If you own rental property, you will be looking to improve your revenue streams, and one way of doing this is to increase the rent you charge your tenants. It goes without saying that if you are keen to increase rent to improve your cash flow, it should be based on the prevailing market rates, tax increase, and inflation.
Remember, you cannot increase rent without informing the tenant, and a rent increase letter serves as a formal notification for your tenant. Usually, you have to send the increase rent letter at least 30 to 60 days before the current lease expires. The lease renewal letter with rent increase not only informs the tenant that the landlord is amenable to renewing the lease with a caveat – higher rent. The letter is a way to officially document the increase, something that your tenant cannot deny later on.
Use an official rent increase letter rather than a friendly rent increase letter. That way, you can be certain that you have legally fulfilled the requirement of notifying the tenant about the rent increase when their existing lease expires.
Who Takes the Rent Increase Letter Agreement? – People Involved
The rent increase letter is used by property owners and landlords of commercial and residential properties. The letter is sent to commercial and residential tenants just before the existing lease expires and when the landlord or property owner decides to increase the rent for various reasons, including inflation and an increase in property taxes.
The letter is designed to inform the reason for the increase in rent. It helps the landlord maintain the integrity and transparency of their business. It is considered a polite and professional way to inform the tenant that their rent will be increasing.
Purpose of the Rent Increase Letter Agreement – Why Do You Need It?
A rent increase letter to tenants is to inform them about the increase in rent. That is the main purpose of this letter. It also communicates with them in an honest and transparent manner as to why the landlord is looking to hike the rent, as the letter contains the reason for the increase.
Since the rent increase letter should be given to tenants a month or two months prior to the expiration of the lease, it allows the tenant to either agree to hike in the rent or give a notice to the landlord that they would be vacating the premises when their lease expires.
So, one can say that the main purpose of the letter is to inform tenants about the increase and allow the tenants to decide whether they are comfortable with the hike. Usually, if the tenant is not happy with the hike, they will try to negotiate with the landlord to bring down the rent. If all efforts fail, the tenant will then give notice to the landlord, informing them that they will be leaving the rental property at the end of their lease term. At that point, the landlord still has an opportunity to revise this letter if they feel they would not like to spend time, money, and effort to find a new tenant.
Contents of the Rent Increase Letter Agreement – Inclusions
As long as this letter is not an act of discrimination or retaliation, you can send the letter to the tenant 30 to 60 days before the existing lease expires. However, do make sure that the proposed rent increase complies with the state and regional laws. For instance, a rent increase letter in California should comply with the specific requirements related to the increase, the notice that you need to provide to the tenant, and the frequency of the increase. Remember, rent control areas include California, Washington, D.C., New York, New Jersey, and Maryland.
When writing a letter to your tenant regarding the increase in rent, it is best to sample rent increase letters at hand. It will allow you to customize the sample to suit your needs. Some of the key inclusions in the letter include the following:
- Name of the tenant
- Address of the tenant
- Address of the rental property
- New rent that you want the tenant to pay
- Reason for the hike in the rent
- The date from when the new rent would be payable
- The date when the tenant would have to make the payment
- Whether there are any changes to the terms and conditions of tenancy
- Signature and date of the landlord
- Space for the tenant to agree to the increased rent and terms and conditions so that they can sign their consent and date it
Residential properties are more stringently regulated than commercial properties. But for both, you need to comply with the existing laws and regulations in your state and region.
How to Draft the Rent Increase Letter Agreement?
When you are writing the rent increase letter, it may help to have a rent increase letter sample with you. That way, you will find it easy to create the letter and ensure you do not miss out on the essential points.
While drafting the letter, be mindful of the following:
- Make sure you have concrete proof of the prevailing rent in the neighborhood to substantiate the increase in rent
- Mention the reason for the increase
- The rent increase letter should include the lease renewal details, rent increase amount and the new rent amount, the date from when the new rent will come into effect and instruction on how to communicate if the tenant does not agree to the new rent
- You can attach a friendly rent increase letter with the formal notice of rent increase to personalize the letter and demonstrate your care for the tenant
- Have a subject line in the letter so that the tenant knows what the letter is regarding
- Ensure the letter lets the tenant know that they can contact you at any time if they have queries
- It does pay to compliment the tenant for being a model tenant
- Close the letter with a personable ending, like sincerely or all the best
Just make sure that the rent increase complies with the rent laws in your jurisdiction. That way, the tenant cannot complain about it being unfair or discriminatory. Also, ensure the tenant knows that they can approach you if you are willing to negotiate or put their doubts to rest.
Negotiation Strategy
If you have a model tenant and do not want them to vacate the premises, you can make a few exceptions to ensure they stay on. One of the ways of doing this to show them the proposed rent increase figure with the number crossed out and writing a smaller percentage that you are going to charge them. You can also offer them a compromise by saying that you will lower the increase if the tenants agree to sign a longer lease.
Benefits & Drawbacks of the Rent Increase Letter Agreement
There are pros and cons to a rent increase letter that the landlord should be aware of before they decide to write this letter.
Some of the advantages of rent increase letter include the following:
- The Landlord can get the same rent for similar properties in the market
- The increase allows the landlord to cope with inflation and increased property taxes
- The letter makes communication transparent between the landlord and tenant
- Gives the landlord an opportunity to appreciate and compliment the tenant
- Shows the integrity and honesty of the landlord
- Hike in the rent can help the landlord improve the property for the tenant
Some of the disadvantages of rent increase letter are as follows:
- A model tenant may give notice of vacating the premises as the hike may be too high for them
- The Landlord may have to suffer a loss of revenue if the hike mentioned in the letter is too much for the tenant
- If the hike is not as per the prevailing laws, the tenant can take the landlord to court
- A Landlord will have to spend time to find a new tenant if the existing one does not agree to the hike
What Happens in Case of Violation?
The landlord should ensure that the rent hike is per the rent laws in the region and state so that they do not violate the laws and regulations. In a rent control zone, the hike percentage should be as per the law in the jurisdiction(1). If not, the tenant has the right to sue you.
After receiving the rent increase letter, the tenant reserves the right to disagree with the rent increase. In case the higher rent is a reasonable increase, the tenant has to move out. If they continue using the premises after their old lease expires, they have to pay the new rent. If they do not, they can be subjected to eviction and legal action.
If a tenant has leased the property, the landlord cannot increase the rent in the middle of the lease term. If they do, the tenant can point out the error to the landlord. If the landlord does not agree to rescind the hike, the tenant can consult an attorney to chart out their next course of action. On the other hand, if the tenant does not adhere to the terms and conditions of the lease and they receive a rent increase letter, the landlord has the legal rights to give the tenant an eviction notice. In case the tenant feels that the hike in the rent is discriminatory or retaliatory, they can sue the landlord.
Landlords have to be mindful that they follow the legal procedures if they want to increase a tenant’s rent. The landlord should inform the tenant with written notice of the increase, and this notice is known as rent increase letter. In addition, the landlord should ensure that the letter reaches the tenant 30 to 60 days before the tenant’s lease expires. Using a rent increase sample letter will help a landlord draft out their own letter.
It is also prudent to realize that any hike in the rent can also affect the security deposit. The maximum amount that the landlord accepts as a security deposit is based on the monthly rent. So, if the rent increases, the landlord can ask the tenant at their own discretion to put an additional amount for the security deposit. This additional amount should be paid at the same time when the rent increase comes into effect.
[Also Read: Lease Extension Agreement]