Rent Adjustments: When & How to Make Rent Changes

In this article, we explore how the Residential Tenancies Amendment Act 2020 (RTAA) affects rent increases, how often property owners are able to make these, and the best way to go about doing so.

How often can rent be adjusted?

One of the key changes that the Residential Tenancies Amendment Act 2020 introduced was a limit on how often rent can be increased. This change was created in an effort to standardise rent adjustments and provide tenants with more financial security during their tenure in a rental property. The following conditions have been placed on rent increases:

• Rent cannot be increased within the first 12 months of a tenancy.
• Rent can only be increased once in any 12 month period.

These terms apply to both fixed-term and periodic tenancies. However, a fixed-term tenancy agreement may allow rent adjustments after 12 months if it is stated in the rental agreement.

Rental property owners and tenants can also agree to an earlier increase in rent if:

• The rental home has been improved to a standard that the value of the property has been increased and benefits your tenants. These improvements would need to be beyond the standard or necessary repairs or legislative requirements like Healthy Homes. They could look like adding luxury amenities such as a gym or pool to an apartment block, or additional space like an outdoor area or additional bedroom to a home.
• Facilities or services have been improved for your tenants. Again, these can’t fall under the category of ‘general or necessary repairs’.
• The tenancy agreement has been changed to benefit your tenants.

In any of these situations, it’s important to have honest and open conversations with your tenants and confirm any agreement in writing.

How much can rent be adjusted by?

Now we know how often rent can be adjusted, but how much can it be increased by? This is where it gets a little bit tricky. The law doesn’t expressly state how much rent can be charged in one instance. So, when deciding how much to charge for rent, try asking yourself these questions:

• What is the purpose of your rental investment? Is it for a passive income or to sell in the long-term?
• What are your expenses? How much rent do you need to charge to cover your costs?
• If your tenants left and you advertised the property at market rent, what would that be?
• What do other properties in the area charge?
• How does your rental home compare to these properties? Is it similar?
• How much will the current rent be adjusted by? Will your tenants be able to afford the increase?
• What costs will you encounter if you need to find new tenants after rent has been adjusted?
• Are you prepared to commit to the new rent cost for the next twelve months?

Tenants: what to do if you think the rent is too high

Although the legislation doesn’t specify how much rent can be increased by, there are some actions that tenants can take if they disagree with the adjustment.

1. Apply for a market rent review with the Tenancy Tribunal.
   A tenant can apply to the Tenancy Tribunal for a market rent review if the rent is significantly more than what is being charged for similar properties in the same area. This application needs to be made within three months of the tenancy beginning or within three months of the most recent rent review.
   
2. Research what similar properties are charging.
   If you want to apply for a market rent review, it’s important to gather evidence of what the market rent actually is. Try talking to your neighbours or checking TradeMe and other rental sites to verify what is being charged for similar properties in the area. You could also contact a local property management office and ask what their understanding of market rent is for the area.
   
3. Discuss your concerns with the rental property owner or manager.
   If you are concerned about the cost of a rent adjustment, try to discuss this with the property owner or manager. If you have a good, strong relationship with the property owner or property manager, you may be able to negotiate an adjustment which better suits your financial situation. After all, you don’t know if you don’t ask!

How do you make a rent adjustment?

If rent is to be increased, property owners must give tenants at least 60 days’ written notice. The written notice can be delivered by email or paper and needs to include the following elements:

• How much the rent will be increased by
• The date the increased rent is due
• The date of the notice

It’s also important that property owners keep a copy of the written notice.

Top tips for rental property owners

Here are our top tips for rental property owners who are considering making a rental adjustment:

Create a long-term budget

By renting out a property, you’re actually running a business, so it’s important that you know what you’re working with. For most people, owning a rental property is a long-term endeavour so it also pays to get a long-term view. 

When making your budget, it’s a good idea to create an emergency fund. This way, if the property receives unexpected damage from a pipe bursting or a strong storm, you’ll be financially prepared and may not need to raise rent to cover the expenses of repairs.

Tell your tenants of any planned changes before they sign a tenancy agreement

If you’ve already planned to make a rental adjustment in twelve month’s time, let your tenants know before they sign on to live in your property. This way, if they know the planned rent is out of their budget, they can make an educated decision about whether to sign the tenancy agreement or not, knowing they might have to move after a year. Being open and honest with your tenants is always a good idea, but make sure you only let them know about plans if they are guaranteed.

Get a free rental appraisal

Still unsure how much rent you should be charging? Quinovic offers a free rental appraisal to help you get started. You’ll get a detailed report sharing the earning potential of your rental property. This is a great way to get a professional’s point of view before committing to a relationship with a property manager. 

More questions?

Want to know more? Get in touch with your local Quinovic office today. Our team of friendly experts can provide professional advice to help with any of your property queries.