Stay onside with the law and with your tenant when you increase the rent
In the first article in this series about increasing rents, you learned how to balance your emotional side and business brain to increase rents. In this article, I discuss the process of raising rents. If you don’t follow the right procedure, the rent increase you impose won’t be legal, and the tenant could carry on paying the old rent. Not good for your pocket, and a bad business strategy to take.
Are you allowed to increase the rent?
This is the first question you must answer. There are legalities that you must follow, and the law won’t permit you to simply increase rents whenever you wish.
In addition to the 10 essential tenancy agreement terms and conditions, you should include causes to cover rent reviews. If you don’t, you cannot increase the rent until the end of the fixed-term contract. Including a clause that states the rent will be reviewed every six months gives you much more flexibility to react to your financial situation. (Note that a rent review does not mean you must increase the rent!)
If you do include rent review clauses in the tenancy agreement, they must be deemed to be fair. You’ve got it – there is a law to cover this, too. One way to ensure that you comply with the Unfair Terms in Consumer Contracts Regulations 1999 would be to include a set amount of increase in the clause (either in monetary amount or percentage). Thus, the tenant will have pre-agreed the increase. Even if this is the case, you must follow procedures to make the rent increase stick.
Methods to increase the rent
There are four methods to legally increase the rent you charge to your tenants:
Method #1: A new tenancy agreement
This is one of the most common ways to increase rent. When a fixed-term tenancy draws to a close, negotiate a new rent and sign a new tenancy agreement. It’s clean-cut and easy, but it doesn’t allow any flexibility through the rental period to increase rents. If your costs rise (such as an unexpected hike in mortgage rates), it could be several months before you can make good against the added expense.
Method #2: Include a rent increase clause in the tenancy agreement
As explained above, if you wish to raise rents during the contract term, then you must include a clause (or clauses) to do so legally. However, even then you cannot simply increase the rent. You must notify the tenant that you intend to make the increase, confirm the new rental amount, and when it will begin.
You can do this in writing by what is commonly called a ‘rent increase agreement’. This is a letter that is signed by the tenant as their agreement to the rent increase. Give a copy to the tenant for their records. It is best to do this a couple of months before you intend to make the rental increase.
Method #3: Increase by mutual agreement
If you haven’t included rent review clauses in the tenancy agreement, you may still be able to increase the rent. However, this can only be done by mutual agreement with the tenant. In other words, you’ll need to talk to the tenant! If your reasons for the rent increase are reasonable and the tenant agrees, write a rent increase agreement as in method 2 above.
Method #4: Issue a Section 13 Notice
Often, after the fixed-term tenancy has expired, you will move to an assured shorthold tenancy or a periodic tenancy. If you wish to increase the rent during such a tenancy arrangement and you cannot come to a mutual agreement, then you will need to give one month’s notice and issue a Section 13 Notice. If the rent is paid annually, you must give at least six months’ notice of the rent increase.
Warning: A rent increase must be fair
Whatever your tenancy agreement says, and however much you would like to increase the rent by, any increase must be ‘fair and reasonable’. If the tenant doesn’t believe it is, they can dispute the increase. If the tenant wishes to do this, they must take you to appeal by the First-Tier Tribunal (Property Chamber).
What if the tenant refuses to pay the new rental amount?
If you have gone through the rent increase procedures outlined above and the tenant still refuses to pay the revised rental amount, you may need to seek to agree to terminate the tenancy. If the tenant does not agree to terminate and vacate, you may need to serve a Section 21 Notice of Possession to evict the tenant.
(See our series ‘Rules for the buy-to-let landlord to evict nightmare tenants’)
Before you increase the rent…
Increasing the rent can be a difficult time in the landlord/tenant relationship (which is another reason to include rent review clauses in the tenancy agreement). However, you can make it easier on yourself by:
- Understanding the value of good tenants, who cause you no aggravation, look after your property well, and always pay their rent on time
- Ensuring you are in tune with local rental market conditions and comparative rental prices
- Providing an adequate notice period of your intention to increase the rent
- Being prepared to negotiate, or offer ‘sweeteners’ to make the rental increase easier to bear (for example, redecoration on the property, new white goods, a promise not to increase for 18/24 months, etc.)
- Treating your tenant with respect
In the next part of this series, you’ll learn about a few approaches that experienced landlords have taken to raise rents without resistance. In the meantime, please feel free to get in touch with the team at Ezytrac at +44 0 1522 503 717 and ask about any aspect of increasing rent that puzzles or concerns you.
Live with passion,