Landlord’s Guide to Rent Changes
The market’s current lack of predictability has many landlords either considering increasing the rent they charge for their properties to safeguard their expected income or receiving requests from their tenants to make amendments to tenancy agreements.
To answer any questions you may have on what changes you can make to a tenancy agreement and how, and to learn how to agree on a rent increase, follow the landlord’s guide below.
What you can find in this article:
When Can a Landlord Increase Rent?
Rules Depending on the Type of Tenant
Landlord Tips for Agreeing to a Rent Increase or Change
- Consider Market Prices and Other Costs When Calculating the Rent Increase
- Discuss Openly and Consider Offering an Incentive
- Refer to the Rent Increase Provisions in the Tenancy Agreement
- Consider Your Timing
- What to Do If the Tenant Asks for a Rent Reduction
At Remax Star Canning Town, our experienced estate agents and property managers offer landlords complete letting, guaranteed rent, and property management services and provide comprehensive support and advice in marketing the property, setting the right rental price, finding the right tenant, and agreeing on mutually beneficial tenancy terms.
Contact us at 02070550441 or book an appointment online to find out more about the unparalleled services we offer.
When Can a Landlord Increase Rent?
There are certain specific circumstances in which you, as a landlord, are allowed to increase the rent and certain rules you must abide by. In this landlord’s guide, we’ll explain everything you need to know.
Landlords can generally increase the rent paid by a tenant without the tenant’s agreement:
- not more than once a year for periodic tenancies (week-by-week or month-by-month)
- when the fixed term ends in the case of fixed-term tenancies
Other rules that apply if a landlord wants to increase the rent paid by a tenant:
- the landlord must get the tenant’s permission if the rent increases by more than previously agreed
- the rent increase must be realistic and justifiable based on average local rents and other economic circumstances
- landlords must observe the specific provisions of the tenancy agreement relating to the rent increase amount and how the tenant must be notified
- the landlord may increase the rent if you are signing a new tenancy agreement at the end of the previous one’s term
- landlords can send a ‘Landlord’s notice proposing a new rent’ form to the tenant that specifically mentions the term from which the new rent is applicable
- landlords must send notice to the tenant at least one month before for weekly or monthly tenancies and 6 months before for yearly tenancies.
Agreeing to a Rent Increase
The easiest way to solve a rent increase with your tenant is by agreeing on it. You can inform them of your decision informally (face-to-face, by phone, or email) or formally, through a ‘Landlord’s notice proposing a new rent’ form.
If your tenant says yes and you agree on the terms, you can then conclude a written document stating the new tenancy conditions.
Signing a New Tenancy Agreement
Another way you can increase the rent is to propose a new contract to your tenant. If the agreement you have in place has a fixed term, you can do this once that term has ended.
If your initial agreement is still ongoing, you can offer them to sign a new contract, but will only be able to increase the rent if they agree to sign the new contract. Otherwise, they will continue to pay the same rent until the end of the initial contract, or you will have to take other steps to end the tenancy.
Rent Review
Some tenancy agreements include specific rent review clauses. These clauses usually specify the circumstances in which the rent can go up, what the term of the notice to be sent to the tenant is, and the amount by which the rent can increase.
If the contract you concluded with your tenant has such a clause, you will be able to increase the rent only according to the conditions set out in the agreement.
Section 13
As a landlord, you can send a Section 13 notice (Tenancy form 4) to your tenant 1 month in advance when you want to increase the rent they pay on your property if:
- the tenancy is a periodic assured tenancy or an assured shorthold tenancy
- and
- the tenancy agreement either doesn’t have a rent review clause or the clause no longer applies
You can send a Section 13 notice at any time. However, the starting date for the new rent must be the first day of a period of the tenancy (for instance, the first of the month if that is when the tenancy began).
The rent increase will take effect the day after the tenant’s fixed-term contract ends or a year after their tenancy started for rolling contracts. If the tenant challenges the increase in court, they will pay the old rent amount until the courts issue a decision.
Rules Depending on the Type of Tenant
Here are the rules applicable to rent increases by type of tenant:
Assured Tenants
For assured shorthold or assured tenancy agreements:
- you can only increase the rent you charge on your property based on market rates, namely the average rents payable for similar properties in the area
- you can only increase the rent after the fixed term of the tenancy ends or according to the provisions of the tenancy agreement (rent review clause)
To increase the tenant’s rent, you must send a notice:
- 6 months in advance for tenancy periods of at least 1 year
- 1 month or a quarter in advance (depending on the period of the tenancy) for tenancy periods between 1-11 months
- 1 month in advance for tenancy periods under 1 month
If the tenancy does not have a fixed term, you will have to:
- refer to the provisions of the tenancy agreement concerning rent increase
- reach an agreement with the tenant
- or
- send a Section 13 notice
Protected Tenant
For protected tenants, you can only increase the rent:
- if you agree with the tenant in writing
- you apply for the rent to be increased and considered a ‘fair rent’ by the Valuation Office Agency (you can only do this once every 2 years)
Occupiers With Basic Protection or Excluded Occupiers
For occupiers with basic protection and excluded occupiers, you can increase the rent during a fixed-term tenancy only if the tenancy agreement specifically allows this.
The rent review clause comprised in the agreement should specify when and how the rental price can be increased.
For tenancies that do not have a fixed term or that have ended, you can increase the rent at any time.
Landlord Tips for Agreeing to a Rent Increase or Change
Here is our landlord’s guide to agreeing on rent increases or changes with your tenant:
Consider Market Prices and Other Costs When Calculating the Rent Increase
When you decide to increase how much you are charging a tenant for a property you are renting out, you have to base the amount of the rent increase on certain key factors.
The first one is market prices. You should regularly check rental market benchmarks for properties of a similar size located in the same area or a similar area. The main idea you should keep in mind is to increase the rent by an amount that does not make the total rental price exceed the average market rates for comparable properties.
If you do, your tenant may refuse to pay the price difference knowing they could find a similar property elsewhere for a better price. That will leave you searching for a new tenant and unable to collect income until that happens. Therefore, you will risk losing more money.
The second key factor is your property costs. They may be affected by an increase in your:
- mortgage costs
- property insurance costs
- maintenance or property upkeep costs
- inflation rate
If your property costs have gone up, calculate what rental price increase would help you cover them. However, you should do this while still maintaining the final rate within the market benchmarks.
The third factor you should take into account is how long the tenant has been letting the property from you.
Having reliable long-term tenants can help guarantee a fixed income which is every landlord’s main objective. When considering a rental price increase, you wouldn’t want it to jeopardize your relationship with a good tenant.
Therefore, if your cost increase is not significant and the tenant is doing a good job maintaining the property and making the monthly rent payments, you could consider not asking for the rent increase or covering part of the increased property costs, inflation, or market increases yourself.
Discuss Openly and Consider Offering an Incentive
Once you’ve done all the calculations and decided what rent increase you want to propose to your tenant, we recommend you talk to the tenant face to face or send them an informal email. If you have a good relationship, it’s better to take advantage of that and discuss the increase openly.
Tell them the reasons why you need to increase the rent and show them what your calculations are based on. It’s best to let your tenant feel included in your decision rather than present it as a unilateral one.
Once you agree about the rent increase in principle, you can move on to formalizing the agreement in writing.
You could also try to sweeten the deal by offering the tenant an incentive if they agree to the rental price increase. For instance, you could agree to replace an old appliance that would not cost you much but would help secure the agreement.
Refer to the Rent Increase Provisions in the Tenancy Agreement
Ideally, your rental agreement already includes a provision stating that the rent increases by X% each year or every 2-3 years. If it doesn’t, take note to add this provision to any future tenancy agreements you conclude.
The average percentage by which the rent goes up each term should be the inflation rate + 1-2%.
If the rental agreement you concluded with the tenant includes such a provision, then the amount by which you can increase the rent must fall within the limits provided therein. Your notice to the tenant should also include a reference to the said provisions of the tenancy agreement.
Consider Your Timing
Your tenancy agreement should also state when you must inform the tenant of your intention to increase the rent. Usually, the term is between 1 and 6 months before, depending on the type of agreement.
Even if the term mentioned in the agreement is shorter, we recommend you inform your tenant of your intention to increase the rent no later than 2 months before. This will allow enough time for you and your tenant to discuss the conditions and terms to be included in your formal agreement.
When you send the notice or inform the tenant will also depend on the type of agreement you have, if it is a fixed period agreement or a monthly rolling agreement.
What to Do If the Tenant Asks for a Rent Reduction
Just the same as you may consider increasing the value of the rent for your property, your tenant may be considering asking you for a rent reduction. Especially in circumstances such as the ones the market is currently undergoing due to the Covid-19 pandemic, this is not unusual.
If that happens, the decision to accept this request lies solely with you as a landlord. Since the tenant has signed a contract agreeing to pay a certain amount of rent, they will be bound to do so unless you agree to reduce the amount.
To make a decision, you should consider:
- what type of contract the tenant has (if it is short-term or long-term)
- if they are reliable and make the monthly payments regularly
- if their current financial situation or personal circumstances justify the tenant’s request
- how long you are willing to grant the price reduction for (a limited time or from now on until the end of the agreement or until you renegotiate)
We encourage you to have an open discussion with your tenant and try to negotiate the amount of the potential reduction so that both of you will be satisfied with the outcome.
Another solution you can opt for in special circumstances is a payment plan. In this circumstance, the rent reduction is only temporary, and the tenant agrees to pay you the difference between the old rent and the reduced rent some time in the future, under mutually agreed conditions.
No matter what you agree on with your tenant, make sure to put it clearly in writing. This will help you avoid any misunderstandings and officially document your agreement.
If you do not come to an agreement, you will have to refer to the provisions of the tenancy agreement for this particular situation. You will most likely either sign a mutual agreement terminating the tenancy or have to send them a Section 21 notice.
With so many rules and regulations in place, landlords can find it difficult to navigate a tenancy. Our experienced estate agents at Remax Star Canning Town know this all too well.
That is why, based on our market and property experience, we’ve created this simple landlord’s guide to increasing or changing rent to support landlords and offer them the information they need to manage their tenancies on their own terms.
If you are a landlord and need any assistance managing tenants or your property, do not hesitate to contact our seasoned London estate agents by calling 0207 055 0441.
