A GUIDE TO INCREASING RENT FAIR AND LEGALLY

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.

Making a lucrative return on investment is a landlord’s best measure of success in the business of buy to let. In a market where prices are constantly increasing that means knowing how, when and by how much to increase rent.

To continue reaping the rewards of a property that is increasing in value, landlords may want to find a way of increasing rent fairly, legally and, most importantly, without unsettling tenants. Understanding how to approach the situation with tenants, prioritising good lines of communication from the outset, is key to making this work.

When Can Rent Be Increased?

In a contract for a periodic tenancy (rolling on a week-by-week or month-by-month basis) landlords cannot normally increase the rent more than once a year without the tenant’s agreement.

This means finding the right time is absolutely crucial as you’ll only get just one legal chance a year. In addition, increasing the rent more than once in a year would most likely frustrate your tenants even if it was legal.

For a fixed-term tenancy (running for a set period, often between six months and a year), meanwhile, landlords can only increase rent within this period if the tenant actively agrees. If not, the rent can only be increased when the fixed term ends. The only exception here is if there’s a clause in your tenancy agreement that sets out how and when you will increase the rent.

If the area your property is in suddenly increases in popularity, for example, with demand outstripping supply, it might be time for a fair and appropriate review of the rent. It is worth bearing in mind that, while it’s important for landlords to make good returns on the investment put into their properties, sometimes keeping a good tenant is a better reward than increased profits.

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.

How Much Can Rent Be Increased By?

This is a point of contention amongst some landlords, who might argue about what is fair and what is not.

The UK government states that all rent increases must be “fair and realistic” and in line with the local average, but this is incredibly vague and difficult to enforce. Take nationwide statistics with a pinch of salt. While they’re useful as a basic litmus test, it’s more important to look locally before you figure out how much more you should be asking from your tenants.

Look at properties similar to yours and work out what the local average is. As long as you stay within this rate then you can’t be accused of being unfair. The most important thing is to ensure that the rent renewal date is set out in the tenancy agreement and that you adhere to this process, because otherwise it can lead to messy and unwanted legal action.

If a tenant feels that any rise in rent is unfair then they can take the dispute to a First-Tier Tribunal, where each party will be asked to plead their case to an independent jury. This is definitely not a situation you want to find yourself in, however, as it is likely to cause an irreparable rift between you and your tenants.

If you feel as if you are stuck in a situation where property prices are soaring but there’s nothing you can do about it then don’t despair, there are options to consider.

In a fixed-term contract, you could negotiate an increased rent with the tenants at the end of the term or you could speak with the tenant beforehand to agree on a rent increase and record this agreement in a written contract. This is far more likely to work in your favour if you have a decent, long standing relationship with your 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.

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.

Knowing how and when to increase rent prices without upsetting that landlord/tenant relationship and weighing up the wellbeing and the happiness of your tenants with your own bottom line is a delicate balancing act to pull off. But it’s one that will be that much easier to achieve if you are aware of the limits of the law and are smart and (perhaps more importantly) transparent about it.

Our overall takeaway? Get things right at the start of the tenancy. Taking time to talk through the potential for rent increases at the outset, and making sure this is noted in the tenancy agreement itself is essential. This will ensure your tenants aren’t faced with any nasty surprises later on.

In some instances keeping a good tenant will set you in better stead in the long run. Factor in property advertisement, letting and renewal fees alongside the peace of mind gained from letting your property to a tenant you trust absolutely, and a rent increase might not seem so essential.

It’s all about staying informed and using that landlord’s intuition – knowing your tenants, knowing your properties, and knowing the market.