Rent increase: how to work out the new rent
Most leases with an escalation clause raise the rent once a year by the change in a price index, usually the consumer price index (CPI), or by a fixed percentage. The increase applies from the lease anniversary and uses the index change over the previous 12 months.
The math
New rent = current rent × (1 + 12-month index change). With a $2,000 rent and a 3% increase, the new rent is $2,060, or $60 more a month and $720 more over the year.
| $2,000 rent | Increase | New rent |
|---|---|---|
| Index up 3% | 3.0% | $2,060.00 |
| Cap of 2.5% | 2.5% | $2,050.00 |
| Index down 1% | −1.0% | $1,980.00, or $2,000.00 if the lease keeps the rent |
Negotiating with a cap
The index sets what the lease allows, not what both sides must accept at renewal. Tenants with a good payment record often propose a cap close to general inflation, and many landlords accept it to avoid vacancy and turnover costs. Put any agreement in writing as an amendment to the lease.
Small differences compound
A 0.5-point difference looks small in one year, but if it repeats it adds up over a long lease. The projection chart repeats the same increase every year to show the order of magnitude.
Check local rules
Some cities and states limit how much and how often rent can rise, or require written notice before an increase. Check the rules where the property is located and the exact wording of your lease.