The Petition Pathway

The fair-return petition under SBMC §26.90.050 — what the draft ordinance provides, and what it takes to use it

Santa Barbara's rent stabilization ordinance (introduced September 29, 2026 and not yet adopted; the adoption vote is expected October 6, and the program is set to be operative January 1, 2027 if adopted on schedule) caps annual rent increases on covered units at 60% of the change in the California CPI or 3%, whichever is less. Elsewhere on this site we document what that cap does to owner economics when operating costs grow faster than the allowable adjustment. This page covers the ordinance's own answer to that problem: the fair-return petition.

The mechanism exists because it has to. A rent regulation that denies an owner a fair return on their property is unconstitutional, and the ordinance says so in its own text. Section 26.90.050(B) states the section's intention plainly: individual upward rent adjustments are to be granted "when the landlord demonstrates that such adjustments are necessary to provide the landlord a fair return as required by the California and United States Constitutions."

This page explains what the petition provides, why it matters, what filing one involves in practice, and — through a worked hypothetical — what relief might realistically look like. It is not legal advice, and it is not a substitute for reading the ordinance or consulting counsel.

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1. What the ordinance provides

Under SBMC §26.90.050 (Petition for Special Adjustment – Fair Return), a landlord may file a petition with the City's Program Administrator seeking a rent adjustment above the annual general adjustment, for any given tenancy, using the hearing procedures in §26.90.080.

The standard is maintenance of net operating income (MNOI). The ordinance's core operative rule, §26.90.050(E), as worded in the ordinance introduced September 29, 2026:

For purposes of determining a fair return there is a rebuttable presumption that maintenance of net operating income equal to the base year net operating income adjusted by the change in the Consumer Price Index from the base year to the current year results in a fair rate of return.

In plain terms: the ordinance defines your base year — calendar year 2025 — and presumes that the net operating income (NOI) your property earned that year represented a fair return (§26.90.050(D)). You are then entitled to have that NOI keep pace with inflation, at 100% of CPI — not the 60% that governs the general rent cap. If your current-year NOI has fallen below your base-year NOI adjusted for the full change in CPI, the ordinance provides for a rent adjustment sufficient to close the gap.

Two boundary notes on scope:

• This is the operating-income mechanism, not the capital-improvements mechanism. Costs of qualifying capital improvements (new roof, seismic work, repiping, and other categories enumerated in the ordinance) are handled through a separate petition under §26.90.060, with their own amortization and pass-through rules (capped at the lesser of 10% of current monthly rent or $100/month). Under the introduced text, that petition also requires a capital improvement plan the City has approved in advance (§26.90.100). The two petitions are distinct and this page addresses only §26.90.050.
• The MNOI standard is a presumption, not the only basis for a decision. In the introduced text, Section 26.90.050(E) provides that "nothing in this Section prevents the hearing officer or Rent Stabilization Board from granting or denying a rent increase based upon substantial evidence in the record of a hearing." (The June 10 draft framed this as not preventing "a rent increase that is necessary to meet constitutional requirements.")

(A drafting note for careful readers: the definitions section of the draft chapter, §26.90.020, defines "fair return" as a return determined "by using the standard outlined in Section 26.90.060." The MNOI standard is in fact set out in §26.90.050; §26.90.060 governs capital improvements. The error appeared in the June 10 draft and persists in the ordinance introduced September 29; we cite the substantive standard where it actually appears.)

2. Why this matters

The fair-return petition is the ordinance's own escape valve. The rest of this site documents a structural gap: the general adjustment allows rent growth at 60% of CPI (capped at 3%, floored at 0%, with no banking of unused increases), while the cost of operating a Santa Barbara apartment building — insurance, water and sewer, labor, materials — has been growing at or above full CPI. A gap between revenue growth and cost growth compounds. The petition is the one mechanism in the ordinance that recognizes this arithmetic and provides a remedy for the individual owner who can document it.

The constitutional context should be stated soberly, because it is not a talking point — it is settled doctrine. California courts have long held that rent regulation is constitutional only if it permits landlords a just and reasonable return on their property (Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129; Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761). Rent-control jurisdictions across California therefore build fair-return processes into their ordinances, and MNOI is the most widely used standard. Santa Barbara's own consultants told the City Council as much when the ordinance was being drafted: the maintenance-of-NOI approach is "the one most recognized way," and owners are "constitutionally … entitled" to it (RSG presentation to Council, April 7, 2026 — see The Council Record).

Two implications follow:

1. The petition is not a loophole; it is load-bearing. The legal defensibility of the 60%-of-CPI cap depends in part on the existence of a functioning fair-return process. An owner who uses it is doing exactly what the ordinance contemplates.
2. The petition shifts the question from rhetoric to accounting. A fair-return case is won or lost on documented income and expenses, base year versus current year. That is a discipline this site endorses: the same cost data we publish in aggregate is the kind of evidence a petition turns on.

3. What a petition involves in practice

Everything below is drawn from the text of §26.90.050 (standard) and §26.90.080 (procedures), and Chapter 26.100 (registry), as introduced September 29, 2026. The rules may still change before adoption. Under that text the Rent Stabilization Board adopts petition regulations, and Program Administrator regulations require the Board's approval; none existed as of this writing.

3.1 Preconditions

• Registration. Beginning January 1, 2028, no petition may be filed for a unit unless the landlord has complied with the rental-registry requirements of new Chapter 26.100 (§26.100.010(H)). No landlord petition will be accepted while the landlord is delinquent on program or registry fees (§26.90.080(D)).
• Habitability. No upward adjustment may be authorized if the landlord has failed to maintain the units in compliance with Civil Code §1941.1 et seq. and Health & Safety Code §§17920.3, 17920.10 (§26.90.050(C)). A petition must include a declaration that each unit complies with the chapter's requirements, including an express declaration of habitability compliance (§26.90.050(A)).
• No recent duplicate. A petition will not be accepted if a decision on substantially the same grounds was made within the previous 180 days (§26.90.080(E)).

3.2 The comparison at the heart of the case

The petition compares two numbers:

• Base-year NOI (2025): gross rental income minus operating expenses for calendar year 2025, computed under the ordinance's definitions.
• Current-year NOI: the same computation for the "current year." The current-year CPI is the annual CPI for the calendar year preceding the year the petition is filed (§26.90.050(E)).

The ordinance is specific about what counts:

NOI counts only the property at issue: operating expenses must be "directly related or attributable to the property and rental units for which the rent adjustment is sought" (§26.90.050(G)).

Gross rental income is calculated on rent "lawfully collectable at 100% occupancy" and includes essentially all consideration received for use or occupancy — but excludes sub-metered utility charges, regulated pass-throughs (refuse, sewer), laundry, storage, and supplemental charges such as pet rent (§26.90.050(G)(1)–(2)).

Operating expenses include reasonable operation and maintenance costs, reasonable management expenses, owner-paid utilities, property taxes attributable to base-year and current-year assessments, legally required license and registration fees, documented landlord-performed labor (generally capped at 5% of gross income), reasonable attorneys' fees and costs necessary to operating the property (but not fees on a petition under the chapter), and up to 50% of the rental-registry fee (§26.90.050(G)(3)).

Operating expenses exclude — and this is where many owners' intuitions fail — capital improvements (separate petition), mortgage principal, interest, and all other debt service, depreciation, late fees, penalties, or interest from paying operating expenses late, penalties for violations, land-lease expense, political and lobbying expenditures, reimbursed expenses, "unreasonable" expense increases, utilities the tenant pays directly, and expenses from unreasonable repair delays (§26.90.050(G)(4)). A building that is cash-flow negative because of its financing can still show a healthy NOI under the ordinance's definition. The petition tests operating economics, not the owner's actual bottom line.

The base-year presumptions are rebuttable: a landlord may present evidence that base-year expenses were unusually high or low, or that base-year gross income was disproportionately low due to exceptional circumstances (reduced rents to particular tenants, vacancy for construction, a pre-base-year rent pattern that did not track market rent for comparable units, or other circumstances established by regulation), in which case the base-year figures may be adjusted (§26.90.050(F)). Either year's expenses may also be averaged or normalized where a single year is unrepresentative, but the petitioner must request and prove any such adjustment (§26.90.050(G)(5)).

3.3 Documentation

The burden of proof is on the petitioner, by a preponderance of the evidence, and the hearing officer or Board must find substantial evidence in the hearing record (§26.90.050(B), §26.90.080(N)). In practice that means assembling, at minimum: rent rolls for the base year and current year; operating statements with supporting invoices; property-tax bills; insurance declarations; utility bills; documentation of any landlord-performed labor (date, time, and nature of work — required by §26.90.050(G)(3)(f)); and the registration declaration. The hearing officer may require books of account and may request a City building inspection (§26.90.080(M)). Formal rules of evidence do not apply, but credibility and completeness carry the case.

3.4 Process and timeline

Step	Ordinance rule	Cite
File petition with Program Administrator	Must identify units, grounds, and include the compliance declaration and tenant mailing list	§26.90.080(B)
Completeness check	Administrator accepts or rejects within 30 days (completeness only, not merits)	§26.90.080(C)
Notice to tenants	Within 14 days of acceptance; tenants are parties and may respond	§26.90.080(F)
Hearing	Scheduled within 60 days of acceptance, before an impartial hearing officer; 20 days' notice	§26.90.080(G)–(H)
Decision	Written statement of decision within 30 days after the hearing, with notice of appeal and judicial-review rights	§26.90.080(O)
Appeal	Any aggrieved party may appeal to the Rent Stabilization Board within 30 days; judicial review thereafter	§26.90.080(Q)–(T)
Delay protection	If a decision takes more than 120 days after acceptance of a complete application, the landlord may recover increases a timely decision would have allowed — unless the landlord requested, caused, or contributed to the delay	§26.90.050(I)

A granted increase takes effect only after lawful written notice to the tenant (§26.90.050(J)). Where a cost must be amortized, the ordinance allows an interest component at the Freddie Mac 30-year fixed survey rate plus 2% (§26.90.050(H)). The hearing officer may issue subpoenas, and a court reporter is arranged only if a party asks; all hearings are recorded (§26.90.080(G), (P)).

4. A worked hypothetical

The following is an illustration, not a projection. It uses a deliberately plausible — and deliberately conservative — pre-1995 Santa Barbara building, and every assumption is labeled. Real petitions turn on real documents; this example exists only to make the MNOI arithmetic concrete.

The building (all assumed): an 8-unit apartment property, certificate of occupancy issued before February 1, 1995 (covered), all units occupied by pre-freeze tenancies, average rent $2,400/month as of December 16, 2025 (the ordinance's base-rent date). Owner held title throughout; no sale, no reassessment, no capital improvements in the period.

Timeline (per the ordinance): rents frozen during 2026 under the moratorium (Ordinance 2026-6206); annual general adjustments taken January 1, 2027 and January 1, 2028; petition filed in 2029, making 2028 the current year and 2025 the base year.

Labeled assumptions:

#	Assumption	Value	Basis
A1	California CPI change, each of 2026–2028	+3.0%/yr (+9.3% cumulative)	Assumed for illustration; near long-run CA CPI averages
A2	Annual general adjustment actually taken	60% × 3.0% = 1.80% → 1.75% after rounding to nearest 0.25%, in 2027 and 2028	§26.90.040(B); §26.90.020 rounding rule; freeze bars a 2026 increase
A3	Occupancy	100%, no turnover	Conservative: any vacancy decontrol reset at market would raise income and shrink the claim
A4	Base-year (2025) operating expenses	Property tax $22,000; insurance $16,000; water/sewer/trash $14,400; owner-paid utilities $4,800; repairs & maintenance $12,000; management 6% of gross ($13,824); other (license, pest, landscaping) $5,000	Assumed; plausible for an 8-unit pre-1995 SB walk-up
A5	Cost growth 2025→2028	Property tax +2%/yr (Prop 13); insurance +8%/yr; water/sewer +6%/yr; utilities +7%/yr; R&M +4%/yr; other +3%/yr; management stays 6% of gross	Assumed; conservative relative to recent observed CA insurance and SB utility-rate trends (see The Squeeze)
A6	Second-order effects	Ignored (e.g., management fee on the granted increase)	Simplification; immaterial to the illustration

Base year 2025. Gross rental income (100% occupancy): 8 × $2,400 × 12 = $230,400. Operating expenses (A4): $88,024. Base-year NOI = $142,376.

Current year 2028. Gross rental income: two 1.75% adjustments → $230,400 × (1.0175)² = $238,535. Operating expenses (A5): tax $23,347 + insurance $20,155 + water/sewer $17,151 + utilities $5,880 + R&M $13,498 + management $14,312 + other $5,464 = $99,807. Current-year NOI = $138,728.

The MNOI test (§26.90.050(E)). Fair-return NOI = base-year NOI × cumulative CPI change = $142,376 × 1.0927 = $155,578. Documented current-year NOI = $138,728. Shortfall = $16,850 per year.

Indicated relief. Spread across 96 unit-months, the shortfall works out to roughly $176 per unit per month, or about a 7.1% rent adjustment on the then-current average rent of ~$2,485 — roughly four years of general adjustments granted at once, prospectively, after notice. (An actual award would be shaped by the hearing officer's findings on each expense line and could be conditioned or phased; §26.90.080(O).)

What the hypothetical shows. Even under mild assumptions — 3% inflation, full and timely use of every allowable increase, perfect occupancy, and cost growth well below what several expense lines have actually done in recent years — the 60%-of-CPI structure produces a documentable NOI shortfall within three years, and the ordinance's own standard supplies the remedy. Under harsher but historically grounded assumptions (insurance repricing, a high-inflation year hitting the 3% cap, a zero-CPI year with the 0% floor), the gap opens faster and wider.

What it does not show. It does not show that any particular petition will succeed. Every number above is an assumption; a real case rests on real records, and outcomes depend on the hearing officer's line-by-line findings, the regulations the Rent Stabilization Board and Program Administrator adopt, and the quality of the documentation.

5. What a fair-return analysis would look like for your building

The first step is not a petition — it is an analysis: reconstructing your 2025 base-year NOI under the ordinance's definitions, projecting the current-year comparison, and seeing whether and when a documentable gap opens. Most owners have never computed their NOI the way §26.90.050(G) requires, and the differences (100%-occupancy gross income, excluded debt service, the expense inclusions and exclusions) change the picture materially in both directions.

If you own covered property in Santa Barbara and want to understand what a fair-return analysis would look like for your building, contact us. We will walk through the base-year reconstruction and the documentation the ordinance requires — as a conversation, not a widget.

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Sources and notes

• SBMC Chapters 26.90 and 26.100 as introduced September 29, 2026 (attachment to the Item 2 staff report; PDF), §§26.90.010–.020 (coverage, definitions, base rent, base year), 26.90.040 (annual general adjustment), 26.90.050 (fair-return petition), 26.90.060 (capital improvements), 26.90.080 (petition procedures), 26.90.100 (capital improvement plans), and 26.100.010 (rental registry). The September 22, 2026 introduction draft and the June 10, 2026 public review draft are the prior texts; the September 29 changes do not touch the fair-return standard or petition procedures. Full text of all three: radius-data/ordinance/.
• Ordinance 2026-6206 (temporary rent-increase moratorium), adopted January 27, 2026; effective February 26, 2026; base rent date December 16, 2025.
• Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129; Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761.
• RSG consultant presentation to the Santa Barbara City Council, April 7, 2026 (fair-return / MNOI discussion) — quoted and timestamped in The Council Record.

The analyses on this site are prepared from public data sources and Radius Commercial Real Estate's proprietary market data, using the methods described on our Methodology page. Estimates and projections reflect stated assumptions; actual outcomes will differ. This page describes a municipal administrative process and is not legal, tax, or investment advice; consult your own counsel before filing or relying on any petition strategy.

Legal language on this site is subject to ongoing review by counsel; substantive corrections follow our corrections policy.

SBRSO — Santa Barbara Rent Stabilization Observatory, sbrso.com. Independent research, powered by Radius Commercial Real Estate (see About for full disclosure).