Increasing Tenant’s Rent
There are several reasons why a landlord may choose to increase rent, but the two most common reasons are as follows:
- Keep up with the level of inflation
- Take advantage of a booming rental market
How to increase rent
The most common way of increasing rent is done by getting the tenant to sign a new tenancy agreement at the end of the fixed term. This is the best and most common way of increasing rent.
However, it’s not necessary or required to put a new tenancy agreement in place as the tenancy will automatically become a periodic tenancy whereby all the same terms and conditions apply. So alternatively, you can also get the tenant to agree the rent by signing and returning to you a copy of a letter sent regarding the increase. As long as the tenant has signed and dated the letter, it can be proof that they have agreed to it.
Rent Review Clauses
Some times there are rent review clauses stated in the tenancy agreement. This is a perfectly valid clause. However, you need to be careful as the clause must be fair and comply with the Unfair Terms in Consumer Contracts Regulations 1999.
The best way to make a rent review clause fair is by specifying what the new figure will actually be. For example, if the rent at the beginning of the tenancy is £700pcm, the clause could specify that after 6 months the rent will increase to £750. This will be deemed fair as the tenant will have approved the actual amount by signing the agreement. However, if the clause states that the landlord can increase the rent to whatever he likes, this will not be deemed as fair.
Don’t increase the rent by too much
How much you increase the rent by is extremely important and it should be a fair increase. Even if the new amount is stated in the Tenancy Agreement, if the increase is too excessive, the court may deem the increase clause invalid, regardless of whether the tenant signed the agreement.
There was a specific case (the Bankway case) where the tenancy agreement had a clause stating that the landlord had the option to increase the rent from £4,680 to £25,000. Once the increase was effective, the tenant fell into arrears (as expected) and the landlord sued for possession.
The Court of Appeal said that the rent increase clause was invalid because the substantial increase was in place to enable the landlord to bring the assured tenancy to an end when he chose to obtain possession of the property because it was obvious the tenant wasn’t going to be able to pay the new amount.
So, large rent increases that the tenant is obviously not going to be able to afford are not recommended.