What is the most a landlord can raise rent?05-05-2023 | Financial
In England and Wales, there is currently no legal cap to the amount a landlord can raise rent. However, the government has set out rules that you must abide by as a responsible landlord, which we shall delve more into later.
You want to ensure that you adopt a fair attitude towards your tenants, so charging them rental fees that aren’t extortionate is a smart idea. After all, treat tenants well and respectfully, and you are more likely to generate reliable income from getting long-term stable rental tenants that keep renting your properties. It does no good for relations with you and your tenant if you start charging unfairly high rent, and experienced landlords know all about this and how landlord-tenant disputes can turn into a real hassle.
In the cost of living crisis we are going through, times are tougher for all of us, and this goes for tenants and landlords alike. How can you continue to run a profitable business letting out properties and also offer fairly priced rent rates when everything is so expensive these days?
As specialist landlord insurance brokers, we at CIA Landlords have decided to explore the topic of the most a landlord can raise rent.
The two rules landlords must follow
So, you want to raise the rent, maybe this is down to your general overheads as a landlord increasing, the cost of hiring tradespeople to maintain and repair the property soaring due to inflation, or factors related to the cost of living crisis, especially if you offer tenants a ‘bills included’ monthly rental package.
Undoubtedly, tenants won’t be thrilled when they learn that you are raising the rent. The question is, how can you go about it in the right way when raising rent? Well, first things first, there are two rules that you must follow when want to raise the rent as a landlord, and you must bear them in mind at all times
- Firstly, you must receive the tenant’s permission
- The rise in rent must be ‘fair and realistic’
Get the tenant’s permission
Section 18 of the 1988 Housing Act says that landlords cannot raise the rent without providing prior warning and getting the tenants’ consent and permission beforehand in a ‘prescribed form’, i.e. putting it in a tenancy agreement.
Here we break down how the rules on permission from tenants for rent increases apply to Assured Tenancy Shortholds (ASTs), namely periodic (rolling) and fixed-term tenancy agreements.
For a periodic tenancy (rolling on a week-by-week or month-by-month basis), you are usually not allowed to increase the rent more than once a year without the tenants’ permission. Try putting yourself in your tenants’ shoes, would you like it if your landlord tried increasing the rent multiple times within the space of a year?
Fixed term tenancy
For a fixed-term tenancy running for a set period, you can only increase the rent if your tenants have previously agreed to this by providing their permission in the original tenancy agreement. If tenants decide not to agree to the proposed increase in the agreement, you can only raise the rent once the fixed term period has ended.
What does a ‘fair and realistic’ rent increase mean?
Now, you may be a bit confused and be left wondering, what exactly does a ‘fair and realistic’ rent increase mean? How can this be defined? The government says this means that the increase shouldn’t exceed local rent averages in the surrounding area. For example, the average rental price in Greater Manchester is £792 per month. Therefore, if you increase the rent from £790 to £1,400 per month for a small room in a neighbourhood of Greater Manchester, this would be deemed as an ‘unrealistic’ and unjust rent increase, and tenants most likely wouldn’t agree to sign up to such steep increases in rent in the tenancy agreement.
Excluded tenancy agreement
An excluded tenancy agreement is where you live in the same property as your subtenant or ‘lodger’. In an excluded tenancy, a tenant has exclusive possessions of the area they are paying to rent, such as a bedroom. Hence, landlords are not allowed to access tenant’s bedroom without their permission.
Things work slightly differently when you have a tenant living with you. For instance, with an Assured Shorthold Tenancy, you can deliver a section 8 for eviction if tenants break the tenancy agreement or fail to pay 2 months’ rent, or a section 21 when a tenancy ends. However, for an excluded tenancy agreement, you don’t have to get a court order to evict a tenant, just provide them with ‘reasonable notice’.
Here we go into how landlords can raise rent in an excluded tenancy agreement.
Rent increases for excluded tenancy agreements
In an excluded tenancy, there is not a lot tenants can do if you decide to raise the rent.
Nevertheless, remember that tenants are free to conduct research into local rental rates, and they may come to their own conclusions on whether the raises you are proposing are reasonable or not.
Ensure any potential rent increases are made clear in the tenancy agreement
Transparency is everything to ensure stable landlord-tenant relations and avoid disputes. So, a top tip is to ensure the rules surrounding any potential rent increases are put in black and white and plain English in the tenancy agreement. For example, you must make it crystal clear in writing within the tenancy agreement if you intend on increasing the rent six months into a 12-month fixed-term tenancy.
Disputes with tenants over rent increases
What rights do tenants have if they feel they haven’t been asked permission, see the rent rise as unreasonable, or have any other objections to an increase in rent? Well, you need to know that tenants are able to challenge raises in rent. Free of charge tenants can take you to a tribunal, which normally consists of 2-3 expert professionals in the property sector. In the tribunal, a decision will be made on if your rent increase is fair.
Reasons behind rent increases
There are plenty of reasons why landlords may decide to raise rent. After all, being a landlord is a business choice, and no one would do it if you could not make any profit from it. Here, we delve into the reasons behind rent increases to give everything a bit more context.
Maintenance and repair costs
Maintaining a rental property for tenants is expensive these days. If you are not a tradesperson or a dab hand at DIY, you will need to hire tradespeople to carry out maintenance and repair work for you.
Alternatively, if you use the services of a letting agency, they can use their connections in the home repairs industry to perform maintenance and repair work on your property but this will cost you.
Inflation and tough times may lead to higher costs for maintenance and repairs, tradespeople have to earn a living! However, despite the costs involved, you also need to remember your tenants’ rights to a well-maintained home that is safe and fit to live in. Landlord responsibilities for property maintenance and repairs include looking after
- The structure and exterior of the home, including walls, stairs, roof, external doors and windows
- Electrical wiring.
- Gas pipes and boilers.
- Heating, plumbing, and hot water.
- Chimneys and ventilation.
- Sinks, baths, toilets, pipes and drains.
Given that it is your responsibility to make sure so many parts of the home remain well maintained and in a good state of repair, it is understandable in light of rising costs that this may cause you to raise the idea of rent increases to tenants. Just remember to ask their permission and give them a head’s up.
Energy prices have skyrocketed in recent times, electricity prices in the UK rose by 66.7% and gas prices by 129.4% in the period March 2022-23. These rises in energy prices will inevitably have an impact on how much you have to pay out as a landlord to run a property and keep the electricity running and the heating switched on for tenants.
Of course, if you include bills in the tenancy agreement for tenants, then this cost will fall onto you as the landlord, and you may have to seriously consider informing tenants that you plan to raise the rent during the winter months when their usage of utilities will go up.
On the other hand, you may look at high energy prices and decide that you will not include energy bills in the rent, meaning this will be the tenant’s responsibility to go and find a household energy supplier. However, you can help your tenants out by making sure your property is generally energy efficient and has top insulation so that only a minimal amount of energy is lost.
Make sure essential appliances in your property, such as the boiler, are energy efficient to save your tenants a fair few quid. A-rated boiler for instance provides 90%+ efficiency. If you are providing tenants with furnishings and appliances, you can also ensure any washing machines, dryers, dishwashers, and so on have a top energy efficiency rating. Doing things like this will help to bring down your tenants’ energy bills, and hopefully keep them satisfied with the service you are providing as a landlord.
Furnishings and appliances you decide to buy
Tenants like to know what they will be getting for their rent money before signing up to a tenancy agreement. Are you going to advertise that you offer furnishings and appliances in your rental property that tenants can use when they move in? If so, you also need to be aware that the purchase cost of items like sofas, chairs, chests of drawers, tables, and washing machines, have gone up just like everything else. Therefore, owing to the increased cost of purchasing these furnishings and appliances for tenants, you may in turn find you need to increase your rent a bit.
Local rising property rates
The rent prices may well be going up in the local area around your rental property, such are the turbulent economic times we are in. You want to treat your tenants fairly, but is it sustainable in the long term to keep the rent you charge them well beneath local average property rates? Stay up to date with changes in local property rates, and assess whether the rent you charge your tenants per month is in line with this.
You now ought to understand more about the most a landlord can raise rent, and the right way to go about increasing the rent for your tenants should you feel the need to do so. At CIA Landlords, we have connections with prestigious providers offering cheap landlord insurance. Learn more by getting a quote from us today or getting in touch with our friendly team by calling 01788 818 670 or sending us an email at firstname.lastname@example.org.
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