Considering a Rent Increase?
If you’ve been keeping your finger on the pulse of the market you will know that over the last 18 months the demand for properties has outstripped supply. By a lot. There are plenty of reasons for this. People wanting properties that have outside space or rooms where they can work from home, general rise in living costs to a preference to rent rather than buy.
This has had the inevitable knock on effect of rising rents. Increasing your tenants rent is never going to win you a popular landlord award but it is important to carry out an annual review, even if you decide not to make an increase.
One of the reasons for doing this is to ensure that you don’t significantly fall behind the current market rent because at some point you are going to want to increase the rent. Imagine the scenario where your long term tenant is suddenly asked to pay an additional £300 a month to bring them in line with current values. This is unlikely to end well for either of you and will often lead to a souring of your relationship.
We can all have our heads turned by the prospect of increasing our income but it is worth giving some thought to the relationship you have with your tenant.
Increasing the rent annually in smaller increments is manageable for your tenants and feels more principled all round.
Before you pull out your calculator, remember that you cannot increase the rent during the fixed term part of the tenancy.
There are three ways to increase the rent. The first is to agree annual reviews at the start of the tenancy. This can be done by including a ‘rent review’ clause in your tenancy agreement as this then becomes a contractual obligation on both the landlord and the tenant. As with any clause it must be fair and in line with the requirements set out in Part 2 of the Consumer Rights Act 2015.
The clause must be specific in that it must carry a determination. For example, a clause that reads “the rent will be reviewed every 12 months” does not create any contractual agreement between both parties. Instead the clause would need to say that the rent will increase by £x or provide a mechanism as to how the rent will be reviewed e.g using the consumer price index.
By setting this out clearly at the beginning of the tenancy, everyone is agreeing that the rent will increase each year and then it is simply a case of reminding the tenants as you approach the date that the rent will be increasing.
The second option is by agreement. This means that you would approach your tenants to discuss an increase and as long as everyone agrees you can confirm it in writing. An email exchange is sufficient or you can do a new tenancy agreement.
The last option is to serve what is known as a Section 13 notice. This essentially is a no ifs no buts form and tells the tenant that the rent will be going up. However, this should only be used if you have explored the first two. There are additional rules including whether there is any contractual arrangement that you have not followed, and which stage of the tenancy you are at.
The form needs to be completed carefully and in full so that it is not invalid. The form also carries information for the tenant which must be given and tells them how they can appeal against an increase. This involves applying to the First Tier Tribunal. If this happens you will need to be able to evidence that the proposed increase is a reflection of the market rent. Be warned that the tribunal have the authority to decrease the rent, as well as increasing or holding it at the current level.
Often overlooked is the role of any guarantor. If you are increasing the rent then you are increasing the risk for the guarantor. Subsequently it is vital that you notify them of this and gain their agreement as well as the tenants. If you don’t, you could well find that your guarantor agreement will no longer be valid.
These things always seem so straightforward but as with much of the law around the private rented sector, it can easily trip you up! As experienced Agents we can provide advice and guidance so please do get in touch if we can help.
Please note the date this article was published as the law may have changed since it was posted. You should always seek independent legal advice if you are intending to rely on any of the contents.All resources & news