Can landlords renegotiate rent after they complete renovations?
Landlords can check the terms of their property’s Lease Agreement as well as state and local laws to determine whether they can renegotiate the rent for a property after renovating it.
Most leases lock the rent at a certain rate for the duration of the lease, usually six months to one year, though some leases give the landlord permission to raise the rent after major renovations, or if other conditions are met. Regardless, landlords are generally free to ask for higher rent when the current lease ends, or at renewal time. If you are a landlord looking to raise rent at that point, describe the completed renovations specifically and cite them as the justification for increased rent in the Lease Renewal Agreement.
It’s also important for landlords to check the state and local laws that govern rent in their area. Most places allow landlords to renegotiate rent so long as the lease does, but some cities and states impose additional restrictions on rent increases for certain properties, such as those that have been classified as rent-controlled or rent-stabilized. For example, more than 50% of apartments in New York City are rent-controlled, meaning that the landlords of these properties cannot raise the rent by more than 3.25% each year. Reach out to a Rocket Lawyer network attorney to help find the rent-control laws that may apply to your property.
Note that raising the rent in multi-unit properties like apartment buildings can be tricky if only certain units are renovated or subject to rent increases. It can be especially helpful to speak with a lawyer when navigating these more complex situations.
How much can a landlord raise rent to cover renovation costs?
Unless a property is rent-controlled, landlords are generally free to raise the rent as much as they want. Tenants, however, are only going to be willing to pay so much. This amount depends largely on the rental market. Rental increases typically range from 2 to 5%, with an annual increase of about 2% being standard even without renovations. After substantial renovations, however, landlords may want to research market listings for comparable properties and adjust the rent accordingly.
If a property is rent-controlled, landlords are required to stay within the limits set by the applicable law. In these situations, it can be smart to plan for regular annual increases within the limits in order to not fall behind too far on the market value.
How can a landlord initiate a raise in rent?
The most important thing for a landlord to do when raising the rent is to communicate with the tenant clearly, early, and in writing.
Well before you intend the rent increase to take effect, notify your tenant of the rent increase in writing. The lease may specify a minimum notice period, and most states require at least 30 days’ notice. You can draft a Rent Increase Letter to lay out the proposed amount of increase and proposed effective date. It is also worthwhile to explain why you are raising the rent and demonstrate that the increased rent is still competitive with the local market rate. Finally, be sure to include your contact information in the letter along with an invitation for the tenant to communicate with you further about the proposed increase.
Remember that tenants have the right to move rather than agree to increased rent. Since even one month of vacancy can offset the income from increased rent, it is typically wise to remain flexible in negotiating a higher rate that is still affordable for your tenants.
Can landlords renegotiate an active lease?
If a rental rate is locked in by a lease that still has significant time remaining, the landlord may nevertheless be able to renegotiate their agreement with the tenant to raise the rent in exchange for the proposed renovations. In this event, it’s a good idea for the landlord to memorialize the renegotiated rent in a written and signed Lease Amendment that they keep with the current lease document.
If you are considering renovations to a property with a current lease, consider approaching the tenant before making the renovations. Describe the improvements you’re contemplating but make it clear that they would come with an increase in rent. That way, you can gauge your tenant’s willingness to pay. Especially if you have a responsible, long-term tenant, bringing them into the renovation process early can reduce the risk of having to absorb the cost of the improvements or find a new tenant.
If you have already made renovations and have a tenant who refuses to pay increased rent, you can ask them to sign an Agreement to Cancel Lease before the lease ends so that you can find a new tenant that is willing to pay the higher rate.
What tips can help landlords negotiate a new lease or a lease renewal with higher rent?
Keep these tips in mind when negotiating for higher rent after renovations:
- Be knowledgeable. Know your rights and responsibilities, and your tenants’ rights and responsibilities, under state and local law. Keep tabs on local rental rates for properties like yours, both before and after renovations.
- Be realistic. Set your rental rate to cover your expenses and meet your income goals without being excessive.
- Be considerate. Consider increasing the rent over a longer period of time to reduce sticker shock and make the transition to higher rent easier for tenants, especially those you want to retain. Give tenants as much notice as possible, 90 days or more, before rent increases to give them time to decide whether to pay for the improved property or move out.
- Be proactive. If you know your tenant plans to move out at the end of the current lease, use the turnover time to look for a new tenant who is willing to pay the higher rate while holding the rate steady for your current tenant. Note that you may still want to provide your current tenant with a Rent Increase Letter in case they change their mind and decide to stay.
If you have more questions about raising rent, or managing your rental property, reach out to a for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.