In my last article I explained why it is becoming difficult for landlords not to have to increase the rent. But what is a fair increase?
There is no law (in England & Wales) on how much rents can be increased at any one time. Facebook posts providing ‘advice’ to tenants that their landlord can only increase it by a set figure or a set percentage are simply wrong. Any increase must however be ‘fair and realistic’, which is to say it is in line with average local rents i.e. the property’s value if it were to be re-marketed. If the tenant believes the increase is unreasonable, they can refer the matter to a (free) rent tribunal, which will then set the rent.
Conversely, it does irritate me a little when landlords say they want to increase it because their mortgage has gone up, or because of inflation, or simply by a nominal figure e.g. a £50pcm increase each year. This is especially unfair in my opinion if it is written into the tenancy agreement, rather than being properly calculated on the only thing that actually matters…how much that individual property is worth!
Unless otherwise agreed between tenant and landlord, the rent cannot be increased for the first 12 months of a tenancy and it can then only be increased once a year (using a Section 13 notice). The tenants should be given at least one month’s notice before any increase applies.
Assuming tenants have looked after the property and paid their rent on time, I personally recommend meeting them half-way in regards to the amount of any rent increase i.e. keeping it slightly below market value to reward their good behaviour and incentivise them to stay longer in what is now their home.
Ultimately though, different landlords will have different thoughts on this; some will never increase the rent (thus not ‘rocking the boat’ so tenants stay longer; aware of the re-let costs and possible need for refurbishment if the current tenants leave), some will want the maximum rent at all times (likely seeing a higher turnover of tenants / risk of issues or resentment from tenants arising), whilst others take the middle ground.
There are a couple of trains of thought when it comes to the timing of rent increases too; a set routine of annually reviewing the rent versus doing so on an ad-hoc basis (typically only increasing it when the current figure is out of kilter with the market).
Even this can cause consternation amongst tenants though. Some prefer the ‘little and often’ approach, whilst others can actually do the math and realise even though a less frequent but greater increase may appear more painful, they are in fact better off this way. Let me explain with a real-life example…
Tenants of mine had moved in at £800pcm. It was four years later when the market rent was £1,000pcm (having increased slowly for a few years and then suddenly in an 18-month period) that I decided to increase the rent for the first time to £900pcm. You might expect the tenants to be grateful they had received no increase for four years, or to appreciate that they were still paying significantly less than the market rate (having met them ‘half-way’). Instead, I was lambasted for ‘suddenly’ increasing the rent by £100pcm and was told by them that I should have done so by £25pcm each year instead to have softened the rise. Simple math says they were better off with my method, but I have been happy to change tact in subsequent years for this set of tenants so as to give them what they want i.e. a ‘smaller’ annual increase.
I have come to learn that you aren’t necessarily doing your tenants a favour by not increasing the rent on a regular basis (I now typically review matters every 18 months). They can become ‘trapped’ in your property if they are paying well below market rate, as to move would see their rental payment increase dramatically. There are cases of families sticking with a property they have otherwise outgrown simply because they are currently ‘getting a deal’. There is also the shock if the landlord suddenly needs to sell the property as the tenants then realise they have been outpriced from the local rental market.
Ultimately, and especially with rents having increased so strongly over the past few years, tenants do expect rent increases throughout their time at a property. As long as this is done both sympathetically and in line with the law, it can remain a fair deal for both landlords and tenants.
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