Questions landlords need to ask before increasing the rent

Just as the cost of living can rise, so too can rents but before landlords increase the rent there are some questions they need to ask themselves…

Is it permitted?

Rent increases are largely governed by Section 13 of the Housing Act 1988 and some associated case law that has helped clarify the intent of the legislation.

In summary here are some of the rules…

• Section 13, and the notice referred therein, only applies to statutory periodic tenancies and other periodic tenancies that have no provision for increasing the rent (commonly referred to as rent review clauses). {some legal practitioners believe it is possible to serve a section 13 notice during a fixed term to take effect during the follow-on periodic tenancy – section 13 explicitly states it applies to periodic tenancies and the belief that the notice can be served during a fixed term is untested in a Court of law}.

• A new rent proposed in a section 13 notice cannot take effect earlier than the date that falls 52 weeks after the date on which the first period of a contractual periodic tenancy began.

• A landlord cannot serve a section 13 notice in the prescribed form proposing a new rent to take effect at the beginning of a new period of the tenancy beginning earlier than the minimum period after the date of the service of the notice which for a monthly periodic tenancy, is one month.

• For statutory periodic tenancies arising at the end of a fixed term tenancy, any rent review clause contained in the expired fixed term tenancy will be overridden by the section 13 procedures.

• Rent review clauses apply to fixed term tenancies and contractual periodic tenancies only.

• Where the rent has previously been increased by virtue of a section 13 notice, the landlord cannot serve on the tenant a section 13 notice proposing a new rent to take effect earlier than the date that falls 52 weeks after the date on which the previously increased rent took effect.

Is it fair?

A rent review clause that does not comply with the requirements of consumer protection legislation may be an unfair term. An unfair term in a tenancy is one which creates a significant imbalance in the relationship of the landlord and tenant to the detriment of the tenant.

Clauses which provide for very large increases will normally be void – for example where the rent increase is not to achieve a fair rent for the property but to increase the rent to a level where the tenant might be forced to leave or artificially raising it over £100,000 to cease the tenancy from being an assured shorthold tenancy. If the tenant feels the rent increase is too high then they can refer it to the First-Tier Tribunal (Property Chamber – Residential Property) (for England).

Can the tenant afford it?

Even if the tenant accepts the rent increase, can they afford it? Affordability checks carried out at the initial referencing stage are based on the rent and the tenant’s income at that point in time. Things may have changed, and the tenant may now be earning less, and it is possible the tenant may not be able to afford the increased rent. This is especially relevant when wages are not increasing at the same rate as rents.

If the tenant accepts the increase, not wanting to leave the property but also not seriously considering the implications on their finances, it may cause them to fall into arrears. Even a small rent increase could cause arrears and it could end up costing the landlord a significant amount if they needed to seek possession of the property through the courts because of arrears.

Will it offend the tenant?

It might only be a small amount you are increasing the rent by, but don’t underestimate how this could offend a good tenant who pays rent on time and looks after the property. If you reward good tenants who want to stay and make your property their home for a long period of time, does it really make a difference to get a bit extra each month?

Are there any outstanding repairs or decoration at the property?

With higher rent comes higher expectations. The tenant will be less accepting of the increase if there are outstanding repairs at the property, the decoration or flooring is past its reasonable life expectancy or any fixtures, fittings or contents are dated.

Can you afford a void period?

Consideration needs to be given to the possibility of the tenant not accepting the increase and serving notice to terminate the tenancy. The landlord then has to prepare the property for re-let and arrange and conduct viewings whilst relying on the support of a disgruntled tenant who is still occupying the property, or the landlord may choose to wait until the tenant has vacated and with it, accept a longer void period. With the departure of the tenant an inevitable void period will follow and with it the loss of rental income during the void. The end of the tenancy may be the time the landlord decides to do repairs or improvements they had previously delayed – again incurring costs perhaps the landlord had not yet planned for. Finally, the landlord would need to consider other costs associated with the start and end of tenancies such as fees paid to agents, referencing companies and inventory clerks.

Do you really need to increase the rent?

If you’re achieving a good yield then remember this is a long term investment based also on the capital growth of the property. Of course there are expenses for you as a landlord but on balance it might be better to keep hold of a long-term tenant that looks after your investment and pays the rent in full and on time each month.

How will you justify the rent increase to the tenant?

Whilst you do not need to justify the rent increase to the tenant, you should as a matter of courtesy explain why you have decided to do so.