Increasing rent by section 13 when there is a CPI clause?

by Readers Question

10:30 AM, 10th March 2016
About 3 years ago

Increasing rent by section 13 when there is a CPI clause?

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Increasing rent by section 13 when there is a CPI clause?

We have a rental property that was rented out on an initial 3 months short term assured tenancy. That period ended and the tenant has been there for nearly 2 years. CPI

We now need to increase the rent and she has said it must be done in accordance with the contract which says it will be done in line with the CPI.

The CPI is, as I understand it very small 0.4% (have I got this wrong) and we want to raise the rent by more.

Can I issue a section 13 notice, given that we are now in a periodic tenancy, or am I obliged to keep to the CPI increase as in the tenancy agreement.

Thanks

Nice Landlady



Comments

Neil Patterson

10:31 AM, 10th March 2016
About 3 years ago

Ian Narbeth

12:05 PM, 10th March 2016
About 3 years ago

Do you mean assured tenancy or assured shorthold tenancy? Without seeing the document it is impossible to advise definitively but if it is an AST then perhaps you could threaten to terminate the now periodic tenancy on two months' notice unless the tenant agrees the increase.

Steve From Leicester

12:20 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Ian Narbeth" at "10/03/2016 - 12:05":

Tread very carefully if following Ian's advice.

What you're trying to do is breach the terms of the contract you have with the tenant by increasing the rent over and above what is permitted in the contract.

Threatening to end the tenancy if the tenant doesn't accept this sounds very much like the "revenge evictions" that people such as Shelter use to demonise private landlords.

Having formed a legal contract with the tenant neither you nor the tenant can unilaterally change it just because you've decided you don't like one of the clauses.

Kelly Joanna

12:22 PM, 10th March 2016
About 3 years ago

you need to refer to the original tenancy agreement. You do not state if it is an AST. If it is an AST then you can issue section 13 along with the prescribed information. However, as it was only a three month fixed term, it is unlikely it was an AST as the minimum term would have been 6 months, not three.

Romain Garcin

12:29 PM, 10th March 2016
About 3 years ago

Hi Nice Landlady,

If the fixed term tenancy has ended and been replaced by a statutory periodic tenancy then you are able to use s.13 in any case.

As a side note, using the CPI for rent increase is not a good idea.

Ian Narbeth

12:47 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Steve From Leicester" at "10/03/2016 - 12:20":

If the parties mutually agree the increase then it is not a breach of contract but a variation of the existing AST. There is a useful note here: http://www.landlordzone.co.uk/content/rent-increases-with-assured-shorthold-tenancies
It is up to the landlord to decide on whether to go through the hassle of a s21 notice and the risk that the tenant will leave. The tenant also has the risk if he does not agree to the increase of having to find a new home in perhaps a rising rental market.
It is not a revenge eviction (which is used pejoratively when a landlord evicts a tenant who complains about the condition of the property). It is simply varying a contract. If the tenant wanted to lock in fixed increases he should have signed a long tenancy not three months. I suspect that nobody thought it through when the tenancy was signed but the tenant can hardly have it both ways - I can leave on one month's notice but you can only have CPI increases after the initial term ends.
I agree with Romain that the CPI is not a index to use. RPI is usually about 1% pa higher but I would rather stick to market increases.

Kate Mellor

13:06 PM, 10th March 2016
About 3 years ago

Can someone tell me, would a CPI rent increase mean you can only increase the rent by an amount relative to the current CPI ie current rent x 0.3%, or will it be per year since the last rent was set?

If a tenant had been in the property several years without an increase, can you factor into the equation the number of years since the rent was last set? ie if it was 5 years since the last increase then New Rent = (Current Rent x 0.3%)5 Sorry, I'm sure this equation is very amateurish, but hopefully you get the idea...

Kate Mellor

13:52 PM, 10th March 2016
About 3 years ago

A periodic tenancy must be on the same terms as the fixed term agreement which precedes it, so if you are unhappy with the terms, and as the tenant is obviously not in agreement to any variation which will cost more for them you will have to abide by the tenancy terms; or serve notice.

First make sure that your estimation of the true market rent for your property is accurate as you may not get as much as you hope on the open market and you will have costs. it is often better to accept a slightly lower rent than to change tenancies.

I would imagine you would be free after serving notice to offer the existing tenant a new tenancy on an AST at the new rate, which they are free to decline, however I'd check this first with an expert as it may have implications!

Overall this is a risky strategy, as you may end up costing yourself a lot of money in the short term especially if you need to make improvements to the property to relet it and you may end up with a worse tenant for not much more rent!

Ian Narbeth

14:12 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Kate Mellor" at "10/03/2016 - 13:06":

Kate
I suggest you look at http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/january2016
The usual way to calculate the increase is to multiply the rent by the new CPI figure and divide by the base figure e.g. £1000 x 123.4/117.8 or whatever the figures are. However, the CPI has just been re-based to 100 so you would have to amend the calculation.
If you must use the CPI to index rents I recommend making it upwards only or else the rent could go down if we get negative inflation.
As to your specific point, I would hope the AST allowed the CPI increase from the last review date but would need to see he document.

Michael Barnes

15:10 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Ian Narbeth" at "10/03/2016 - 14:12":

The rebasing of CPI means that all the historical figures have also been adjusted in the current published data.
Therefore no modification is required to the calculation.
See https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7bt for today's values.

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