With Brexit looming on the horizon, the number of buy-to-let transactions has been dwindling, that means fewer landlords are increasing their portfolio of rental properties. Further to this pressure, we found out from a recent survey conducted by Residential Landlords Association (RLA) that of the 2500+ landlords who have responded to the survey, more than 25% are planning to sell at least one property. Although overly simplistic to conclude that rent is definitely going to rise in the UK, a look at the elasticity of supply and demand in the rental market can make one more inclined to agree with the thought.
If you look at a tenancy simply as a landlord and tenant arrangement, then the question of 'how to increase rent' can be answered in three ways:
1. Follow the rent review clause in the agreement
When entering into a new tenancy agreement, most people pay attention to the rental property, its health & safety condition and inventory. Only a few people would look ahead and check that a rent review clause is incorporated into the tenancy agreement. This is the easiest way to go about increasing rent. The agreement should have been signed, and the clause is thus, legally binding and will govern how the landlord will raise the rent, and when the new rent will come into effect.
Unfortunately, most people do not have this clause in their agreement. There is always the option to discuss this with the tenant directly, for establishing a new rent or even to gain their agreement in establishing a new rent review clause in a separate agreement. Failing that, landlords would have only two options left:
2. Set up a new tenancy agreement at the end of a fixed term
As with all other contractual arrangements, an opportunity to re-negotiate arises at the end of a contract term.
At the end of the initial fixed term of a tenancy, the landlord can offer a new tenancy agreement. This will be a straightforward way to adjust rent. Don't forget to include a rent review clause as mentioned in point #1 above.
According to a report published by the Ministry of Housing in 2018, 81% of assured shorthold tenancies (AST) start with an initial fixed term of 6 or 12 months, whilst the average length of residence in the private rented sector is 3.9 years. Not all landlords and tenants would want to start another fixed term at the end of the initial term. This is when option #3 below may be the answer.
3. Serve a valid Section 13 Notice
It is written in law that after a fixed term, if the tenant continues to stay in the property, and pay rent timely, a new type of tenancy is automatically created: Section 5 of The Housing Act 1988 says that if the tenant remains in occupation of the property after the end of the fixed term, a new periodic tenancy will come into effect automatically.
If a landlord wants to raise the rent of the property let in a periodic tenancy, then Section 13 of The Housing Act 1988 governs the manner in which this should be done lawfully. That includes providing a valid notice to the tenant, which is subject to many requirements. As opposed to Section 8 and Section 21 which allow the landlord to seek possession, Section 13 is used to increase rent.
If you'd like to read a bit more on the topic of increasing rent in a periodic tenancy, download our FREE Section 13 Fact Sheet. It covers:
- When should you serve a Section 13 notice
- How to apply a Section 13 notice to propose new rent and common mistakes when doing so
- When will rent increase after a Section 13 notice
- What happens if a tenant doesn’t accept the new rent
- What if tenants stop paying some or all of the increased rent