11:10 AM, 16th March 2011, About 13 years ago 2
This is the sixth in a series of 10 articles written by specialist landlord & tenant solicitor Tessa Shepperson, founder of the online Landlord Law Service.
How to increase rent the proper way
As we all know, the price of things keeps going up and the value of money keeps going down. You will therefore want to increase your tenant’s rent from time to time. However, it is important that you go about this the proper way.
There are three main methods of increasing rent (please note that I will just be talking about assured shorthold tenancies in this article):
1. Increasing rent by agreement
This is by far and away the best method of increasing the rent. Perhaps the most important reason is because it is certain and cannot be challenged.
Generally rent is increased by giving the tenant a new fixed term tenancy agreement or renewal. In fact this is one of the main reasons why you want to HAVE a renewal. If at all possible I would advise that rent increases be done this way.
However, this is not the only way rent can be increased by agreement. For example, you can get the tenant to sign a copy of a letter informing them of a rent increase indicating their consent. Then even if they don’t sign anything, but start actually paying the increased rent, this will also show their agreement.
What you CAN’T do is just send a letter saying that the rent is going up. The tenant is perfectly entitled to ignore this and carry on paying the old rent as the old rent will still be the proper rent, unless of course your letter is sent pursuant to a rent review clause.
2. Increasing the rent under a rent review clause
This is always an option, but you need to make sure that the clause complies with the Unfair Terms in Consumer Contracts Regulations.
So a clause saying something along the lines of ‘the landlord may increase the rent upon giving the tenant two months written notice to such figure as he may consider’ is likely to be considered void.
The reason for this is that any increase must refer to something independent. The best way to do this is to make it relate to something like the retail price index. The Office of Fair Trading who police these regulations have said in their guidance that a clause which effectively gives the landlord carte blanche to increase the rent to whatever they like will not be valid.
There was also a case quite a few years ago that said clauses which provided for very large increases, so large the tenant could not reasonably be expected to afford it, would automatically be considered void.
Note that if you are increasing rent under a rent review clause, it is important that you do what it says in the clause. So if it says you need to give two months notice in writing, then you need to give two months notice in writing. Otherwise the increase will be invalid, unless the tenant indicates his agreement (see 1 above) and starts paying the new rent.
3. Increasing the rent by notice
There is a rent increase notice procedure set out in section 13 of the Housing Act 1988 (the act which regulates ASTs). It can only be used for a periodic tenancy (i.e. only after the fixed term has ended), and can only be used once every 12 months.
The notice is in a prescribed form – so if you don’t use the proper form it will be invalid. The notice asks for a lot of information, and gives the tenant one month’s notice of the new rent. During this month, if the tenant thinks the rent is above the normal market rent for that type of property, he can refer the rent to the Rent Assessment Committee for review.
However this MUST be done within that first month. There is a case which says that if the application for review is received even one day late, it will be too late. Once that month has passed then the rent in the notice becomes the official rent.
The notice procedure is useful if you have a tenant who refuses to sign a new tenancy agreement. However you should always try to increase the rent by giving a new tenancy agreement or renewal form if you can, as this cannot be challenged.
It is essential that rent is increased in the proper way. Otherwise for example you may bring proceedings for possession based on the tenants continual underpayment of his rent, only to find that he was fully justified in doing this as the rent had not been properly increased. The claim for possession would then be dismissed and you may be ordered to pay your tenant’s legal costs. So always do things properly.
OTHER ARTICLES IN THIS SERIES
Tessa Shepperson is a solicitor specialising in residential landlord and tenant law. She practices online via her web-site Landlord Law www.landlordlaw.co.uk and blogs at the Landlord Law Blog www.landlordlawblog.co.uk.