We all know that rents are skyrocketing around Australia.
So a question every landlord seems to be asking themselves at present is:
How often, and by how much, can I increase the rent on my investment property or properties?
There are actually two parts to the answer – how often you can increase the rent, and how often you should.
On one hand, there are legal limits you’ll need to be aware of, and on the other hand, you need to use your market knowledge and common sense to ensure planned increases are in line with local medians and supply.
And, as a property investor, you also need to avoid lengthy periods of vacancy or losing your reliable tenant.
It sure is a minefield, and there is no “one size fits all” answer – but the insights below should help guide you to make the best decision.
In most states, there isn’t legislation in place to regulate how much rent can be increased, so any price hike is generally determined by what is ‘reasonable’.
Unfortunately, there also isn’t a nationwide definition of a “reasonable” rent increase, so prices are generally influenced by local supply and demand.
Rental properties exist within the context of their local market, which will have a median rent being achieved for comparable properties.
When there is more demand than supply, such as in the current rental market, landlords have more power when it comes to rent negotiations.
And when there is more supply and less demand the opposite rings true, with renters holding all the power, as happened a few years ago.
But in the extremely low vacancy rate environment we’re experiencing landlords are increasing their rents, some for the first time in many years.
However, in all states and territories, if tenants find the proposed rental increase unreasonable they can challenge it with the local tribunal where a state government inspector will assess its fairness.
How often a landlord can increase rent depends on what type of tenancy agreement you have - fixed or periodic - and also what state you’re in.
Generally speaking, it can’t be done during a fixed tenancy, unless an increase is already written into your tenancy agreement.
Here’s a breakdown of the rules in each Aussie state and territory:
New South Wales
In New South Wales, unless it is specifically written into your agreement, rent can only be increased once every 12 months and the landlord needs to provide a 60-day' notice.
If the tenant is on a fixed-term lease, this can only occur at the end of the lease.
There is no cap on how much rent can be increased in New South Wales.
In Victoria, unless it is specifically written into your agreement, rent on fixed-term tenancies of less than 5 years can only be increased at the end of the agreement.
If it is written into the agreement, rent increases can occur every 6 months for agreements that started before 19 June 2019, or every 12 months for agreements that started after this date and require a 60-day’ notice.
Rent on periodic tenancies or fixed-term tenancies of 5 years or more can only be increased once every 12 months and require a 60-day’ notice.
There is no cap on how much rent can be increased in Victoria but you need to be able to show how the rise has been calculated.
In Queensland, rent for periodic tenancies can be increased every 6 months as long as the landlord gives a 60-day' notice.
Rent for fixed-term tenancies, unless specifically written into your agreement, can be increased at the end of the set term provided at least 6 months have passed since an increase and a 60-day’ notice has been issued.
There is no cap on how much rent can be increased in Queensland.
In Western Australia, rent for periodic tenancies can be increased every 6 months with a 60-day’ notice.
For fixed-term agreements, rent cannot be increased unless it is written into the agreement.
There is no cap on how much rent can be increased in Western Australia.
In South Australia rent for periodic tenancies can be increased once every 12 months and requires a 60-day’ notice.
Rent for fixed-term agreements cannot be increased unless it is specifically written into the agreement, with an explanation for how the increase has been calculated.
Rent can be increased with an offer for a lease extension, provided it’s been 12 months since the agreement started, or the rent was last increased.
There is no cap on how much rent can be increased in South Australia.
In the ACT, unless it is specifically written into your agreement with a calculation, rent can only be increased once every 12 months and the landlord needs to provide an 8-week' notice.
If the tenant is on a fixed-term lease, this can only occur at the end of the lease with an 8-week’ notice.
The ACT is the only state or territory in Australia which puts a cap on rent increases of up to 10% above the Consumer Price Index (CPI) for Canberra.
Rent increases of more than 10% above Canberra’s CPI will be considered excessive and can be refused by the ACT Civil & Administrative Tribunal (ACAT).
In Tasmania, unless it is specifically written into your agreement, rent can only be increased once every 12 months and requires a 60-day’ notice.
If the tenant is on a fixed-term lease, this can only occur at the end of the lease.
There is no cap on how much rent can be increased in Tasmania.
In the Northern Territory, unless it is specifically written into your agreement with a calculation, rent can only be increased once every 6 months and requires a 30-day’ notice.
There is no cap on how much rent can be increased in the Northern Territory.
If you decide to give notice of a rent increase but still want the current tenant to stay on, you must advise them in writing with at least a 60-day' notice.
In some states, there is an official form that you must complete in order to provide the tenant with the required a 60-day' notice of a rent increase, and tenants have the right to seek a rental assessment from the relevant governing authority, such as the Director of Consumer Affairs Victoria if they feel the increase is unfair or excessive.
They must do so in writing within 30 days of receiving the notice for a rent increase and it will then be up to the Tribunal as to whether or not the landlord has the right to put up the rent.
If you are renting out a property on a periodic basis, there is no need to give a lease renewal notice to the tenant.
If you are renting your investment property out under a fixed-term agreement and want to move to another fixed-term lease with a rent increase then you’ll need to organise and send the tenant a letter of notice to increase the rent AND a lease renewal notice at least 60-days before the lease is due to end.
This can be done via email or by personally delivering the letter.
At this point, a landlord can also notify the tenant of any proposed changes to the terms of the lease.
For example, if the landlord is proposing to increase the rent, or to change some other terms of the lease, these changes can be summarised within this letter.
It’s worth noting that the new agreement can include different terms and conditions from the first agreement.
The lease renewal letter must;
- Be in writing
- State the address of the rented premises
- State the date the existing lease will end and when the new lease will start
- Give the length and type of agreement
- Details, including contact details, for you and your agent, if they have one
- Whether the rental price stays the same or will be increased
- Whether any other terms remain the same or are changed
- Deadline date for responding
Wonder Legal Australia has a great and easily editable example of a simple lease renewal letter.
It’s also important that the landlord or agent keep a copy for their records.
You’ve already determined that you’re within your legal rights to raise the rent, but that doesn’t mean it’s necessarily a great idea.
It's important that landlords consider whether a higher rent will be more beneficial than having tenants stay in their property for longer.
Changing tenancies is time-consuming and has additional costs attached, such as loss of rent, reletting fees, and marketing charges – the total of which could be more than the proposed extra rent would bring over 6 months or a year.
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So first, take time to review the market and determine whether the environment is ripe for an increase.
Review other comparable local listings, with the same features as your property.
How much are they being advertised for?
What’s the median rent in the suburb for a dwelling like yours?
And importantly, what is the vacancy rate?
If the vacancy rate is tight (which it is in today’s market), that’s great news – a rent increase could be a wise move.
Your tenants are unlikely to move out, and even if they do there should be a fresh batch of new applicants queuing up to sign a lease.
In terms of how much you can increase the rent, there are no hard and fast rules.
However, you should be guided by the consumer price index and the asking rent for comparable properties in the area.
If your tenants do decide to dispute the proposed increase, these are the factors a Tribunal will look at to determine whether the increase is reasonable.
But if the vacancy rate is high, proceed with caution.
The property may end up sitting empty for several weeks or months, potentially eroding any gains you stand to make from the higher rent.
In this type of market, landlords should consider whether an extra $5 or $10 per week will make a big enough difference to their bottom line.
When rental supply exceeds demand, tenants have much more choice and may decide to simply move somewhere cheaper - in these cases, it may be prudent for landlords to wait another 6 or 12 months before increasing the rent.
Extended periods of vacancies are not what any landlord wants for their investment property so always keep in mind that long-term tenants who pay their rent on time and look after your property well are really the type of people that you want.
Regardless of the vacancy rate, there is one more factor to take into consideration:
What is the calibre of your tenants?
If you’ve got long-term 5-star tenants who treat the place like their own, it could pay to be a little more conservative with rent rises, or at least open to negotiation.
But, that doesn’t mean resting on your laurels and letting the rent stagnate for years.
Tips: Smaller, regular increases are unlikely to drive your tenants away, and they enable you to protect the viability of your asset while still keeping it affordable.
The bottom line is, if you’re attentive to maintenance requests, treat the tenants with respect, and have a great property manager who has built a rapport with them, an increase of $10 or $20 per week isn’t going to scare them away – and ensures that your investment property continues to move your financial position forward.