Everything you need to know about rent increases

Photo: 20150517ewr-lax-akl-wlg073 by Doc Searls

Negotiating a rent increase with a tenant can be an uncomfortable discussion to have, especially for first-time landlords. You might be worried about offending your tenant, scared they may leave or reluctant to put extra pressure on the relationship you have with them.

We've broken down the process you need to follow into steps to eliminate most of the angst from raising the rent. So you can begin to think of it as just another normal part of being a landlord.

1. When should you increase the rent?

While it could be necessary for investors to increase rent periodically, you need to work out when to raise it. Ultimately, the rent charged should be determined by the current market rate. By doing your homework and comparing your property to similar ones in the local area, you can determine whether you can increase the rent without losing your tenants. If others are charging more, it's a good indication you might be able to raise your rent, and it's less likely tenants will leave to find something more affordable.

A few things to remember:
- You can only increase the rent after the first 180 days of the tenancy.
- The legal minimum between increases is 180 days.
- If your tenant signed a fixed term agreement, you can only increase rent if the tenancy agreement allows this.

Returning to normal rent after it has been reduced for a period is not considered a rent increase.

2. How can you increase the rent?

Once you’ve worked out whether you’re able to raise the rent, you’ll need to provide your tenants with written notice of rent increase.

The notice must be served in writing, state how much the rent is increasing by, and the date the increased rent will take effect from. Keeping a copy of this notice for your records is essential.

3. How much notice do you need to give?

You must give a tenant no less than 60 days notice (plus service period) of a rent increase.

There are some exceptions where a landlord and tenant can agree to an increase in rent outside of the usual 180-day period:
- If the landlord improved the property, which increases its value and benefits the tenant.
- If the landlord improved facilities or services for the tenant.
- If the landlord changed the tenancy agreement to benefit the tenant.

Give tenants plenty of notice to take the shock away and to adjust their budget. If they choose not to renew the lease and decide to move out, you will give yourself extra time to start advertising without having a vacancy period.

4. By how much can you increase the rent?

The law doesn't set limits on rent increases.

Remember your costs don’t dictate what you should charge for rent; the market does. The Residential Tenancies Act prescribes you can only charge fair market rent for your property. It is designed to stop landlords unfairly forcing tenants into high rent.

A small rent increase can be easily managed by the tenant by a few lifestyle adjustments where a big jump could push your tenant to look elsewhere and could be more costly in the long run.

5. What if the tenant thinks the increase is too high?

If your tenant feels that the increase is excessive, they can apply for a rent review with the Tenancy Tribunal.

To determine whether the increase is excessive, the Tribunal is likely to take into the account the following:
- the market rents of similar properties in the neighbourhood,
- the difference between the proposed and current rent,
- the property’s condition,
- the notice period given to the tenant,
- the time passed since the last increase,
- the terms of the tenancy agreement.

If a landlord is found to be charging significantly more than for other similar properties, the Tenancy Tribunal will decide in favour of the tenant. It is likely to enforce a maximum rent, which usually remains in place for 12 months.

If an increase is not communicated well or is too high, you can risk straining the relationship with tenants, which could lead to further issues.

6. Can you ask for more bond money?

Yes, legally you can ask your tenants to "top-up" the bond when increasing rent.

Do you have to? No

Don't forget you must lodge the extra bond by completing a bond lodgement form.

7. How best to communicate rent increases?

Clear, professional communication is vital and will go a long way towards reducing conflict with a tenant over a rent increase. Make sure you cover all the necessary information, leaving no room for confusion.

Be realistic. No tenant will be happy about paying more. However, if you follow the correct and fair process, you can get through it with fewer complaints.

The Government is currently in the process of reviewing rental laws. Although these are not likely to become law until 2020, they can in future put a limit on rent increases to once per year, and force landlords to include a formula for any rent increases in tenancy agreements, giving tenants transparency about how increases might be calculated. If you're interested in reading more about it, read the Reform of the Residential Tenancies Act 1986

Have a question? Need help managing your rental property?

The questions about rent increases can be difficult to address, here at myRent.co.nz we help our users to answer these questions and provide guidance in difficult situations.

The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.

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