How landlords should handle a rent increase in 2021?
How landlords should handle a rent increase in 2021? Five key considerations
If you haven’t reviewed your rental income for some time, then doing so is part of effective management of your investment property.
However, any decision to increase rent needs to be carefully considered, especially in 2021, and handled to get the desired outcome of a good rental yield without unnecessary exposure to lost time and money and increased hassle and risk.
Should you increase the rent on your property?
If you have a good tenant that pays all their rent on time, looks after your property and barely makes a fuss, then you should seriously consider not increasing their rent.
It is far better to aim for steady, long term tenancies rather than the costs and effort associated with finding new tenants and the risk that any new tenants may not be as reliable and trouble free as hoped for.
However as a landlord, your property is also an investment. If your rental income is below local market rates and is insufficient to cover your outgoings in terms of mortgage payments, insurances, mandatory safety checks and upkeep, then a rent increase may be necessary.
We would however recommend that if you do have a good tenant, you should look to reducing your outgoings first as explained in our previous article on how to increase your rental yield here.
Another potentially useful tool for weighing-up the decision to push forward with a rent increase versus the risk of losing your existing tenants is calculating the cost and time value of finding a new tenant including advertising, viewings, referencing and inventory with check-in and dividing that by 12. Adding the result to the existing monthly rent will show you how much you’ll need to increase the rent to in order to break even.
By how much can you increase the rent?
Any rent increase must be ‘fair and realistic’ which means in-line with average local rents for similar properties.
So whilst you will need to consider your needs to meet your outgoings related to the property, research the local market rate for similar properties using the likes of Zoopla.
If you can share some of these facts with your tenants, they may be more likely to accept your reasoning for a rent increase and agree to it.
How landlords should handle a rent increase with Assured Shorthold Tenancies
Assured shorthold tenants (tenancies where you have an AST agreement) are protected from rent increases during their fixed term.
The fixed term of an AST is typically 6 or 12 months. During this period you cannot change the details of the agreement including rent unless both you and the tenant agree.
However, once the fix term has ended you are able to facilitate a rent increase by renewing the tenancy agreement with a new AST that clearly states the new rent value.
As a landlord you can also put in a ‘rent review’ clause – typically mid-way through the fixed term.
Any proposed rent increase must be ‘fair and realistic’ otherwise it will not be enforceable because completely arbitrary or very large increases will fall foul of The Unfair Terms in Consumer Contract Regulations 1999. You must also give your tenant sufficient notice of any agreed rent increase – if rent is paid monthly, the notice period is a month. If rent is paid annually, the notice period is 6 months.
If an agreement is met as part of the rent review, then this should be put into writing by way of a duplicate letter with the tenant signing and dating both copies (and retaining one) to confirm their acceptance of the rent increase.
How landlords should handle a rent increase with assured periodic tenancies
Assured periodic tenancies are tenancies relating to a specific period, typically month to month but could also be weekly, quarterly or yearly. They are also referred to as ‘rolling contracts’ and commonly come into being when a tenant continues to live in your property after a fixed term contract i.e. AST comes to and end without a new AST being put into place.
For these sort of tenancies you can either come to a mutual agreement on a rent increase and put this into writing as per the above. Or you can follow a formal route of issuing a ‘landlord notice proposing a new rent’ form (otherwise known as a Section 13 notice).
It should be noted that the Section 13 will only be valid if:
- The prescribed form (Form 4) has been used. It’s available from the UK Government website here
- You give you tenant sufficient notice – the minimum notice period is a month. If rent is paid annually, the notice period is 6 months
- The name and address of the tenants is correct on the notice
- You have signed and dated the notice
Section 13 notices cannot be served during the fixed term of an Assured Shorthold Tenancy including as part of any rent review clause.
Finally, a Section 13 notice can only be served once every 12 months in relation to the periodic tenancy in question.
What if the tenant rejects the rent increase?
Of course, your tenant doesn’t need to accept any proposed rent increase.
If that is the case, be prepared to negotiate if they are an otherwise good tenant. Or you can serve a Section 21 notice at the end of their fixed term tenancy to begin the eviction process.
In England, tenants have a right to complain to the First-tier Tribunal (Property Chamber) within their notice period. If they do, you will need to submit your correctly completed Section 13 notice to the rent assessment committee who will review the case and decide if the rent increase is fair, and if not, what is considered a fair rent. Their decision will be final and both you and the tenant will have to accept the result.
Obviously avoiding such court action is to be avoided to save time, money and hassle.
For more information on how tenants are advised on rent increases, click on the Citizens Advice Bureau’s page here.
In summary – How landlords should handle a rent increase in 2021?
Increasing rent can be tricky to negotiate and navigate for landlords.
Before deciding to ask for a rent increase consider if:
1) it’s worth putting a good, stable tenancy at risk and
2) if they’re other ways to increase rental yield by reducing outgoings like agents fees and insurance premiums first.
If a rent increase is necessary and justifiable, it still needs to be ‘fair and realistic’. Explaining your reasoning to the tenant will increase your chances of reaching an agreement.
Once an Assured Shorthold Tenancy is outside of its fixed term, a Section 13 notice can be served but this needs to be done correctly.
Cut out the agent in the middle and build a direct relationship with your tenant with RentiD. RentiD is the property management app backed-up with letting agency services on demand helping self-managing landlords and property managers save time, money, hassle and risk.
If you’re a self-managing residential landlord in the UK why not join our new Facebook group Self-Managing UK Landlord Support here.