Raising rent on inherited tenant but need help with CPI
Hi,
I'd like to raise the rent on an inherited tenant. I'm sending her a letter with the proposed increased 60 days prior to her lease ending. She currently pays $1050/month but market value is about $1500. I'm thinking a $250 increase is a reasonable middle ground; however, I came across this statement in my town's code:
At the expiration of a lease or at the termination of a lease of a periodic tenant, no landlord may request or receive a percentage increase in rent which is greater than the percentage increase in the consumer price index for the past calendar year prior to the termination of the lease.
How exactly can I figure out what's allowable for this rent increase? Any advice is appreciated!
Thanks,
Megan
Hi @Megan Brooks,
Check out this website:
https://www.bls.gov/regions/ne...
I think it will get you going in the right direction. Having spent a few minutes on that website, I'm very glad that CT doesn't have anything like that (or at least that I am aware of). Sounds like a brutal way to determine rental increase amounts - when it really should be very easy...should just be driven by comps in the area.
Best of luck :)
-
Real Estate Agent CT (#0807610) and MA (#9557050)
- Connecticut Property Management
@Megan Brooks I'm not a lawyer, and this answer is probably more than you asked for but work with me......
You can put her on a month to month, 3 month or 6 month lease and step it up at the end of each period per the CPI. This way it works within the boundaries of the law, you get your increase and the tenant still saves.
It's a little tedious in that you would have to "renew" the lease every month, or 3 to 6 months, but it doesn't lock you into a 1-2.5% rent increase for a year which is what I think the CPI increased last year.
Again, consult with an attorney or qualified professional but I think the above is well within the law.
The other option is to not renew the tenant's lease let them move and lease it at market rate. Not an ideal option, as I prefer to keep our tenants even at slightly lower than market rate.
I was wondering if I'd be able to not renew the lease for her. Do we have to give a reason for that? If she's willing to pay full price can we accept her as a "new" tenant? She's a great tenant but it's so far under the rent in the area.
I think your first idea is an option as well. I will check with my attorney. Thanks!
@Megan Brooks check your local law, but I don't think there is anything that prevents you from not renewing her lease, and I don't think you have to give a reason.
You could choose not to renew because you want to renovate the unit.
I thought about the "new" tenant option as well, but thought it would violate the city code you posted. Now you could argue she was under the previous landlord's lease, and in theory she's a "new" tenant to you under your lease terms and conditions. I think it's a stretch.
Hopefully, you have a creative attorney who can help you.
@Megan Brooks
My first thought was; “don’t renew the lease”. But you need to find out if local laws allow that. I was thinking that will be such a big increase that she likely won’t renew anyway. During these times, also do your research on how likely you are to get a new tenant ASAP. I’ve always been an advocate for raising rent to full market rate immediately. Tenants aren’t giving back their discount they’ve received for years, so why would anybody slowly raise rent to market rates?
Originally posted by @Megan Brooks:I was wondering if I'd be able to not renew the lease for her. Do we have to give a reason for that? If she's willing to pay full price can we accept her as a "new" tenant? She's a great tenant but it's so far under the rent in the area.
I think your first idea is an option as well. I will check with my attorney. Thanks!
Hi Megan. You're gunna want to read up on state AND local laws ASAP. NJ is probably one of the top 5 tenant friendly states.
Check out the link below...
https://nj.gov/dca/divisions/codes/publications/pdf_lti/t_i_r.pdf
page 4 of the PDF states...'No landlord of residential rental properties, except those in owner occupied
two- or three-family dwellings, motels, or hotels, transient, or seasonal units, may
fail to renew any lease, regardless of whether it is written or oral, unless they have
good cause not to renew the lease. The good causes for eviction are detailed under
the section entitled “Eviction.”'
Further info at...
https://nj.gov/dca/divisions/codes/offices/landlord_tenant_information.html
thank you for that site! This is the first time we are encountering this situation. I have reached out to my attorney for further advice.
Definitely agree with giving the tenant a one year, 6 month and month to month option. That way you give your tenant a choice. I am not sure about your market or how much cash reserves you have, but personally I wouldn't advice to price the 1 year lease too high because the turnover can cost a lot of money. You make your money when your tenant stays for longer than a year.
Then again if your market is $1500, if you have lots of cash, and if units are renting out like crazy, then definitely you should raise the price.