Increasing rent at the end of an agreement
The Residential Tenancies Authority has been receiving an increasing number of calls from both tenants and property managers seeking clarification on the process for increasing the rent at the end of a tenancy.
At the end of a fixed term agreement
The Residential Tenancies Act 1994 specifies that the rent cannot be increased during a fixed term agreement unless a special term of the agreement that complies with section 53 of the Act states otherwise. Rent can be increased at the end of a fixed term agreement.
A property manager has two options if their lessor wishes to increase the rent at the end of a current fixed term agreement. Firstly, they can wait until the end of the agreement when it will automatically become a periodic agreement and then give the 2 month's notice of the rent increase required by section 53(3)(a) of the Act for periodic agreements.
Secondly, the property manager can advise the tenant well in advance of the end of the fixed term agreement that the lessor is offering a new agreement with higher rent. The tenant has the option of either accepting the new agreement (which will commence at the end of the current agreement) or not accepting it. If they do not accept the offer of the new agreement, the lessor has the option of either letting the agreement roll over into a periodic agreement on the same terms and conditions including the rent, offering a new fixed term agreement with the same rent or giving the tenant 14 days notice that the agreement will end on the end date of the agreement.
It is good practice to give the tenant at least one month's advice of the offer of the new agreement with the increased rent. If the tenant does not accept the new agreement and the lessor wishes to give notice that the agreement will end on the end date of the agreement, this allows time for the property manager to organise a new tenant to rent the property. It also allows time for the tenant to find a new place to live, organise the move and ensure they have enough money to cover the bond and rent in advance if they move into a new rental property.
It is important to note that the offer of a new agreement at the end of the current agreement is an offer and not a notice of a rent increase. The offer does not take effect unless the tenant accepts it.
The RTA encourages agents to find out from the lessor and tenant what their position is well in advance of a fixed term agreement ending, to reduce the chances of tenancies ending in dispute. It is often quicker and easier to talk to each party about their intentions, negotiate if appropriate and then confirm the outcome with the appropriate paperwork. Simply sending out a new agreement can lead to delays, misunderstandings and possibly bad feelings that result in a dispute.
During a periodic agreement
The Act provides that rent can be increased during a periodic agreement by providing 2 month's notice of the rent increase. Sometimes a lessor may prefer to have tenancies managed on fixed term agreements rather than on periodic agreements. The fixed term agreement offered may include a higher rent. However this new agreement will only take effect if the tenant agrees to accept the new agreement. To avoid misunderstandings and a possible dispute, property managers should discuss details of the new agreement including the increased rent clearly with tenants before the new agreement is signed.
It is not advisable or fair to use this process simply to try and circumvent the 2 month notice period for a rent increase for a periodic agreement. As well as potentially resulting in a dispute, it may well lead to the loss of a good tenant.
