Don't Get Blindsided! How to Prepare for Rent Increases in Your Lease

Legal Q + A

Apr 19

Written By Graham Settleman

Key Considerations for Including Rent Increase Provisions

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Leases are crucial documents that establish the rights and responsibilities of both tenants and landlords. A key element for both parties is rent, and predictability around potential increases is important for budgeting. This article explores how to include provisions for rent increases during the lease term in your lease agreement.

Fixed vs. Variable Rent

Leases can offer either fixed rent or variable rent structures.

Fixed Rent: The most straightforward option, a fixed rent remains constant throughout the entire lease term. This offers stability for tenants but may not account for rising property costs for landlords.
Variable Rent: This structure allows for adjustments in rent during the lease term. There are different ways to establish variable rent, which we'll explore further below.

Including Rent Increase Provisions

If you opt for a variable rent structure, clearly outlining the increase provisions in the lease agreement is essential. Here are some key considerations:

Timing of Increases: Specify when rent increases can occur. Common options include annual increases on the lease anniversary date or after a set period (e.g., 18 months after the lease start).
Calculation Method: Determine how the increase will be calculated. A fixed percentage increase (e.g., 3% per year) is simple. You can also base it on a Consumer Price Index (CPI) increase, reflecting inflationary adjustments.
Notice Period: Establish how much notice the landlord must give the tenant before a rent increase takes effect. This allows tenants to plan financially and decide if they want to remain at the property. Common notice periods range from 30 to 90 days.

Sample Clause for Rent Increases

Here's an example of a clause outlining rent increases in a lease agreement:

Rent Increase: The initial monthly rent shall be $[amount]. The rent may be increased by [percentage] annually on the anniversary date of this Agreement. Landlords shall provide written notice to Tenant of any rent increase at least [number] days prior to the effective date of the increase.

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Additional Considerations

Caps on Increases: Negotiate a maximum allowable increase per year or over the entire lease term to limit rent spikes.
Market Adjustments: Consider including a clause allowing for adjustment based on market conditions upon lease renewal.
Tenant Improvements: If the tenant makes significant improvements to the property, stipulate if they can be factored into future rent increases.

Benefits of Clear Rent Increase Provisions

Including clear provisions for rent increases benefits both parties:

Landlords: Predictable income adjustments to reflect rising property costs.
Tenants: Budget certainty and knowledge of potential future costs.
Reduced Disputes: Clear communication upfront minimises disagreements later.

Local Regulations

It's important to be aware of any local regulations regarding rent increases. Some regions have rent control measures that limit the amount or frequency of increases. Research your local laws to ensure your lease agreement complies.

Conclusion

By including well-defined provisions for rent increases in your lease agreement, you can establish a fair and predictable system for both the landlord and the tenant. Open communication and clear expectations are key to a successful and harmonious rental experience.

Information published to or by The Industry Leader will never constitute legal, financial or business advice of any kind, nor should it ever be misconstrued or relied on as such. For individualized support for yourself or your business, we strongly encourage you to seek appropriate counsel.