When conducting an annual review of rent, it's important to assess the entire merits of the tenancy. In the majority of cases, maximising income is the obvious goal and subsequently an increase will result, but it’s not always as simple as that. Deciding whether or not to increase your rent depends on a range of factors, and sometimes there are disadvantages to charging a tenant more. We take a look at the pros and cons of raising rents.

When can you increase rent?

Rent can be increased for a current tenant if the fixed term agreement has expired or if the tenancy agreement provides for increases during the fixed term, but tenants need to be given 60 days notice. Leases that commenced after June 19, 2019, can only be increased once per year, while leases that began before that date can be increased once every six months. As the end of a fixed term agreement approaches, it’s standard practice to review your rent and see if there’s room to raise it. If you’re wondering whether to raise your rent or not, your property manager can advise.

“The options must be weighed up with the client then making an educated decision,” explains Kay & Burton Property Management & Leasing partner, Carolyn Purnell-Webb. “An agent’s focus should always be to act in the best interests of the client, and in some cases not increasing or imposing a minimal increase is in the client’s best interests.”

What should you be mindful of?

One of the most important factors your agent will take into consideration before advising is the state of the present rental market.

“Because of the relatively fast turnover in the rental market, short supply can have a fairly immediate impact on the price achievable, so keeping abreast of listings is crucial in setting realistic and sustainable rents,” Carolyn says.

Capitalising on a short term high demand by asking for extremely high rent will maximise the first year’s rental, but savvy tenants may leave or negotiate the rent down upon renewal as market forces take hold, so it may be counter productive.”

Existing tenants will usually accept a reasonable rent increase once their fixed term agreement expires. It’s when landlords become too ambitious that issues can arise.

“Landlords should also note that an excessive increase can be stopped in its tracks by Consumer Affairs Victoria if a tenant lodges a dispute with them,” Carolyn adds. “CAV will conduct an assessment of the rent to ascertain if the increase is excessive, and can reduce or prohibit the increase.”

What are the benefits in maintaining rent for a long-term tenant?

There are advantages to having a long-term tenant that can outweigh the benefits of higher rents, and while a higher rent provides maximum income, it doesn’t necessarily guarantee maximum return.

First of all, zero vacancy is key when calculating your maximum return, and the costs of frequently seeking new tenants can quickly add up. In Carolyn’s words, “You can’t get more than 52 weeks rent per year”. If you have a good tenant who wants to stay long-term, consider maintaining their rent amount, as this way you won’t be paying additional leasing and marketing costs every 12 months. 

“A tenant who cares for a property in a way that minimises wear and tear or damage, keeps the property clean and pays their rent on time is a tenant worth keeping, so waiving a rent increase as an incentive to stay and to show appreciation for their tenancy is a strategic and wise move,” says Carolyn.

“If the decision is made to waive the increase due to a good tenant, let them know that the market suggests an increase is appropriate, but that the landlord has decided to waive the increase for a year to encourage this to continue.”

Balance is key

Essentially, landlords should aim to balance achieving maximum market rent with keeping their property occupied. Without tenants, there won’t be any return on your investment, so it’s best to be realistic in what you ask for. Remember to demonstrate that you value your good tenants – if they feel disrespected they’ll be more inclined to leave, which can increase a landlord’s expenses.

At the same time, avoid becoming complacent just because you have a long-term tenant. That property should still be regularly reviewed to make certain it’s in good condition and the tenant is one you want to keep.

Carolyn says fostering positive relationships is always best practice.

“I sincerely believe in the power of the rule of reciprocity, and have repeatedly seen how good deeds between landlords and tenants create win/win outcomes.”

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