When and how to increase rent

posted in: Real estate legislation | 0

When I am out and about working with our members, one of the most common topics of conversation at the moment is how to handle the negotiation of a new lease with an existing tenant when the owner wants to increase the rent at the same time. There are two separate issues to consider here, one being the negotiation of a new tenancy agreement for an existing tenant, and the other being the rent increase (if any).

Many agents and property managers that I talk with sometimes forget that the rent increase is a separate issue to the negotiation of a new fixed term agreement. Where this becomes an issue for some is that when the tenant doesn’t return a signed lease agreement on time, there is question about whether or not the rent can increased. In short the answer is no, unless, the tenant has been issued with at least two months’ written notice (as per the RTRA Act).

If an agent is offering the tenant a new fixed term tenancy with the rent being a higher amount than they were previously paying, there is actually no minimum notice period required. What this means is that if a tenant was on a periodic tenancy agreement today, and agreed to sign a new fixed term agreement tomorrow at a higher rental price, then this is okay as it is a new agreement. It is only if the tenant remains on a periodic lease that two months’ written notice is required.

Best practice is that property managers discuss options of extending tenancies with their clients three months before the expiry to allow time for a new tenancy agreement to be sent out and if applicable, enough notice given about the rent increasing (should the tenancy revert to a periodic). As I mentioned above, it’s not a requirement to give any notice but it certainly makes life a bit easier giving the tenants notice so they can work out whether they want to stay on at the property.

A common issue we have seen with the process of negotiating new tenancies is when an agency sends out a new fixed term tenancy agreement and in the same envelope sends a Form 12 Notice to Leave, basically giving the tenant an ultimatum. It is not wise to adopt this practice. Send out a notice to a tenant three months out, and then if they haven’t returned in the nominated timeframe, discuss with your client the options from there (Form 12 or periodic tenancy).

 

By Nick Brown, Best Practice & Compliance Advisor, REIQ