GL#6: What landlords need to know about rent


This week’s episode is about a key issue for landlords: setting and increasing rent.

Suzanne Smith and Richard Jackson kick off the podcast episode by discussing what the key rent indices say about what’s happening to rents now. Then they share tips about landlords should go about both setting rent at the beginning of the tenancy, as well increasing rent once the tenants have moved in. They also talk about how the Renters Reform Bill will change the way landlords will be able to increase rent.

The episode is full of practical tips to help good landlords go about setting and increasing rent in a way that complies with the law and is fair to your tenants, but also recognises we’re running a business.

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What’s happening to rents at the moment?

The 3 major rent indices (ONS, Rightmove and Spareroom) all agree that the rental growth for the 12 months until the end of March was around 9% in England.

According to Rightmove, the average number of enquiries has reduced from 13 to 19 a year ago, which compares favourable to the mere 5 enquiries in 2019. Rightmove point to affordability as the problem – there’s only so many rent increases that tenants can accommodate.

Rightmove also report that more landlords are having to reduce rents when advertising. 22% of advertisements are ending in a price reduction at the moment, which is a five-year high for this time of year, and is up from 16% a year ago. Price reductions, on the other hand, are now around the more normal percentage of the 23% in 2019.

Spareroom data shows a number of postcodes in London where room rents are dropping: SW3 (Chelsea) saw the biggest drop of -11%, followed by 7% in E20 (around the Olympic Park).

The Good Landlording approach to setting and increasing rent

Private landlords run a business, and not a charity or subsidised social housing. That said, we want to charge a rent that’s fair to the tenants, and fair to the landlords. 

Costs have increased significantly for landlords over the past few years, and keeping rent at the same level is the same as reducing it in real terms, after taking inflation into account.

Suzanne charges new tenants the market rent for the property. For in-tenancy increases with existing tenants, she keeps wage inflation as a guide, and tracks the market rent, but at a discount. She has kept rent increases to under 5%, but has always increased rent every year, apart from during Covid.

It’s important to avoid rent shock for tenants, when the rent suddenly increases in one go. It’s better to increase it little and often.

>> Blog post: The Independent Landlord: How to increase rent in 2024

How can landlords increase rent?

1. New AST for another fixed term

Agents usually change the rent by issuing another tenancy agreement for another fixed term period, with new rent stated in the agreement. It’s simple to do and means you can keep the AST up to date.

2. By agreement

Rent can also be increased by agreement, ie via an addendum which both parties sign or a letter which the tenant counter-signs. It’s possible to increase rent via email if the tenancy agreement allows amendments by email.

2. Using a rent review clause

Often tenancy agreements include a clause that entitles the landlord to increase the rent each year by a set percentage or by reference to an index such as the Consumer Price Index.

3. Section 13 notice (Form 4)

Landlords can increase rent using the procedure in Section 13 Housing Act 1988. This involves the landlord serving Form 4 on the tenant by giving at least one month’s notice to end on the rent payment date, plus allowing enough time for service (see blog post below).

Landlords can only serve a Section 13 notice only do it once every 12 months. However, if the landlord previously increased the rent by agreement, and not using a Section 13 notice, they don’t need to wait 52 weeks before using a Section 13 notice.

If a tenant doesn’t accept the new rent, they can challenge it in the First-tier Tribunal. However, they must do this before the date the rent increase is due to start. The tribunal will set a rent for the property by looking at what it would be likely to achieve on the open market under a new tenancy on the same terms. This might be higher, lower or the same as the rent in the Section13 notice.

It’s therefore risky for a tenant to challenge the rent in a First-tier Tribunal, unless the rent is above the market rent, as the tribunal might increase the rent.

The tenant can’t stop paying rent in the meantime, and must continue paying the old rent until the tribunal comes to a decision.

>> Useful resource: Form 4 official government template

>> Blog post: The Independent Landlord: How Landlords can increase rent with a Section 13 Notice (Form 4)

How will the Renters Reform Bill change the way landlords increase rent?

Landlords will only be able to use the Section 13 procedure to increase rent, which means that landlords will no longer be able to rely on rent review clauses in tenancy agreements. However, landlords will need to give at least 2 months’ notice of the increase, instead of the one month at present.

Any term in a tenancy agreement which seeks to vary rent by another method will be null and void. The implication is that landlords won’t be able to amend rent by agreement, and will need to use the Section 13 procedure.

Golden nuggets

Suzanne’s golden nugget is that if landlords don’t increase rent, they’re decreasing it when taking into account inflation. However, we should be reasonable about it, and not give the tenants “rent shock” with a high increase in one go.

Richard recommends setting expectations from the start with tenants, and good communication to explain rent increases.

Credits

Music: Kevin MacLeod of Incompetech. Licensed under Creative Commons.

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