Landlords need to consider when and how to send an increase in rent notice and more specifically, when to increase rent price without disrupting the relationship they have with their tenant. In times of economic hardship it may be difficult to increase rent even if prices to maintain the property go up.
Landlords can’t increase rent during the initial lease period but may be able to increase rent once that term has passed. Local laws may dictate rent increase limits and may even prevent rent increases during periods of hardship or low inflation.
Rent increases should be based on reality and the local market, not on the landlord’s mortgage and costs to carry the property.
When Can The Landlord Increase My Rent?
A landlord can’t raise the rent while the original lease is in place. So if a one year lease is in place, the landlord can’t raise the rent until the 12 months is up. And even then local laws might dictate if and how much the landlord can raise rent. Many jurisdictions have rent controls in place and stipulate each year how much rent can be increased. In other areas, there are no limits in place and the market is allowed to sort itself out.
Due to the effects of COVID-19, many jurisdictions put a temporary ban on rent increases for 2020 and in some cases all of 2021. Other areas allowed nominal increases only.
What Happens When Landlords Can’t Increase Rent?
Not much, if they’re prevented from doing so.
Many condo buildings that split electricity and water bills among tenants blew their utility budgets out of the water in 2020 due to the number of people working at home from COVID-19 related lock downs and unemployment. People were now spending more time in their unit and utility usage skyrocketed. Landlords were unable to recoup these costs with the rent cap in place but that was what was decided. In many areas, temporary eviction bans were also put into place further putting a strain on landlords.
Your only option may be to wait until the tenant moves out and raise the rent to a more appropriate level that matches what the local market will bear.
When Should A Landlord Increase Rent?
Rent increases are justified when:
- You are in a strong economy.
- The local rental market is strong, vacancy rates are low and it’s difficult to find similar rental properties.
- Inflation is going up.
- Interest rates are going up which may make the rental market more attractive as borrowing money for a mortgage is increasing.
- You live in an area with rent controls and an increase is specified by the local government. This would indicate that even they realize an increase is justified.
Economic Consequences Of Not Regularly Raising Rent
In 2019 before COVID-19 hit, the one and two-bedroom apartments market in the US as a whole saw rent price increases
of 4.1% and 5.5% respectively. Very healthy increases.
Depending on the area the property is located in and local conditions, it’s usually recommended to increase rent as the market allows in order to remain competitive and maintain cashflow even as expenses go up.
Below is a table that compares the option of No Rent Increase each year and both a 3% Rent Increase and 5% Rent Increase each year for 5 years to see how it impacts the landlord’s cashflow. Let’s assume a starting monthly rent of $1,500 in Year 1 ie. the first year of the lease. By the beginning of Year 2 when the initial lease has expired, a rent increase is now allowed.
| Year | No Rent Increase | 3% Rent Increase | 5% Rent Increase |
| 2 | $1,500 | $1,545 | $1,575 |
| 3 | $1,500 | $1,591 | $1,654 |
| 4 | $1,500 | $1,639 | $1,736 |
| 5 | $1,500 | $1,688 | $1,823 |
| 6 | $1,500 | $1,739 | $1,914 |
The table is a reminder that regular rent increases are compounded which increases the benefit over time to the landlord. By year 6 as shown above, the cumulative effect of 3% yearly increases and 5% yearly increases is 15.9% and 27.6% respectively over no rent increase.
Should A Landlord Raise Rent?
In some areas, rent control is in place and landlords can’t simply increase the rent to whatever level they want. But the table above shows the long term ramifications of not raising rent compared to raising it each year within reason.
Landlord cashflow is severally curtailed especially in a period such as 2020-21 due to COVID-19 when rent cratered in many cities due to high unemployment and people not being able to pay their rent. By this point, landlords in many jurisdictions saw rents drop even though expenses (electricity, water) went up with more people being at home.
At this point the chance to put rent up is no longer a reality for many landlords and in fact many will have to lower it to remain competitive given the large number of sudden vacancies in many cities.
Losing A Tenant Due To A Rent Increase
Moral of the story?
While landlords often fear raising rent will cause an existing tenant to move out, the reality is that prices go up. The cost to maintain a property increases and a reasonable tenant understands this. For most tenants, a justifiable rent increase is expected and if they move out as a result, perhaps that’s a sign that says more about them than you. A landlord isn’t a non-profit and the tenant-landlord relationship has to make sense to both parties.
Losing a good tenant to a justifiable rent increase is unfortunate and causes work for you to find a new tenant but that is part of the job of being a landlord. If you forget this, go back to the table above and remind yourself of the cumulative lost revenue when you don’t increase rent appropriately.
How To Justify A Rent Increase
From a landlord’s perspective there are a number of considerations to think about before raising rent.
Check local laws to see if rent control is in place. In many jurisdictions, rent increased were suspended in 2020 and 2021 due to COVID-19. If your local area has a rent cap increase in place you can use this amount as a justification for increasing rent as it’s a sign from your government that it is acceptable.
Research similar properties. Go online and check to see what similar properties and renting for in the area. If your property is a condo or apartment, you may have multiple units to compare against.
Consider the environment. Are you in a city where unemployment is low or high? Is the local economy booming or struggling? Are you in a big city or a smaller town? Recent trends seem to show people leaving big cities to move to the outskirts so rent prices in smaller towns appear to be rising as demand goes up.
Consider your cashflow. “I can’t lower the rent as that won’t even cover the mortgage.” Those were the words my landlord once told me years ago when I had noticed that the apartment I was renting from her was about $100/month higher than the same units in the building. That was the first time I became aware of the landlord-tenant dynamic. Renters are effectively paying the mortgage and landlords try to create a positive cashflow so that the rent cover costs to carry the property, at a minimum. At the end of the day though, your mortgage is your concern not the tenant’s. Rent price is based on the market not on your costs.
How To Increase Rent
Local laws and market conditions will largely determine this and your personal relationship with your tenant if you have one might also come into play. It is important to remain professional though and not allow personal feelings to cloud your judgement. Here are some things to consider.
Confirm the notice period. Local laws will stipulate how much notice should be given for a rent increase. Typically 30 – 90 days minimum is required so you need to plan in advance. So if you need 90 days notice and it’s the end of September, you’d be looking at a January 1 rent increase at the earliest.
Confirm if you have rent control. How much you can raise the rent may be constrained if there is rent control in your local area. You might be prevented from raising rent at all in times of economic hardship. Even if no rent control is in place you want to ensure you don’t overprice yourself compared to other comparable units.
Confirm how the rent increase should be delivered. In writing is best so there is no chance for confusion. Email might suffice but check to see what form your local area requires the increase to be delivered in.
Have your justifications ready. Some tenants will accept the rent increase. Some may choose to end the tenancy and leave. Some may challenge you and ask you why the rent is going up and if there is room for negotiation. If you can justify increases in costs like maintenance fees, utilities, property taxes, repairs, insurance and rent prices you’ll have more ammunition to show that the increase is fair. And if you simply chose the exact rental price increase that your local government allows, you’re just following the guidelines that they established based on the entire rental market. And if your unit is already fairly priced with comparable properties even with the increase, there’s no reason to feel like you need to renegotiate.
