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When and how to increase rents

The Private Rented Sector continues to be the go-to tenure for people of all generations, with an estimated 20% of all households privately renting a home. The sector used to be synonymous with low quality, and student housing - but renting a home has become the first choice for a growing number of older renters, particularly if they value ease and flexibility.

According to the most recent Office for National Statistics study of the UK Private Rented Sector, private rented households in the 45 to 54-year-old age group grew from 11% to 16% - the greatest increase compared to any other age group.

The report also revealed that the older the household, the longer a typical tenancy tends to last. As a result, the market is witnessing a steady increase in tenancy lengths – which is good news for tenants and landlords alike. Landlords who can reduce churn enjoy lower void periods, and this is likely to improve the net yield.

But, as the perfect time to assess the rent being charged is when a tenant moves out of the property, then the opportunity to increase rents in line with changes in the local market is reduced.

Therefore, if a tenant stays in their home for longer, then as a landlord you may wish to increase the rent whilst the tenant is still living in the property.

So, just what are the rules around increasing rents?

It is unlikely that a landlord would be able to increase the rent during a fixed term tenancy. However, the majority of Assured Shorthold Tenancies (AST’s) include a clause which allows you to increase the rent at any time outside of the fixed term. 

Some AST’s detail the rental price increases – including and when this would take effect - and in which case there is no need to give advance notice to the tenant; but it is good practice to issue a reminder.

If nothing is detailed in the AST, and the rent is paid monthly, then you must give the tenant one month’s notice of your intention to increase the rent. This rule is the same if the rent is paid weekly or fortnightly. Where the rent is paid annually, then you have to give six months’ notice of your intention to increase rents.

In July 2019 inflation was 2%, meanwhile rents in the same month grew by 2.3%, according to HomeLet

When you issue your tenant notice of your intention to increase rents, and they accept this – then this is fine.  Just be sure to adjust any direct debits or standing orders.

However, if the tenant disagrees with the proposed rental price increase, then you need to serve a Section 13 Notice, informing the tenant that you wish to increase rents. If the tenant continues to disagree with the proposed increase, then he or she can refer the proposed rent increase to the Rent Assessment Committee. 

The Rent Assessment Committee would determine whether excessive rent is being proposed, based on rents for similar properties in the area.

Why ensure rental price increases are reasonable

In all cases we would recommend only fair and reasonable increases in rent are requested.

If the rent is covered by a rental guarantee, then there will be a limit on how much the rent can be increased by before the tenant may need to be re-referenced.

Also, the unintended consequence of increasing the rent beyond what the tenant would be happy to pay could be a reduction in overall profitability – after all, you only need a 14-day void period to completely negate an entire years’ worth of double-the-average rental price increases if the tenant decided to leave the property as a result.

Contact your local haart branch if you would like to assess whether the rents should be increased on any of your properties.

 

 

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