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Legal focus: Reviewing your rental income during a tenancy

Posted 30/08/2023 by Reeds Rains
Categories: Landlords/Lettings

Increasing rent for an existing tenant is something we find many landlords understandably struggle with, especially if the tenant has always paid their rent on time and is taking excellent care of the property. You may not want to risk the tenant looking for somewhere cheaper to live and might want to keep the rent at its current level as a ‘thank you’ for them looking after their home so well.

But the reality is that the cost of living rises over time, so if the rent you charge doesn’t increase at least in line with inflation, you’ll end up losing money. As the cost of goods and services goes up, you’ll make less from your rental property, and that profit, if any, won’t buy you as much in the marketplace.

One big issue that’s come to the forefront for landlords this year is the rising cost of mortgage payments, which have doubled and even trebled for some of those coming off fixed deals. For those on variable or tracker products, the recent increases have highlighted the issue that while rents can only be increased once a year, mortgage interest rates can rise monthly.

Can I raise rent to cover my increased costs?

If we are fully managing your property, we will handle any rent rises on your behalf and make sure we do so within the law, and if we have helped you let the tenant in the property, do contact us if you need any help, even if we are not managing the property and we will help where we can. 

When it comes to raising rents, there are some key things to know:

  • Rent can only be increased:
    • By agreement, or
    • If the tenancy is periodic, by the section 13 notice procedure (form 4 on the government website)
    • If the tenancy is within a fixed term, by a rent review clause (which must comply with the Unfair Terms rules), or

Can a tenant refuse a rent increase?

If you try to increase the rent any other way – for example, by just sending the tenant a letter telling them that the rent is going up - this will be unenforceable and your tenants can simply ignore it.

Rent increases only work if they’re affordable. For example, if the tenant challenges a rent increase under section 13 and the First Tier Tribunal decides it is not fair and realistic – i.e. not in line with average local rents – they will set a new rent at what they consider is the proper market rate for the property. This means you cannot simply ‘pass on’ your own increased costs and therefore may have to accept a drop in rental profits, at least in the short term.

How do you increase rent during a tenancy?

There are three different ways to effect a rent increase:

  • You can agree a rent increase at any point with your tenant during the fixed term, making sure there is a written record signed by both parties. It is best to do this in circumstances where the tenant is getting some benefit, such as the right to keep a pet, otherwise you risk the increase not being enforceable under general contract rules.
  • At the end of a fixed term, you can renew a tenancy by getting the tenant to sign a new tenancy agreement or renewal form with an increased rent.  If the tenant refuses to sign, then this new rent will not take effect and the tenancy will become periodical at the existing rent.
  • If a tenancy is to become, or is already periodical, you can use a section 13 ‘landlord’s notice proposing a new rent’ form (Form 4) which increases the rent after any fixed term has ended. There are specific rules for using this process – for example, you must give one month’s notice, the tenants can challenge the proposed increase via the First Tier Tribunal if they feel it is unfair, and the process can only be used once every 12 months.

It’s worth noting that under the Renters (Reform) Bill, proposals are to:

  • Increase the notice period to two months
  • Stipulate that rent can only be raised once a year, which must be done using a section 13 notice
  • Ban ‘rolling’ rent increases being written into tenancy agreements
  • Disallow increases by consent until after the section 13 notice has been served

However, even if the Bill passes, it seems unlikely that any changes will come into force until 2025 at the earliest.

If you have a managing agent, there is no need to worry about any of this, as they should handle any rent increases on your behalf. But if you currently self-manage and are hesitant about putting up the rent for a good tenant, just bear in mind that small, manageable increases are far better for tenants than big jumps every few years. If you keep their rent low, when they eventually decide to move on, they could get quite a shock at how much average prices have gone up and may even find they can’t afford a comparable home because they simply haven’t been used to budgeting for that level of rent. So, reviewing rental increases are not only ideal for protecting your own rental profits, but they can be a sensible and realistic way to proceed for your tenant.

If you have any questions about rent rises or would like to talk to us about managing a property for you, just get in touch with your local Reeds Rains branch and have a chat with one of the team.

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