That’s the short answer. The reality is a little more complicated. The general rule is that landlords are free to set rates for their properties, and tenants are free to accept or reject them. Greedy landlords wind up with nothing, or will soon reset their rates to something closer to market prices.
Landlords who set rates below market value will quickly find tenants and their properties will likely not sit vacant for long. So they benefit from low vacancy rates – at the expense, of course, of taking in a less than optimal monthly income once the place is rented.
The reality is a little more complicated.
First, some communities – mostly large cities like New York, parts of Los Angeles, and San Francisco – have rent control laws in place or follow state rent control programs authorized by law that restrict the ability of landlords to set rents at market prices. Typically, these laws still allow you to raise rents, but only once per year, and by not more than a set amount (link goes to a Los Angeles area chapter of the Housing Rights Center).
Even if you have a tenant on a month-to-month lease, rather than a year-long or seven-month lease, you still have to provide written notice to the tenant that rent prices are going up.
Are you in the New York City area? Different communities have different rules, but here are the requirements for a ‘rent-stabilized’ apartment within the city limits. Note that these requirements restrict the landlord’s ability to raise rents even if there is no tenant in the unit.
Not every state has rent control laws, or has cities that impose them. Right now, according to research from www.Landlord.com, these states have rent control laws, or have at least one city or county within their borders that imposes rent control laws:
What does “advance notice” mean? That’s different in every state, of course. In California, as one example, if a property is not on a longer-term lease, a landlord must give the tenant at least 30 days’ advance notice if the rent increase is 10 percent (or less) of the rent charged at any time during the 12 months before the rent increase takes effect. A landlord must give 60 days’ advance notice if the rent increase is greater than 10 percent.
Again, every area is different – and if there’s a tenant in the unit, every state is going to restrict the landlord’s authority to raise rents on an occupying tenant, unless the original lease agreement still in effect discusses and allows for mid-lease-term rent increases.
Seasonal areas, for example, may have this provision, where a renter may lease an apartment in a resort area at a reduced rate during the off season, with the understanding, written in the lease, that the rent will increase during peak season.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.