How to approach increasing your tenants’ rent
If you haven't revisited your tenant's rent lately, it might be time to consider it. Some landlords opt to keep the rent unchanged for existing tenants over the years, but surprisingly, this can lead to issues for both parties involved.
From the tenant's standpoint, when they eventually seek a new rental, they might find that rents have significantly risen compared to what they've been paying. Meanwhile, from the landlord's perspective, not adjusting the rent means potentially losing out on money that could have been allocated to mortgage payments, essential property maintenance, or investments like energy-efficient upgrades, benefiting both landlords and tenants alike.
A more beneficial approach for all parties would involve modest annual increases aligned with inflation. For instance, a 2.5% yearly increase would translate to a £25 raise in monthly rent (based on a monthly rent of £1,000).
When can landlords increase rent?
If a letting agent manages your property, they typically handle rent increase recommendations and the entire process. For example at Leaders we review rent on behalf of our landlords annually. However, if you're a self-managing landlord, it's crucial to adhere to letting regulations when considering rent hikes. There are three legal methods to increase rent:
By Agreement: Rent increases are often agreed upon with tenants signing a new tenancy agreement at renewal, minimising potential disputes.
You can also increase (or decrease) rent during a fixed term by agreement. It is better if there is some reason for this, for example increasing the rent after carrying out improvements to the property or after letting the tenant keep a pet. You should have proof of agreement, ideally a signed document or letter.
Through Rent Review Clauses: If your tenant doesn’t agree to a rent increase then you can legally increase rent if you have a validly drafted rent review clause in the tenancy agreement.
Not all tenancy agreements have this but if the fixed term is going to be longer than a year – it should ideally include a rent review clause or the same rent could apply for the whole of your fixed term.
It is also very important when increasing rent under a rent review clause that you follow the procedure set out in the clause – otherwise your increase could be invalid.
Via the Statutory Notice Procedure: This procedure, available for assured and assured shorthold tenancies, provides a formal framework for increasing rent during periodic tenancies and is the proper way to increase rent during a periodic tenancy if you cannot reach agreement. Please note that this only applies to England and not Wales. Wales has it's own forms and regulations.
You have to use the special ‘prescribed’ form which gives the tenant one months’ notice of your proposed new rent. If the tenant does nothing, the new rent will take effect at the end of the month. However, if the tenant thinks that your proposed rent is not a market rent, they can refer it to the First Tier Tribunal for review.
It’s always a bit of a risk for tenants to do this though as the tribunal can put the rent up as well as down – their job is to set a market rent. So, if this happens, be sure the rent is at or just below the market rent for the property. You can do this by checking with a local letting agent.
Approaching rent increases fairly
To implement rent increases fairly, consider a few guidelines.
Firstly, while aligning rent hikes with inflation is ideal, it may not always be feasible. Rents typically rise in line with wages, so if your tenant isn’t receiving inflationary wage rises each year, they may not be able to afford to pay more rent. If they’re a good tenant, it might be more hassle than it’s worth to raise their rent and risk losing them as a result.
Secondly, regularly assess local rental rates to ensure competitiveness and fairness. If rents are rising fast, then it’s worth finding out what’s happening to your tenant’s individual circumstances to see what rise they could cope with – ideally increasing rent by at least the rate of inflation.
Lastly, consider improving the property or offering incentives to tenants to justify the increase and maintain a positive landlord-tenant relationship. For example, replace the appliances if they’re a bit old, or refreshing the décor at a time that suits you both.
Uncertain if you’re charging a fair market rent? Call us on 01344 753100 and quote that you’re an NRLA member to find out more about the lettings services we offer and about the exclusive discount* we can provide.
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