Unfortunately, and despite what one side may believe, rent increases are difficult for both property managers and tenants. For either party, understanding the other’s rules and perspective is key to avoid lawsuits, evictions, and bad relations.
As a property manager, you’re probably keenly aware you’ve become the subject of hyper scrutiny whenever rent increases are merely mentioned. But most tenants expect rent increases upon lease renewal, and besides, these critical responses are the nature of the beast.
Still, a lot is riding on your ability to follow the law as a property manager when handing out a notice of rent increase. And failing to meet some simple standards on this important matter could lead to a fatal blow for your business.
Thankfully, the rules in place for property managers exercising this ability can be thoroughly and simply explained or recited if needed. Here is how to raise your tenant’s rent with a rent increase letter.
6 Rules You Must Know Before Proposing a Notice For Rent Increase
As a property manager, you are not granted the unfailing ability to increase your tenant’s rent randomly – and certainly not punitively. The steps you must follow were intentionally provided to protect the tenant from unjust rent increases by such hair-trigger property managers.
These can be broken down into six simple rules you must follow concerning raising the rent amount. Follow them strictly, and your rent increase letter will have been delivered legally and with little to no damage done.
1. You Can’t Give a Rent Increase Letter During the Lease Term
Lease agreements are legally binding contracts, and unless the lease says otherwise, increases are not permitted until the lease expires. Your tenant agreed to rent your property for a set price and period, and this agreement remains valid until expiration.
However, you can rightfully propose a rent increase to your tenant whenever the original lease agreement ends. Then it can be extended under new terms or replaced with a new lease altogether, thereby allowing for an increase.
This is also why many tenants prefer to sign two-year lease agreements – it reduces rent increases as much as possible. But whether your tenant’s lease renews monthly, yearly, or biyearly, you must honor it until the agreement isn’t valid anymore.
If you respect the contract that you and your tenant have agreed upon, your proposed rent increase will be lawful. Moreover, you may consider honoring that respect as something deeper, namely doing something right in an increasingly uncertain world.
2. You Must Provide Written Notice Before You Raise The Rent
Now that you know when you can increase your tenant’s rent, you must understand how you can. If you want to propose a rent increase, that proposal must be sent to your tenant in a written notice, if you want to increase the rent.
The rent increase letter can be delivered either by hand or mail to your tenant, but mail is the ideal method. This way, you have a record of your tenant receiving the notice to increase rent, whereas a verbal notice likely wouldn’t stand in court.
You may consider mailing the rent increase rent notice and then facilitating communications with that tenant on a great communication tool. You’d be surprised how this line of communication can eliminate potential bad blood and genuinely resolve any confusion or conflict.
By providing a written notice, you take the first step, as a property manager raising your tenant’s rent. This law isn’t a trivial formality; it represents an aspect of fair housing that people have fought for throughout time.
3. Your Written Notice Must Be Delivered Within Adequate Time
For month-to-month tenants, you likely must provide a rent increase notice 30 or 60 days before the rent increase takes place. However, this timeframe of notice often depends on the state’s laws and the increased percentage of rent.
For example, California and the city of Seattle require 60 days notice if rent increase meets or exceeds 10 percent. Make sure to double-check the rental requirements for your state and/or city to be safe when you want to raise the rent to a new rent amount.
Usually, these rules also apply to “tenants at will,” aka tenants without leases, including rooming house tenants paying weekly rent. These tenants still require 30 days’ notice – so even if you’re an unorthodox property manager, you must abide by this rule.
This requirement may seem simple, but it is vital to follow – if you don’t, your proposed rent increase won’t matter. But with adequate notice, you give your tenants a chance to prepare their wallets – and you follow the law.
4. The Amount of Increase You Can Propose
As a property manager, you are entitled to raise your tenant’s rent at your discretion – there are no hard rules, except for rent-controlled properties. Rent increases on rent-controlled properties are left to the government – but these properties are scarce to come across.
Although the amount you can increase the rent is unlimited, you’ll find the local rental market drives the price. Remember, a rent increase isn’t a tenant deterrence – it’s meant to cover expenses like insurance premiums or real estate taxes.
To formulate the amount of rent increase you wish to propose, you should consider the surrounding real estate market. Then, assess the various costs you must cover to formulate a reasonable increase that won’t drive tenants out or away.
By coming up with a reasonable rent increase amount, you can have the best of both worlds as a property manager. Not only will you cover growing property costs, but you can also keep the tenants you value and depend on.
5. Your Tenant Can Fight an Illegal Rent Increase
Your lack of a limit in increasing the rent ends at a certain point thanks to rental discrimination laws. You cannot raise rent punitively, i.e., vengefully, if your tenant does something you don’t like that is within their rights.
An example of this is if you gave your tenant a rent increase notice because they complained about a potential health violation. If resolving this violation was deemed too expensive before the whistleblowing, imagine the cost after the courts gets involved.
Yes, these payback measures are illegal acts of discrimination that could and should land a landlord in landlord-Tennant court. This could lead to paying more than triple in damages and court costs after your tenant inevitably contacts a lawyer.
But you can eliminate the expensive headaches of lawyers, judges, and the need for your tenants to blow the whistle. Because if you establish good tenant-property manager relations, potential violations will be brought to your attention first and foremost for resolution. Note: you must always consult with landlords in regards to all rent increases. You may watch the market and understand when it is time to raise the rent, but the landlord must make the overall decision.
6. Your Tenant Has the Right to Reject a Rent Increase
Even though you followed all the rules to propose a rent increase letter, your tenant has the right to reject the rent increase letter. While some tenants would adamantly oppose a penny increase even if their coin jars were overflowing, many tenants would abide.
Therefore, rejecting a reasonable increase in the rent increase letter would ultimately lead to your tenant being forced to vacate their unit. If they continue living under an expired lease, they must either pay the rent, be evicted, or face legal action in -tenant court.
But there is another possibility: your tenant may appeal to your business sense and attempt to negotiate the rent increase. If the tenant attempting to talk business with you is one you could see being long-term rent, you may consider heeding.
Because a long-term tenant moving in the face of an increase could lead to a considerably worse tenant moving in. And if multiple long-term tenants moved, multiple short-term tenants might replace them, representing more trouble than the increase is worth.
How Will This Rent Increase Affect Your Tenant’s Security Deposit?
The truth is if you raise the rent, it gives you legal grounds to raise your tenant’s security deposit, but it’s ultimately your decision. Again, check your state’s laws: most states have a maximum amount you can charge for security deposits based on rent.
Typically, a security deposit is a multiple of the monthly rent, such as twice the amount of one month’s rent. Rent increase can affect deposits accordingly: if their $1,000 rent increases by $100, the deposit increases from $2,000 to $2,200.
Like the initial security deposit, the hiked security deposit would be due when the new agreement begins. However, you can always skip the additional security deposit cost upon raising rent, which your tenant is likely to appreciate.
Can you increase rent retroactively?
No, you cannot raise rent retroactively; in other words, you cannot slap your tenants with hidden fees in backpay. If you genuinely didn’t let your tenants know about a rent increase, they can’t be held legally or financially responsible.
Attempting to raise rent retroactively is often a form of bullying tenants into vacating the property with overwhelming past dues. This can lead to a lawsuit against you, or if you have issued an eviction, it can result in a counterclaim.
Being a property manager isn’t easy, and raising rent can be one of the most difficult aspects of the job. By following these rules, culminating in a proper rent increase letter, you’ll do a thorough job of purporting an increase.