Rent increases are inevitable when you’re a tenant. Getting that notice from your landlord that your rent is increasing is a bummer, but you want to be prepared so that you know all your options before making a drastic decision.
The landlord may increase the rent in most cases for the following reasons:
1. General inflation rates
There is a direct correlation between hikes in rental rates and the overall inflation rate. This means that the higher the inflation, the higher the real estate prices. Moreover, rental rates vary depending on where you live. Therefore, landlords also consider the affordability of tenants during high inflation periods before setting the rent.
2. Increased property value
Landlords can raise the rent of their property because of an overall increase in the property value. In most cases, property increases in value because of improvements or renovations. Any additional work that makes the property more appealing to prospective tenants, such as re-doing the bathroom, renovating the kitchen, replacing the tiles, installing a new HVAC unit, or landscaping or painting, will drive up its value. These enhancements will consequently be factored into the overall rental cost.
3. Real estate market changes
Market changes play a significant role in determining rental costs. Prices in the real estate sector will continue on an upward trajectory as demand increases. The essential factors that a landlord needs to consider while revising rent every year include current interest rates, property costs, municipal charges, and maintenance costs. Besides, all these factors tend to vary from location to location.
4. Neighborhood modifications
As a neighborhood is improved, the rental rates of apartments there are bound to increase. For example, a location with amenities such as schools, hospitals, libraries, entertainment centers, and restaurants nearby will have units leased out to tenants at a higher rate than rental units located away from valuable features. Other factors influencing rent rates in an apartment community include public services, new business prospects, and public transportation. These factors make a neighborhood desirable, and as a result, the rent will inevitably see an increasing trend as more of them are added to an area.
5. Economic growth
As the local economy surges, the prices of housing also increase. This motivates landlords to raise the rent to match the higher housing prices.
6. New job opportunities
When a multinational corporation or large-scale company decides to set up its base in a particular location, the value of property in the area is likely to increase. This is because newer companies usually mean new job opportunities, encouraging people to flock to the area.
7. Property maintenance costs
Another reason why rent rates increase every year is how well the landlord maintains the property. Landlords typically spend a significant amount of money fixing up their units, especially attracting prospective tenants and keeping current ones. In addition, there are other additional expenses to take care of, including property tax, annual maintenance charges, unexpected repair works, municipality fees, and so on. All these factors, which tend to compound over time, impact the annual rental rate.
8. Profit earnings
All in all, landlords need to profit from their business venture. Therefore, even if you don’t consider all the other factors that determine the rental rates. The profit margins of landlords/property management companies play a significant role. A landlord/property owner can hike rental rates as they please to earn profits.
There is no limit on the amount your landlord can hike the rent in areas that don’t have rent control (state or local laws that restrict the amount of rent that landlords can charge, among other landlord activities). However, this doesn’t mean that landlords can raise the rent on a whim. The timing of a rent hike and how your landlord communicates it are determined by statute in most states. Additionally, landlords in most states cannot hike rent rates in retaliation after exercising specified legal rights and cannot discriminate in their system for increasing rent.
When are you likely to get a rent increase notice?
Except in cities with rent control, how a landlord can exercise their right to increase rent primarily hinges on whether you have a fixed-term lease or a month-to-month rental agreement. If you have a written lease, you should not be caught off guard by a rent hike. Instead, the landlord has to detail their rent increase policy up-front in the lease agreement you sign. Many leases also explain how often a rent increase is to be expected. When you have a lease, your landlord can’t increase the rent until the end of the lease period unless the lease contract itself provides for an increase or you sign it.
Typically, the landlord provides you with a rent increase notice 30 to 60 days in advance, but requirements vary from one state to another. Suppose you rent your unit under a month-to-month rental agreement. In that case, the rules are a bit different – the landlord can increase the rent (or modify any other term of the rental agreement, for that matter) as long as they give you the proper amount of notice, which in most states is 30 days.
Furthermore, the rent increase notice must be in writing; landlords must send certified mail in some states. Verbal requests are unacceptable in most states and, unless you specifically accept the increased rent rates, you’re not obligated to pay it. If a rent notice is not sent to you in good time, you may be able to challenge it and should consider consulting a lawyer to see what steps you can take.
What is included in a rent increase notice?
A rent increase letter should include the following information:
- Tenant’s name
- Property address
- Landlord name and contact information
- Date the letter is written
- Date the rent increase will go into effect
- The current rent cost
- Amount of rent increase
- The new rent amount owed for every month
Some landlords also have a form at the bottom of the letter to complete and return. Examples of these options include:
- I agree to the new monthly rent, effective () date (if you select this option, the landlord can then send you the lease renewal letter
- I do not agree to the new monthly rent and intend to vacate by () date as detailed in the lease agreement.
Landlords can send rent increase letters certified mail or deliver to the tenant by hand. That way, they know that the tenant received it. Email delivery is not preferred, although the landlord can opt to follow up that way to confirm that you received it.
What to do if you get a rent increase letter?
If you don’t mind a rent increase, all you have to do is follow the instructions your landlord provides in the letter. Some landlords will require you to send in a response, but some won’t. If you’re not sure you can handle the rent hike, take the time to weigh the upsides and downsides of accepting versus turning down. Tenants who wish to negotiate with the landlord can challenge the increase in a professional manner.
Can tenants challenge a rent increase notice?
After discussing with your landlord, you may conclude that staying in your apartment is the most suitable option for you, as long as there is a bit of compromise from the other party. Here are some of the choices you can consider:
Suppose you’re happy with the rent hike or want to find out its rationale, set up a meeting to discuss with the landlord/property manager. Approach the conversation civilly since they don’t have to explain their decision to raise the rent. This also allows you to negotiate the terms of the rent increase. If you’re willing to offer something to your landlord, you might be able to get something out of the negotiation, as well. Consider offering the following:
- Sign a longer-term lease but continue paying the same amount of rent. A long-term lease gives you more security when it comes to cost. It’s also attractive to landlords/property managers because it saves them the hassle of finding new renters.
- Sign a short-term lease to ensure that the apartment is available at the best time to attract prospective tenants.
- Offer to accept the rent increase, but only under newly agreed on terms. For example, you can ask for free storage space or free parking space in return.
- Keep your apartment pet-free. Living with a pet in a rental unit often translates into extra fees to help cover the costs of potential pet damage. Additionally, when your pet has done damage within your tenancy, your landlord may want to raise your rent when the time comes to renew your lease in anticipation of more issues.
- Offer to handle some of the repair work in your unit. If you have the skills, you can offer to help with the electrical or plumbing works of the apartment. That way, you indirectly cut down on your landlord’s operational costs, which could help you continue to rent at your current rate.
Rent increases aren’t always as straightforward as you may assume. To make them more appealing, landlords may include some renewal incentives such as upgraded fixtures, an improved security system, or a free deep clean of your carpet. If there are no incentives included in the rent and the notification you receive about the rent increase, consider talking to your landlord to see if future improvement plans are worth sticking around for.
3. Move out
You might consider moving out if you can’t handle a rent increase and your landlord isn’t open to negotiations. Other factors that could have already been pushing you in the direction of terminating your tenancy, such as;
- Inattentive and unprofessional management
- Maintenance doesn’t keep up with the repairs on the property
- Common areas are outdated
Effects of rent increase on the security deposit
A rent increase often means that the security deposit increases as well. Many states limit the amount a landlord can legally charge tenants for a security deposit. Deposits are typically capped as a multiple of the monthly rent – that means that the maximum deposit maybe twice the amount you pay monthly for rent. However, if the landlord hikes the rent rates legally, the security deposit should also legally increase. For example, if you paid a deposit twice your monthly rent, and your $1000 rent has risen to $1,100, the deposit limit should increase from $2000 to $2200.
When is a landlord not allowed to increase the rent?
Here are some instances where you can pursue legal action when your landlord raises the rent:
- Month-to-month without 30-day notice – A landlord who hikes the rent without giving you proper notice will have broken the law
- Mid-lease without provisions in the lease agreement – If your landlord raises rent before your lease is up and the lease does not state that this can happen, the increase will be illegal.
- Verbal-only rent increase notice – Landlords cannot relay their intentions to increase rent without written notice. If your landlord verbally informs you of a rent increase, the rent increase does not qualify as legal.
- Rent hike as discrimination or retaliation – It’s illegal for your landlord to hike the rent in a discriminatory way. It’s also against the law to raise the rent as a means of retaliating because you exercised your legal rights.
- Exceeding rent control restrictions – If your apartment is rent-controlled, your landlord cannot legally increase the rent if the increase exceeds the rent control limitations provided by the state.
It is common knowledge that apartments raise rent every year, with rent increase percentages averaging on the high end one year and falling significantly the following year, making it difficult for tenants to prepare adequately. To soften the blow when you receive a notice of rent increase, use these tips to help you make an informed decision.