Can the rent be increased after a tenant breaks the lease?

The REIQ's Property Management Support Service has received several enquiries about whether or not the rent can be increased after a tenant breaks the lease.

A scenario a property manager may face is this: a tenant wants to end their current fixed term agreement early (without grounds) which is technically a breach of the agreement - otherwise known as a "break lease". The owner wants to increase the rent for the fixed term agreement for the next tenancy. Does the RTRA Act prevent landlords from increasing the rent after a break lease? Does rent have to be offered at the same amount as the existing agreement?

Answer: The Residential Tenancies and Rooming Accommodation Act (RTRA) does not explicitly prevent landlords lessors from increasing rent after a break lease. However, it does outline several crucial requirements that impact a lessor's ability to do so:

1. Timing of Rent Increases: Section 93 of the RTRA Act outlines the minimum period before rent can be increased as 12 months after the last rent increase for the residential premises. This applies even if the last increase was related to a different tenancy agreement or a previous agent or owner. 

2. Duty to Mitigate Loss: Section 362 of the RTRA Act stipulates that lessors have a duty to mitigate loss or expense. This is particularly relevant in break lease situations as a lessor must ensure any increase does not extend the vacancy period.  

3. QCAT Considerations: Section 421 of the RTRA Act states that when making an order for compensation in favour of a lessor, a tribunal must consider whether the lessor has complied with their duty to mitigate loss or expense. 

The property manager should complete a Comparative Market Analysis (CMA) to determine what the market rent currently is for similar properties in the area. The CMA should be based on current market conditions, be consistent with current vacancy rates and market trends and provide evidence of fair market value for similar properties in the area. 

In some high-demand markets, property managers may receive multiple applications within days of listing a rental property, leading to a new tenancy agreement being quickly established. In such cases, if a rent increase is implemented, there may be clear evidence that it did not extend the vacancy period or increase the compensation claim against the outgoing tenant. 

However, it's important to note that each case is unique. Property managers should always: 

• Ensure that rent will not be increased before the expiry of the minimum period of 12 months after the date of the last rent increase for the property; 

• Conduct a thorough CMA; 

• Communicate clearly with both the property owner and the outgoing tenant; 

• Keep detailed records of all decisions and communications; and 

• Should the matter proceed to a dispute, be prepared to substantiate any rent increases and provide evidence of what steps that were taken to mitigate the tenant’s loss. 

Read another article about property management: Has your client updated their details on the body corporate roll?

Or browse our suite of property management articles.

Got more questions on this topic or others? REIQ members can contact the Property Management Support Service on 1300 697 347 or ask@reiq.com.au. Not a member? Join today.