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Is Your Rent Increase Legal?

Rents seem to be on the rise in most areas of the country right now.  Some are predicting this trend to continue for a few more years.  As landlords we obviously want to maximize our rental income to increase our cash flow and increase the value of our real estate holdings. But you can’t just go and increase rents across the board at any time.  There are certain steps and rules one must follow for it to be legal.

First, you have to remember that your lease is a contract between you and your tenant.  This contract spells out, among other things, the amount of rent to be paid, when the rent is due and the term of the contract.  If your lease is like most residential leases out there it has a specified term, often for one year.  That term generally sets the clauses of the lease in stone meaning that you cannot raise the rent without the consent of the tenant during term of the lease.

So unless you have specifically put some type of language in your lease allowing you to increase the rent during the term of the lease, you cannot raise the rent until the end of the lease term.  Can you put special conditions in your lease to allow an increase in rent?  Sure, if local laws allow it.  You could for example state that the rent will increase if property taxes are increased.  Your tenant would have to agree to it beforehand however and that is not likely.

Once the term of the lease is completed or just before completion, you can begin to renegotiate new terms for the lease.  Now you can increase the amount of rent.  To do so however you usually have to send notice to the tenant stating that the terms of the lease will be changing and what those changes will be.  This notice usually has to be sent at least 30 days prior to the time the rental increase is to go into effect. 

For example, if you want a rent increase to be effective on May 1, 2014 you need to send a notice to your tenant no later than April 1, 2014.  This notice is nothing more than a letter from you to your tenant spelling out the terms of the rent increase.  At least that is how it works here in Memphis, Tennessee.  Local laws can differ greatly.  The City of Seattle for example makes things much more complicated.  So be sure and know your local laws to make any rent increase legal.

A word of caution is necessary however.  I would not go hog wild raising rents unless you are in a particularly hot market.  Raising rents to much might cause many of your tenants to leave creating lots of tenant turnover.  And tenant turnover is the biggest cashflow killer out there.  Think about all of that new paint and carpet along with all of the other repairs that will need to be done once a tenant leaves. 

So don’t shoot yourself in the foot by raising your rents to high or too fast.  Give careful consideration to rent increases.  Perhaps gradually and gently is a better way to go.

Comments
One Response to “Is Your Rent Increase Legal?”
  1. Lienda Carter says:

    Fielder Square Apts. previously owned by one of Fred Smiths corp. we had security at night. So many of our rights have been taken away. Co. from CA bought this property & is passing on their tax increases & etc. to we long term good temants. Anyone a tenant @ Fielders have a comment??

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