If you have long-standing tenants, increasing their rent will become inevitable at some point; otherwise, you won’t be able to cover your costs. In this article, we explore when rent increases might be appropriate, how to approach the subject, and how you can implement changes smoothly.
- Can landlords increase rent?
- How do I increase the rent on my rental property?
- Rent increase notices
- How do you increase rent if you have tenants in receipt of Universal Credit?
- What is fair when it comes to increasing rent?
- What is the maximum rental increase?
Landlords generally have the right to increase rent, although they must adhere to specific rules and regulations regarding rent increases. These regulations often require landlords to provide advance notice to tenants before implementing a rent increase, limit the amount by which rent can be increased, and the frequency of increases.
While it’s at your discretion to request a rent increase, it’s also important to consider how it might impact your tenant.
There are fundamentally three ways to ask for a rent increase:
- Wait until the existing fixed-term tenancy ends and issue a new contract with revised rent.
- Agree on an increase with your tenant and re-sign a new contract noting the change.
- Issue a formal Section 13 notice.
Whichever you choose, you should give your tenant as much notice as possible. It could also help to set out a notice of rent increase in a letter which includes why you feel the change is necessary.
If your tenant can’t meet the suggested increase but is willing to pay a little more, it could also be worth compromising rather than losing them as a tenant altogether.
What is a rental increase notice?
A rental increase notice refers to a written document provided by a landlord informing tenants of their plan to raise the rent in the case of month-to-month rental agreements or expiring fixed-term leases.
Tenants can refuse to pay a rent increase, but if that’s the case, they must still pay you the agreed rent until the issue is resolved.
If you and your tenant can’t agree on an increase and you feel your request is justified and fair, there are two main options to consider:
Can Section 13 be used to increase rent?
Section 13 can be used by landlords to increase the rent they charge for a property. It can only be used for assured periodic tenancies, but not for tenancies that are within a fixed term agreement.
What is a Section 13 rent increase?
This refers to Section 13 of the Housing Act 1988. It’s a formal process that notifies your tenant of a rent increase. It can only be served if you have a periodic tenancy and can only be issued once every 12 months.
Like other notices to serve, it has to be carried out in a certain way, and you’ll need to fill out Form 4 from the assured tenancy forms.
Can Section 21 be used to increase rent?
Section 21 isn’t used to implement a rent rise, but instead is used to inform a tenant that you would like them to vacate your property. While it’s reasonable to explain why you have issued a section 21 notice, you aren’t obliged to do so.
What is a Section 21 notice?
If you’ve broached the subject of a rent rise, but your tenants refuse (whether you have a periodic contract or fixed-term contract that has ended), you could issue a Section 21 notice. This notice formally requests that your tenants leave at the end of their contract.
However, it’s worth noting that as of May 2023, the Renters’ Reform Bill started making its way through Parliament and seeks to abolish Section 21, so this situation may change in the future.
If your tenant receives housing cost payments through Universal Credit or Housing Benefit, you would propose an increase in their rent in the same way as you would for a private tenant. If they cannot afford the increase you are requesting, they may be able to receive extra money to cover the increased costs by speaking to their council’s housing team before the increase begins. Tenants can also apply to their local council for ‘discretionary housing payments’ for extra help.
A general rule of thumb is that any rent increases must be in line with the local market, so they shouldn’t exceed the average increase in your area. You can use sites such as Rightmove or Zoopla to research similar nearby properties and how much rent they’re charging. Another method is to use the national inflation figure as a guide, although in recent times, this has risen steeply, so you’ll need to be sure your rent increase is affordable.
If you increase the rent by more than 10% you will need to re-check affordability if you have rent guarantee insurance. If you are increasing the rent by less than 10% and there have been no issues with payment in the last 12 months, you do not need to re-check affordability under the terms of your rent guarantee insurance.
How often can I increase rent?
As a landlord, it’s within your rights to increase rent every year, depending on the type of tenancy agreement you have in place.
If a rent increase is something you’re considering, it’s important to consider all the consequences. Regular annual rent rises could out-price your tenants, leaving you with an empty property and no rent.
It’s also easier to discuss rent rises with tenants if there are clear and justifiable reasons for the increase – for example, inflation, increased mortgage repayments, or the cost of maintenance.
When is the best time to increase rent?
Broadly speaking, there are two different types of tenancy in the UK which will affect when you can increase rent:
These tenancies run for a fixed period agreed upon from the outset. Under the terms of these contracts, you can’t increase the rent until the contract ends. The only exception is if your tenant agrees to a rent rise.
If your tenant does agree to a rent increase, you’ll need to issue a new contract detailing the changes.
You can put a rent review clause into a fixed-term contract, allowing you to discuss a rent rise if needed.
If you add a rent review clause, you should also set out a specific increase or formula to determine the rise. Doing this ensures the terms are clear when the tenant signs the agreement and helps avoid any confusion later down the line. Although doing this doesn’t guarantee that the formula for raising rent will adequately cover the reasons behind the rent increase, especially if the contract was agreed on several years ago.
These tenancies run on a rolling basis, usually weekly or month by month. If you have this type of agreement, you can’t increase the rent more than once a year.
If your tenants pay rent weekly or monthly, you must give them at least one month’s notice. If the agreement is annual, you’ll need to give them six months’ notice.
This only applies to periodic tenancies. If you’ve got a fixed-term agreement, you can only raise rent when the contract ends.
How do you increase rent by mutual agreement?
Firstly, you should contact your tenant and discuss the proposed increase and the reasons behind it; once you reach an agreement, you should ask them to sign a written record detailing the new rental amount, including the date from which the new rent is payable.
How much can I increase the rent by?
A good gauge is to look at like-for-like properties within your local area and decide what is fair based on this.
It’s also in your interest to charge realistic rent to avoid having an unoccupied property. If comparable properties in the area are charging much lower rents, then your property won’t be an attractive prospect in comparison.
Each September, the Government uses the annual Consumer Price Index figure to limit annual rent increases for social housing. However, there isn’t a set limit in the private sector, although you can’t impose a new level of rent on a tenant without their agreement and should be careful to ensure it is still affordable.
Do I need a new tenancy agreement to increase rent?
Your tenancy agreement may already include details of a procedure for increasing your rent, and if so, you must stick to this. Otherwise, you can issue a new tenancy agreement at the end of the fixed term, with an agreed increase in rent; or agree on a rent increase between you and produce a written record of the agreement that you both sign; or alternatively use a ‘Landlord’s notice proposing a new rent’ form 4, which increases the rent after the end of a fixed term.
Adding a review clause to tenancy contracts
You may decide to include a rent review clause in your tenant’s contract from the start, stating how much the rent can be increased.
This could be general, such as saying that the rent will be reviewed at a certain time each year and stating a notice period for any increase, or more specific such as saying that the rent will increase on a set date each year in line with the Consumer Price Index.
Rent review clauses don’t usually apply after a fixed-term contract has ended but will apply if the agreement says the tenancy continues as a contractual periodic tenancy after the fixed term has expired.
Should rent increase every year in line?
You should consider the reasons behind increasing the rent and use this to determine how much you increase it by, rather than choosing a nominal amount every year. Giving your tenant clear justification for why you need to raise their rent is likely to be more palatable to them, plus it also ensures that what you’re increasing it by will cover any increased costs you have.
What is the average rent increase (yearly)?
Rent increases tend to fluctuate in line with the cost of living; private rental prices paid by tenants in the UK rose by 4.9% in the 12 months to March 2023, the largest annual percentage increase since January 2016.
The Government publishes the latest private rental prices annually, which can be seen here.
Is it normal for rent to increase every year?
It’s common for landlords to raise rents annually to cover their outgoings, but they may choose not to do so if these increases are nominal and are already covered by the existing level of rent.
Can a tenant refuse a rent increase?
Tenants can refuse to pay higher rent; however, we recommend discussing the reasons for any increase with tenants, including why you feel they are necessary and coming to a compromise if they feel your original proposal is too much. For example, if you suggest a £100 per month increase, but your tenant feels £50 is fair, you might be able to split the difference at £75.
If your tenant refuses, you can issue a Section 21 notice (subject to certain terms being met), but you will need to factor this additional expense into your other costs of being a landlord.
Can I increase rent when my tenants are on benefits?
Yes, you can, although bear in mind that any increase should be considered fair, reasonable, and in line with the local market.
Are there any other financial costs to be aware of when increasing a tenant’s rent?
While there are no specific financial costs to be aware of in relation to rent increases, there are a range of other financial considerations for landlords, from tenant fees and the legislation surrounding the Tenant Fees Act 2019, and landlord tax, including paying tax on rental income, to ensuring your property complies with the upcoming EPC changes.
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