Can I index link rents into my tenancy agreements?

Can I index link rents into my tenancy agreements?

8:34 AM, 16th May 2022, About a month ago 72

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Hi all, I have just been talking to a fellow landlord and in the discussion, the question and idea came up can we index link the rent into an AST contract?

The next question is if this indexing clause was possible in the contract would you still have to serve a rent increase notice to the tenant and what would be the best option to link it to eg. Retail Price Index (RPI) or Consumer Price Index (CPI) or any other?

I would appreciate any comments or alternative ideas.

Many thanks

Chris



Comments

DSR

8:46 AM, 16th May 2022, About a month ago

An Agent I used once did have this in the contract in regard to rent increases, but I can't see how this is of benefit to LL or tenant.

Surely easier to always state a rent increase is aligned to 'market rates' at the time. Easier for LL to work out and quantify. Easier for tenants to understand too and know where they are. I put in a rent review is annual (BUT that does not mean a rent rise will follow).

Dylan Morris

9:34 AM, 16th May 2022, About a month ago

Used a local agent a few months ago to find me a tenant on a let only basis. They used an ARLA drafted tenancy agreement which limits annual rent increases to RPI. This can cause problems for a landlord as of course market rents do not always increase in line with the RPI. For example the new tenant may be excellent and I may not want to increase the rent for say 3 years but when I do the RPI during previous 12 months could be only 1% limiting my rent increase to £6.50 on a £650pm tenancy agreement. Also how exactly does a landlord calculate the rate of RPI increase ? What if the calculation is slightly out and tenant puts up a defence of a incorrect rent increase if they are facing eviction ?
I’m surprised ARLA have done this, it clearly gives a landlord yet another issues to worry about when landlords have enough issues and headaches already.
The agent has said I can use my own AST in the future so I will be doing that.
(I’ll ask the tenant to agree to my own AST when this ARLA one expires in 12 months time).

Beaver

9:38 AM, 16th May 2022, About a month ago

Reply to the comment left by Dylan Morris at 16/05/2022 - 09:34
With the Bank of England starting to raise interest rates £650 PCM is looking cheap.

reader

9:38 AM, 16th May 2022, About a month ago

Hello,
This is a very pertinent point.Not only are rents being driven by market forces upwards but also inflation is similarly affecting prices. Add to this cost implications of interest rates and the likely removal of S21 and thepicture becomes magnifies. A rent trap for landlords.
It would be fascinating to learn how landlords without rent review clauses plan to tackle the problem. What are the viable alternatives,an agreement with the tenant or if possible S13 notice for some tenancies? May be those tenancies without review clause, that fall within S6 Housing Act, can risk serving a statutory notice.
Overall the only sensible way is a carefully drafted rent review clause that is applied sensibly.

Dylan Morris

9:46 AM, 16th May 2022, About a month ago

Reply to the comment left by at 16/05/2022 - 09:38There’s no problem if an AST does not make any provision for a rent increase. At the end of the term the tenancy goes periodic and rent can be increased, but not more than every 12 months. Ideally use Form 4 (section 13).

NewYorkie View Profile

9:50 AM, 16th May 2022, About a month ago

My tenant is now on Statutory Periodic, and I simply instructed my agent to inform her of the (7%) increase (first in 3 years).

Dylan Morris

10:02 AM, 16th May 2022, About a month ago

Reply to the comment left by at 16/05/2022 - 09:38
Very good point ……seems likely a landlord would not be able to substitute a new tenancy agreement at end of term with a new one that removes RPI link if Section 21 abolished.

David

10:09 AM, 16th May 2022, About a month ago

Rent review clauses linked to RPI in tenancy agreements are relatively common, but I wouldnt recommend them. The ability to specify the increase based on your circumstances and the current rental market is more appealing.

reader

10:38 AM, 16th May 2022, About a month ago

Some interesting comments above, but how do you address the situation where you try to rely on an increase based on a mutual agreement I.e. where there is no review clause, or where you can use S13 notice but the tenant invokes the statutory defence/review? Might it be time to issue new ASTs with appropriate clauses included?

David Price

11:52 AM, 16th May 2022, About a month ago

How about a clause stating that the rent will be "five times the rate A council tax plus any additional taxes imposed by local or central government [eg licensing]" with additional safeguards just in case the council tax is reduced (see those flying pigs?). Automatic increases every year related to the cost of property ownership.
Legal opinion is that this is a perfectly fair and legal approach, but I have only asked a small sample of Lawyers.

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