There may be many reasons why a property-owner can decide to increase rent; following are two of the most common ones:
- To keep up with the rising levels of inflation
- To take benefits from the profitable rental market
A legal way to increase rent
The most common way, used by many landlords, to increase rent is to prepare a new tenancy agreement, and get it signed by the tenants at the end of the fixed term. Clearly, this is the one of the best ways to increase rent.
It’s worth mentioning that it’s not always necessary to prepare a new tenancy agreement as it’s quite understood that the existing tenancy can become a periodic tenancy, with all the similar terms and conditions. So, you can easily get your tenant to agree to the increased rent by just sending him a letter regarding the increase, and get it signed from him. This dated letter will act as a proof of the agreement regarding the rent increase.
Rent Review Clauses
A tenancy agreement may sometimes contain rent review clauses. You need to make sure that all the clauses are fair and in accordance with Unfair Terms in Consumer Contracts Regulations 1999.
An effective way to make a fair rent review clause is to specify new figure for the rent after a specified period of time. For instance; let’s say £700pcm is the rent right at the start of the tenancy period; the clause should clearly specify that after a period of 6 months, the rent for the property will increase by, say, £50 and becomes £750. Clearly, this will be considered absolutely fair because the tenant will automatically approve the increased amount at the time of signing the agreement. At the same time, if the clause just states that the landowner may increase the rent by whatever amount he likes and feels, this will not be considered fair.
Don’t ever try to increase the rent by too much amount
What is the extent to which you want to increase rent is of utmost importance. Therefore, the increase in rent should be fair and justified. Even if you state the new amount in your Tenancy Agreement, and it is quite excessive increase then the court can deem your increase rent clause invalid. It doesn’t matter if the tenant has signed it or not.
For example; in bankway case, the tenancy agreement consists of a rent increase clause that states the rent increase from £4,680 to a whooping 25,000. However, when the increase in rent became effective, the tenant refused to keep up with the increased amount, and thereby landlord sued him for possession.
The Court of Appeal stated that the rent increase clause was absolutely invalid as the increase in rent was quite substantial, and it was solely devised to bring the assured tenancy of property to an end. It quite obvious that the tenant would not be able to pay the new increased amount. So, high rent increases are not at all recommended.