Single-family rent price growth in the U.S. recently hit another record, increasing by 12.6% year over year. According to a press release from CoreLogic (March 15, 2022), all major metro areas covered by the company experienced year-over-year rent increases.
That means the question many landlords will face is not if the rent should be increased, but when. In this article, we’ll review how much notice to give a tenant for a rent increase, list free online tools for determining fair market rent, and discuss what to include in a rent increase notice.
Key takeaways
When a landlord can increase the rent depends on the type of lease and local and state landlord-tenant laws.
If a tenant is on a long-term lease, a landlord typically must wait until the end of the lease to increase the rent. On the other hand, if a tenant is renting month to month, in most cases a landlord must give a tenant a 30-day notice prior to the beginning of the month the rent increase will go into effect.
Local and state landlord-tenant laws regulate how much notice must be given to a tenant before the rent can be increased.
The legal resource website Nolo.com maintains a page with links to the landlord-tenant laws for each state. Landlords also may wish to consult with a local residential real estate attorney or property management company to learn more about real estate laws in specific rental property markets.
Here are some general rules to follow when giving a tenant notice that the rent will be increased:
Month-to-month lease
A 30-day notice must be given to a tenant before raising the rent. In most cases, the rent increase notice must be received by the tenant 30 days before the beginning of the month the rent is to be increased. For example, if a landlord wishes to raise the rent on a month-to-month lease beginning August 1, notice must be given to the tenant prior to July 1.
Long-term lease agreement
If a tenant is renting on a long-term lease, such as a one-year or 2-year lease, most states require that a 30- or 60-day rent increase notice be provided to a tenant. That means if a lease expires July 31, notice must be received by the tenant 30 to 60 days before the end of July.
Some landlords who offer long-term leases of more than a year build in an annual rent increase of a predetermined amount. For example, the rent on a 2-year lease may be $1,500 per month for the first year, then automatically increase by 5% to $1,575 for the second year.
The advantage to both landlords and tenants is that rental income and expenses are more predictable. A landlord knows how much rental income will be received without worrying about vacancies between tenants, and a tenant knows how much to budget for rent.
However, a landlord who offers a lease of longer than a year with a built-in increase may find that fair market rent increases exceed the automatic increase in the lease. Of course, the opposite also could occur if rents in the market unexpectedly decline.
Related: Looking for an easier way to collect rent from your tenants? Check out Stessa rent collection – a free tool that makes it easy for tenants to pay on time, and automate key tasks like deposits, receipts, and accounting. Get notified when a payment is made and when it’s been deposited in your account.
One of the potential risks a landlord faces when raising the rent is that the tenant may decide not to renew the lease. A home that sits vacant for an extended period of time before a new qualified tenant can be found doesn’t generate any rental income, but operating expenses and the mortgage still need to be paid.
That’s why it’s important to accurately determine the fair market rent prior to sending a tenant a rent increase notice . Also known as FMR, fair market rent is the monthly rent price of similar homes in the same area as the one being rented. If a rent increase is fair compared to comparable rentals, a tenant may be more likely to renew a lease with a higher rent.
Determining the fair market rent is similar to running comparables to determine the purchase price of a home. Factors that influence fair market rent include:
Here are tools landlords can use to help calculate the fair market rent of a property:
Some cities and states have laws that control how much the rent can be raised, if at all.
Residential rent control laws may limit the frequency and timing of rent increases, permit rent increases only in extraordinary circumstances, such as a property renovation or improvement, and limit a landlord’s ability to evict a tenant.
The National Multifamily Housing Council ( NMHC ) maintains a page with an interactive map of rent control laws by state.
A rent increase notice must be delivered to a tenant within the statutory timelines and signed by both landlord and tenant to show both parties agree to the rent increase.
A basic rent increase notice includes:
Rent increase notice templates can be found online from websites such as LawDepot and eForms or obtained from a local residential real estate attorney, an investor-friendly real estate agent, or a local property management company.
Most real estate markets today experience more demand for rental property than there is supply, with rent prices steadily increasing year after year. In most cases, a tenant probably won’t be surprised to learn that the rent is increasing at the end of the lease.
Giving proper written notice of a rent increase will give a tenant enough time to budget for a higher monthly rent, follow local and state landlord-tenant laws, and allow a landlord sufficient time to market the property if a current tenant decides not to renew the lease.
