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What to know about increasing the rent price?

22.06.2022

What to know about increasing the rent price?

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, the experts of Rendin explain the possibilities of increasing rent and why the landlords should carefully consider this intention.

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.

Continuing demand for rental homes and a general rise in prices in nearly all areas are also driving broader growth in rental prices.

The landlord must act according to the Law of Obligations Act

The Law of Obligations Act stipulates that in the case of a termless agreement, the landlord has the right to increase the rent once a year. There are two ways to do this:

  1. Notify the tenant of your intention 30 days in advance.

  2. Upon concluding the lease agreement, establish with the tenant that the rent will increase periodically.

The Head of Legal and Compliance of Rendin, Lia Siht, explains that in choosing the first option, the landlord must keep in mind that the notice of a rent increase must be in written form that can be reproduced. "The notice must include: the extent of the rent increase and the amount of the new rent; a fixed date for the increase in rent (at least 30 days after the transmission of the notice); the justification and calculation of the rent increase; the procedure for contesting a rent increase."

Siht emphasizes that the tenant must not be threatened with the termination of the agreement in the event of a dispute over a rent increase – this will render the notice of the rent increase meaningless.

When choosing the second option mentioned above, the parties may agree on the extent of the rent increase or the basis of its calculation (a specific sum, percentage, or index). The landlord and the tenant agree on whether the rent will increase within the term specified or upon informing the tenant. "If the parties have agreed that the rent will increase upon notifying the tenant, the landlord must give notice of their intention 30 days in advance. The notice must be provided in a reproducible format," the expert explains.

The risks of increasing rent and its impact on rental income

Increasing rent seems like a positive opportunity for the landlord since rental income will increase. In addition, it offers relief and makes it easier for the landlord to cope with their own increased expenses (Euribor and monthly loan payments, electricity/gas, fuel, etc.).

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."

"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," he 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 incur debts, as the first unpaid rent is enough to forfeit the deposit. A complicated and volatile life exacerbates 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 and 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 costs. Heating and cooling systems may have features or other solutions that the other person is unfamiliar with. 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.