How to increase your rent legally and in your best interests? How to ensure that the tenant understands the rationale for the increase and accepts it without conflict? In this guide, we provide you with a comprehensive information package to help you navigate the rent increase with confidence.
Renting is an excellent way to invest and create financial stability. However, changes in the economy, such as increases in building society rents and the cost of living index, can have a direct impact on the profitability of your investment. It is therefore important to understand how to keep your rent up to date with the market rent and your own costs.
In this article we will go through:
- Rent increase criteria and legislation: What does the law say about rent increases and what are the landlord's and tenant's rights?
- Regional rent levels and market conditions: how do regional rent levels and market conditions affect the size and timing of the increase?
- Practical tips for drafting a rent increase clause: How to draft a lease so that increases are possible and clear to both parties?
- Notice of rent increase: how to communicate the increase to the tenant in writing and in time for it to be implemented?
- Conflict management: what to do if the tenant objects to the increase, and how to prevent potential disputes?
Whether you're new to renting or a little more experienced, this guide will give you a clear understanding of rent increases in Finland. Let's set off together on a journey towards a successful and profitable rental business!
Reasons for the rent increase
Rent increases are an important tool for you as a landlord to ensure the profitability of your investment and to adapt to economic changes. Costs such as building society charges, maintenance and upkeep costs and the general cost of living index can increase over time. Without regular increases, the rent may fall behind the market rent, meaning you will receive less income than you could.
For example, according to Statistics Finland, rents in Finland have risen by an average of 1-2% per year, but regional differences are significant. In Helsinki, the average rent is over €22/m², while in Tampere and Oulu it is around €14/m². Regional rent levels directly affect what is a reasonable increase for your home.
Rights of the parties under the law
In Finland, rent increases are regulated by the Rent Act (1995/481), which defines both the rights of the landlord and the tenant. The main principles of the Act in relation to rent increases are:
Landlord's rights
- Right to a contractual increase: the landlord is only entitled to increase the rent if there is a clear rent increase clause in the lease. If not, the tenant's consent is required. The increase may be linked, for example, to the cost of living index or to a pre-agreed percentage increase.
- The right to determine the basis for the increase: the landlord can decide on the basis for the increase and put it in the lease. The tenant may choose a basis such as the cost of living index or a fixed percentage increase, as long as this is clearly and unambiguously stated.
- Right to give notice of a rent increase: the landlord has the right to give notice of an increase, provided that it is given in good time and in writing, usually at least one month before the increase comes into force. The written notice must be clear and include information about the reason for the increase, the new rent amount and the effective date of the increase.
- The right to terminate the contract if necessary: if the lease clearly specifies a rent increase and the tenant does not accept the increase, the landlord is legally entitled to terminate the lease. In the event of termination, the landlord must comply with the notice period in the contract and the law.
Tenant's rights
The tenant has the right to know the reasons for the rent increase and to be informed of the increase in good time. If the increase is not based on a condition agreed in the contract or if it is unreasonable, the tenant can challenge it. It is good practice to keep the increase moderate and proportionate to the regional rent level and the general market situation.
- Terms of the contract: The rent can only be increased if there is an increase clause in the contract or if the tenant agrees to it.
- Clarity of the increase condition: the rent increase condition must be unambiguous. Vague expressions such as "the rent may be increased if necessary" do not meet the requirements of the law.
- Obligation to give notice: unless otherwise agreed in the contract, the rent increase must be notified in writing and in good time, usually at least one month before the increase comes into force.
The notification must mention:
- New rent amount
- The reason for the increase (e.g. increase in the cost of living index or percentage increase agreed in the contract)
- Date of entry into force of the increase
Drafting a rent increase clause
This section discusses the drafting of a rent increase clause in more detail. Good drafting is key if you want to increase the rent smoothly and without disagreement. Vague terms or terms that do not comply with the law can lead to conflicts and even prevent the increase from taking place.
Formulating the condition step by step
- Determine the basis for the increase
- Indexation: link the rent increase to the cost of living index (CPI), which reflects the general increase in the price level. This is a fair and transparent way for both parties.
- Fixed percentage increase: a fixed percentage, for example 2-5%, is agreed in advance, by which the rent is increased each year.
- Write the condition clearly in the lease
- Example of an indexation clause: 'The rent will be increased annually in line with the change in the cost of living index. The base index will be the cost-of-living index for the month of the start of the contract, as published by Statistics Finland."
- Example of a fixed increase clause: 'The rent will be increased annually by 3% of the previous year's rent. The increase shall take effect on 1 March of each year."
- Determine the timing and frequency of the increase
- Usually, the increase is made once a year.
- State in the contract the exact date on which the increase will take effect.
- Notification procedure
- Record in the contract how much written notice will be given before the increase takes effect. A minimum of one month is recommended.
Model basis for the rent increase clause
Below is an example that you can use as a basis for drafting your own lease:
Rent increase clause:
"The landlord has the right to increase the rent once a year as follows:
- Reason for the increase: the rent will be increased in line with the change in the cost of living index. The base index will be the index for the month of the start of the contract.
- Date of increase: the increase will take effect on the first day of the month following the month in which the contract starts.
- Notification: the landlord will provide written notice to the tenant at least two (2) months before the increase takes effect. The notice shall state the new amount of rent and the reason for the increase."
Example of a rent increase clause in the contract and how to submit it
- Indexation: 'The rent will be increased annually in line with the change in the cost of living index. The base index will be the point figure of the cost of living index published by Statistics Finland for the month of the beginning of the contract."
- Fixed percentage increase: 'The rent is increased annually by 2% of the previous year's rent. The increase shall take effect on 1 January of each year."
The notification can be sent, for example, by e-mail, in which case you should ask for an acknowledgement of receipt, or by registered letter. This will ensure that the tenant has been informed of the increase and that you have proof that the notice has been sent.
An example of a submitted increase condition:
"Dear [tenant's name],
Under our lease, the rent is increased annually based on the change in the cost of living index. The cost of living index has increased by 2% over the last year. The new rent will therefore be [new rent amount] € per month from [date of entry into force].
Yours sincerely,
[Your name] Landlord"
Market situation and regional rent levels
When planning a rent increase, it is important to take into account the national market situation and regional rent levels. Rents in Finland have been on an upward trend, but there are significant regional differences. For example, the average rent in Helsinki is over €22/m², while in Tampere and Oulu it is around €14/m². This means that a reasonable increase, as well as the timing, can vary greatly depending on the location of your property.
Economic uncertainty and high vacancy rates in certain areas, such as the Helsinki region, have made the rental market more competitive. Tenants are more aware of their rights and more sensitive to increases. It is therefore of paramount importance that as a landlord you act professionally and in accordance with the law.
Regional differences in rents
- Helsinki: average rent is over €22/m². High demand and limited supply keep rent levels high, but competition between landlords is also fierce.
- Tampere and Oulu: rents average around €14/m². Demand is more stable in these areas, but large increases can still lead to tenant turnover.
- Other cities: rents are lower in Hämeenlinna and Kuopio, for example, and the market situation can be more challenging for landlords.
Analysis of the market situation
- Demand and supply: If there are a lot of vacant rental properties in your area, large increases can lead to vacancy rates. On the other hand, if demand is high, a moderate increase may be justified.
- Economic cycles: economic uncertainty or high unemployment in your area may affect tenants' ability to pay. In this case, a reasonable increase is recommended.
- Competition: find out what similar apartments in your area are asking for rent. Keep your rents competitive to attract and keep good tenants.
Notifying the tenant of a rent increase
Once you have decided to increase the rent and have made sure that the terms of the rent increase are properly defined in your contract, the next step is to inform the tenant of the increase. It is important to do this in the right way to prevent disputes and maintain a good tenancy relationship.
A written declaration is required
The law requires the landlord to give written notice of a rent increase. This will ensure that both you and the tenant have clear documentation of the matter. There are several ways to give notice:
- By email: quick and convenient, but make sure you get an acknowledgement of receipt.
- Registered mail: Provides proof that the tenant has received the notice.
- In person: you can give a notice face to face and ask the tenant to acknowledge receipt.
Content of the notification
The notification must be clear and contain all relevant information:
- Reason for rent increase: explain the basis for the increase. For example, "Under our lease, the rent will be increased in line with the cost of living index."
- New rent amount: state clearly what the new rent is. For example, "The new rent is €820 per month."
- Date of entry into force of the increase: indicate when the increase will enter into force. Indicate the date of the increase. Remember to respect the notice period specified in the contract or required by law.
- Acknowledgements and contact details: keep your tone friendly and let them know you're available if they have any questions.
Example of a rent increase letter
Dear [name of tenant],
According to our lease, the rent is increased annually based on the change in the cost of living index. According to Statistics Finland, the cost of living index has increased by 2% over the last year. On this basis, the new rent will be €820 per month from 1 March 2024.
Calculation of the rent increase:
- Current rent: 800 €
- Increase: €800 x 0.02 = €16
- New rent: €800 + €16 = €816 (rounded to €820)
If you have any questions or would like to discuss this, please contact me. Thank you for your cooperation and I hope our tenancy will continue to run smoothly.
Yours sincerely,
[Your name] [Your phone number] [Your email address]
Open and fair communication
- Justify the increase: when the tenant understands the reason for the increase, they are more likely to accept it. For example, you could cite an increase in building society charges or a change in the general cost of living index.
- Allow time to adapt: make sure that the notice is given early enough to allow the tenant to prepare for the change. This is also a legal requirement.
- Be available: encourage the tenant to contact you if they have any questions or concerns. This builds trust and helps prevent potential conflicts.
Addressing any concerns
If the tenant expresses concern about the increase:
- Listen actively: give the tenant the opportunity to express his or her views without interruption.
- Offer further clarification: if the reasons for the increase are not fully clear, you can offer more detailed information or documentation, such as statistics on regional rent levels.
- Negotiate if necessary: if the tenant has legitimate reasons to object to the increase, you can consider flexibility, such as splitting the increase into two instalments.
Conflict management in the event of a rent increase
According to Statistics Finland, the majority of tenancies in Finland go smoothly. Rent increases rarely cause conflicts serious enough to lead to legal action. Most disputes are resolved through negotiations or minor compromises. Sometimes, however, conflicts do arise and need to be managed properly.
Understand the causes of conflicts
Even if the rent increase has been implemented in accordance with the law and the terms of the lease, the tenant may still object to the increase. Common reasons for this include:
- Financial challenges: the tenant's financial situation may have changed, causing concern about higher rent.
- Experience of unreasonableness: the tenant may consider the increase to be too high compared to the regional rent level or his/her own expectations.
- Lack of communication: if the increase is not communicated clearly or in time, it can lead to misunderstandings.
Preventing rent increase conflicts
The best way to manage conflicts is to prevent them. Here are some ways you can reduce the risk of disagreements:
Open and fair communication
- Notify the increase in time: give written notice well in advance of the increase to give the tenant time to adjust.
- Justify the increase clearly: give reasons for the increase, such as a rise in the cost-of-living index or an increase in housing association charges.
- Use a friendly tone: friendly and respectful communication creates a positive atmosphere and builds trust.
Reasonable increase
- Stay in line with the market: compare your rent with the market rent and average prices in the area. Too high an increase can lead to a change of tenant.
- Avoid unexpected increases: if possible, keep increases moderate and predictable, such as by agreeing them already in the rent increase clause.
Taking the tenant's situation into account
- Ask for the tenant's views: give the tenant the opportunity to express their opinion on the increase. This may reveal concerns that you can address.
- Offer flexibility where necessary: for example, a staggered increase or a payment plan can make things easier for the tenant.
Conflict resolution
If a disagreement about the increase arises, it is important to deal with the situation constructively:
Consultation
- Start the conversation: contact the tenant and arrange a meeting. Face-to-face or telephone conversations can resolve many misunderstandings.
- Listen actively: give the tenant space to share their concerns without interruption.
- Find a common solution: together you can agree, for example, to postpone or reduce the increase.
Documentation
- Keep a record of all your communications: emails, letters and meeting notes should be saved. This will help if the matter goes any further.
- Update the contract if necessary: if you make changes to the original contract, they must be recorded and signed by both parties.
Expert help
- Consult a professional: If the situation is not resolved, you can seek advice from, for example, the Finnish Tenants' Association
or a lawyer. - Mediation or conciliation: an external mediator can help find a solution that satisfies both parties.
Termination of tenancy as a last resort
If the conflict is not resolved through negotiations and the tenant refuses to accept the increase, you may have to consider terminating the tenancy. However, remember:
- The requirements of the Tenancy Act: eviction must be based on legal grounds and follow the prescribed notification procedures.
- Notice periods: the notice period for an open-ended contract is usually 3-6 months, depending on the duration of the contract.
- Written notice of termination: the notice must be given in writing and evidenced to the tenant.
The benefits of a long-term tenancy
A reliable and long-term tenant is a valuable partner. Changing a tenant is costly and inconvenient:
- Notification costs: finding a new tenant often requires a notification to the housing services.
- Empty months: your home may be unoccupied, which means a loss of income.
- Renovation and cleaning: the apartment may require minor renovation or a thorough cleaning between tenants.
Therefore, a reasonable increase, small flexibilities and a good tenancy can be more economically viable in the long run than large one-off increases that can lead to a tenant leaving.
Practical tips for a successful rent increase
1. Do market research
- Compare rents: check the price level of rental properties in your area. Use websites and statistics, such as Statistics Finland data, to help.
- Take into account the characteristics of the dwelling: the condition, equipment, furnishings and location of the dwelling will affect the rent. For example, renovations or improvements may justify an increase.
2. Plan your increases for the long term
- Continuity: regular, moderate increases are often preferable to large one-off increases.
- Predictability: when tenants know about future increases in advance, they can better prepare for them.
3. Invest in tenant satisfaction
- Good communication: be easily contactable and respond quickly to tenants.
- Respect the tenant: If the tenant is experiencing temporary financial difficulties, consider flexibility, such as deferring the increase or a payment plan.
4. Update the lease if necessary
- Check the terms of the contract: Make sure the rent increase clause and other points in the contract are up to date.
- Use expert advice: if necessary, consult a lawyer or use ready-made contract templates.
A checklist for a successful rent increase
1. Monitor the market situation and regional rent levels
- Research the rental market in your area: find out what the average rent is for similar apartments. Keep up to date with economic cycles that may affect a tenant's ability to pay.
2. Set a clear rent increase condition
- Include an unambiguous and legally binding increase clause in the lease.
- Choose the basis for the increase, such as the cost of living index or a fixed percentage increase.
- Specify the date of the increase and the notification procedure in the contract.
3. Give written, timely and reasoned notice of the rent increase
- Give written notice at least one month before the increase takes effect, unless otherwise specified in the contract. Include the new rent amount, the reason for the increase and the effective date.
4. Keep a record of all communications related to the rent increase
- Keep copies of all notices, agreements and messages. Keep a record of meetings and telephone conversations on key issues.
5. Value a stable tenant
- A long-term tenant reduces the cost of tenant turnover. For example, you can postpone the date of the increase or split it into parts. In addition, good interaction increases trust and retention.
Editorial
Raising rents is an essential part of a successful rental business, especially for new landlords. It requires careful planning, monitoring of the market situation and open communication with the tenant. By following the guidelines in this guide and keeping in mind your rights and responsibilities as well as those of your tenant, you can increase your rent while maintaining a good tenancy relationship.
Remember that a long-term and happy tenant is a valuable partner. Openness, fairness and flexibility are key to building trust and ensuring the long-term viability of your investment. We wish you success as a landlord and hope this guide has been useful on your journey towards a smooth and efficient rental business.
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