Rent Increase Law

Update: Oregon Gov. Kate Brown signed House Bill 4143 on March 15, 2016.  According to terms, the new laws regarding rent increase notifications will go into effect 30 days after it is signed.

A new bill proposal in Oregon will extend the timeline requirements for landlords when issuing notices for rent increases to tenants.  

House Bill 4143 passed in the Oregon House of Representatives on February 23, 2016 with wide support in a 48-11 vote.  The goal of the bill aims to address the state’s housing affordability issues by increasing tenant protections.

Current Rental Market Trends

The Oregonian reported on Oregon’s housing crisis in October 2015, citing a whopping 14-percent annualized rent growth-rate for 2014 for Portland, the state’s biggest city.  Rising rents are in part to due to an increase in demand as the Oregon rental housing vacancy rates dipped to 3.6 percent, lower than any other U.S. state in 2014.  

Luke Hammill of The Oregonian notes that, “[these] numbers likely won’t surprise anybody who has paid attention to Portland’s and Oregon’s rental market in past months. Low vacancies are one part of an equation that also includes skyrocketing rents, population growth, sales of apartment complexes, short-term rentals and a boom in new apartment buildings in an effort to release the pent-up demand.” (December 10, 2015)

Current Legislation for Rent Increases

Under current Oregon law, landlords and property managers may introduce a rent increase for month-to-month leases 30-days prior to the effective date.  Rent increases are prohibited throughout the duration of longer-term leases (6-month or one year).  

Landlords may decide to increase their rental prices in order to match market rates, to pay for property maintenance or improvements, to accommodate tax increases, or simply to increase their profits.    

Current Tenant Protections from Rent Increases

As long as a landlord follows proper protocol in regards to the 30-days notice and how to inform tenants of a rent increase in writing, there is  little a tenant can do to protect themselves from a rent increase.  Rent increases are illegal if they are found to be discriminatory or as an act of retaliation to the tenant.

Proposed Tenant Protections for Oregon

House Bill 4143 would prevent landlords from increasing rent on a month-to-month tenant prior to one year.  After one year, a landlord would be required to give a written notice 90-days notice prior to the date of effectiveness.  The bill would also require 90-day notices on tenancy terminations, up from the current 30-day requirement.

Benefits of Extended Rent Increase Timeline

This proposed rent increase legislation will primarily benefit tenants who find themselves facing uncertain housing stability as the rental market tightens.  Under the current 30-day notice requirement, renters are being priced out or otherwise displaced from their neighborhood, which could lead to higher rates of gentrification.

An extended notice period, like the proposed 90-days, would provide renters with the opportunity to make an informed decision about the affordability of an increased rental payment, or give them adequate time to find and secure a new rental unit if they decide to move.  90-days is a more reasonable timeframe for renters to budget for a higher rental payment or save money to afford to move.  

For landlords, the benefits are fewer but this proposal could provide the opportunity to strengthen landlord-tenant relationships across the rental market.  By giving your tenants a bigger window to prepare for rent increases, they won’t experience as much shock when they receive that written rent increase notice.  Having adequate time to process the change and create a new budget could mean less turnover and longer vacancies for landlords.

Pro Tip: As mentioned above, a landlord will inevitably need to increase his rental rates in order to keep up with market trends and inflation.  A great policy is to include regular, small rent increases at the beginning of every new lease term.  Consider scheduling this in your management software or on your calendar so you don’t forget.  This helps you avoid any backlash or shock from current tenants, while keeping up with market trends.  Additionally, you would stay in compliance with this newly proposed legislation.

See the example below and get more tips on How to Raise the Rent on Your Tenants.

From How to Raise the Rent on Your Tenants

A good practice a landlord may follow, is building regular rent increases into the lease agreements.  By raising rent by a small percentage each year, you will be able to consistently follow raising market trends, without burdening your tenants with a huge increase.

Perhaps you feel comfortable with your current rent prices but what about 5 years from now?  Say in 5 years, you re-evaluate your asking rent and discover you could easily ask $100 more per month on your property to match market trends.

Imagine the difference on your tenants if you simply raise the monthly rent by $20 every year for five years, instead of them paying the same flat rate for 5 years, only to receive a notice that you are suddenly increasing the rent by $100!?

In that first year, you will be generating only $240 more annually on that unit.  But by year two you will collect $480 extra.  And by year five, at $100 more a month, your income will grow by $1200 annually from that one property.  Given regular occupancy, over 5 years you will have earned an additional $3600* from that one property, and by slowly increasing your asking rent by only $20 a year you limit the negative impact on your tenants.

*(Y1:$240 + Y2:$480 + Y3:$720 + Y4:$960 + Y5:$1200) = $3600

 

Update: Oregon Gov. Kate Brown signed House Bill 4143 on March 15, 2016.  According to terms, the new laws regarding rent increase notifications will go into effect 30 days after it is signed.  

HB 4143: SECTION 6. Section 2 of this 2016 Act and the amendments to ORS 90.220 by section 3
of this 2016 Act apply to increases in rent occurring on or after the 30th day after the effective
date of this 2016 Act.  For more details you are invited to review House Bill 4143