My Rent Rise Letters

by James Fraser

9:45 AM, 6th February 2016
About 3 years ago

My Rent Rise Letters

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My Rent Rise Letters

Over the last few weeks I’ve been growing increasingly nervous about the prospect of sending out the inevitable rent rise letters to my tenants. Additional tax levies are always passed onto the consumer, e.g. when Government announces in the Budget that another few pence of tax will be added to the cost of petrol the price is passed onto the consumer at the pumps. Clause 24 is no different – like all stealth tax, it is always passed onto consumers of products and services. James Fraser Landlord

I’ve never wanted this to happen, you understand, and some of my tenants are either vulnerable, or good working families doing their best, none of whom I would wish to burden with any additional stress. I have therefore been somewhat putting off the day when I had to send them their notices of rent increase, but as I had planned to enact the rise from April, and wanted to give them as much time as possible to absorb the impact, I thought I ought to bite the bullet and get it done without further ado.

All my rent rise letters went out recently and I was expecting a backlash, at least from one or two. I put the rents up from £750 to £850 in an environment where £1000 or more is the new normal. I wrote a long and kindly explanation with each one. So far, I’ve heard from all of those I’d most worried about and all are saying that a) they expected it, b) they thought the rise would be much more, c) they’re amazed at how many years it’s been without a rise, and d) they wish us every success! I even met with one particular tenant yesterday who was so clued-up about Clause 24 we could have invited him to join our campaign team. He was way ahead of me on the twisted unfairness of it all, and had written letters to everyone relevant. I feel greatly relieved now as I genuinely hated sending out those letters and had consistently put it off.

Most of my tenants seem to ‘get it’ very clearly. The tenants are joining us. Drip, drip, drip.

Also, with Osborne recently stating how taxing a business on turnover, or that paying tax on a loss isn’t right, he will hardly be able to extricate himself from that very easily when under pressure from the silks. This legal challenge is set to be very, very interesting indeed.

Here is the letter template I’ve been sending to my tenants:

“Dear XXXX

RE: CLAUSE 24 SUMMER FINANCE BILL 2015 and the impact on your future rents.

This is one of the most difficult letters I have ever had to write to a tenant. Whilst I take no pleasure whatsoever in sending you this, it contains information you need to know and understand. Although addressed to you personally, most of my tenants are receiving identical letters, as are countless other tenants nationwide.

As you may be aware from my previous correspondence to you, or perhaps from the media generally, George Osborne announced some truly ruinous changes for landlords and tenants in his July 2015 budget, known as Clause 24.

What Clause 24 does is cease to treat private residential letting like any other business activity, so that instead of allowing our costs to be considered in the calculation of any taxable profit in the normal fashion, they will now be recalculating finance expenses as if they were income rather than an outgoing cost. This effectively creates a huge additional levy on private renting which is so expensive, that for many landlords the new tax bills will literally be more than they earn in terms of real profit.  I know of one landlord who, with his day job, earns £27,700 a year – under the new rules, his tax bill becomes £77,800 a year. The inevitable result of this is that to avoid bankruptcy, landlords will either have to sell and evict their tenants, or at the very least enact some substantial rent rises to try to cover the new bills.

Despite large numbers of landlords, public bodies and economic institutions furiously arguing against these changes for several months, they became law last November, so it would appear, as things stand, that unless something happens in the coming year to prevent this, these changes are proceeding. I am proud to say that I am one of a handful of people nationwide who are so opposed to these changes that we are taking the government to court to try to force this to be overturned. The odds against us being successful are high, but we will not give up until we have done all we can to keep our tenants in relatively secure and relatively affordable homes. We do NOT want this to happen, either to us or to you. It strikes us as purely a government tax-raising exercise designed to target everyone in the private rented sector. 

Despite the media image of landlords and tenants always at odds with each other, the truth is that very many professional landlords care very much about what happens to their tenants, and do not enjoy raising rents or evicting the families in their care.  I would hope very much that your experience of me, doing whatever I can to keep you in your home and to keep your rents unchanged in many years, demonstrates that I have never been interested in greed or in making you feel anything other than extremely welcome as a long-term tenant. If it were up to me, there would be no changes. 

However, reality is moving things along out of my control. From this April, I will have to face some expensive changes to my costs – also thanks to the government – and when Clause 24 hits in April 2017, then I am afraid there will have to be a complete reassessment of where market rents are at that time and what I might need to do to mitigate the disastrous effects that are surely heading our way. I have never wanted to put up your rent, and I had always planned never to do so until outside forces gave me no choice. It would seem that due to these unexpected circumstances, that moment is now fast approaching. 

Therefore, from your April payment, your rent will be increasing by £100 pcm. This means it will go up from its present rate of £750 to £850. The enclosed paperwork is the official and correct documentation for this. Whilst I realise and understand just how unwelcome this news is, please  believe me when I say I do not want this to be happening and that every single penny of your rise is, either this year or next, going directly into the hands of The Treasury. Also, though I realise £100 may seem like a lot of increase, it is the minimum I can manage to cover my increased government bills and still leaves your rent well below comparable properties at full market value, which would otherwise be around £1000/month. If there was any other way of avoiding or postponing this situation, I would do it as it has never been my intention to cause you anything but good will.

I realize that you will need time to arrange finances or consider your options, which is why I have tried to give you 2-3 months of advance warning. If you wish to give me notice, I quite understand. If you wish to take this letter to the council, please do so and explain to them just how many tenants are likely to be approaching them for assistance, all because of Osborne’s stupidity and disregard for the people who need rented housing to be as affordable as possible.

I hope you can understand the position. If you have any queries or comments please do address them to me or the relevant figures in authority. Otherwise, please make whatever arrangements you need to, to meet the new rent in April. 

My sincerest apologies, and best wishes to you always,”

The outcome

I was truly quite nervous about sending this, but with the right explanations, support, and care, the tenants seem to understand the inevitability of the situation. Being forewarned about April next year too means that any future rises might be easier to stomach. And luckily for me, the two tenants I wanted to hurt the least both – coincidentally – gave me notice the week before I sent it, which means they will not suffer the rise and I’ll be able to start over with new tenants at nearer market value. It’s about as happy an outcome as it could have been.

James Fraser



Comments

Gary Dully

14:14 PM, 6th February 2016
About 3 years ago

James,

I too am not looking forward to my rent rise letters, but I assume as 'Clause 24' is being phased in over 4 years, that your tenants have been informed that this rise will happen again for the next 4 years?

You have been far too polite and it is this politeness that Osborne has been relying on.

The following phrases might be more appropriate.....

Dear valued tenant,

This letter is to update you on unfolding events within the rental industry that are about to burst onto your TV screens and be written about in your newspaper.

Due to the incredible stupidity of this current government and more especially the crass buffoon of a chancellor of the exchequer, George Osborne,

Who, incidentally, now needs 4 budgets a year to keep the country from going bust, because he can't tax Google or Amazon properly, (or doesn't want too).

They have had to devise such a lunatic way of assessing all landlords taxable incomes, that over 4.6 million tenants in the UK are about to receive letters such as this one or simply can assume, by default, that they will be made homeless over the next 4 years as their Landlord is bankrupted by the State."

It is called 'Clause 24', it will affect you and many thousands of other tenants in the city.

We are currently mired in a legal battle to get it stopped along with hundreds of other UK Landlords across the UK.

It is being fought because the change is "discrimination " of a particular occupation (Landlords), and a particular group of people within it, (Tenants), who pay for everything we do through rents.

This battle is currently being waged against the government and they are fighting us with everything they have got, including smears and bare faced lies in a vain pretense of saying its for the good of first time house buyers and they are somehow removing a favorable tax treatment of our business.

If that's the case, they should apply 'Clause 24' to all businesses and watch the country go bankrupt overnight especially George Osborne's family business as the World calls the UK a "No-go" area of stupid taxation rules.

Therefore I should warn you that if "Clause 24' is not reversed by Judicial Review, this increase will probably double every year for the next 4 years.

You have never faced a rent increase, whilst being a tenant of ours, but this pathetic, stupid idiot of the exchequer has thrown the UK Rental Market into turmoil overnight and made our business model into a 3rd World economic "Basket Case" that will cause rent increases across the UK to run into £Billions for loyal tenants such as yourself.

Political cronies that will comment on this over the coming months will attempt to blame everything and everybody but themselves, but they are all aware of this disaster, including Conservative, Liberal, Scottish National and Labour MP's who have given the green light to your rent rises by not killing off this discrimination of a taxation change stone dead before it even got to the statute book.

It is now the law of the land and it breaks my heart to raise your rent, but the choice is stark, our accountants are advising us and all other Landlords to either increase now or lose the property that you rent, as we face potential massive increases of tax to,the Government.

If you intend to look to rent elsewhere, I understand why you would do so, I probably would do the same, but please bear in mind that the government have chosen not to affect the rich Corporate Landlords and they will be raising rents also to obtain extra profits for their shareholders knowing that all Private Landlords are going to be forced to raise their rents and they will simply attempt to do the same.

So if you want your next Landlord to have an 0845 contact number, have no say in your property decoration, and want to live in a student type block and share the washing machine , I wish you well.

However, unlike us, your new Landlords will probably be Foreign Owned and they won't be paying a single extra penny of tax to the HMRC.

So for those tenants that stay, thank you and for those that don't, I will provide you with a reference should you need it.

The rental market is about to implode as Landlords like ourselves are taxed in excess of 100% of our incomes by the Government and their idiotic advisors, who can't even get the big companies to pay tax and now have decided to tax our tenants instead through their rents.

Your rent increase is on the accompanying document, if you wish to complain to myself of your local MP, please use the internet links provided.

You are wonderful people and do not deserve to be treated in such a fashion, by a lying cheating politician called George Osborne, that simply doesn't give a 'fig' about your or our financial situation and have created a ruinous tax change without seeing its consequences.

We shall continue to fight this deplorable tax law change through the Law courts and I will keep you updated of any developments, as they arise.

Kind Regards

######

H B

15:04 PM, 6th February 2016
About 3 years ago

James,

Firstly, allow me to say what an excellent and well worded letter this is. It is clear that you are only putting up rents because of C24, not to profit maximise and this is key to getting tenants on board.

In that context, I have one query. The tax changes do not start coming in this year, so it could appear that you are charging in advance. The additional point might be that as the tax increases mortgage costs by 20%, is your mortgage on this property about £500 pm? If it is, the question would be, why are you not increasing it by £33 for each year that the taxes come in?

I am not one of your tenants, but that would be my response.

I hope you don't mind me playing devil's advocate!

James Fraser

16:13 PM, 6th February 2016
About 3 years ago

HB.

Changes to the WT allowance this year add £8,000 to my tax bill. To break even on this, as a 40% taxpayer, I need to raise around £14,000 in revenue. What Im doing is actually raising about £12,500 so even with a large gross rise in income Im rather worse off.

This is before C24, as you say, but given my tax bill's future rise - by a margin so great most people wouldn't think it possible - it would be prudent anyway to start protecting oneself from the coming storm.

Many more tenants have not had rises this year - Im genuinely not interested in doing so - but have had letters explaining the likely position for next year.

I had never considered selling and always thought I never would, especially as my 50% LTV should have been enough to protect me, but now I'm not ruling out ANY plan to avoid this as it just won't be worth continuing.

H B

19:00 PM, 6th February 2016
About 3 years ago

Reply to the comment left by "James Fraser" at "06/02/2016 - 16:13":

Fine. I suppose your letter did not mention the removal or wear and tear allowance so perhaps you should add that in as another increase in tax.

Although of course the tenants might wonder why you were effectively claiming for costs that you are not actuallly spending on the property.

I fully appreciate that this is what had allowed you to keep the rents so low while earning a living.

James Fraser

20:30 PM, 6th February 2016
About 3 years ago

Reply to the comment left by "H B" at "06/02/2016 - 19:00":

Who says they've not been spent? In some years I've spent more than the allowable claim, although I accept that WT was usually more of a relief than a cost. However that does not help a landlord's net position which any business would - must - aim to protect.

And it really isn't WT that enables me to earn a living at this! It's taking the barest minimum out of the business and reinvesting as cleverly as possible. No greed, low debt, low personal spending. It's more about lifestyle choices and doing right by others than getting rich.

H B

21:56 PM, 6th February 2016
About 3 years ago

"No greed, low debt, low personal spending. It’s more about lifestyle choices and doing right by others than getting rich."

Absolutely.

Rachel Hodge

22:01 PM, 6th February 2016
About 3 years ago

Below is the email I sent to my tenant for the first rent rise in over two years (since their tenancy began).

The initial reaction was that they couldn't afford it and were going to leave. I had a look at similar lets in the area and decided they were onto a very good deal, and the house is lovely. So I toughened up a bit and sympathetically issued them a section 13, stating I hoped they wouldn't have to leave, but that I'd understand if they did. They confirmed back right away that they wanted to stay after all. There's a bit of slack amongst good cashflowing LLs with good tenants.

I visited my other tenants today who've been with me 6 months (and in their last tenancy 23 years). The house looks lovely, they are no trouble at all (put up smoke alarms on 3 levels and have not sent me receipts to reimburse despite my requests). I really do not want to put up their rent next year. And I don't want to put up my other tenants' rent next year.

George Osborne is trying to turn me into the ruthless, money grabbing LL I don't want to be.

Hi *****

I’m very happy to have you as my tenants, you are a pleasure to deal with, and I hope you’re going to stay with me a long time.

I had no plans to raise rents at all, unless my costs increased significantly. However, with the changes brought in with the finance bill by George Osborne last Autumn, my costs are about to increase more than significantly over the next 4 years. I have written to my MP (Grant Shapps), and the BBC, I have joined and donated to a campaign for a judicial review, but I’m unfortunatley now going to have to raise your rent, and I’m not at all happy about having to do that. I have made it clear to my MP that the only reason I’m having to raise the rent is because of the finance bill. I wrote to him on 7th January, and have not yet received a reply. Myself and hundreds of other LLs are in the same situation, and we are trying our best to change this. I want to change it as I want to get back to my original plan which is not to raise the rent if I have a really good tenant, which I have.

I’ve reviewed rents in the area, and they have gone up by an average of between 10-15% in the period. I don’t want to impose that sort of rent rise, and think that a £100 per month rent rise should be acceptable. Please could you let me have your thoughts on this before I issue the official paperwork. The notice would be for the rent increase in a couple of months, so beginning of April.

Once again, I wouldn’t have wanted to raise your rent, but for this tax change, where I really don’t have a choice.

Please give me a call if you have any queries, or let me know you’re happy for me to send you the notification for the rent rise.

Best wishes,
Rachel

Graham Bowcock

19:42 PM, 7th February 2016
About 3 years ago

James

I could not agree more with your approach. I try and keep an eye on my rents to make sure they are not out of line with the market; whilst most tenants realise costs change they are bot overly interested in my mortgage deals, only whether or not they are paying a reasonable rent.

When I review them I tend to keep them just below what we could get if re-letting and always point this out to the tenants; luckily most of my houses are on one estate and we have a waiting list, so I know what the market is actually doing. It is rare for tenants to leave and my longest serving is 17 years. Her rent has gone up many times but we have made a point of keeping on top of the house, so over that time it has actually been fully refurbished.

I always believe that when a tenant vacates the cost to the landlord is at least three month's rent. One month vacant, one month letting costs, one month freshening up (when you go into a house, however good it has been looked after, you can always find something to do). I bear this in mind when negotiating with tenants; it rarely makes sense to be too harsh in settling new rents. Having gone to the trouble of securing good tenants in the first place I am not keen to encourage them to leave. If they choose to leave in the future I will always let at the prevailing rent.

This next twelve months will be fascinating to see what actually happens to supply, demand and rents. In my area supply has been short for a long time (as I say I have a waiting list) and the last thing the sector needs is less houses to let. If there are less then we must hope that rents will rise to cover increased costs (it's not just the mortgage relief but compliance is more costly); what will the tenants make of that?

Graham


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