Increasing the rent’s never easy. First, you need to work out when to increase it and by how much, and then you’re faced with the unpleasant task of delivering the bad news to your tenants.
But put these difficulties to one side for a moment and see the situation for what it is: your rental property is an income-producing asset, and ever increasing mortgage rates, insurance fees and maintenance costs are likely putting the squeeze on your bank account.
In some cases, a small rent hike might even be the difference between offering your property as a home to renters and asking them to move out so that you can move in. And in that scenario, no one’s a winner.
With that in mind, here’s our guide to raising the monthly rent.
Increasing the rent doesn’t necessarily mean your tenants will want to leave the property. Picture: realestate.com.au/rent
While an increase in your monthly expenses might encourage you to think about raising the rent, you should review the market before taking any decisive action.
Ultimately, rental prices are determined by the law of supply and demand. The more people there are looking for a property and the less rental properties there are available, the easier it is for landlords to raise the rent.
One of the best ways for landlords to determine whether they can increase the rent without losing their tenants is to compare the rent they’re charging with the rent of similar properties in the local area. If others are charging more, there’s a high chance you’ll be able to increase your rent.
And it’s worth keeping an eye on vacancy rates, too. Most analysts agree that when rates are around the 1% or 2% mark, landlords generally set the terms and are able to increase rents; when they rise above 3%, however, the power generally lies with renters.
In most states, landlords are only allowed to increase the rent after the fixed term period of the agreement has ended, although there are some exceptions to that rule.
Once you’ve worked out whether you’re able to raise the rent, you’ll need to provide your tenants with written notice of your intention to do so. The exact notice period required by law varies from state to state (see the following section to find out how much notice you need to give), but letters should always include the amount of the rent increase and the date the increase will come into effect.
When vacancy rates hover around 1% or 2%, landlords have greater freedom to increase a property’s rent. Picture: realestate.com.au/rent
Landlords can only increase the rent once every 12 months. If the tenant remains in the premise and doesn’t apply for a review, the rent increase comes into effect on the date specified in the notice.
Landlords cannot increase the rent during a fixed-term agreement of less than two years, unless a term outlining the future increase has been included in the original tenancy agreement. The term must spell out the exact dollar amount of the increase, or explain exactly how an increase will be calculated, i.e. by providing a percentage.
During a fixed-term agreement of more than two years, the rent can be increased at anytime, provided the required notice is given. However, landlords may not increase the rent more than once every 12 months.
If there is no written agreement, landlords cannot increase the rent during the first six months of the tenancy.
Landlords can only increase the rent if the tenancy agreement includes a term that specifies the landlord’s right to increase the rent, as well as the exact amount or method of this increase. The rent can only be increased once every six months.
Landlords generally can’t increase the rent of a property during a fixed-term agreement. Picture: realestate.com.au/rent
During a fixed-term agreement, landlords may only increase the rent if a term in the agreement enshrines their right to do so and states the exact increase amount or exact method by which the increase will be worked out.
However, landlords cannot increase the rent more than once every six months – even if the rent increase coincides with the end of the tenancy and the landlord is renegotiating the lease with the current tenants.
If the agreement is periodic (i.e. it has no end date), landlords are free to increase the rent as they please, as long as they provide the required notice and it has been at least six months since the last increase, or since the tenancy started.
If a condition in the tenancy agreement states that the landlord has the right to increase the rent and states the exact method by which the increase will be worked out, or a condition states the exact amount and exact date an increase will occur (e.g. “rent will increase to $400 per week from 1 July”), a landlord may increase the rent no more than once every 12 months, as long as they provide the required notice.
Landlords may also increase the rent when negotiating a lease extension, provided it has been at least 12 months since the last increase.
Landlords can increase the rent when the tenancy agreement includes a condition that allows for an increase, or when there isn’t a written fixed-term agreement, as long as they provide the required notice and it has been at least six months since the previous increase.
Landlords must provide renters with plenty of notice before increasing the rent. Picture: realestate.com.au/rent
Landlords cannot increase the rent before the end date of a fixed-term agreement, unless the tenancy agreement contains a term that allows them to do this. Should the agreement contain such a term, landlords are permitted to increase the rent no more than once every six months, as long as they provide the required notice.
If the agreement is periodic, landlords may increase the rent once every six months, if they provide the required notice. However, they cannot increase the rent during the first six months of the tenancy.
During a fixed-term agreement, landlords may only increase the rent if the tenancy agreement specifies how much the rent increase will be or the exact method by which it will be calculated. In these circumstances, landlords may increase the rent once every six months.
If the landlord and pre-existing tenant agree to extend the lease after the fixed-term agreement’s end date, the landlord cannot increase the rent for the first 30 days of the new agreement.
Tenants can ask their local tribunal to assess the rent increase if they believe it is excessive. Picture: realestate.com.au/rent
States do not set limits on rent increases. However, if a tenant feels that the increase is excessive, they can appeal to their local tribunal or commissioner and request an assessment.
To determine whether the increase is excessive, the relevant body will take into account the market rents of comparable properties, the difference between the proposed and current rent, the property’s current condition, the value of any maintenance work carried out by the tenant with the landlord’s consent, the time passed since the last increase, and the terms of the tenancy agreement.
Should it decide in favour of the tenant, the tribunal will likely enforce a maximum rent, which usually stays in place for 12 months.