One of the sore points when it comes to residential and commercial tenancies is in the area of rent increase. Every property owner views his property as an asset that ought to generate an income except he or she is living in the property or using it for some other personal purposes. Once the property is leased to a tenant, the landlord or landlady wants regular and increasing income to come from the tenant.
The common pattern is for a tenant to come into a property after agreeing to pay in advance for a certain number of months or years in advance at a fixed rate. If the tenant is still interested in staying in the property after the initial term, then he or she is asked to pay a new rent that is higher than the initial rent. Most tenants are not surprised by rent increase but they are often surprised by the percentage of the increase and the frequency of the rent increase.
When the percentage increase in rent is very significant or the property owner or manager is in the habit of frequently increasing the rent, such as annually, those increments are likely to be met with resistance. Most tenants are much more open to negotiating a new rent increase that is reasonable after paying the same rate for two or three years.
Most tenants also understand the unwritten rules that govern your inability to agree with your landlord or landlady. If you fail or refuse to comply with the rent increase demanded even when it is unreasonable the next letter that will be issued is usually a notice to quit. In some cases, it works the other way round, the tenant is issued a notice to quit first and expected by the landlord or landlady to come and plead that he or she is still interested in staying in the property. It is at this point that the tenant is then asked to pay a new rent.
Property owners and property managers sometimes face a dilemma on how to handle tenants that have spent several years in a property. Oftentimes, these tenants pay rates that are not commensurate with the prevailing market price and are often not interested in paying the new rate. In places where the landlord or landlady also lives in a portion of the property and personal relationships might have developed between them, the only way of dealing with rent increase is indirectly.
The government in some states of the federation has tried to regulate the initial rent that a new tenant should pay in advance as well as trying to regulate various aspects of landlord and tenant relationship with very little success. The major constraint is that the government does not model how things should be done in this area. For instance, in countries where rent increases are highly regulated, the government has public housing that is affordable and accessible. Social housing policies make owning or renting a property easy and the rules are enforced.
This gap in government policies and actions has given property owners and managers greater leverage in this delicate balance of power. One of the common trends is to agree generally upfront to renegotiate the rent after the expiration of the initial term granted and to use whatever is the market rate at that time as a benchmark. Because there is no regular and generally agreed rent benchmark to use, both the landlord and tenant end up going back and forth before agreeing on any rent.
A less common practice is to agree on the percentage of increase after the initial term granted. This definitely eliminates the need to renegotiate the rent every time and provides a certain amount of comfort and predictability for both parties. At the same time, it carries the risk of being too high or too low since several economic, social and political factors that cannot be accurately predicted will ultimately impact on the prevailing rental prices of properties in particular areas.
In the rare cases where parties are unable to reach an agreement as to what rent is mutually acceptable to pay they would have to resort to the law court or to arbitration. The court process is generally unpredictable in the area of time required and the eventual outcome. Both parties will end up incurring additional expenses which could be significantly higher when compared with the rent increase that is being disputed. When it comes to rent increase negotiation is better than litigation. Fortunately, negotiation is the path chosen by most people and only few unresolved cases end up in court.
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