Rent is a contentious subject. Tenant groups say landlords often charge too much rent whereas landlords would probably argue they don’t charge enough given the way tax breaks have been eroded in recent years.
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 show 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 and you can’t arbitrarily increase the rent within a month of the tenant moving in. 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. It’s not OK to hike the rent by an arbitrary amount just because you want to buy a new car.
One way to plan ahead 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 agrees to the increase six months ahead and any increase agreed upon is, therefore, deemed to be fair. However, if you increase it by an unfair amount, the tenant can still 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, but they aren’t all created equal. Below are 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.
Reasons not to Increase the Rent
There are some reasons you really should never use to increase rents on your property…
- Just because… No, it’s never a good idea to put the rent up because Jupiter is ascending or you just feel like upsetting your tenants today. Only put your rents up if there are sound reasons for doing so. Otherwise, you risk losing tenants and having an empty property on your hands.
- You want more cash – most landlords are not in the buy to let sector for purely altruistic reasons. Their primary aim is to earn a living and build a nest egg. However, greed is never good. Don’t hike your rents because you want some extra cash to pay for a Caribbean holiday or a new Mercedes. Arbitrary rent increases can cause your tenants to leave and make it difficult to find new ones. Your tenant can also dispute rent increases, so raising rents is not something to be taken lightly.
Check Market Rates Before Increasing Rent
As a landlord, charging rent is how you make your property investment pay. 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.
Speak to local letting agents and ask their advice. If they seem unwilling to give their advice for free, indicate that you’re thinking of using their services. That generally does the trick.
Take supply and demand into account
The law of supply and demand dictates that prices rise when supplies are low, and vice versa. Remember, it’s easier to increase rents when there is a shortage of available rental properties and a glut of eager tenants. 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 willing to pay the extra.
Informing Tenants of a Rent Increase
There are strict rules surrounding rent increases, which landlords must stick to. You can’t just randomly put the rent up and not bother telling your tenants. Try doing this and see how fast you end you end up in court!
At the end of a fixed-term tenancy, landlords can renew the tenancy at an increased rent. Once the tenant signs the new tenancy agreement, it is in writing that they agree to the new rent.
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. This also gives you plenty of time to find a new tenant if the existing one decides to leave.
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?
You bet they can. 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 as evidence if your tenant decides to dispute 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 try and resolve a rent dispute before it escalates. This will save you time and money.
Before arbitrarily 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. A lot of tenants are in the private sector because they can’t afford to buy a property. Therefore, they are probably on a very tight budget and even a modest rent increase could be difficult for them.
One good argument for a rent increase is when the local rental market is strong. If rents are increasing all around you, it is sensible to put your rent up too. Since your tenant won’t save anything by moving, and could even end up paying more, this might be enough to persuade them to accept the rent increase without too much argument.
If you are increasing the rent to cover additional running costs, be upfront about it. At the end of the day, this is your property and you need to make it pay. Your tenant might not be happy about it, but remind them that you’re running a business, not a charity (nicely, of course).
It is important that you listen to the tenant’s side of the story. 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 the sweet spot whereby the tenant accepts the increase because it’s deemed “fair”, s/he could take their case to arbitration. However, if you believe the rent increase is fair but the tenant refuses to accept the new rent, decide whether you can afford to lose them. In a strong rental market, consider issuing a Section 21 notice and looking for a new tenant. Under the right conditions, it won’t take long to find someone else to move into your property.
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 hand over fist, perhaps it is time to sell it?
Maintenance is something landlords can’t avoid these days. It’s not acceptable to let tenants live in squalor. However, there are ways to save money on property maintenance if you box clever. Perhaps your property is in desperate need of some TLC in the form of paint. Why not ask your tenants to do the painting and decorating? You supply the materials and let them choose colours and do the work, in return for keeping the rent static for another 12 months.
As long as your tenants are not partial to leopard print wallpaper or pink bling, asking your tenants to decorate will save you money and make them feel invested in the property. And if your tenants are good with DIY, encourage them to fix things and make minor repairs in return for not increasing the rent.
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 sometimes more valuable than a modest increase in rental income.
How often do you increase your property rents? Tell us below or reach out on social media. We are always happy to hear from our readers and followers!
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