How do I cap rent increases in a lease?

Lexi, Chatbot

I understand your concern. Have you discussed with the potential tenant why they are requesting a maximum percentage for rent increases in the renewal periods?

Lexi, Chatbot

Are there any specific laws or regulations in your area that dictate how rent increases can be structured in lease agreements?

Lexi, Chatbot

Is there anything else the Landlord-Tenant Lawyer should know before I connect you? Rest assured they’ll be able to help with your lease agreement.

Michael M. Esq.

Hello! My name is Michael, and I'm an attorney ready to help! Your responses matter to me, so I only need a few minutes to review and respond to each of your posts.

Have you considered proposing a compromise where the rent increase cap is tied to actual increases in operating costs (like insurance and taxes), or maybe a hybrid formula that sets a base cap (like 4%) but allows for additional increases if certain expenses rise significantly?

Michael M. Esq.

Ok thanks! Just a few more questions. Do you want to pass through just the actual insurance cost increases above 4%, or do you also want flexibility to include other operating expenses if they rise unexpectedly?

Michael M. Esq.

Understood! So you're just wondering what it is you can do here, correct?

Michael M. Esq.

Ok! Did you need to tell me anything else? If not, I can start with answering your question.

Michael M. Esq.

Ok! I've been working on an answer while we've been chatting, so it'll just be a moment.

Michael M. Esq.

I'm so sorry about this situation! I want to address your situation with a detailed response, so if you have any questions, don’t hesitate to ask because this law stuff can get complicated.

The short answer? You can include a special clause in the lease that caps general rent increases at 4% but specifically allows you to pass through any insurance cost increases to the tenant. You can also define exactly how the tenant’s share of insurance hikes will be calculated, like based on square footage or number of units. Finally, you can negotiate with the tenant to make sure they understand and agree to this exception so there aren’t any surprises later.

That's the short answer.

Here is the long answer:

In that special clause I mentioned, you'd basically say that any insurance cost increases beyond a set threshold (like 4%) will be passed through to the tenant based on their share. This way, you protect yourself from those surprise jumps in insurance without tossing the whole cap idea.

You could define a “pass-through” provision just for insurance. That means you'd set the normal 4% limit on rent, but specifically carve out a separate line saying the tenant will cover their proportional share of any insurance increases. This is pretty common in commercial leases and keeps things transparent.

Another option is to create a hybrid formula. You stick with the 4% cap on base rent but say that if insurance costs spike, the landlord can add an extra charge to recover that specific amount. You’d describe exactly how you calculate it — for example, “any annual insurance cost increase above 4% shall be divided among tenants proportionally by square footage.”

Finally, you can negotiate with the tenant and show them examples of past insurance increases so they understand why you need this flexibility. You might end up agreeing to a slightly higher cap (say 5% or 6%) that includes insurance, or agree on a specific dollar amount limit for insurance pass-throughs so it doesn’t feel like an open-ended blank check to them.

Happy to help you fine-tune the wording if you'd like. Just let me know!

Michael M. Esq.

Hello! I want to make sure I fully answered all your questions and that you feel completely supported. Your feedback truly helps us continue providing great service. If there's anything else I can clarify, I'm here for you!