This is an article addressing raising rents on newly acquired purchases with inherited tenants. Technically it comes down to whatever your lease allows. Here in the state of Pennsylvania and with our local apartment associations lease, there is nothing that specifically addresses raising rents however we do have a paragraph allowing landlord termination of lease with a 30 day notice. When we acquire buildings with existing tenants, keep in mind you’re technically buying leases. If your inherited tenants are paying under market rates, you are within your right to raise those rates to market conditions. However, the way you do so varies jurisdiction to jurisdiction. In our area, you have to terminate the lease with a 30 day notice. How we do it at Stonehouse Management Company, we send a rate change notification and make it 30 days affective and generally the beginning of the next month. This puts us well beyond the 30 day notice. Technically we are terminating the lease and resigning a new lease with new rents. But if they simply agree in writing, you can use existing lease with documentation of the new increase.
What are the risks?
Because you’re technically terminating the lease, they can simply move. Then you have a vacancy and with a vacancy comes repair costs. You may or may not be prepared to do this after a new acquisition has occurred. Additionally because you were terminating the lease and/or changing the lease, your inherited tenants may be stubborn and dig their heels into the changes. Prolonging negotiations and delaying rent payments. Then your only ramification is to start the eviction process. This is costly and could be timely and then you have the vacancy to deal with as stated above.
There is a fine line between raising rent‘s and risking vacancy/eviction. There is no exact science for figuring this out. It all comes down to your intuition in knowing your current financial position and the likelihood of the existing tenants decisions to move, to dig their heels in, or to stay.
