A New Loophole in Rent Caps? What AB 1157 Really Means for Landlords and Investors

In 2025, California passed Assembly Bill 1157 (AB 1157), widely hailed as a major victory for tenants — stronger protections, stricter rent increase limits, and expanded coverage to single-family homes.
At first glance, it seems landlords have finally lost their edge.

But that's not the full story.
In reality, this law leaves a major opening for landlords to retain their advantage — especially during turnover.

AB 1157 Does Not Limit the Starting Rent for New Leases

While AB 1157 imposes a strict cap on annual rent increases for existing leases (2% + CPI, with a maximum of 5%),
it does not regulate how much landlords can charge when signing a new lease with a new tenant.
In other words:

Once a tenant moves out, the landlord can set a brand-new rental rate at market price — and often significantly higher.

This means:

• Current tenants are protected, but once they leave, rents can easily jump 20%, 30%, or more.

• Landlords and investors are incentivized to encourage turnover or create "natural" tenant movement to reset rent prices.

• Over time, this could fuel a long-term upward trend in market rents, especially in high-demand areas.

However, it’s important to note that landlords cannot easily terminate an existing lease at will.
Under the "Just Cause Ordinance," tenants have strong rights to remain unless specific legal reasons for eviction are met,
limiting landlords' ability to force turnover proactively.

A Rent Ceiling? It’s More Like a Rent Elevator

At first glance, AB 1157 seems like a hard cap on rent growth.
In reality, every time a unit turns over, the "rent elevator" resets and moves upward again.

For tenants:

• Staying put becomes key to maintaining affordable rent.

• Moving out could mean facing much higher rental rates.

For investors:

• Managing lease transitions smartly remains highly profitable.

• Real estate strategy now involves not just collecting rent, but actively managing tenant turnover and market resets.

Tora Wealth Perspective

We’re already seeing many landlords adjust their strategies:

• Upgrading property condition to attract tenants willing to pay higher starting rents.

• Carefully targeting high-demand, high-mobility neighborhoods for investment.

In other words, even under tighter rent control, AB 1157 is not the end — it’s an opportunity for strategic repositioning.