’t just affect rent—they affect timing, valuation, and leverage.

If you own an RSO-covered property and want clarity on how this ordinance impacts your asset, schedule a confidential strategy call with Lucrum.

Visit Lucrumre.com to request a valuation and connect with our advisory team.

FAQs About the Reduced RSO Formula

When does the new RSO formula take effect?
The ordinance is effective January 12, 2026, but the new CPI-based formula applies starting July 1, 2026.

What is the new maximum annual rent increase?
Beginning July 1, 2026, the maximum allowable increase is capped at 4%, down from 8%.

Can owners still apply utility or dependent increases?
No. Both the 1% utility reimbursement increase and the 10% dependent occupant increase have been eliminated.

Does this affect relocation fees?
Yes. Relocation fees will continue to increase annually, but they will be tied to 100% of CPI, not the reduced 90% formula.

How does this impact property values?
Lower rent growth typically translates to compressed NOI growth, which can directly impact valuation—especially for stabilized RSO assets.

Official Sources: For those who wish to review the ordinance language and related materials, here are the official sources

City of Los Angeles Rent Stabilization Ordinance — Amended Rent Increase Formula

Source: AGGLA