There has been a good deal of talk recently about rents being at an all time high in many parts of the country. We have ourselves run several stories on how rental demand has pushed up average rents over the last 12 months. But what does this mean for landlords with long-standing tenants? Can they put the rent up to reflect the increase in the market? If so, is this wise?
First of all it is necessary to decide whether the Landlord has any legal right to put up the rent. Rent increases can be made in four ways:
1. By making use of a rent review clause in the lease. Such clauses, which provide for a review of the rent at certain fixed points throughout the term, are common in commercial leases, but relatively rare in Assured Shorthold Tenancies.
2. By means of a new tenancy agreement incorporating the increased rent. A new tenancy can only be put in place once the original tenancy agreement has expired (unless the tenant agrees to an earlier variation – see 4 below).
3. By serving formal notice of increase. Again, this can only be done once the original fixed term contract has ended and the tenant has continued in occupation. In such a case, the contract becomes a statutory periodic tenancy under the same terms as the original tenancy, but being renewed each time the rent is due (be that monthly or weekly). It is important to use the correct form of rent increase notice. Landlords, ask us if you need guidance on this.
4. At any time, by agreement with the tenant. The lease is a contract between landlord and tenant and can be varied by agreement at any time. Assuming the tenant agrees, make sure that the change in rent and any other variations are fully documented in writing. Alternatively the Landlord can ask the tenant to sign an entirely new lease with the new rent incorporated.
But is a rent increase a good idea? Well, if you have the tenants from hell then putting up the rent may be one way to compensate a stressed landlord for all that aggro. With any luck, they may take the hint and leave.
But in most cases that will not be the case and I suggest that any Landlords contemplating a rent increase think long and hard before doing so. In 15 years’ experience as a landlord, I have found that maintaining a good working relationship with my tenants considerably outweighs the benefits of a few extra pounds in rent each month. Once I find tenants I trust, who are looking after the property well, I am very reluctant to do anything which might undermine that trust. Increasing the rent causes resentment. And a resentful tenant is a bad tenant.
And of course the rent increase may backfire and end up costing a landlord more in the long run. A tenant who is asked to pay more money may decide to demand something in return. That leaking gutter they have so far ignored may suddenly become an issue and the extra rent could very soon be used up in repair costs.
Alternatively, the tenants may simply leave rather than accept the rent increase. A landlord then has all the hassle of finding new tenants, not to mention the cost of any resulting void period.
Landlords should remember that what they see as a source of income, the tenants see as a home. Trust is a very valuable asset when letting property; squander it at your peril.