Landlords- Rent increase? What’s right? With tenants residing in your property for a certain amount of time, you may be thinking about increasing their rental amount, and may be wondering what the best course of action is. If you have a fixed term contract- and therefore it is running for a set period of time, for example 6 or 12 months, then you cannot increase the rent during the term unless the AST specifies that you can with a clear rent review clause. It is usually when the contract is 2 months from expiring that you should notify your tenants of your proposed new rental figure (in written form) and then when agreed they would sign a new lease.
It is best to check online the current prices that similar properties to yours are being advertised for and also take into consideration market forces such as supply and demand in the local area. If you were searching for new tenants at the new price, do you think your property would be snapped up or would it left to become dusty on the available properties shelf? Verifying that the market rate supports your new rental figure is usually the best way to have your tenants agree and accept that that is what they should be paying, and therefore looking around will only justify that their move in the area will be pointless and costly.
Conversely what happens if you have long-term tenants and you work out that they are paying quite considerably below the market rate? Say 15- 30% less? Some landlords do indeed worry that when they have good solid hassle-free tenants in their property that raising the rent will be like poking a bear when sleeping and incline them to kick up a fuss, relationships can deteriorate and they even vacate. Openly communicating with your tenants about the proposed rental increase and perhaps compromising that the following year they would not have their rent put up, treats them more as investors rather than people at your disposal. Here are some factors to consider when increasing the rent:
- The increase must be fair and realistic- consider that also a huge jump in the rental amount may be too much for people to stomach and therefore they will vacate.
- Tenants who will leave a property due to this and feeling that the increase is unfair, may also mean a void period in between tenancies. Therefore losing say a month’s rental income may work out to be more or less the same rent over the course of the year that you were already receiving.
- Replacing a tenant may also incur the cost of employing an estate agent who will usually charge between 5-10% of the annual rent.
- Putting the property on the market may also mean that you will have to fork out for repairs, new units, carpets and a fresh lick of paint in order for the property to stand out against the competition in the area. Money and time will therefore need to be spared and invested.
If the fixed term contract with your tenant had expired and no new one had been signed but they continue to rent the property, then they are automatically on a periodic tenancy under the same terms and conditions as before (section 5 of the Housing Act 1988). It therefore rolls on a week to week or month to month basis. You would still look to only increase the rent once a year, with your tenant’s agreement and have this new rental figure agreed in writing as evidence, signed and dated (rent increase agreement). If you cannot agree then you may serve a section 13 notice as the next step, which officially provides people the notice that this is happening and they must comply. Failing that and no sign of compromise/negotiations you may be forced to serve section 21 notice of possession, which allows you to gain possession of the property after the fixed term has expired. Of course this is the most undesired outcome. Most landlords find it easier to enforce a gradual annual increase and linking it with the current rate of inflation, or Retail Price Index (RPI). This is usually the best compromise with tenants and it doesn’t rock the boat with the current set-up. By Natalie Elms. Senior Sales & Lettings Negotiator at Property People. Estate agents in Wimbledon Park