Lease renewals and rent increases: the arithmetic

Most rent increases are decided on feeling: the market has moved, it has been two years, the neighbour is getting more. Then a tenant leaves, the flat sits empty for six weeks, and nobody goes back to check whether the increase was worth it.

It usually was not. The arithmetic is simple enough to do in a minute, and it changes the decision more often than landlords expect.

The break-even calculation

An increase only earns money if the tenant stays. If they leave and the unit sits empty, you lose a month's rent for every month of the void — plus re-letting costs — and you have to earn that back at the rate of the increase, which is a much smaller number.

The question to ask is: how many months of extra rent does it take to pay for one month of vacancy?

Take a unit at 1,000 a month. You are considering 1,050 — a 5% rise, 50 a month.

Nearly three years. If a 5% increase carries even a modest chance of losing a reliable tenant, and the alternative is a void of a month or two plus a new tenant of unknown quality, the increase is a bad bet — not a close call, a bad bet.

This is also why the calculation flips for large gaps. If the unit is 200 below market, the same arithmetic gives about eight months — and now the increase is clearly worth some risk. The lesson is not “never raise rent”; it is small increases do not justify tenant risk, and large gaps do. Which in turn argues for reviewing every year rather than letting a unit drift 20% below market over four years and then trying to fix it in one jump, which is the move most likely to lose the tenant.

Know the actual market, not the asking market

Advertised rents are asking prices, and asking prices include the optimistic ones that are still advertised because nobody took them. Look at what comparable units let for, and how long they took. A unit that let in four days was underpriced; one still listed after six weeks tells you where the ceiling is.

Compare like with like: same area, similar size and condition, same furnishing, same bills arrangement. And be honest about your own unit. A tired kitchen is a real discount, whatever the comparables say.

Start early

Open the renewal conversation sixty to ninety days before the tenancy ends. This is not politeness; it is optionality:

• If they are staying, you stop worrying about it and can do any planned work around a known date.
• If they are leaving, you have time to market the unit for the day after they go, rather than starting from the day they leave — which is the difference between a few days empty and a few weeks.
• If they want to negotiate, there is time to negotiate rather than a deadline forcing a bad answer.

Ask first, propose second. “Are you thinking of staying on?” gets you information. Leading with a rent increase gets you a decision, sometimes the wrong one.

Making the case

An increase presented with a reason is accepted far more often than one presented as a number. Two or three comparable local lettings, a note of what has been spent on the property since the last review, and the size of the increase in cash rather than percentage — 40 a month is easier to absorb than “4%”, even though they are the same thing.

Where it is genuinely marginal, consider what else you could trade: a longer fixed term in exchange for a smaller increase is often worth more than the difference, because it removes a void risk from your calendar for a year.

Document the change cleanly

However the change is agreed, the paperwork has to answer two questions unambiguously: what is the new amount, and from exactly which date.

• A renewal — a new fixed term. Keep the chain: the new agreement should make clear which tenancy it follows, so the tenancy history reads as one continuous occupation rather than as unrelated documents.
• A variation — the existing tenancy continues at a new rent. Record it as a dated variation attached to the original agreement, not as a note somewhere.
• A statutory notice, where local law prescribes one. Use the prescribed form and keep proof of service.

Then update the expected rent in your records from that date forward only. Do not overwrite the previous figure. Months before the change keep the old rate permanently, or every historical arrears calculation quietly becomes wrong — the failure mode described in tracking rent payments and arrears.

If a deposit was set as a multiple of rent, check whether it needs topping up, and whether local rules cap it or require re-protection when the tenancy changes.

When not to raise it

Worth saying plainly, because the arithmetic above points here more often than instinct does:

• The tenant pays on time, looks after the place, and the gap to market is small. You are risking a known good tenancy for a rounding error.
• The unit needs work you have not done. Asking for more while a known problem is outstanding is how a renewal becomes a dispute.
• You would not re-let it quickly at the current rent, let alone a higher one. The market has already answered.
• You are about to sell, or want vacant possession. Different objective, different lever.

A long tenancy slightly under market is frequently more profitable than a series of market-rate tenancies with voids between them. The rent is the visible number; the occupancy rate is the one that decides the year.