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How to raise the rent

about 1 year ago
How to raise the rent

Landlords and letting agents alike were waiting for the publication of the Renters’ Reform Bill in May but due to something described as ‘procedural issues’, the move has been delayed.

Although the Bill contains a variety of proposed changes for the private rental sector, one section is more pertinent than others during this current time: rent rises. 

If everything set out in the Bill is adopted, it means the end to arbitrary rent rises – these are ‘unjustifiable’ rent rises or hikes linked to inflation, which are usually a feature of fixed-term tenancy agreements. The Government also wants tenants to have stronger powers to challenge rent rises through the First Tier Tribunal, to outlaw periodic tenancies and to double the rent rise notice period from one month to two. 

A new date for the Renters’ Reform Bill has yet to be announced but even when the Bill is published, it could take 12 to 18 months to go through Parliament and become law. This presents landlords with a window of opportunity to review tenancy agreements and work with an agent to undertake a rent view. 

Rents rises linked to mortgage repayments

Rent rises are a hot topic. Data from the Office for National Statistics revealed rental prices paid by UK tenants rose by 4.2% in the 12 months to December 2022 and there are indications that rents will continue to climb. 

With interest rate rises still influencing mortgage rates, it’s no surprise that Landbay found 68% of landlords plan to raise rents if their monthly repayments are costlier when they next come to remortgage. More expensive repayments are due to mortgage rates increasing substantially since September 2023. In fact, many landlords remortgaging after their 2, 3 and 5-year fixed rate deals have ended are finding rates have doubled.

Rather than an act of greed, most property investors raising rents are merely looking to cover costs, which also include property maintenance, compliance and energy efficiency improvements.

How landlords can raise the rent now

A rent review is not as simple as telling a tenant their monthly payment will rise. Deciding to increase what is charged should be done in close consultation with a letting agent. A mistimed or misjudged hike could see the tenant take the landlord to a tribunal, especially if the property’s condition does not reflect any higher rent that’s proposed.

Our lettings team will ensure all of the following are taken into account when rent rises are proposed:-

  • The type of tenancy: how and when the rent can rise depends on the type of tenancy. If the tenancy is periodic, the rent can only rise if the tenant agrees to it, if the tenancy agreement has a rent review clause or if the landlord serves a Section 13 notice (an official rent increase form that landlords can use for assured periodic tenancies). Rent rises are different for fixed-term tenancies, which are only usually permissible when a tenant agrees to pay more rent, when a tenant signs a new agreement or when there is a rent review clause inserted in the tenancy agreement. 

  • Communicating a rent rise: a casual conversation or text message telling a tenant their rent is rising is not adequate. Instead, a formal notice, put in writing, should be made, or Form 4 of Section 13 be served. We can help ensure the correct procedures and notice periods are followed (one month’s notice if rent is paid weekly or monthly, or six months’ notice if it’s a yearly tenancy).

  • Wording of tenancy agreements: as a legally binding document, what’s detailed in the tenancy agreement can shape how much rent is charged and when a rent rise can happen. Clauses can stipulate that the rent will be reviewed annually in a given month, but with a vagueness about how much the rent will rise by. Some landlords prefer to tell the tenant that their rent will rise every year in April in line with the Retail Price Index. Tenancy agreement wording can also include a break clause. This gives the landlord, with an appropriate and formal notice, the option to terminate a fixed-term tenancy agreement before it officially ends. Some landlords will choose to enforce the break clause if a tenant does not agree to paying a higher rent.

  • Expiring & renewing tenancies: creating a new tenancy agreement is the ideal time to add a rent review clause or break clause, and to detail the new monthly rent. It’s important to remember that tenants coming to the end of a fixed-term agreement don’t have to sign a new contract or agree to a higher rent, instead letting the tenancy turn into a periodic one. In these cases, we will advise landlords whether a Section 13 notice is required.

  • Section 13 notices: while Section 13 notices can be a useful tool when a landlord needs to raise the rent, it comes with conditions. For instance, a landlord can’t issue more than one Section 13 per annum and there must be at least one months’ notice. Additionally, a Section 13 notice can’t be served if the tenancy agreement has a rent review clause that still applies, nor can it be served to raise the rent during the first year of a tenancy.

  • Whether the buy-to-let is in Scotland: landlords operating in Scotland must follow a separate rent rise procedure, which involves a Rent Increase Notice and a mandatory three month notice period. Any rent pressure zone will also need considering.

  • Setting a new rent: while many landlords need to raise the rent to cover costs and not make a gross profit, there are fairness rules to bear in mind. A rent that’s set too high could have one of three effects: encourage in-situ tenants to leave, deter new renters or lead to rent arrears. We are able to advise on an attractive market rent, given the area, local demand and the property’s condition. 

If you need help with implementing a rent rise or would like to know the going market rent for your buy-to-let property, get in touch with us today.

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