How To Increase Rent On Your Rental Property and Is It the Right Option?
This is often a very touchy subject isn't it? No-one wants to be told their rent is going up. But the rental market is definitely changing, so let’s talk about how you might go about increasing rents for your tenants and the considerations required before you do.
The average rental of a property in the Alfreton area in the summer of 2020 was £565 pcm; by the summer of 2021, it was £745 pcm, and today, it is £798 pcm. The local rental market is definitely changing!
Firstly, it’s worth double checking with yourself if the rent increase is actually necessary. To be bluntly honest, it’s all too common for landlords to increase rent out of greed, only for it to back-fire on them quite dramatically. A good tenant is like gold dust; bad tenants are expensive. Ask yourself: is it worth running the risk of losing your current tenant?
Having said that, greed is far from the only reason to increase rent. Sometimes, it’s a necessity. Here are what we believe are valid reasons for increasing rent:
- Rising interest rates on mortgage payments
- Rising taxes
- Changing condition of the rental market
- Escalation of cost of living
- Increased property maintenance costs
- Inflation
As most of the above is happening right now, a rent increase is quite easily justified. So, here are your options..
Increase rent at the end of a fixed term
The most common way to go about a rent increase is to do it at the end of a fixed term tenancy.
You would renew the tenancy agreement with an increased rent - just make sure the tenant has been informed ahead of time about the new rates. Assuming the tenant agrees to it and signs it, you’ll have successfully increased your rent.
Increase rent during a fixed term
This is slightly trickier, but still possible.
Provided there is a clause in the contract that allows for mid-tenancy rent increases, you can do so fairly easily. You must notify your tenant via a written notice, which should outline the new amount, when the increase will begin, and preferably the reasons for the increase. We suggest providing at least 2 months notice.
They must then return the letter to you with their name, date and signature, therefore acknowledging and accepting the increase. This document is often referred to as a Rent Increase Agreement - they should keep a copy themselves.
Mutual Agreement
If there isn’t a rent increase clause in your contract, and/or you don’t wish to serve any notices, you can opt for a mutual agreement. This involves talking to the tenant to see if they will agree to an increase. If the answer is yes, then you should still create a Rent Increase Agreement, as with the previous option.
If the answer is no, you don’t really have a option until the fixed term ends.
Serve a Section 13 Notice
If the above don’t work out, Section 13 of the Housing Act (1988) provides a way for landlords to increase the rent they charge for a property. It’s a formal process that involves filling out a prescribed form (Form 4) and sending it to the tenant. A Section 13 can only be served in a periodic tenancy (i.e not a fixed term tenancy) and can only be served once every 12 months.
If the tenant accepts the terms of the rent increase, it will automatically go ahead. If they don’t respond, it is assumed they have agreed to the increase, and therefore it will go ahead. If the tenant challenges the rent increase, they can refer it to the first tier tribunal, which will decide whether or not the rent increase can go ahead.
Things to consider about increasing rent
- Sufficient notice must be provided by the landlord before a rent increase is to take effect. For weekly, monthly or fortnightly tenancies, the notice period is 1 month (though we recommended giving 2 months notice). For yearly tenancies, it is 6 months.
- Rent increases must be fair and realistic (i.e in line with similar properties in the area).
- Tenants always have a right to dispute a rent increase.
- Be aware of the current market conditions. If your local rental market is booming, you would probably be justified in increasing your rates - and if your current tenant rejects the increase, it shouldn’t be too hard to find a replacement.
And just remember: good tenants are very hard to come by. If they always pay their rent on time and take good care of your property and don’t cause you any hassle, it’s probably worth showing your appreciation by keeping the rent the same. If it isn’t broke, don’t fix it.
If you would like to speak to one of our team about increasing your rent, please contact us on 01773 749972