Increasing rent can be a difficult issue, especially when you’re looking to hike up the rent for your existing tenants. However, often landlords need to increase rent over time, to keep up with the level of inflation / cost of living and of course, general greed.
It’s actually better to gradually increase rent rather than holding back for a couple of years and then increasing it by a significant amount- that will be a lot more difficult for your tenants to accept. So generally speaking, regular hikes is pretty normal and healthy. So let’s take a look at what, when, where, how, if, and but….
Potential problems with increasing rent
Before taking the plunge, let’s quickly mull over the potential downfalls, and maybe even reasons to think again.
Here are the common problems that a landlord faces when considering the subject of an increase in rent:
- Fear of confrontation- this shouldn’t really be a deterrent, but understandably, not everyone takes to confrontation like a duck does to water.
- The suggestion may force the tenant to vacate (which could potentially cost more than increasing the rent).
- May cause future tension in the tenant/landlord relationship.
Is the increase necessary?
Before making any quick decisions, ask yourself if the actual increase is needed. Don’t increase rates out of greed, because you could do more damage than good, especially financially. A landlord should always make a distinct clarification between necessity and greed.
From my experience, if you treat a good tenant (i.e. one that pays rent on time and takes care of your property) fairly, that usually equates to the most profitable experience- even without increasing rent.
Good reasons for increasing 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
Bad reasons for increasing rent
- You THINK your property is worth more
- For no reason whatsoever
How to increase your tenant’s rent
It is important for landlords to follow the correct procedure when increasing the rent because otherwise the tenant can continue paying the set amount of rent.
Option 1: sign a new tenancy agreement
Normally, rent is increased at the end of a fixed term of a tenancy. This is done by signing a new Tenancy Agreement with the new rates. This is definitely the easiest and the most common method of increasing rent.
Option 2: document the increase during the fixed term
If you want to increase the rent during the fixed term (assuming you’re permitted to i.e. there’s a clause in the contract that allows for mid-tenancy rent increases), you should notify your tenant by a written notice with the new amount and when the increase will begin (I recommend providing 2 months notice).
The letter should be returned to you with their name, date and signature to prove that they have acknowledged and accepted the increase. They should also keep a copy. This is often called a Rent Increase Agreement.
Option 3: mutual agreement
If there is no mention of a rent increase in the tenancy agreement and you don’t wish to serve any notices, you can still talk to the tenant and see if they will mutually agree to an increase. If they do, it is important to do the same as in option 3- create a documented Rent Increase Agreement.
Option 4: serve a Section 13, notice of rent increase during a periodic tenancy
If you don’t start a new tenancy agreement after the tenancy fixed dates expires, and you subsequently wish for the tenancy to roll into a periodic tenancy, it is best to create a Rent Increase Agreement.
However, if the tenant disputes the increase, then you can serve a Section 13(2) Notice of the Housing Act 1988, proposing an increase in rent, at the end of the fixed term.
Can I increase my tenants rent?
If you’re in the middle of a fixed term, you can’t unless there is a clause in the tenancy agreement that says the landlord can review the rent during the fixed term (this is relevant for option 3) or it is stated what the rent will increase to X amount after 6 months.
For example, if the tenancy agreement is 12 months long, there might be a clause that says rent can be reviewed after 6 months. In that case, you can increase the rent. But be careful, the clause must be fair and comply with the Unfair Terms in Consumer Contracts Regulations 1999.
One way to make a rent review clause fair is to specify what the new figure will actually be (e.g. say that it will increase to £X month after 6 months). This will be deemed fair as the tenant will have approved the actual amount when signing the agreement.
BUT don’t increase the rent too much
Referring to the previous point, even if stated in the Tenancy Agreement that the landlord is entitled to increase the rent by £X amount, it still has to be a fair and realistic increase.
If the increase is too great, the tenant could successfully appeal, regardless of whether the tenant signed the agreement.
Rent increase notice period
A landlord must provide the tenant sufficient notice before a rent increase is to take effect.
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 before the increase can be put into effect.
The rent increase must begin on the same day of the month that the tenancy started. For example, if the rent for the tenancy is due on the 1st of every month then the new increased rent should also be due on the 1st of the month.
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 is the legal way for a landlord to gain possession of the property after the fixed term has expired; effectively the tenant is told to vacate. However, on these circumstances, where neither can agree on rent, it might be possible to mutually terminate the tenancy. More details on how to end a tenancy agreement legally.
Points to remember
Tenants can dispute the increase
If the tenant thinks that the rent increase during an agreement is excessive, the tenant can dispute the increase. The tenant should discuss the reasons for the increase with the landlord first. However, if an agreement cannot be made, the tenant can apply to the first-tier tribunal property chamber to challenge the rent increase. More details here
Value good tenants
Good tenants are extremely difficult to find. If you have a good tenant that pays rent on time and takes good care of your property, it’s probably worth showing your tenant some appreciation by keeping the rates the same. Take into consideration how much time and money it would cost you to find a new tenant, you’ll probably end up losing more money by replacing your old tenant even if you do increase rent. As they say, “If it ain’t broke, don’t fix it”
Be generous with your notice period
If you plan on increasing rates, I recommend giving your tenant 2 months notice. That way if your tenant decides the new rate is too expensive and consequently would prefer vacating after the expiration, it gives you 2 months to find a new tenant. That should be an ample amount of time for you to get someone new lined up.
Be aware of what the current rental market is like.
If you know the rental market is booming in your area, then it maybe a sensible time to increase rates, because even if your current tenant’s reject the increase, you should be able to find replacements relatively easily. You can ask your local letting agents what condition the market is in.
Monitor current rental rates
Find out current local rates for similar properties in the same area. If you’re undercharging, you can use that as a bargaining token with your tenant. Respectfully explain that you need to be keeping up with the economic change in the rental market, and currently the rent you’re charging isn’t up with the local market.
That will make your tenant think twice about vacating, because if they decide to vacate they’ll only move into another property, paying the same amount that you initially wanted.
To find your local rates for similar properties, you can ask your local letting agent or look on websites like Rightmove and Zoopla.
Be respectful and tactful
Approach your tenant with tact.
Remember, your tenant hasn’t done anything wrong, and they have every right to refuse the increased rate. Be understanding and supportive of your tenant. A tenant needs a good landlord just as much as a landlord needs a good tenant.
Disclaimer: I'm just a simple landlord blogger, I am not qualified to give legal or financial advice. Any advice I give is my opinion based on my experience, and is never legal or professional advice. You should always get professional advice on any legal and financial matters!