California’s statewide rent cap just went up. For increases that take effect between August 1, 2026 and July 31, 2027, landlords in Orange County and LA County can raise rent on covered units by up to 8.7% over any 12-month period, up from 8.0% last year.
If you’re buying a property to add an ADU, here’s the part that matters more: a newly built ADU is likely exempt from that cap for 15 years. That changes how you should underwrite the unit, how you price a renewal, and what a future buyer pays for the property.
Below are the rules, the exceptions, and a 5-year rent comparison on a $2,800 ADU.
How the 8.7% cap is calculated
The Tenant Protection Act of 2019 (AB 1482) is codified at California Civil Code 1947.12. It limits increases over any 12-month period to 5% plus the percentage change in the cost of living, or 10%, whichever is lower. The cost-of-living figure is the April-to-April change in the regional CPI.
| Base | 5.0% |
| LA–Long Beach–Anaheim CPI-U, April 2025 to April 2026 | 3.7% |
| Cap for increases effective Aug 1, 2026 – Jul 31, 2027 | 8.7% |
| Prior year (Aug 1, 2025 – Jul 31, 2026) | 8.0% |
The 3.7% comes from the Bureau of Labor Statistics CPI release for the Los Angeles area, and the California Attorney General’s rent cap chart lists 8.7% for Los Angeles and Orange County. One detail trips people up: the date the increase takes effect controls, not the date you served the notice. An increase effective July 31, 2026 used the 8.0% cap. One effective August 1 or later uses 8.7%.
Why a new ADU is likely exempt
Civil Code 1947.12 exempts “housing that has been issued a certificate of occupancy within the previous 15 years.” The statewide just-cause eviction law, Civil Code 1946.2, has the same 15-year exemption. It is a rolling window, so it runs from the date of your unit’s certificate of occupancy, not from the date the law passed.
- ADU finaled in 2026: exempt from the statewide cap and statewide just cause until 2041.
- ADU you buy that was finaled in 2015: the exemption runs out in 2030.
- The main house on the same lot: it keeps its own age. A 1960s house is not exempt under the 15-year rule just because you added a new ADU behind it.
Because the ADU usually gets its own final and certificate of occupancy, sometimes even before work on the main home is done (see when an OC ADU can get its certificate of occupancy first), keep a copy of that document. It is your proof of the exemption date.
The other exemptions, and where ADUs get tricky
| Exemption | Rent cap (1947.12) | Just cause (1946.2) | ADU note |
|---|---|---|---|
| Certificate of occupancy within past 15 years | Exempt | Exempt | The main path for a new ADU |
| Single-family home or condo not owned by a corporation or REIT, with the required written notice | Exempt | Exempt | Requires property “alienable separate from the title to any other dwelling unit.” Once a lot has a house and an ADU, this may not fit. Ask an attorney. |
| Owner-occupied duplex (two units in one structure) | Exempt | Exempt | The rent cap version excludes properties where either unit is an ADU or JADU |
| Owner lives on site and rents no more than two units or bedrooms, including an ADU or JADU | No such exemption | Exempt | Covers just cause only, not rent increases |
The takeaway: if you’re relying on the single-family exemption for an older house with an ADU, don’t assume it still applies. The 15-year rule is the cleanest exemption for the ADU itself. Garage conversions are another gray area. Most get a new certificate of occupancy for the unit, but if yours was handled as a permit final on an existing structure, talk to a landlord-tenant attorney before you rely on the exemption.
Where local rent control is different
Most Orange County cities, including Anaheim, Irvine, Huntington Beach and Garden Grove, follow the state cap. A few jurisdictions have their own rules:
| Jurisdiction | Allowable increase | Period | Who it generally covers |
|---|---|---|---|
| Most of OC and LA County (state law) | 8.7% | Aug 1, 2026 – Jul 31, 2027 | Most rentals over 15 years old |
| Santa Ana | 2.87%, one increase per 12 months, rental registry | Sep 1, 2026 – Aug 31, 2027 | Covered units under the city ordinance |
| City of Los Angeles RSO | 3% | Jul 1, 2026 – Jun 30, 2027 | Buildings first built on or before Oct 1, 1978 |
| Unincorporated LA County | 1.919% for most fully covered units | Through Jun 30, 2027 | Covered units in unincorporated areas |
Sources: City of Santa Ana Rent Stabilization, the LAHD RSO bulletin, and LA County DCBA. I covered the Santa Ana numbers in detail in Santa Ana’s rent cap is now 2.87%.
Here’s why this matters for a new ADU. State law (Costa-Hawkins) generally prevents local rent limits on units with a certificate of occupancy issued after February 1, 1995, which the Attorney General’s guidance also notes. The City of LA is the case to watch. According to LAHD’s ADU guidance, a detached ADU on a pre-1978 single-family lot is generally not under the RSO, but it is covered by the city’s Just Cause Ordinance. Converting existing habitable space into an ADU can put both units under the RSO. If you’re adding a unit to an older property in Santa Ana or the City of LA, get a written coverage answer from the city before you underwrite it.
The investor math: $2,800 ADU, 5 years
Market rent, not the cap, limits most increases. Few tenants will accept 8.7% a year when comparable units are rising 3% to 4%. So the useful comparison is two scenarios. Market rent starts at $2,800 and grows 3.5% a year in both.
Scenario A: the lease starts at market ($2,800)
| Rule set | Year 1 | Year 5 rent | 5-year rent collected |
|---|---|---|---|
| Exempt new ADU (tracks market) | $2,800 | $3,213 | $180,179 |
| State cap, 8.7% max | $2,800 | $3,213 | $180,179 |
| 3% per year (similar to LA RSO) | $2,800 | $3,151 | $178,387 |
| 2.87% per year (similar to Santa Ana) | $2,800 | $3,136 | $177,924 |
| 1.919% per year (similar to LA County) | $2,800 | $3,021 | $174,573 |
When you start at market, the difference is small: about $1,800 to $5,600 over five years. The 8.7% state cap doesn’t bind at all.
Scenario B: the lease starts below market ($2,500)
This is where the exemption earns its keep. Maybe you leased fast to fill the unit, kept a great tenant at an old rate, or bought a property with a below-market lease in place.
| Rule set | Year 2 rent | Year 5 rent | 5-year rent collected | vs. exempt |
|---|---|---|---|---|
| Exempt new ADU (back to market at renewal) | $2,898 | $3,213 | $176,579 | – |
| State cap, 8.7% max | $2,718 | $3,213 | $173,867 | −$2,712 |
| 3% per year | $2,575 | $2,814 | $159,274 | −$17,305 |
| 2.87% per year | $2,572 | $2,800 | $158,861 | −$17,718 |
| 1.919% per year | $2,548 | $2,697 | $155,869 | −$20,710 |
Under a 2.87% local cap, the unit never catches up. By year 5 it rents for about $413 a month below market. That’s roughly $4,956 a year of lost income. If a buyer values that income at a 5.5% cap rate, it’s about $90,000 of value the exempt unit keeps and the capped unit doesn’t.
One rule still applies to exempt units: an increase of more than 10% in a 12-month period requires 90 days’ written notice in California. The $2,500 to $2,898 jump above is about 16%, so plan the notice early.
How the exemption helps your underwriting
- You can underwrite to market, not to a formula. Use real comps for your city. See what ADUs rent for in Orange County by square footage, Garden Grove, Buena Park and Torrance.
- Mistakes are fixable. A lease signed $300 low can be reset at renewal instead of following you for a decade.
- More exit options. Without statewide just cause, ending a tenancy at lease end is simpler, which matters if you want to sell vacant or move family in. Local rules like LA’s Just Cause Ordinance can still apply. Read how to legally end a tenancy in 2026 before you serve anything.
- Know the clock when you buy. On a property with an existing ADU, check the certificate of occupancy date and the current lease. A 2014 ADU has only a few exempt years left. Here’s what to check when buying a tenant-occupied property.
Two cautions. First, AB 1482 is set to sunset on January 1, 2030, and the legislature could extend it or change the exemptions. Don’t build a 15-year model that depends on today’s text staying the same. Second, the exemption doesn’t remove fair housing law, habitability duties, notice rules, or local ordinances.
The bottom line
The 2026–27 cap for Orange County and LA County is 8.7%, but a newly built ADU with a recent certificate of occupancy is generally exempt from it, and from statewide just cause, for 15 years. When your lease is at market, the exemption is worth a few thousand dollars over five years. When it isn’t, it can be worth $17,000 or more in rent and meaningful resale value. Check local rules in Santa Ana, the City of LA and unincorporated LA County, and get legal advice on garage conversions and older houses with ADUs.
Click Here to Book ADU Consult if you are looking to explore your investment property search
If you’re shopping for a property where you can add a new ADU in Orange County or LA County and want the rent and exemption math run on a specific address, call Dylan Serna, ADU Realtor at 714-860-2868.
Dylan Serna | The ADU Realtor | eXp Realty | DRE #02217359
This post is general information, not legal or tax advice. Rent control and just-cause rules change and depend on your property’s specific facts, permits and location. Rent figures and growth rates are illustrative. Talk to a California landlord-tenant attorney before setting or raising rent or ending a tenancy.
