Increasing Rent - Rights & Obligations for Landlords
by Lorena D'Amico_Property Portfolio Manager
Ensuring your investment property is profitable is a primary focus for any Landlord. Standard outgoings and expenses for Landlords seem to always be on the rise, including landlords insurance, council rates, body corporate fees and water rates; not to mention fluctuating interest rates.
One aspect of your investment property you can ultimately control, to an extent, is the rent payable for your property. It is essentially your Property Manager’s responsibility to ensure the rent you are receiving for your property is at the current market rate, and is providing you with appropriate levels of return. For this to occur, your Property Manager should be facilitating regular and fair rent increases.
As a landlord, what are my legal requirements when increasing rent?
Under the Residential Tenancy's Act 1997 (RTA), a Landlord must give 60 days’ notice to a tenant if they wish to increase the rent (they must also allow for postage time). Notice must be served to the tenant in writing by registered post.
Landlords are entitled to increase their tenants’ rent every six months; however there are conditions to this time frame.
For instance, for tenants who have signed a fixed term lease, the rent cannot be increased for the duration of the term signed. Usual practise is for tenants to sign a 12 month lease, and if this occurs, the rent cannot be increased for this whole term.
If, however, a tenant signs a periodic lease, or a tenant sees out the term of their fixed term lease and moves into a periodic lease, the Landlord is entitled to review and/or increase the rent every six months.
To ensure the rent for your investment property is not under market value for a period of time, it’s wise for your Property Manager to issue a notice of rent increase to your tenant approximately 65 days prior to their fixed term lease expiring, so the increase coincides with the expiration of the lease. If you simply wait until the fixed term lease expires before you issue a notice of increase, you will then have to wait 2 – 3 months before you will receive the extra rent, which results in an avoidable loss of income.
How much is too much?
When increasing rent for clients, I am often asked how much the rent can legally be increased to. Technically, there is no limit or percentage of increase under the RTA that stipulates what you, as a Landlord, can enforce; however the increase cannot exceed market value. Determining what market value is can be tricky, and if questions arise, these can usually be resolved following the advice of independent industry bodies.
If the rent for your property is significantly under market value, and you wish to increase it, you can’t make the increase too excessive so that it causes financial strain to the tenant: the rent will have to be increased in increments so that it is fair and justified, to avoid any complications.
Rent increase disputes
A notice of increase must be issued on a document provided by the Residential Tenancy Board. On the bottom of this notice are the contact details of Consumer Affairs, which are listed to provide the tenant with an option to challenge the landlord if they believe the increase is unreasonable.
If Consumer Affairs are approached by a tenant for a dispute, they will conduct an investigation into the property and rent increase. They inspect the property, and take into account any outstanding maintenance or matters which the tenants have raised with their Property Manager or landlord which haven’t been resolved. As a landlord, it’s in your best interest to ensure maintenance of your investment property is attended to in a timely manner, and the property is kept in good repair at all times.
If Consumer Affairs deem, after inspecting the property, the rent increase is not at market value, or is too excessive, they can authorise for the requested increase not to be honoured. Consumer Affairs also have the ability to set the current rent for a period of time, often 12 months, with no rent increases being allowed during this term.
Maintaining good tenants
Having good tenants in your investment property not only provides peace of mind for your asset, but also assists you financially in the long run, as you’re not constantly having to attend to issues or worry about your property being vacant for a period of time.
As a landlord, you need to take into consideration the risks of increasing your rent by too much, as it may result in your tenants moving out. This is not an ideal situation to be in, as you can then incur reletting costs and also be at risk of your property being vacant between tenancies.
If you have great tenants who are really looking after the property, it’s best for your Property Manager to speak with them about a possible rent increase and try and negotiate a fair deal, to avoid losing the tenants altogether.
The importance of having a Property Manager
Having an experienced and efficient Property Manager for your investment property not only takes the hassle out of the ongoing maintenance of your asset, but they can also facilitate communication between tenant and landlord so that all parties are comfortable with the arrangements at hand.
If you would like to discuss any of these matters in further detail, or wish to speak with a member of our Property Management division, please contact our Client Liaison Officer on 1300 726 082 who can arrange an appointment for you.
To arrange an appointment with a John Hopkins Property Portfolio Manager, please contact our Client Liaison Officer on 1300 726 082 or click here.