Can Raising the Rent Be a Crime in California?

How Recent Court Decisions Expand Business Liability

“I’ve been cheated!” It’s a common complaint when a customer feels that a business misled or cheated them out of money in the purchase of a product or a service. Normally, such disputes are resolved through negotiations, refunds, or potentially a civil contract claim. But recent California court decisions have taken a surprising turn: what might look like an ordinary business dispute can sometimes be treated as a form of theft. As a result, businesses may now face triple damages, legal fees, and civil liability under a criminal statute if they are found to have obtained money under false pretenses.

When Civil Disputes Cross into Criminal Territory

In 2022, the California Supreme Court in Siry Investment, L.P. v. Farkhondehpour[1] confirmed that Penal Code section 496 — traditionally applied to receiving stolen property — can also apply to business dealings where money is obtained by fraud or misrepresentation.[2] In that case it was alleged that the real property manager charged non-partnership expenses and improperly diverted rental income from the owning partnership. The Court upheld treble (triple) damages and attorney’s fees against the property managing company that had wrongfully withheld distributions. This was a wake-up call: even in ordinary business relationships, wrongful conduct can be punished far more severely than most would expect.

Importantly, the Court clarified that not every contract dispute becomes a theft. Honest mistakes or innocent errors won’t trigger such expanded liability. But where there is intentional deception involving “careful planning and deliberation,” businesses may then face penalties designed to deter criminal conduct.

Why an Invalid Rent Increase Became ‘Stolen Property’

In August 2025, the California Court of Appeal in Johnson v. Connie, LLC[3] applied these principles to a landlord-tenant dispute that involved residential property subject to rent control. A tenant’s rent was raised from $1,025 to $2,450 per month by new owners, based on a false claim that the tenant had been receiving a discounted rate as compensation for property management services. In reality, his lease contained no terms requiring property management services in exchange for a reduced rent.

The tenant paid the higher rent for nearly a year without objection before initiating legal action. At trial, the landlord argued that the rent hike stemmed from a good faith mistaken belief that the tenant had been acting as a property manager. The landlord also argued that the rent increase was made in good faith, following consultation with legal counsel who was not provided with the lease, and noted that the tenant had never requested a refund before filing suit.  However, the appellate court rejected this defense, finding that both the new landlord and property manager were in possession of the original lease, and that this evidence supported a deliberate misrepresentation sufficient to constitute “theft” under Penal Code section 496(a). The result: the tenant could be entitled to recover triple the amount of overpaid rent, plus his legal costs and attorney’s fees.

What This Means for California Businesses

The key lesson for businesses is that aggressive tactics in financial dealings—whether increasing rent, structuring partnership distributions, or making representations to customers—may potentially fall under the scope of theft,if a misrepresentation is involved.  In such cases, receiving “money” under false pretenses may be treated as the receipt of stolen property under Penal Code section 496(a).  While good faith mistakes do not trigger liability under the criminal statute, the presence of deliberate planning or calculated misrepresentation can expose businesses to substantial civil penalties, including triple damages, legal costs and attorneys’ fees. 

To reduce risk in light of these heightened legal stakes, businesses should:

• Ensure accuracy and transparency in all communications with tenants, customers, and business partners, particularly regarding financial terms and obligations.
• Educate key personnel—including executives, financial managers, and sales teams—on the legal consequences of misstating facts in which money is obtained.
• Implement training to help employees recognize and avoid statements that could be construed as intentional misrepresentation that leads to the receipt of money, even in ordinary business transactions.
• Maintain clear documentation of decision-making processes to demonstrate good faith and reduce the appearance of concealment or misconduct.
•  Consult legal counsel before making significant financial changes, such as rent increases or profit allocations, to assess potential exposure under civil or criminal statutes.

Conclusion

California courts have interpreted the application of Penal Code section 496(a) to encompass business disputes involving intentional deception. As a result, conduct that once might have been limited to the money received can now expose a business to treble damages, plus legal costs and attorney’s fees under Penal Code section 496(c). The best protection against escalating a contractual disagreement into a costly legal battle is to consult legal counsel and maintain clear, transparent practices throughout all financial and operational dealings.

David Goldman is a Director in the Employment and Labor practice group, representing businesses and their owners and shareholders in commercial and business disputes, including derivative shareholder actions, involuntary corporate dissolutions, breach of loyalty and fiduciary duty claims, and trade and contract disputes in both arbitration forums and civil courts. Previously, David served as a Deputy City Attorney for the City and County of San Francisco for four years. He can be reached at dgoldman@fennemorelaw.com.

Zury Molina is an Associate Attorney at the firm practicing business litigation. Her practice encompasses diverse litigation matters, including labor and employment, breach of contract, real estate, commercial disputes, fraud, and negligence. She can be reached at zmolina@fennemorelaw.com.

[1] Siry Inv., L.P. v. Farkhondehpour, (2022) 13 Cal.5th 333, 362.

[2] California Penal Code sections 496(a),(c).

[3] Johnson v. Connie, LLC, (2025) 113 Cal.App.5th 850.