Some landlords automatically raise rent at lease renewal time. There's nothing necessarily wrong with that approach. After all, if a landlord's expenses rise from one year to the next (which they usually do), and if that landlord doesn't raise rent to offset the rise in expenses, that landlord has effectively taken a pay cut. Most businesspeople can't stay in business that way.
There's usually a valid reason for a yearly rental increase. But there are questions regarding raising rent. Just because a landlord can raise rent, should they always do so? Is there a limit on how much a landlord can raise rent? What about rent control or rent stabilization: Can a landlord raise rent then?
Why landlords raise rent
Landlords, despite what many people might think, don't just pocket all the monthly rent money they receive. Landlords have many expenses, many of which go up every year. That's the main reason landlords raise rent: to keep up with expenses.
Here are some expenses a typical residential landlord has:
- Property maintenance: This includes things like termite service, lawn maintenance, HVAC maintenance, gutter cleaning, and pressure washing.
- Property repairs: This includes fixing anything that breaks. And with a home, things break.
- Property taxes: Landlords pay property taxes to their local government, county, and state.
- Landlord insurance: This is similar to homeowners insurance except it covers homes that are being rented out. It covers the property as well as the landlord's personal property if kept there (not the tenant's personal property). It also has a liability portion in case a tenant is injured from the fault of the landlord not maintaining the property.
- Mortgage payments with an ARM (in some cases): If the landlord has an adjustable-rate mortgage on the property and the interest rate rises on the loan, so does the landlord's mortgage expense.
- HOA dues (in some cases): If there's a homeowners association, the landlord pays the dues.
- Property management fees (in some cases): If the landlord uses a property manager, those fees can increase from year to year.
- Trash and utilities (in some cases): Depending on the rental agreement, the landlord could be responsible for paying trash and utilities.
If any landlord expense goes up in any given year, the rent increase usually reflects that rise.
Another reason landlords might raise rent is to keep up with market-rate rents. If the area has experienced growth, for example, and rents are rising all around, unless a landlord is bound by rent control, they might raise the rent to be in line with area rents.
A typical rent increase
A typical rent increase is usually between 2% and 5%. So if rent is $2,000 a month, an average rent increase would be somewhere between $40 and $100 a month (or between $480 and $1,200 for the year).
Raising the rent a steady 2% to 5% a year is usually easier for a tenant to handle than it would be if the landlord were to not raise the rent for several years and then hit the tenant with a 10% increase, for example. If that happened, the tenant who has been paying $2,000 a month would need to come up with an extra $200 more for rent each month, or $2,400 more for the year. That's getting into a significant change and would likely cause many tenants to move out.
Rent increase laws
Unless a rental unit is subject to rent control or rent stabilization laws, landlords can typically raise the rent as much as they like, as long as they don't change the rent during the current lease. But at lease-renewal time or with proper notice in the case of a month-to-month tenancy, the landlord can change the rent to whatever they like unless there's a particular state or local law that limits this.
What prevents landlords not under government regulations from increasing rent to astronomical levels is the market. Not many tenants will stay if the rent isn't commensurate with area rents, no matter how much hassle and expense is involved with moving. If the tenant leaves, the landlord would need to deal with tenant turnover costs at the very least and might need to deal with a vacancy as well, which adds to the cost. The goal with rent increases is usually to get a higher rent while not raising it so high that a tenant leaves.
Besides needing to abide by rent control laws if they apply, landlords also cannot raise the rent on, say, Black people and not white people or on families and not single people. That sort of practice would be discrimination, which is illegal under the Fair Housing Act.
In most states, landlords can't raise the rent to retaliate against a tenant for something a tenant did that displeased the landlord. For example, if a tenant complained to the city or housing authority about a housing code violation, causing the landlord to remedy the problem, the landlord can't raise the rent only because of the tenant complaint.
How much rent-increase notice a landlord needs to give
Landlords need to notify tenants of a rent increase before they start charging more for rent. Here are three scenarios regarding how much notice a landlord needs to give tenants:
A landlord can change the rent anytime with a month-to-month tenant after giving the proper notice the state requires. Most states require a 30-day notice, but that could vary between seven and 60 days.
Tenancy with a lease agreement
A landlord can change the rent at lease-renewal time. If a landlord wishes to renew a tenant's lease, they usually present the tenant with a new lease before the current lease ends. The new lease will have all the new terms in it, including the new start and end dates and the new lease amount. Landlords typically notify tenants one or two months before the current lease term ends.
Rent control/rent stabilization tenancy
If the rental unit falls under rent control laws, the landlord can increase rent based on the specific rent-control law for that jurisdiction.
The pitfalls of raising rent
The most common pitfall of a landlord raising rent is the tenant leaving. If that happens, the landlord would need to ready the unit for a new tenant, advertise the unit, and then see if someone else will pay that increased rent. If the rent increase is fair and is in line with market rate rents, the landlord shouldn't have a problem re-renting. But if the rent hike is excessive enough, that landlord will most likely be looking at a continued vacancy and, if that happens, won't be collecting any rent at all.
Another pitfall of raising rent is the possibility of getting into legal trouble. If the landlord doesn't follow state law, such as not giving proper notice, or raises rent in a discriminatory or retaliatory manner, that landlord can be sued.
Landlords don't have to raise rent
Landlords don't always need to raise rent. During a national crisis, such as a pandemic, landlords with good tenants who might be facing a temporary hardship might decide to keep the rent the same (or even decrease it).
Landlords with tenants who are handy around the house and can make an occasional repair might not want to raise the rent in that case, either.
The Millionacres bottom line
Rent increases are usually par for the course when renting property. When costs rise for landlords, landlords usually need to pass on those rising costs to tenants in the form of higher rent if they want to stay in the landlord business.