My buddy James just called with a classic tale of woe. Signing a one-year lease on a place he just loved, he took for granted the price and terms. When the lease expired and turned into a month-to-month, he was shocked by a 10 percent rent raise. Six months later, it spiraled up another 10 percent.
“How can they do that?” he quizzed. “Isn’t there a limit to how often and how much my rent can shoot up?”
It depends on exactly where you live and the laws that apply. Lease arrangements, notice laws for the area and rent control can add texture to this common yarn. Understanding a few basics may help keep your finances from unraveling:
Which lease is best? A fixed–term rental agreement gives long-lasting protection from the cold, even if the property is sold. Usually fixed at a year, leases provide a written contract, agreeing to a price and terms for the rental that can be for any mutually agreeable length of time.
What happens when the lease time is over? Read the fine print, since some automatically convert into a month-to-month situation.
Month-to-month agreements. The worst for rental increase protection, since most states allow raises based on just 30-day (or rent payment interval) notice.
Are oral notices allowed? No. Only written increases are permissible.
How often can rent be raised? Assuming no lease or rent control is in effect, the rent can be raised as often as the owner wants–so long as the notice period is obeyed. For example, if the notice period is 30 days, you could conceivably be raised every 30 days. Rent-controlled cities, such as Berkeley, Santa Monica and Washington, D.C., allow only annual increases for designated properties. Los Angeles, for example, has allowed 3 percent annually for the past several years.
Exceptions. Some areas link the warning time to the rental rate. On the theory that time is money, California requires raises over 10 percent to have 60 days’ notice served. Less than 10 percent remains at 30 days’ warning time. Elderly and special needs citizens have separate notice law statutes.
How much can it be raised? In non-rent-controlled areas, the answer is “sky’s the limit.” But in reality, “whatever the market will bear” is most likely because move-outs cost owners money, too. Lost rent, painting and the hassle of showing the place add to the equation. In rent-controlled areas, annual allowable increases vary from a flat rate of $16 to a percentage based on rent ranging from 1 to 10 percent.
Can it be prorated? Yes. Surprisingly, notice can be served any day of the month, not just when rent is due. For example, an increase letter dated the 15th could request the new rent 30 days later, making the rent higher for the first by the pro-rated amount. Confusion is frustrating, so most owners stick to the rental due date for notice and increases.
What else? Even with rent control, additional occupants may trigger rent increases. Another surprise increase, capital improvements based, is allowed on a per-unit basis, usually running about 60 months. Such improvements have to benefit the common area, such as a new roof or driveway.
What if the rent raise is legal, but you think the increase is unfair? Try a friendly chat with the manager or landlord. Asking to “split the difference” or delay the increase is worth a try. One tenant informed me she was pregnant, and money was tight. “Could I ask the owner to wait six months until she returned to work?” she asked. The owner agreed.
Point out the benefits of your remaining as a tenant, especially if you have a proven track record. Don’t beat around the bush. If you rarely complain or cost management money, remind them in a nice way. Sometimes, the owner will reconsider if the increase triggers a vacancy.
Retaliatory increases. What if the rent was raised to punish you for excessive complaining? Such increases are not allowed in most states. Check local laws or with an attorney for details.
Remember that rent increases, like the cost of all consumer goods rising, are reality. The owner can only charge what people are willing to pay. If the rent is beyond your reach, consider stretching or seeking other options. It’s up to you.
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