The Bank of England is expected to raise mortgage interest rates this week for the thirteenth consecutive time. Markets are betting on interest rates hitting over 6 percent due to the major inflation spike over the past year. This is having a knock-on effect for landlords and tenants in the private rented sector. Higher interest rates mean less profits for landlords, urging them to increase the price of renting. Some landlords have also been forced to sell up as a result.
However, as a landlord or letting agent, it is important to know the rules behind increasing rent as you can’t simply raise the rent at any time. The rules also depend on the type of tenancy involved and so it is vital to understand the differences.
For a tenancy with a fixed term, you can only increase the rent through a rent increase clause, written agreement, or once the fixed term ends.
For a periodic tenancy, you cannot normally increase the rent more than once a year.
Furthermore, as many tenancy agreements do, there may be a clause regarding rent increase. You must comply with such a clause. For example:
“It is agreed that the rent as defined in this Agreement will be reviewed in an upwards only fashion on the anniversary of this tenancy and upon each subsequent anniversary in line with the Retail Price Index (RPI) increases for the previous 12 months and subject to a minimum of 3% and a maximum of 8%.”
Therefore, if you then increased the rent by 10%, the tenant could dispute the clause as it has not been complied with.
Outside of rent increase clauses, the ways to propose a rent increase to your tenant are:
- renew the tenancy agreement at the end of the fixed term, but with an increased rent.
- agree a rent increase with the tenant and produce a written record of the agreement that you both sign.
- use a section 13 Notice, which increases the rent after the fixed term has ended.
Landlords and letting agents must also consider the appropriate notice period for increasing rent. For tenancies where rent is paid weekly or monthly, you must give a minimum of one month’s notice. For yearly tenancies, you must give 6 months’ notice.
It is also important to consider the Renters Reform Bill which sets out proposals to remove the use of rent review clauses in tenancy agreements and replace with the existing Section 13 process. This includes only allowing rent to be increased once per year and at least 2 months’ notice of any rent change must be given to the tenant.
The Government has confirmed that it does not support introduction of rent controls to set the level of rent. To strike a balance tenants will have the ability to challenge unfair increases through the First-Tier Tribunal. The First-Tier Tribunal will consider the quality, condition, and state of the repair of the property and also look at the market and compare rents for similar properties when determining the rent. The reforms are still only at Bill stage and will do a lot of ping ponging back and forth before coming law.
Unfortunately, some tenants may be unable to afford an increase in rent due to the cost-of-living crisis. We recommend keeping the lines of communication open with the tenant and exploring surrenders or payment plans as an alternative to court.