A guide to rent increases for residential landlords
- AuthorAndrew Morley
For a residential landlord a good tenant is one who pays the rent (in full and on time) and looks after the property. And if they do that the landlord will probably want them to stay for a long time. The longer the landlord and tenant relationship continues the more is becomes in their mutual interest carry on. But with the passage of time the landlord may find the need to increase the rent to offset the costs of maintenance and improvements at the rental property, to keep pace with increasing mortgage payments, taxes and the cost of the ever increasing regulations in the sector (see for example the writers Blog on minimum energy standards). The question is how does the landlord achieve a rent increase?
The Assured Shorthold Tenancy (AST) is the most common type of residential tenancy and the only one being considered for the purposes of this Blog. It is necessary first to explain briefly how these work. ASTs are generally granted for fixed terms, often for 6 or 12 months. Once the fixed term has expired it is not uncommon for the tenant to remain and the tenancy then becomes what is known as a Statutory Periodic Tenancy (SPT) and continues more or less on the same terms. Occasionally a tenancy is periodic from day one and is then called a Contractual Periodic Tenancy (CPT). This term is also sometimes used to describe the situation where the AST provides that after it expires it will be a CPT.
The following are the most common means by which a landlord can increase rent:
- Agreement with the tenant: A settled tenant may not be averse to a modest rent increase if asked. Landlords should not be seen to be too heavy handed in this and allow the tenant a reasonable period of time in which to reflect on what is being asked of them. Explaining to the tenant the reasons for the proposed increase, making it reasonable in amount and based on some recognised formula would be a sensible approach. If everyone is agreed then this should be put in writing and signed be all parties.
- Rent Review clause: Rent cannot normally be increased during the fixed term unless the tenancy agreement contains a rent review clause. However, if by frequency and/or amount the rent reviews could be found to be unfair under The Consumer Rights Act 2015 (the Act defines “unfair” as causing a significant imbalance in the parties' rights and obligations under the tenancy to the detriment of the tenant) then they might not be enforceable. So care must be taken when drafting the review clause. A rent review is more likely to be fair if it reflects improvements made to the property or is pegged to a recognised and easily understood formula such as the Retail Prices Index.
On the face of it there is no reason why a rent review clause should not provide for rent increases after expiry of the fixed term. As we have already seen most of the terms of the AST continue into the SPT. Unfortunately, it is most but not all terms that carry over into the SPT. This follows the ruling in the case of London District Properties Management Ltd –v- Goolamy  that any rent review clause in the AST becomes ineffective once it becomes a SPT.
If on the other hand the tenancy is a CPT from day one and contains a rent review clause that is not unfair then this should be enforceable.
- Statutory Notice: Landlords can serve a statutory notice of proposed rent increase under section 13 of the Housing Act 1988. A special form must be used. This cannot take place during a fixed term and when this can first be done may depend on the status of the tenancy. The tenant must be given a period of at least 1 month to respond to the notice. If the tenant either agrees or does nothing during the notice period then the rent increase takes effect without further ado, always from the next rent day.
If the tenant objects then they can apply within the notice period to the First Tier Tribunal (Property Chamber – Residential Property) where a market rent will be fixed. This could be either higher or lower than proposed in the original notice.
The statutory Notice procedure can be used multiple times but never more frequently than 12 months since the last notice.
It should be noted that it is not permitted to use a Section 13 Notice in the case of a CPT with a rent review clause.
- Replacement tenancy agreement: Perhaps the most straightforward way to proceed is at the end of the fixed term of the AST to present for signature by the tenant a fresh AST with an increased rent. Letting agents prefer this method and it certainly affords the opportunity for all sides to review the entire arrangement including assessing the condition of the property and contents and the commitment of the parties. The downside is that this gives the tenant additional security for the new fixed term and there will be other regulatory requirements on the landlord such as those relating to deposits.
- Contractual Periodic Tenancy: A CPT with a rent review clause should operate to permit periodic rent increases so long as the requirements are met as to fairness.
This Blog is written to raise awareness of these issues. While every effort has been made to ensure that it is correct at the time of first publication it may not be updated, even if the law changes. It is not intended to be specific legal advice and cannot be relied on as such. Chattertons are not responsible or liable for any action taken or not taken as a result of this Blog. If you think any of these matters affect you then we would be happy to advise.
Andrew Morley provides dispute resolution and residential landlord and tenant services from our Lincoln office.