Everything you need to know about rent increases

While it could be necessary for investors to increase rent periodically, you need to work out when to raise it. Ultimately, the rent charged should be determined by the current market rate. By doing your homework and comparing your property to similar ones in the local area, you can determine whether you can increase the rent without losing your tenants. If others are charging more, it's a good indication you might be able to raise your rent, and it's less likely tenants will leave to find something more affordable.

A few things to remember:

• You can only increase the rent after the first 12 months of tenancy.
• Provided the increase is not within 12 months of the last increase.
• If your tenant signed a fixed-term agreement, you can only increase rent if the tenancy agreement allows this.

Returning to normal rent after it has been reduced for a period isn’t considered a rent increase.

Once you’ve worked out whether you’re able to raise the rent, you’ll need to provide your tenants with a written notice of rent increase. Keeping a copy of this notice for your records is essential.

If you're using myRent to manage your property, the rent increases can be prepared and signed electronically through the system.

You must give a tenant no less than 60 days notice (plus service period) of a rent increase.

There are some exceptions where a landlord and tenant can agree to an increase in rent outside of the usual 12-month period:

• If the landlord improved the property, which increases its value and benefits the tenant.
• If the landlord improved facilities or services for the tenant.
• If the landlord changed the tenancy agreement to benefit the tenant (for example allowed pets).

Give tenants plenty of notice to take the shock away and to adjust their budget. If they choose not to renew the lease and decide to move out, you’ll give yourself extra time to start advertising without having a vacancy period.

The law doesn't set limits on rent increases.

Remember, your costs don’t dictate what you should charge for rent; the market does. The Residential Tenancies Act prescribes you can only charge fair market rent for your property. It’s designed to stop landlords unfairly forcing tenants into high rent.

A small rent increase can be easily managed by the tenant through a few lifestyle adjustments, where a big jump could push your tenant to look elsewhere and could be more costly in the long run.

If your tenant feels that the increase is excessive, they can apply for a rent review with the Tenancy Tribunal.

To determine whether the increase is excessive, the Tribunal is likely to take into the account the following:

• the market rents of similar properties in the neighbourhood,
• the difference between the proposed and current rent,

• the property’s condition,

• the notice period given to the tenant,
• the time passed since the last increase,
• the terms of the tenancy agreement.

If a landlord is found to be charging significantly more than for other similar properties, the Tenancy Tribunal will decide in favour of the tenant. It is likely to enforce a maximum rent, which usually remains in place for 12 months.

If an increase isn’t communicated well or is too high, you can risk straining the relationship with tenants, which could lead to further issues.

Yes, legally you can ask your tenants to "top-up" the bond when increasing rent.

Do you have to? No.

Don't forget you must lodge the extra bond by completing a bond lodgement form.

Clear, professional communication is vital and will go a long way towards reducing conflict with a tenant over a rent increase. Make sure you cover all the necessary information, leaving no room for confusion.

Be realistic. No tenant will be happy about paying more. However, if you follow the correct and fair process, you can get through it with fewer complaints.