With tenants now staying in their lets for longer, the question of whether to raise their rent will come up at some point.
Balancing the need for a fair return on investment with the responsibility of providing affordable housing is crucial. As such, increasing your rent should be handled tentatively and professionally, starting with knowing when you can lawfully and fairly increase your tenant’s rent.
Here’s everything you need to know as a landlord:
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Can landlords increase rent?
In general, landlords do have the right to increase rent, but there are specific rules and regulations so check with a letting agent before you do this.
These regulations require landlords to provide notice to their tenants in advance of a rent increase, and there is also a limit to the amount in which rent can be increased, as well as the frequency of the increases.
Related: Top tips for new landlords
How do I increase the rent on my rental property?
Under current guidelines, for a periodic tenancy (rolling on a week-by-week or month-by-month basis) the landlord can only increase the rent once a year.
For a fixed-term tenancy (running for a set period) the landlord can only increase the rent if the tenancy agreement permits it. Otherwise, the rent can only be raised when the fixed term ends. However, bear in mind that this is subject to change when the Renters (Reform) Bill is passed.
According to the current guidelines, there are three ways to ask for a rent increase:
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Wait until the existing fixed-term tenancy has ended and issue a new contract with the tenant who is staying put.
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Agree with your tenant on a rent increase and re-sign a new contract including the change.
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Issue a formal Section 13 notice.
No matter which plan of action you take, you should provide your tenant with as much notice as possible so that they have time to decide whether to agree to the terms or find another rental home.
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What is fair when it comes to increasing rent?
A general rule of thumb is that rent increases should align to the local market, meaning they should not exceed the average increase in your specific area.
You can contact your letting agent for advice on accurate pricing, or check similar rental listings nearby to find out how much they are charging.
Another method is to use the national inflation figure as a rough guide, although it’s important to remember that location plays an integral role in determining price.
If you increase your rent by over 10%, an affordability check is essential if you have rent guarantee insurance. If you are raising the rent by less than 10%, you may not need to check affordability under the terms of your rent guarantee insurance.
What is a Section 13 rent increase?
Section 13 of the Housing Act 1988, details a formal process in which the landlord can notify their tenant of a rent increase. It can only be served on a periodic tenancy and may only be issued once every 12 months.
Like other notices, it must be carried out in a certain way to adhere to legalities, and the landlord will need to fill out Form 4 form the assured tenancy forms.
Adding a review clause to tenancy contracts
Adding a rent review clause to the tenancy agreement means tenants can agree upfront to possible future rent increases.
If you choose to include a review clause in your tenancy contract, it should set out:
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When the increase will happen.
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The amount of notice that will be provided to the tenant.
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A system or formula in which the rent increase will be calculated.
Deciding when it’s time for a price increase
The first thing you should consider when deciding to raise the rent is the current local property market and its prices.
Start by looking at the RPI (Rental Price Index) average rate over a year and use this as a general guide for your asking rent. You should also check similar listings to compare rental prices to make sure you aren’t charging too much or too little.
How to approach rent increases fairly
If you are likely to increase your property’s rent on a regular basis, it’s crucial to know how to do so fairly. You may want to increase rent in line with inflation, but it’s important to note that your tenant’s wages will not rise at the same pace, and therefore affordability comes into question.
If you’re intent on keeping your tenants long-term, it could put you in good stead to increase rent in small amounts over time, rather than all at once.
For more advice, contact your local Martin & Co branch today
