Rent increases are an inevitable part of a landlord or property manager’s job. Each year, the local rental market and overall costs fluctuate, often requiring a property owner to increase rental rates to maintain profits. Similarly, if competition for local property is heating up, you’ll want your monthly rent amount to keep pace — after all, you always want to get the most value out of your rental property.
Yet, as a landlord or property manager, before you can increase rent, you need to reach out to tenants with a written notice to let them know that their monthly payments will be increasing before their current lease ends. This is done through a rent increase notice, also known as a rent increase letter.
A rent increase notice allows each tenant to determine whether they can afford the proposed rent increase or if they should leave the property. Part of a landlord’s due diligence legally and ethically is to provide tenants with a rent increase notice, which is why it’s essential that there is a template and system in place for the end of lease terms.
In the best-case scenario, a well-written rent increase notice will help you maintain a good landlord-tenant relationship, while also decreasing tenant turnover. We’ll break down all you need to know to ensure your rent increase notice fulfills all requirements and comprehensively informs your tenants of rent changes.
What is a rent increase notice?
A rent increase notice is pretty straightforward. It’s a written document that details how much rent will increase for the tenant alongside when that change will occur.
Every landlord and property manager should familiarize themselves with local tenant laws to guarantee that they are following proper protocols. AAOA has some resources for tenant-landlord laws in the states below, which you can explore for additional information:
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When and how to send a rent increase notice
As previously stated, each landlord must check in with local and state laws and regulations to ensure they’re sending a rent increase notice correctly. It’s also important to verify that you’re following any requirements listed in your lease agreement when issuing a rent increase. However, there are many ways you can choose to send rent increase notices.
A landlord can choose to share this notice digitally, by mail or in person, but it must be shared an appropriate amount of time before the current lease term ends. Typically, a rent increase notice is sent between 30 to 60 days before the end of the current lease. Even if you have a month-to-month tenant, many jurisdictions will still require a minimum of 30 days’ notice when raising your tenant’s rent. If a tenant chooses to reject the rent increase, this ensures that there is enough time for the tenant to move, as well as for the landlord to start looking for new prospective tenants (e.g. enough time for tenant screening).
It’s best practice to not implement a rent increase mid-lease. Your tenants won’t be happy with you and it may even prompt legal action on their end.
Important note: You can’t issue a rent increase as a form of retaliation or discrimination. This legal standing exists to defend tenants who are exercising their legal rights, such as making a complaint to a public authority concerning defective conditions in the house or apartment. If you raise the tenant’s rent as a form of punishment, they will have legal grounds to sue.
Reasons for a rent increase
As a property owner, it’s important to make sure you’re getting the most value out of your rental unit or units. Expenses increase each year and you’ll need to calculate how to maintain a positive cash flow. Your goal is to turn a profit. Below are the most common reasons to issue a rent increase notice:
- Inflated property taxes
- Increase of insurance premiums
- Higher HOA or apartment associations dues
- Elevated utility costs and bills
- Inflated cost-of-living standards
- Necessary repairs and maintenance expenses
- Increased property manager fees
You don’t want your property to become a liability. To ensure that your assets continue to turn a profit, these factors must be accounted for each year. Determining how much rent to charge for your property should be addressed each year during lease renewals or tenant turnovers to adequately cover the value of your rental property.
How does a rent increase affect the tenant’s security deposit?
When accepting a new tenant, most landlords require a security deposit based on the monthly rent. But when the monthly rent increases, what happens to the tenant’s security deposit?
If the tenant chooses to reject the rent increase notice and move out, then the security deposit amount doesn’t change. It can be applied to any necessary damages (if there are any) in the unit and the tenant can be returned the remaining amount (or full amount, if there is no damage).
However, if the tenant chooses to accept the rent increase and remain in the rental property, then their security deposit amount may also be affected. This depends on which state you’re renting in. Some states have a set maximum amount that a landlord can charge as a security deposit, which is based on the monthly rent amount. If that monthly amount increases, then the landlord can ask for an additional amount to match the current security deposit with the new rent total.
If the security deposit amount needs to be increased, then that additional amount of money will be due on the same date that the new rent goes into effect.
A landlord or property manager can also choose not to ask for additional security deposit money — it’s up to your own discretion.
Reminder: Always be sure to check your state and municipality laws to confirm that you’re within your rights to change the security deposit due to a rent increase.
What if the tenant cannot afford to pay the increased rent?
Part of the importance of the rent increase notice is to provide both parties — the landlord and the tenant — enough time to respond.
In some cases, the tenant may try to negotiate with the landlord about the monthly rent increase. If they are an ideal tenant with a great rental history, it may be worthwhile to open negotiations. A reliable tenant may offset the goal of increased profits. A tenant may even offer help with maintenance on the property, such as shoveling snow in the winter, which might be an attractive offer.
However, if you’re in a competitive market or do not want to negotiate, then the tenant will have to move out to find a less expensive property. A proper rent increase notice will give you enough time to search for a new tenant to fill that vacancy once the current lease term ends.
If the tenant agrees to the rent increase notice but then does not follow through on those monthly payments, the landlord can pursue late fees or, eventually, eviction due to non-payment of rent.
Rent increase notice template and other landlord forms
Whether you already have a system in place or are new to implementing a rent increase, AAOA gives you access to a comprehensive rent increase notice form that will help streamline the process.
Find the form under “Notice of Rent Increase” on our landlord forms page here.
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This information is not meant to substitute for legal advice. If you have issues or questions regarding a rent increase, it is recommended that you seek the advice of an attorney. Many local and state bar associations have referral services that can assist you in locating an attorney or you can find one here.