Increasing rent can be a sensitive issue, particularly for your current tenants. Nevertheless rent often needs to be raised in line with inflation levels as well as cost of living.
Often landlords may make the mistake of holding back for a few years due to the difficult nature of the matter, however this can result in reluctance to accept from the tenants. In general terms, it is more effective to increase rent regularly over a period of time.
Pitfalls from increasing rent
Before committing to a rent increase it is best to consider the potential pitfalls and consequences.
Common difficulties include:
- Fear of conflict. Although this shouldn’t be a reason to delay rent increases, it is naturally an uncomfortable subject and not everyone deals with the confrontation in the same way.
- The proposal may pressurise the tenants to vacate the premises (potentially costing more than increasing the rent).
- Strain on the tenant-landlord relationship
Should I increase the rent?
Prior to making any rash decisions, it is wise to ask yourself whether the increase is necessary. Increasing rates out of greed could do more harm than good, particularly with regards to finances. Although it is complex, it is important to distinguish clearly between necessity and greed.
A landlord who has a positive rapport with a tenant will often find that they have a more profitable experience even without increasing rent due to tenants respecting the property and paying their rent on time.
Positive reasons to increase rent:
- To keep up with interest rates on mortgage payments
- The changing condition of the rental market
- Rising taxes
- Escalating cost of living
- High property maintenance costs
Negative reasons to increase rent:
- Purely for more profit
- You think the property is worth more
Methods to increasing rent
There are a number of methods to achieve the desired outcome. In each of the following options it is crucial to follow the correct series of steps otherwise the tenant can continue to pay the previous amount of rent.
Method 1 – Sign a new tenancy agreement
Traditionally, rent is increased at the end of a fixed term of tenancy where a new tenancy agreement is signed containing the new rates. This is the most simple and most common option.
Method 2 – Document the increase during the fixed term
If within the contract there is a clause that permits rent increases mid tenancy, you should begin by notifying your tenants in writing with the new amount and a start date for the increase in rent (a minimum of 2 months is advisable).
The letter should be returned with the tenant’s name, date and signature as documented evidence of their acknowledgment & acceptance of the change. They should also keep a copy for their records. This is called a Rent Increase Agreement.
Method 3 – Mutual agreement
If there is no mention within the contract that allows for a mid tenancy rent increase, and you don’t wish to serve any notices, it is still possible to approach the tenant to discuss the matter and see if they will mutually agree to an increase. If they do, it is important to create a documented Rent Increase Agreement (as per method 2).
Method 4 – Serve a section 13, notice of rent increase during a periodic tenancy
Once the tenancy fixed date has expired and a new tenancy agreement hasn’t started and you would like the tenancy to roll into a periodic tenancy, it is best to create a Rent Increase Agreement (refer to method 2).
If the tenant disputes the increase, a Section 13(2) Notice of the Housing Act 1988 can be served to them, proposing an increase in rent, at the end of the fixed term.
Am I allowed to increase the rent?
This is dependent on the terms of the tenancy agreement. If you are in the middle of a fixed term, it is not possible unless there is a clause within the contract that permits the landlord to review the rent during the fixed term (relevant for option 3) or it is stated what the rent will increase to X amount after 6 months.
For example, within a 12 month tenancy agreement, there may be a clause that says rent can be reviewed after 6 months. This means the rent can be increased.
If the new figure isn’t stated, it is important as landlords to keep the increase fair and realistic. Failure to do this can result in a successful appeal from the tenant regardless of whether the tenant has signed the agreement.
How much can I raise the rent by?
It’s up to you to a certain extent, just be sure not to increase the rent too drastically as it will put increased pressure on the tenants. Guidelines suggest that you must raise the rent by a fair and realistic amount, which isn’t helpful.
Be sure to research the local market rates using property portals first. Suddenly increasing the rent can put you at risk of your tenants moving out, if unchanged can also cause difficulty attracting new tenants too. Remember there will always be void periods in between tenants moving in, as well as the added cost of finding new tenants.
How much notice do I need to give?
Sufficient notice must be given by the landlord to the tenants before a rent increase occurs. For a monthly, weekly or fortnightly tenancy, the landlord should provide at least one month’s notice. For a yearly tenancy, six month’s notice is required.
The rent increase must begin on the same day of the month that the tenancy started.
What if the tenant doesn’t accept the increase?
Assuming the rent increase is fair and the tenant still refuses to accept it, the landlord can serve a Section 21 – Notice of Possession Order Form. This provides a legal path for the landlord to gain possession of the property that will come into effect after the fixed term has expired. In other words, the tenant is told to leave the property. Under these circumstances where neither party can agree on the rent, it can be possible to mutually terminate the tenancy.
What if the tenant doesn’t accept the increase?
You may serve a Section 13 notice to them, however think carefully before executing it especially if you have a good landlord-tenant relationship as it could put a strain on it. Tenants can also apply for a tribunal if they believe the rent increase is not fair and realistic. The tribunal will evaluate the rental market of nearby properties and will decide if the increase is justified or not. The tribunal’s decision is binding for 1 year.
Assuming the rent increase is fair and the tenant still refuses to accept it, the landlord can serve a Section 21- Notice of Possession Order Form. Which in essence asks the tenant to leave the property. The tenancy can also be mutually terminated if both parties amicably do not agree on the rent.
How should I confront the tenant(s)?
- Listen & Be understanding – Remember that your tenants will never want to pay more rent. Just be sure to listen to their points and be understanding of any hardships they may be encountering. However, this isn’t a reason not to go through with the increase, this is business after all.
- Explain why you are increasing the rent – Once you have listened to your tenant, explain why you are increasing the rent, it could be because the mortgage payments have increased or that the rent is undervalued. Whatever the reason may be, this is when you should convince them that it’s justified.
- Negotiate with good tenants – If you have a good tenant on your hands, it may be wise negotiating the increase to keep them as good tenants aren’t always easy to find. You can roll out the rent increase over a period of time or offering improvements to the property as a negotiating tactic. Be sure to get the terms agreed and signed to prevent any future disputes.