Increasing rents under tenancy agreements is a delicate issue for landlords. So here are some pointers to help you navigate this situation.
Assured and Assured Shorthold Tenancies
Most of the time the landlord is more in control when it comes to the rent payable by their tenants. If the tenant is unable or unwilling to agree on a rent increase, either within the existing assured shorthold tenancy (‘AST’) or on a renewal, the landlord can serve notice under Section 21 of the Housing Act 1988 (“the 1998 Act”) to end the AST (once outside any fixed term or pursuant to any break provision in the agreement) and re-let the property at an acceptable rent.
However, where landlords let to longer-term tenants either under assured tenancies or ASTs, or they otherwise have no desire to end the current tenancy, the landlord needs to consider the correct process where they intend to lawfully impose a rent increase. This will be particularly relevant should the Government’s proposals to end the “non-fault” process for possession under Section 21 of the 1998 Act become a reality, creating longer-term security of tenure for residential tenants. This Legal Update sets out the process for increasing rents payable under assured tenancies and ASTs.
How to implement a rent increase
The process for implementing a rent increase depends on the type of assured tenancy or AST
- Fixed-term tenancy – The rent can only be increased where the tenancy agreement makes such provision, and only if implemented in accordance with those provisions;
- Statutory periodic tenancy e.g. where the tenancy “rolls over” after expiry of the fixed term – The rent can only be increased in accordance with Section 13 of the 1988 Act (see below). This is the case even if the original fixed term tenancy agreement made express provision for how
the rent can be increased;
- Contractual periodic tenancy e.g. where the tenancy is a periodic tenancy from the outset (no fixed term) – The rent can be increased in accordance with Section 13 of the 1988 Act unless the original tenancy makes express provision for how the rent can be increased (in which case, the rent can only be increased in accordance with those provisions). The landlord and tenant are also free, irrespective of the type of tenancy agreement, to increase the rent by agreement. This Legal Update is focussed on the statutory procedure set out in Section 13 of
the 1988 Act.
The Assured Tenancies and Agricultural Occupancies (Forms) (England) Regulations 2015, SI 2015/620,
set out the prescribed form of notice to be served by the landlord seeking to implement a rent increase
under Section 13 of the 1988 Act. The notice must specify the proposed new rent and the date on
which the new rent will take effect.
Section 13 prescribes a minimum period before the proposed increase can take effect. In the case of
a yearly tenancy, the landlord needs to give at least 6 months’ notice. In the case of a tenancy where the period is
less than one month, one months’ notice must be given. In any other case, a period equal to the period
of the tenancy must be given. The new rent must take effect on the first day of a period of the tenancy.
For contractual periodic tenancies to which Section 13 applies, the proposed new rent must not take
effect earlier than 52 weeks after the date on which the first period of the tenancy began.
In any other case, the proposed new rent cannot take effect sooner than 52 weeks since the date when the landlord last increased it using the statutory procedure.
That is unless this would result in an increase date falling one week or more before the anniversary of the first rent increase after the date 11 February 2003, in which case the starting date must not be earlier than 53 weeks from the date on which the rent was last increased.
This allows rent increases to take effect on a fixed day each year where the period of a tenancy is less than one month. For example, a landlord could increase the rent for a weekly tenancy on, say, the first Monday in April. Where the period of a tenancy is monthly, quarterly, six-monthly or yearly, rent increases can take effect on a fixed date, for example, 1st April.
Challenges to the proposed new rent
If an assured tenant or assured shorthold tenant wishes to object to the proposed new rent, they may
apply to the First-Tier Tribunal (Property Chamber) for a determination. The tenant must make this
application before the date that the proposed new rent is to take effect.
There is no “fair rent” regime for assured tenancies and ASTs, however, a tenant can challenge the
proposed new rent as being in excess of a market rent payable for similar properties in the locality,
having regard to the period and terms of the tenancy let. The Tribunal will then determine, based on
evidence provided to it, an open market rent which will be the maximum that the landlord can charge.
In making such determination, the Tribunal is to disregard any increase in the value of the property by
reason of any improvements carried out by the tenant, which the tenant did not have to carry out,
and any reduction in value of the property by reason of any failure on the part of the tenant to comply
with any terms of the tenancy agreement.
Challenging the agreed rent
Aside from any increases in the rent, an assured shorthold tenant can apply to the Tribunal, if they are
unhappy with the initially agreed rent, under Section 22 of the 1998 Act. Tenants must make this application within 6 months of entering the tenancy.
This procedure does not apply to assured tenants who are not shorthold tenants. The Tribunal will only make a determination if there are a sufficient number of similar properties let on similar tenancies in the locality and the rent payable is “significantly higher” than the market rent, having regard to the rents for those other properties.