It’s a sensitive time to be talking about increasing the rent, but the time will come when this question needs to be addressed
Most landlords have done their utmost to help their tenants through the pandemic crisis, when they can afford it, but as the crisis comes to an end, and it must inevitably do so in time, landlords will need to address this difficult question, if they are to keep their businesses viable.
It’s so easy to let this issue slip, to let the rent fall so far behind the true market value that any increase back to the correct level becomes so painful that tenants start looking around for a move.
Responsible landlords want to keep their tenants as long as possible, but this should not be at any cost; it makes sense to instigate a series of small increases to keep rents in-line with the market, than risk a confrontation over a big increase – tenants rarely appreciate the benefit they got from living on a below market rent for an extended period, when the big increase eventually comes.
It we are to believe the economic pundits, there’s a good chance that inflation will take off as we pull out of the crisis and the country gets back to full activity. So operating costs will begin to rise and as any accountant will tell you, income should be kept in-line with costs whenever possible.
How much can a landlord increase rent by?
Under an Assured Shorthold Tenancy there’s no legal constrain, it’s a matter of agreement between the parties but using the market as a guide is the obvious answer.
Ask too much and the tenant will start to look around, so it’s a good idea to start that look around first, yourself. Trying to ascertain comparable rents within the locality and pitch the rent slightly below that level is a good strategy which has stood the test of time. Shop around the agents and letting ads, you can even make a few explorative enquiries as a prospective tenant yourself, to gauge the market values locally.
With house prices at record levels, it’s unlikely that demand for renting will decline any time soon, so you can rest assured that tenants will need to rent regardless, but that’s no excuse for exploitative behaviour.
Ask a fair rent for the type of premises you are letting and you are likely to hang on to your tenants for longer. Remember, void periods and reletting costs – not to mention the risk involved with new unknown tenants – will bring down your average returns dramatically. It makes no sense to maximise rents at the expense of constant turnover.
Most Assured Shorthold Tenancies (ASTs), as the term implies, are quite short, so the issue of a rent increase with an existing tenant does not arise. It then becomes a less contentious process to set a new rent with a new tenancy.
However, some shorthold tenancies last for many years, and Covid may well increase tenancy lengths. There is no legal time limit when the tenancy becomes periodic, or the number of renewals that can be signed, so rent increases do become an issue when a new rent needs to be agreed in a long-term – landlords or their agents then need to become involved in processing a rent increase.
With all ASTs rents can only be increased after the initial fixed term has ended, unless:
1. A rent increase or formulae for increase has been agreed beforehand and stated in the agreement
2. The tenancy agreement contains a rent review clause.
3. The landlord and tenant come to a mutually agreed rent increase.
Most standard AST agreements have a rent increase clause setting out the procedure for rent increases, which by definition is then agreed at the start of the tenancy.
If the tenancy agreement is silent on the matter and the tenant objects to an increase, then, if the landlord still wishes to pursue the matter, he or she has recourse to a procedure laid down in the Housing Act 1988.
This procedure was originally intended for use with tenants on an Assured Tenancy (AT) but it can also be used for ASTs.
Assured Tenancies (ATs) give tenants security of tenure, meaning landlords cannot use the s21 eviction process and must therefore have a means of increasing the rent for tenancies, most of which last for a very long time. Section 13(2) of the Housing Act 1988 makes this possible, after the initial fixed term has ended, by serving on the tenant a Section 13 Notice.
There are appeals safeguards for tenants in the process. The rent tribunal complaints procedure will review the cost of renting similar properties in the area and what the landlord could charge if a new tenant was renting the property. It’s important for landlords to try to negotiate and stay on good terms if you want a long-term arrangement with your tenant and try to avoid this.
Currently, until such time as the Section 21 process is abolished, and taking into account the current extended notice periods, landlords of AST’s with the fixed-term ending have an alternative method of increasing the rent: rather than going through the rather protracted process using s13(2), they can simply offer a new fixed-term tenancy at an increased rent, failing which the tenant gets notice that the landlord will be applying for a possession order.
It may seem harsh to resort to these tactics, but it’s a commercial reality – if your lettings business is to survive long-term, rents must be kept in-line with market rents and running costs.