Increasing the rent is something that often raises hackles with tenants and is a time of anxiety for landlords and tenants. Will the tenant pay the extra rent, or will they leave? Will the landlord seek possession if the tenant refuses an increase?
As landlord, you are sometimes better off with a tenant paying a slightly lower than market rent (especially with a proven good tenant) rather than risk triggering a move, by insisting on the maximum rent at all times. However, as time goes on, and where tenancies may be more than just a few months old, the time may come when an increase is definitely needed.
Landlords should also bear in mind that as an investment property (with a tenant in place) the investment value of the property is tied to the rental return (yield) currently being archived. This is more relevant to commercial properties where lease lengths are generally long, but there is also an element of this with a residential investment property. It is therefore incumbent on the efficient landlord or property manager to keep rents at least broadly in-line with the local market.
With an assured shorthold tenancy (AST) in England and Wales the landlord cannot legally increase the rent during the fixed-term - usually 6 or 12 months, but could in theory be much longer.
Normally, rent increases are taken care of on renewal: i.e., when the tenancy comes to an end (6 or 12 months) the landlord gives the tenant/s notice to renew at an increased rent if appropriate - this all depends on the prevailing market conditions and the local residential rents being charged by other landlords.
However, some landlords allow their tenancies to become periodic. When a landlord does nothing at the end of the fixed-term the tenancy automatically becomes a statutory periodic tenancy - usually monthly periodic, if the rent is paid monthly. Alternatively, ASTs can be contractually periodic tenancies from the start.
Therefore a tenancy may run-on for several years, in which case it would be sensible for the landlord to apply for occasional increases in rent.
In this case, landlords should make sure that their letting agreement makes general provision for rent increases.
It is also possible to make specific provision for increases in the original tenancy agreement. For example, in the case of a 2-year residential tenancy under the terms of an AST the agreement might specify a 5% increase after 12 months.
The landlord with an existing tenancy can simply come to an agreement with the tenant about an increased amount in rent and when this will apply. Once agreed, this increase should be put in writing in the form of an agreement between the parties. This is then attached to the original tenancy agreement for future reference, and in case there is a future dispute.
Another method is to use the formal legal process set-out in Section 13 of the Housing Act 1988
A Section 13 Rent Increase Notice in specified form is required, which informs the tenant/s of the date that the rent increase will come into force. This must be at lease one month after the notice is served.
This date must also be at least 12 months after the date the tenant entered the property and at least 12 months after any previous rent increase.
Tenants have the right to appeal to the rent assessment committee if they think the rent increase is in excess of market values.
The letting agreement should specify when and how the rent is to be increased and any increase must be agreed between the parties. If the agreement does not allow rent increases or no agreement has been reached between the parties, the tenant may have the right to appeal to a local Rent Assessment Committee.
Either landlord or tenant can ask the Rent Officer to fix a 'fair rent'.
Landlords cannot increase protected tenancy rents if it has been registered as a fair rent by the Rent Officer. If no fair rent has been registered, the landlord cannot increase the rent unless the increases is agreed formally in writing between the parties.
This is where the landlord lives on the same premises and the tenant has less than full tenancy rights. This is purely contractual (agreed between the parties) and the tenant cannot apply to the Rent Assessment Committee. Both landlord and tenant are bound by the term s of their original agreement and rent must be paid at the agreed rate for the original term. After this, if agreement on a new rent cannot be reached between the parties, the landlord can simply seek possession at the end of the term.
A lodger (someone who shares with a landlord) has a license licence to occupy, not a tenancy. This gives the lodger much less protection that a tenant and in the case of rent increases is a similar situation to Common Law Tenancies.