Investment Property Fixed Rent Review Clause

whitfords on 18/01/2024 - 19:46
Last edited 19/01/2024 - 11:16

We own a property and have had it tenanted for about a year. It is time to renew the lease and in the email sent by the property manager is this recommendation:

Due to the ever changing rental market, we recommend placing in a fixed rent review within all Lease Agreements. This allows for a review of the rental price within 6 months of the agreement commencing and the opportunity to increase should market evidence show an inflation in rental pricing within that time frame. Our suggestion is to place a standard 10% increase option within the agreement. Should you not wish to proceed with this standard clause, please advise.

From what I can see in the current lease agreement there isn't anything preventing a 10% increase so was wondering why they are now recommending that a clause of this nature is added in. Property is in WA.

TIA

EDIT: A lot of people in the comments have read the post as intention to increase the rent by 10%. We’re not doing this, and we were more curious about why the REA is suggesting adding a clause like this if there doesn’t seem to be any restriction to increasing the rent by more than that currently.

Home & Garden

Comments

  • Muzeeb on 18/01/2024 - 19:56
    +14

    Property managers are more concerned, above anything else, about lining their pockets, now and in the future.

    This will be to the PM's advantage, definitely not the tenant and possibly not yours if the tenant jumps ship and the property is vacant temporarily.

    • DashCam AKA Rolts on 18/01/2024 - 21:12
      +11

      Due to the ever changing rental market, we recommend placing in a fixed rent review within all Lea$e Agreement$. Thi$ allow$ for a review of the rental price within 6 month$ of the agreement commencing and the opportunity to increa$e $hould market evidence $how an inflation in rental pricing within that time frame. Our $ugge$tion i$ to place a $tandard 10% increa$e option within the agreement. $hould you not wi$h to proceed with this $tandard clau$e, plea$e advi$e. - Real E$tate Agent

      FTFY

      • Muzeeb on 18/01/2024 - 21:14
        +5

        That make$ $en$e. ¢heer$

        • pegaxs on 18/01/2024 - 22:40
          +1

          Rents make cents, cheers.

    • Gunnar on 19/01/2024 - 07:23
      +2

      This! Reading the clause it reads to me as a way that you can be charged additional fees for redoing the lease or a rental review.

      Personally I’ve never heard of said clause but the first question I’d ask the PM is something to the effect of “if I agree to this and there is a rent increase mid lease, what fees will You be charging me and/or the tenant”.

      It's highly unlikely the tenant would be billed but I’d be surprised if you did not get slapped with a fee of sorts.

      • whitfords on 19/01/2024 - 11:21

        Thanks for that. Didn’t even think about additional fees that might pop up as a result of amending lease agreement.

  • Talvash on 18/01/2024 - 20:29
    +4

    I rent a commercial property and have rented several others in the past. Because they are multi year leases it's common to have an annual raise stipulated. Every property I've leased has been between 2.5-3% or CPI which ever is higher. If i was handed a contract that wanted a review after 6 months and listed possibly 10% I would walk immediately, no way I'm signing up for that. It would seam to me that the owner is out to screw every penny out of the property at any cost, I don't want to be involved with someone like that.

    I'm assuming that yours is a residential property, I've never been in that situation but i if it was challenged at NCAT I'm not sure you would win it just seams unreasonable.

  • freefall101 on 18/01/2024 - 21:16

    Makes it easier to jack up the rent by 10% if it's already mentioned in there. And if you do it by 5%, it makes you sound like a nice guy.

  • JimmyF on 18/01/2024 - 21:17
    +6

    Our suggestion is to place a standard 10% increase option within the agreement

    Scumbag move by the REA and by you if you allow this to go ahead.

    I wouldn't be signing any agreement for 12 months that had an option of a 10% rate hike halfway through. What about at renewal time? Another 10% hike?

  • hasher22 on 18/01/2024 - 21:57
    +2

    10% my god……

    Getting out of hand.

  • garetz on 18/01/2024 - 22:15
    +3

    Alot of tenants cannot afford a 10% increase, its very likely they will leave and it will sit empty for a little bit, might be better to increase based on something like inflationary requirements.

  • trustnoone on 18/01/2024 - 23:16
    +3

    Honestly as someone whose rent a lot I wouldn't trust you at all and would hundred percent assume you or the agent is going to add another 10% in 6 months time for sure (especially if this is only 12 month contracts).
    If I stayed there for a few years or you were quite below market value it might be okay. But if its only been 12 months, I'd likely start looking elsewhere that was in the range of current-price+10%.
    And if I was a prospective new renter I'd be saying WTF is this, and are you trying to cheat me by advertising one price but then hitting me with another but claiming it won't come in 6 months time, whats going to happen after 12?!?.

  • AustriaBargain on 18/01/2024 - 23:59
    +1

    I'd put sugar in the gas tank of any REA that pulled that on me. Glad that the law says leases need to have the landlord's address on them now…

    When you die someone is going to have to sort through all your paperwork and what will they think when they see this clause, that you weren't loveable kind uncle whitford, you were actually more like Scrooge McWhitford.

  • tsunamisurfer on 19/01/2024 - 00:08
    -7

    Perth Median Rents rose 18%.

    Placing a review of only 10% at the mid way is generous by the investor.

    Note that we have not been told if there was at increase at this renewal.

    This mechanism is a fantastic way of ensuring the property adheres to the rates of the current rental market.

    The renter of course has the power to refuse and rent elsewhere more suitable.

    • EightImmortals on 19/01/2024 - 07:43
      +1

      Like a tent down at the footy oval with everyone else?

      • tsunamisurfer on 19/01/2024 - 12:56
        -2

        Why do you need to get to that level first off?

        Finding another rental in a cheaper location.
        Finding a smaller rental?
        Sharing with another person?
        Sharing with 2 other people?
        Sharing with 3 other people?
        Moving back with family?

        • EightImmortals on 19/01/2024 - 13:02
          +1

          What if you've already done all of those things?

          Look I get what you're saying, I just don't like making life harder for people if I have no other choice. Putting rents up between tenants is fair enough as the new tenant knows what they are for up front. Continuing to raise the rent once a tenant is in there is simply (in most cases) just greedy. Though I also understand that if government pushes up the costs like their land tax grabs and that sort of thing then those costs will be encumbered upon the tenants.

  • Drakesy on 19/01/2024 - 01:09
    +3

    Don't you love a market heavily geared in the favour of real estate property managers no matter how useless and deadbeat they are.

    Pump immigration, increase rental demand and cost whilst living standards drop, decrease the possibility of people escaping the rent trap and line the pockets of the well off in the process! perfect. (FYI i'm luckily not one of them, but the current situation is morbidly one sided)

  • mskeggs on 19/01/2024 - 07:14
    +2

    Why not make it 1000%? Or 100000%? I wouldn’t sign a lease like this, and you will have to find a new tenant soon, because your existing one will know they need to move.

    • whitfords on 19/01/2024 - 11:29
      -1

      I guess that’s my point. 10% sounds ridiculous and for transparency we intend to increase it by 2% for the next 12 months, but I don’t think there is currently any max limit on rent rises on the lease agreement. We’re wondering why the REA is suggesting adding a clause in now if we could currently agree to a 6 month lease, then increase rent by 1000% if there’s nothing stopping us?

      • mskeggs on 19/01/2024 - 14:04
        +2

        If the tenant moves out, the REA will get a new lease fee from their replacement. That is probably several times the monthly management fee they would get otherwise.

  • EightImmortals on 19/01/2024 - 07:42
    +2

    Pretty scummy move, we never raised the tenants rents when we had property unless they were ratbags that we wanted to move on.

    • trilby on 19/01/2024 - 10:30
      -3

      While I agree that makes sense with a good tenant, what happens when you get interest rate rises - do you just soak up the cost?
      Of course there are a lot of investors who don't have a mortgage and take advantage of this, which is unfair.

      • Jolakot on 19/01/2024 - 11:21
        +3

        Never in my life have I heard of a landlord decreasing rent because interest rates dropped or they got a better refinance deal

  • Euphemistic on 19/01/2024 - 08:28
    +1

    Any rental increase in a lease term should be limited to CPI. 10% is just going to make rentals even harder to get. So you really want to price your tenants out of the property and have it vacant?

  • Aust on 19/01/2024 - 09:23
    +3

    Hey OP, Living in WA I would fact check that and if passed you may end up just having to remove it.
    On 29 November 2023 the Western Australian Government introduced the Residential Tenancies Amendment Bill 2023 into Parliament. The Bill proposes the following changes to residential tenancy laws:
    Yada,yada,yada
    Rent increases will be limited to once every 12 months.

    • whitfords on 19/01/2024 - 11:31

      Thanks for the heads up, will look into this.

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