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Rent can be a contentious subject. Tenants are often unhappy with rent increases but landlords have to consider the costs of mortgage repayments, market movements and inflation when it comes to setting a fair rent or increasing an existing rent.
The fact is, nothing stays the same forever, and that includes prices. Inflation is very low right now, but the cost of living is increasing. The Consumer Price Index crept up from 1.9% to 2.0% in June this year. As time marches on, landlord costs increase, so corresponding rent increases are an economic reality. However, there is a fine line between increasing the rent to cover rising costs and hiking rents for profit.
In this article, we are going to look at the rules for rent increases, plus when it’s appropriate to put the rent up and what you can do instead.
The Stats on Rent Increases
Statista data for February 2019 shows that the average rent in the UK is £940 per month. This increased in 11 out of 12 regions compared to figures from the previous year. In London, the average rent is £1,599, which makes the UK’s capital the most expensive place to rent property in Europe.
While London is the most expensive place for tenants, the North East is the cheapest. The average rent there is £524 per month.
When Landlords can Increase the Rent
With an assured shorthold tenancy, periodic or fixed term, the current rent is dictated by what’s in the tenancy agreement. This is what the tenant agrees to pay when they sign the tenancy agreement. The tenancy agreement should also clearly state when and how a landlord can review the rent.
Fixed-term tenancy rent increases
In a fixed-term tenancy, for example, 12-months, the landlord can’t increase the rent until the fixed-term ends unless there is a clause in the tenancy agreement that permits an interim rent increase. Whatever it says in the tenancy agreement about rent increases, you must stick to this.
If you increase the rent at the end of a fixed-term tenancy, the new rent must be included in a new fixed-term tenancy agreement, which the tenant then signs to say they agree to pay the new rent.
Alternatively, the landlord can allow a fixed-term tenancy to roll into a periodic tenancy. At this point, you can issue a rent increase agreement, as detailed below.
Rent increases for periodic tenancies
In a periodic tenancy that rolls on a monthly (or weekly) basis, the landlord can only increase the rent once a year. Any rent increases must be agreed with the tenant. Once you have an agreement in writing, you must both sign and date it. Next, the landlord must issue a new rent form, giving the tenant at least one month’s notice of the rent increase. The tenant must have a copy of the rent form for their records.
In all cases, rent increases must be fair and in line with current market rents in your area.
One way to plan ahead if you plan to increase the rent, is to include a clause in the tenancy agreement that states the rent will go up by X in six months’ time. That way, the tenant knows the increase is coming and has the chance to agree to it ahead of time. However, if you increase the rent by an unfair amount, the tenant can dispute the increase, even if they initially agreed to it.
Raising rent on regulated tenancies
Regulated tenancies are subject to different rules. In this type of tenancy, rent increases are capped at figures set by the Valuation Office Agency (VOA). Landlords can ask the VOA to review rents every two years. A rent review can also be requested if something has changed, for example, the property has been renovated or extended. Be aware, however, that the VOA can decrease the rent as well as increase it.
Reasons to Increase the Rent
There are many reasons why you might want to increase the rent you get from your tenants. Below is a list of fair reasons to increase the rent.
- Increased costs – this is the main reason why landlords consider increasing the rent. The loss of mortgage interest tax relief, increased legislation, and other landlord costs are eating into rental yields everywhere. Do the maths. If you’re making less money or worse, losing money, you have no choice but to increase your rents.
- Rising rents in the area – when one landlord increases rents others sometimes follow suit. Unless you want to minimise voids, it’s worth increasing rents in line with local market prices.
- High property maintenance costs – rental properties require regular maintenance. Unfortunately, this work costs money. If your maintenance costs are increasing or you have a renovation program to pay for, it might be time to put your rents up.
Check Market Rates Before Increasing Rent
As a landlord, charging rent is how you make a return on your property investment. The tenant pays rent and this monthly sum covers your mortgage, costs and, hopefully, yields a profit. But how often should you increase the rent and how do you decide how much to increase it by?
The starting point for a landlord trying to decide how much rent to charge is to look at current market rates. But this is something of a blunt instrument. No two properties are identical, even in the same street. One might have a brand-new kitchen and bathroom, whereas the other could have a larger garden and a garage. Nevertheless, this is a good place to start if you are thinking of increasing your rent.
Check out similar rental properties in your area on Rightmove, Zoopla, and other property websites. Increasing your rent significantly more than other properties in the local area means you will find it much harder to secure tenants unless you can offer something extra.
Take supply and demand into account
The law of supply and demand dictates that prices rise when supplies are low, and vice versa. Rents will often increase if there are a shortage of available rental properties. But be wary of putting your rents up if there are a lot of vacant rental properties in your area. It will make it a lot harder to find tenants.
Informing Tenants of a Rent Increase
There are strict rules surrounding rent increases, which landlords must stick to. You can’t just arbitrarily increase the rent and you should always give your tenant plenty of notice of a rent increase.
At pre-set times in a fixed-term tenancy, you can agree a rent increase with your tenant.
In a periodic tenancy, you can propose a new rent by using a Notice to Propose a New Rent form.
Inform tenants in writing of any rent increase. Ask them to sign copies of the paperwork, keeping one copy for their own records. Be clear about when they will start paying the new rent – it’s a good idea to give them two months’ notice, so they can budget for the increase.
Note: if the tenancy is an annual one, you must give your tenant six months’ notice of any rent increase.
Can a Tenant Dispute a Rent Increase?
Yes, tenants have the right to dispute a rent increase. If a tenant is unhappy with a proposed rent increase, you can issue a Section 13(2) Notice of the Housing Act 1988 Rent Increase Notice. This can only be done at the end of a fixed-term tenancy (minimum 12 months). You also can’t use a Section 13 Rent Increase Notice if the tenancy agreement already stipulates terms for a rent increase.
The Section 13 Rent Increase Notice must contain the following details:
- Landlord name/business name and address
- Tenant’s details
- Property address
- Proposed rent increase
- When the increase rental payments will commence
Make sure that any communication you have with the tenant regarding rent increases is in writing. This is very important, as you’ll need the paper trail if your tenant disputes the rent increase.
If a tenant is unhappy about a proposed rent increase, they can apply to a tribunal. However, they can only do this if the tenancy agreement is assured or an assured shorthold and they have been issued with a Section 13 Rent Increase Notice.
The tribunal will decide whether the rent increase is fair in relation to similar properties in the area and rule accordingly.
If the tenancy is regulated or protected, the tenant can apply to the Valuation Office Agency (VOA) to ask them to verify whether the proposed rent increase is fair. The tenant can appeal and take their case to a tribunal if they are unhappy with the VOA’s decision; the tribunal’s decision is final.
Note: a tenant may be able to lodge an appeal against “unfair rent” within six weeks of moving into a rental property.
Resolving Issues if a Tenant Disputes a Rent Increase
It is a good idea to work with a tenant to resolve a rent dispute before it escalates. This will save you and the tenant time and money.
If you are planning on putting the rent up, speak to the tenant and outline why you need to do this. Have good reasons for doing so and be prepared to justify your decision. Remember tenants may be on a tight budget and even a modest rent increase could be difficult for them.
If you are increasing the rent to cover additional running costs, be upfront about it.
It is important that you listen to the tenant. Can they afford to pay more in rent? If increasing the rent means you’ll lose a long-term, reliable tenant, it’s worth looking at the figures again to see if you can find a suitable compromise.
Remember, if you can’t find a compromise the tenant can take their case to arbitration.
Alternatives to Increasing the Rent
While a rent increase might make economic sense, there are always alternatives worth considering, especially if you don’t want to risk losing a reliable tenant.
Look at reducing your costs. Identify areas where you can save money, such as switching to a better mortgage deal or trying DIY property management. Always analyse your landlord costs regularly. That way you can spot when you’re spending more than you need to in certain areas.
Use landlord software to analyse your costs for each property. If a property is losing money, perhaps it is time to sell it?
Maintenance is something landlords can’t avoid. However, there are ways to save money on property maintenance.
Conclusion
Rent increases are not something you can avoid. Sooner or later, you will have to increase your rents. When that time comes, do it by the book but be open to compromise. Try to see the bigger picture. A good, reliable tenant is often worth keeping over a modest increase in rental income.
