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Unconventional ways to increase rent

Thursday, May 09, 2019

IMG CREDIT: UNSPLASH

This week's question comes from John (paraphrased):  

With respect to rent increases can you:

1. Give notice for two or more phased increases e.g. rather than one notice for $20 increase in 60 days give one notice for two $10 increase, one in 60 days and another in 240 days)? 

2. Have as a condition in the tenancy agreement to increase the rent by $x per head for any additional tenant/flatmate who moves in during the tenancy?

 

No to both, we are afraid. 

A quick recap on rules for increasing rent (not covering scenarios involving fixed-term tenancies or tenancies that are subject to an annual rent increase process): 

- Generally, you can only increase rent once every 180 days. However, if work has been done to the property or its facilities or the nature of the agreement has changed to the benefit of the tenant then you and your tenant can agree to an increase even if that increase falls outside of the 180-day window.  Returning to normal rent after it has been reduced for a period is not considered a rent increase. 

- All increases must be properly notified in writing: 60 days (+ service time) for normal tenancies and 28 days (+ service time) for boarding house tenancies. 

- The written notice must include: how much the rent is increasing by and the date the increased rent will take effect from. The landlord should also retain a copy of the notice.

- You are entitled to collect extra bond money with each increase. The amount must be reflective of the increase and the rate of bond collected at the start of the tenancy. For example, if at the start of the tenancy you had collected three weeks rent as bond then a $10 per week increase would entitle you to collect from your tenant and lodge to the Bond Centre an extra $30.

See this and this for more information on rent increases. 

Related resource: APIA rent increase letter template

Turning back to John's questions and assuming that the tenancies he is referring to are neither fixed-term nor subject to annual rent adjustments, we will answer in parts:

To the first part of whether you can essentially give one notice covering two increases, we conclude no. Although a plain reading of s24(1) of the Residential Tenancies Act does not throw up any specific objection to a phased notice (so long as both increases meet the statutory requirements above) s25 renders the practice problematic. By giving the Tenancy Tribunal the power to review rent increases and bringing exorbitant rent back in line with the market, s25 sends a clear message that the basis for rent increase must be that of market rate rather than the whims and needs of the landlord and/or tenant. Our view is that it would be hard-pressed for anyone to predict market rent more than 240 days out to set (phased) increases accordingly.  Additionally, when we weigh up the admin time saved by serving one notice rather than two against the risk and hassle of a potential Tribunal hearing, we just don't see the value of issuing a phased notice. For these reasons, we do not suggest decoupling increases from their respective notices. 

To the second part of whether you can anticipate an increase in occupants and conditionally increase rent in the tenancy agreement on a per head basis, we have also concluded no. Firstly, any increases will have to meet the above conditions (time and notice). If the flatmate moves in within the 180-day window then the condition must fail. Additionally, a flatmate moving in does no absolve the landlord from the obligation to give a written notice for rent increase. A conditional increase in the tenancy agreement is not a written notice to increase and cannot possibly meet the requirements of a written notice (i.e. specifying the date from which the new rent applies) even if it is capable of being a written notice. 

A landlord may wish to argue that permitting a flatmate moving in would benefit the tenant in a way that warrants setting aside the 180-day rule but that argument must also fail. Firstly, there has to be a specific action by the landlord to improve the property, facilities or services in a way that increases the value and benefit of the tenancy agreement to the tenant. In this instance, not only is it doubtful that the value of the tenancy has been increased for the tenant, the landlord hasn't, in fact, acted. Setting aside the issue of value, both parties still have to agree to the increase outside of the 180-day period. That agreement is absent under this scenario. Our view is that the original tenancy agreement with the condition to increase rent on a per head basis cannot be considered an agreement to increase rent in this instance. To do so would make the tenancy agreement an agreement to agree which is generally problematic and not always enforceable. 

If the landlord's intention is to have tighter control on the number of occupants living in the rental property, rather than toying with legal acrobatics, we would suggest keeping things simple by doing the following: 

1. Set a maximum number of occupants in the tenancy agreement and one overall rent that covers the entire tenancy with no conditions attached; 

2. When the number of occupants exceeds the maximum, terminate the original agreement and set up a new one. This is a good opportunity to negotiate a new rent with your tenant. 

Note that this piece is not intended as legal advice. In answering John's questions we have researched the subject, spoken to our industry partners and relied on common sense to arrive at these answers. We recognise that every landlord has a different risk appetite and may choose to do things differently. That is not to say one is right and the other wrong. But being a conservative organisation means that we prefer to err on the side of caution. It is our view that rent increase is a simple and straightforward process that need not be complicated. Balancing risk against reward, we simply do not see any practical value to be gained by entertaining either of the scenarios suggested here. 

Do you have any tenancy related questions? Write to us at admin@apia.org.nz or hit us up on our social channels here and here

 

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