Can I include management and ground rent costs in a new AST?

Can I include management and ground rent costs in a new AST?

11:09 AM, 30th May 2022, About 4 months ago 9

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My tenant’s 12-month fixed term AST ends on the 1st of November 2022. However, instead of letting it roll onto a periodic tenancy can I start a completely new AST to increase the currently low rent to include:

1/ management service charge.

2/ ground rent.

I am concerned that doing so would violate PERMITTED FEE regulations?

The existing AST limits the yearly rental rise to 5% which is much less than 1/ + 2/ above which I feel the letting agent should have included as I must pay directly to the service company.

Any advice, please.
Cyril



Comments

christine walker

11:38 AM, 30th May 2022, About 4 months ago

Why don’t you issue a new tenancy agreement with a higher rent? You do not need to explain what the increase covers, just that the rent will be going up

Graham Bowcock View Profile

11:41 AM, 30th May 2022, About 4 months ago

If you want to enter a new AST you will need the tenant's agreement, first of all. You have a few options, though, including a rent review, which would save you the need for a new tenancy. If the tenant does not agree to a new tenancy then you would need to bring the current tenancy to an end (to either force their hand or get vacant possession).

You do need to be wary that the costs you refer to are nothing to do with your tenant. Those are your costs to be borne as landlord (just like reroofing and other repairs). All you are allowed to charge is rent and this must include ground rent and service charges. The maximum rent on review is market rent (although it looks like your AST has capped this at 5%).

I don't think your letting agent is wrong not to have included these charges in the agreement.

Judith Wordsworth

11:43 AM, 30th May 2022, About 4 months ago

You can. But if you’re increasing the rent you need to give notice (2 months, same as notifying you are extending or terminating the AST) in the correct form https://www.gov.uk/renting-out-a-property/rent-increases

Can see why you want to but maintenance and ground rent are tax deductible. Potentially you possibly might be paying more on the net rental income. Ask you4 accountant if you use one.

Robert M View Profile

11:58 AM, 30th May 2022, About 4 months ago

In theory you can charge whatever rent you want, you don't have to break it down into "ground rent" or "maintenance charges", as you should have already considered your total costs when setting the rent in the first place. These costs are nothing to do with the tenant, they are of no concern to them, they are costs that the landlord incurs and should have taken into account when deciding what rent to charge.

Obviously if your rent is too high then you will struggle to get tenants and will have voids so will make a loss, and if your rent is too low then you will have tenants but will make a loss each month/year. It's about getting the balance right, set a rent that gets and keeps you the tenants, but also covers your outgoings and gives you a profit (whatever profit margin you work on is entirely up to you).

However, for whatever reason, you appear to have imposed serious restrictions upon yourself by adding a rent increase clause to your AST, that limits rent increases to 5%. This means that you are now limited by that clause, so the only way of overcoming that would be to end the current AST, but you cannot lawfully do that unless the tenants are agreeable (and why would they agree to that) or you evict the tenants (but on what grounds, and why lose good tenants). You may be as well to stick to the 5% increases each year until such time as the tenants choose to move on, and then make sure you remove that rent increase limitation clause from your future ASTs.

Why did you add the 5% rent increase limitation clause?

CYRIL STALEY

12:36 PM, 30th May 2022, About 4 months ago

Thank you all for this good advise.

Cyril

David

18:25 PM, 30th May 2022, About 4 months ago

Don't bother with a new AST. it's just unnecessary admin and cost and means you can't easily evict them if things turn bad. You just need to serve a s13 notice to increase the rent once the tenancy becomes periodic.
Don't go trying to justify the increase or complicate things by including illegal fees. Just work out how much you need to increase it by, make sure that doesn't take you significantly over the local market rent and then serve the notice.

Christopher Lee

10:16 AM, 5th June 2022, About 4 months ago

Reply to the comment left by Robert Mellors at 30/05/2022 - 11:58
Why did you say they can't lawfully end the current AST? They're asking what to do at the end of the fixed term so they can simply use an S21.and insist on a new agreement.

Robert M View Profile

13:10 PM, 5th June 2022, About 4 months ago

Reply to the comment left by Christopher Lee at 05/06/2022 - 10:16My understanding is that a s21 is a Notice of an intention to recover possession of an AST, it does not actually end the tenancy, only the tenant or a court can do that. (Protection from Eviction Act 1977).
It is unlikely that the tenants would wish to agree to less favourable terms, so the other option would be to issue court proceedings to regain possession of the property. Then prior to eviction, and facing homelessness, the tenants may be agreeable to signing a new AST at the less favourable terms. However, this would seem to be a high risk (and unethical?) strategy as the tenants may find themselves somewhere else to live if the landlord treats them like that. Also, if the intention is to simply force the tenants to agree to a less favourable AST, maybe the "arrangement" could be considered a sham, or maybe an unlawful coercion, etc? (I've no idea about this part, but would certainly wish to get proper legal advice before considering such actions).

Christopher Lee

13:31 PM, 5th June 2022, About 4 months ago

Reply to the comment left by Robert Mellors at 05/06/2022 - 13:10
I'm not sure if you're splitting hairs or not but issuing an s21, giving notice of intention to regain possession, at the end of a fixed term agreement has the effect of ending the tenancy. If the tenant doesn't leave then the court has to grant possession.
I never let an agreement roll on to a periodic and insist on signing a new fixed term else it's an s21 and end of agreement.
I'm not sure exactly what your angle is, but in the real world, in a practical sense, the rent is only agreed for the fixed term and no landlord, or tenant for that matter, assumes that they have an indefinite tenancy on the original terms. It's just not realistic and no matter when an agreement is formally/legally terminated, an s21 means that the terms can be rewritten at the end of the fixed term.

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