Increasing your tenant’s rent is a delicate affair.
First, you need to decide when to increase it and by how much without flouting the tenancy laws in your state.
Then you have the unpleasant task of breaking the bad news to your tenants.
If hiking the rent sounds like a tough endeavour, remember that a rental property is an income-generating asset.
Its sole purpose is to help you build a steady stream of income and improve your financial stability.
The rental income should be net positive, even in the face of increasing insurance fees, mortgage rates and spiralling maintenance costs.
That said, you must approach the process delicately because a rent hike makes the difference between high tenant turnover and growing your rental income.
Here is a detailed guide to help you with the delicate art of raising the rent without losing your good tenants.
When Is a Rent Increase Warranted?
As tempting as it might be, you should never raise the rent on a whim. Spiking living expenses is not a valid reason to put the squeeze on your tenants.
Instead, you should increase the rent as a tactical business decision.
As such, you must review the property market before taking any action.
The law of supply and demand determines the going rates of rental properties in any given locality. When the demand overruns the supply, you can raise the rent and still have many folks on a waiting list.
On the other hand, raising the rent in a flooded market amounts to a poor judgment call.
Start by assessing the market to get a feel of the asking prices on similar properties in your region.
If you’re charging below the average rates, you can safely increase the rent with little tenant turnover.
Keep an eye out on vacancy rates as well.
A vacancy rate of between 1% and 2% signifies that it’s a seller’s market and you can get away with reasonable rent increment.
However, if vacancy rates rise above 3%, that’s a buyer’s market and tenants have the upper hand.
Effecting a rent increase in such a market might trigger a mass exodus of tenants from your properties.
Tenancy Laws and Rent Increments
The Residential Tenancy Bill 2018 lays the ground rules and regulates all matters about rent increments. However, the specific details vary between states.
In many states, you can only increase the rent following the expiry of a fixed-term lease agreement.
Tenancy laws require that you issue tenants with a written notice stating your intention to increase the rent, before following through with it.
The notice must indicate the proposed rent increase and the date when it will come into effect.
It’s also important to observe the state-mandated notice period when serving the tenant because these, too, vary between states.
Australian Capital Territory
The Residential Tenancies Act 1997 covers lease agreements in the ACT, including rent increases or reductions.
The law states that you can only increase rent once a year after issuing the tenant with eight weeks’ written notice.
If the tenant doesn’t object by applying for a review and remains on the premises, the rent increment takes effect on the specified date.
If the tenant finds the rent increment to be unreasonable, they can apply to the ACT Civil and Administrative Tribunal for a review.
New South Wales
In NWS, you cannot raise the rent for a tenant on a fixed-term lease agreement without a particular rent clause.
You must include a clause in the original lease contract that affords you the right to increase the rent during the first two years.
The clause should spell out the exact dollar amount or the criteria used to determine the raise.
For fixed lease agreements longer than two years, you can increase the rent anytime you wish if you meet two conditions:
- You must issue the tenant with 60 days’ written notice.
- You can only increase the rent once every year.
If the tenant doesn’t consent to the increase, they can provide you with 21 days’ vacation notice and move out before the new rent comes into effect.
You can increase the rent once every six months, but only if there’s a clause in the tenancy agreement giving you the right to increase the amount.
The provision should spell the exact amount or the method used to calculate the increment.
You must provide the tenant with a 30 days’ written notice that explicitly states the additional amount and the day the raise comes into effect.
You can only increase the rent once every six months and a tenant can object if they feel the raise is excessive.
In case of an impasse, the tenant can then kick it up to the Commissioner of Tenancies for arbitration.
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For tenants on a fixed-term agreement, you need a clause baked into the original lease agreement allowing you to raise the rent.
The lease provision should detail the exact amount of money or the method used to calculate the increment.
You can only implement such a raise once every six months.
For tenants on a periodic agreement, you can raise the rent as you please after issuing them with the necessary notice.
Even then, it must be at least six months since the last increment or the start of a new tenancy.
You must provide the tenant with two months’ written notice detailing the increase and the date it takes effect.
However, a notice isn’t necessary when increasing the rent after the expiry of a fixed-term lease agreement.
You can only increase the rent once a year as long as there’s a clause in the tenancy agreement that affords you that right.
The provision should state the exact amount or the method used to calculate the raise as well as the date the increase comes into effect.
You should provide the tenant with a 60 days’ notice period and can only increase the rent once a year.
You may also increase the rent when negotiating a lease extension with a current tenant
However, that’s only possible if you haven’t raised the rent in the last 12 months.
You may increase the rent if the tenancy agreement includes a provision that allows you to increase rent.
The provision should state the additional amount and the date when the raise commences.
If there is no written fixed agreement, you only need to provide the tenant with the required notice period.
In both instances, you must issue the tenant with a 60 days’ notice.
The notice should state the new rent amount and the day it comes into effect.
However, you can only increase the rent once every six months, regardless of the type of agreement.
You may not increase the rent before the expiry of a fixed-term agreement unless there’s a clause that allows you to do so.
For short lease agreements less than five years, you may not:
- Raise the rent more than once in six months for leases that commenced before 19 June, 2019
- Raise the rent more than once in a year for contracts that began after 19 June, 2019.
For long-term leases more than five years, you may not raise the rent more than once a year.
In all instances, you must provide the tenant with a 60 days’ notice before effecting the raise.
You need a lease clause that affords you the right to increase the rent for a tenant on a fixed-term agreement.
The clause should specify the exact method of calculating the rent increment or state the exact dollar amounts.
Even then, you can only increase the rent once every six months.
For periodic agreements, you only need to provide the tenant with the required 60 days’ notice period.
When you need to increase the rent, however, you can only do so once every six months and not within the first six months of the tenancy.
If a tenant extends the lease after the expiry of a fixed-term agreement, you cannot increase the rent within the first month of the new contract.
Take Charge of Your Rental Income
Rent increments remain a delicate affair, but that shouldn’t force you to leave money on the table.
With property research, you can take advantage of a buyer’s market and raise the rental prices on your property without ruining the occupancy levels.
You need to do it by the book.
With the help of innovative property management solutions such as Lodge, you can thrive as a landlord in Australia’s property scene.
Lodge lets you customise lease agreements to meet the legal requirements of any state while automating the entire documentation process.
Its inbuilt communication system ensures that you’ll never issue a late rent increment notice ever again.