What to know about increasing rent?

Increasing rent has become a topical issue in recent months. It's an understandable need, but it also involves risk for landlords. In the following story, Rendin experts explain the possibilities of increasing rent and why landlords should carefully consider this intention.
Published date 06.07.2022
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What to know about increasing rent?

The experience of Rendin clearly shows how people's interest in rental homes has multiplied in recent months. On average, 15–30 people apply for one apartment. For example, a few weeks ago, more than 180 candidates applied for a rental apartment in Tallinn, which the landlord rented through Rendin.

While the increase in the average rent of new rental agreements is perceived as a natural market reaction, the subject of increasing rent during an existing contract causes an emotional reaction in both tenants and landlords. So, can the landlord increase rent while the agreement is ongoing?

The landlord must act according to the Act on Protection of Tenants’ Rights

The Act on Protection of Tenants’ Rights stipulates that the landlord has the right to increase the rent once every six months. Landlord must remember about certain requirements:

  1. Art. 8a. 1. of the Act states that the owner may increase the rent or other fees for property use by giving notice of its current amount, at the latest at the end of the calendar month.

  2. There is a three-month notice period for the rent amount unless the parties agree on a longer period in the contract

  3. The notice must be made in writing, otherwise, it is null and void.

When can the rent for renting an apartment be increased?

The act clearly specifies how often the owner may increase the rent:

Rent for property use may not be increased more often than every 6 months, and this period is calculated from the date when the increase took effect. The possibilities of applying the increase depend on the form of concluding the contract and its provisions, agreed by both parties.

- says Borysław Pasierbski, owner of the Wynajemca.com.pl website.

It is worth remembering that this rule does not apply to fees independent of the owner, such as electricity bills.

How much can the landlord increase the rent?

The Rendin-affiliated expert adds that not only the frequency but also the amount of increases that the landlord may introduce is regulated by the legislator:

It is assumed that an increase in rent for property use in a given calendar year may only be made up to the average annual price index of consumer goods and services in the previous calendar year. Such an increase is seen as justified, which means that it will be difficult for tenants to contest it

- comments Borysław Pasierbski from Wynajemca.com.pl

This index is published by the President of the Central Statistical Office, and for 2021, it is 4.9%. Using an apartment with a rent of PLN 2,500 as an example, we can face a monthly rental cost increase of PLN 122.50.

How to justify a rent increase?

In justified cases, however, this increase may be much greater. A justified case is defined by the legislator as a situation in which the owner does not receive enough income from rent or other fees for property use to cover the maintenance costs of the premises, as well as ensure return on capital and generation of profit.

In the current market situation, we can expect that more and more rental apartment owners will face such circumstances.

Here, too, the act provides a limit to the rent increase. To calculate its amount, the owner may determine the annual return on capital at a level not higher than either 1.5% of the cost of building or purchasing the property or 10% of the cost incurred to improve it

- added Borysław Pasierbski.

To use another example, if the apartment cost PLN 450,000, the acceptable annual increase may be as much as PLN 6,750, which amounts to PLN 562.50 per month.

Can the tenant not agree to have rent increased?

When faced with written notice of cancellation of the previous rent and information about the rent increase, the tenant has several options:

  1. They can accept it, which means the increase is then effective in accordance with the above-mentioned statutory deadline. Remember that if the tenant does not react to the notice within two months, it is tantamount to them accepting the increase.

  2. They may request for the owner to justify the rent increase and provide appropriate calculations.

  3. They may, within two months from the date of the notice, appeal it in court if they believe that the amount of the increase is unjustified.

When does the landlord have an obligation to justify the rent increase?

If the increase causes the annual rent amount to exceed 3% of the property’s replacement value, the landlord is obliged to provide the tenant with a justification and the calculations behind the increase, in writing, within 14 days of receiving the request. If the landlord does not meet this deadline, the raise will be considered ineffective.

What is the property’s replacement value?

The property’s replacement value is the usable floor space of the flat multiplied by the conversion index for the replacement cost of 1 m² of the building. This index is determined twice a year by the voivodes and determines the average construction cost of 1 m² in a given voivodeship.

For example, for the Capital City of Warsaw, this index is currently at PLN 7894.77 (for April 2022 - September 2022)

So if the apartment area is 50 m2, its replacement value is 50 x 7894.77 PLN = 384 738.50 PLN

It is therefore worth noting that in this example, 3% of the replacement value, as mentioned in the law, is PLN 11,542.16 per year, which amounts to PLN 986.84 per month.

The rent for most apartments of this size exceeds this amount, so in practice, almost every landlord will be required to provide the tenant with a written justification of the rent increase and appropriate calculations.

The risks of increasing rent and its impact on rental income

Increasing rent seems like a positive opportunity for the landlord since it will increase the rental income. In addition, it offers financial relief and makes it easier for the landlord to cope with their own increased expenses such as rising prices of fuel, electricity, gas and food as well as increasing mortgage payments, with many rental apartments being financed on credit.

The CEO and co-founder of Rendin, Alain Aun, points out that people don't often think about the risk of losing rental income instead of earning it.

The realization of the threat is growing on a daily basis since it's related to the tenant's expenses, like an increase in rent and utility bills and a general increase in the cost of living. As a result, many people must make precise adjustments to their spending to cope with the cost of living in the autumn and winter

- says Alain Aun, and he adds:

Here, we must take into account that the salaries of the majority of the population will not catch up with the increase in prices, which can cause serious difficulties in coping financially. Therefore, tenants' difficulties in payment have already been inscribed into the future of many landlords

Alain Aun warns.

The above explains why landlords should think carefully about whether and how much they really need to ask for additional monthly rent.

Deposits don't protect landlords from problems

Asking a traditional deposit from the tenant doesn't help in not incurring debts, as the first unpaid rent is enough to forfeit the deposit. A complicated and volatile life underscores the importance of the solution offered by Rendin, where the risks are managed and hedged by a secure rental agreement that includes a payments guarantee and property protection for the landlord as well as a deposit-free renting option for the tenant. It is possible to prevent significant losses by working with Rendin.

Recommendations for the landlord

In a rental relationship, honest and open communication is the most important. The landlord should always encourage the tenant to report any potential concerns or problems. The sooner the situation can be dealt with, the better the solution. Examples:

  • The tenant inadvertently damaged a piece of furniture in the rental apartment.

  • The tenant's pet caused damage to the interior of the apartment.

  • Something has happened to the tenant, and they have to delay paying their rent.

Every landlord should give their tenants recommendations for optimising heating or summer cooling costs. Heating and cooling systems may have features or other solutions unfamiliar to the other person. Thanks to the landlord's guidance, the tenant can choose the most sensible method of consumption according to the season to save wherever possible. Examples:

  • On a warm summer day, there is no point in keeping the windows open in the apartment if the air conditioner is on simultaneously.

  • If the apartment has both stove heating and an air source heat pump, it is worth reviewing the latter's settings so that the two heaters don't work against one another.