Increasing rent can be a complicated issue, especially with your existing tenants. However, landlords often do need to increase rent over time. And that is to keep up with the level of inflation or cost of living, for example. So, how do you increase the rent when the market rises?
It’s actually better to gradually increase rent rather than holding back for a couple of years and then increasing it by a significant amount. That will be a lot more difficult for your tenants to accept. So generally speaking, regular increases are normal and healthy.
Increasing the rent for periodic tenancy contracts
For periodic tenancy contracts, landlords can typically only increase rent once a year without the tenant’s agreement. It is therefore imperative to find the right time to discuss rent matters with your tenant as you will only have one opportunity per year. We advise that you approach this situation with sensitivity. Telling your tenants that you intend to increase their rent costs could cause anxiety if not done carefully. And that can happen even if you are within your legal rights to do so.
Increasing the rent for fixed-term tenancies
However, for fixed-term tenancies, which run for a set length of time typically ranging from six months to a year, landlords can only increase rent at the end of the fixed term, never during. The only exception to this rule is if there is a specific clause in your tenancy agreement that clearly states that you can increase the rent during the fixed term.
A good reason to review your rent may be if the popularity of your area increases, are there are a lot of new developments being built. These can be viewed as indicators that it is time to re-evaluate your rent prices. Tenant responsibilities and rights
How much can you increase rent by?
The question of how much rent can be increased by is a topic of frequent debate among landlords. The UK government has stated that any rent increase must be fair and realistic, and in accordance with average costs in the local area. However, this is not much explanatory.
National statistics shouldn’t be taken as a definitive guide as prices can differ significantly by region. It is more advisable to observe the rent costs in your local area before deciding on the increased rent. Ths simply is a way of comparing your property to what is already on the market.
Before you take any action to increase your rent, you should ensure that the renewal date is clearly stated in the tenancy agreement in order to ensure that you avoid any discrepancies and that you are within your rights to raise the rent. If they have good reason to believe that the increase is unfair, tenants have the right to legally challenge by taking the dispute to a First-Tier Tribunal, in which each party involved will be given an opportunity to plead their case to an independent jury, who will decide the outcome of the case. We advise you to avoid getting into a legal battle with your tenants as this is likely to cause serious damage to your relationship.
Discussing the rent increase with your tenants
In order to avoid this from happening, we suggest you negotiate with your tenants to try to come to an amicable arrangement. For fixed-term tenancies, you could discuss rent increases with your tenants at the end of the term. Alternatively, it may be better to discuss the possibility of rent increases before the end of the term. This allows you to give them adequate warning. You should record this type of agreement in writing. Approaching the situation in this way is more likely to work in your favour, and will also allow you to maintain a good relationship with your tenants.
Although it’s important for landlords to make decent returns on their buy to let investment, there are times when it may be better to retain a good tenant with slightly reduced profits than to risk losing the tenant, because perhaps they simply can’t afford even a modest increase in the rent. In this situation you potentially risk a void period while you find a new tenant as well as the possibility that the next tenant may not be as reliable. Points to consider before extending your property
If you are unable to come to a fair agreement with your tenant, your next option would be to file a Section 13 notice. This is a clause of the Housing Act 1988 which allows a landlord to raise the rent on a property. The condition is that reasonable notice is given. And the notice can be given regardless of whether the increase is stated in the tenancy agreement or if the tenants agree to it.
The landlord must offer the tenant a sufficient period of time between giving the notice and putting the increase into effect. This is generally one month’s notice for periodic tenancies and six months for fixed-term tenancies. Also, you cannot issue Section 13 notices less than a year apart. And you can only file notices less than a year from the start of a new tenancy. In general, we advise you to consider rental increases in terms of annual cycles.
When a tenant refuses to accept a rent increase
If a tenant refuses to accept a rent increase, the best course of action may be to end the tenancy once the fixed term has come to an end. Then you can search for new tenants who will accept the increased rate. However, it is worth noting that on average a tenant will spend around four years in a property. And in the UK it takes many days/weeks to rent a property. Leaving your property empty for an extended period of time can invalidate your insurance as well.
You should base your decision to end a tenancy on your own personal judgement. Consider your local market and whether you feel happy with the risk of going ahead. Also, it is unlikely that you will be able to maintain a friendly relationship with any tenant that you have filed a Section 13 notice against. So you should apply careful judgement here. Considering these possibilities, all decisions regarding rent increases should be approached with sensitivity.