Receiving Below Market Rent? – methods to increase the rent tenants are paying.
Tenants may not be paying the market rent for their property. This can cause a landlord to lose thousands of pounds each year. Thankfully, there are multiple ways a landlord is able to increase the rent their tenants pay. Be warned, each one may not be applicable and have their own difficulties.
1. Relying on a Rent Review Clause.
Many tenancy agreements have a clause which allows the landlord to increase the rent, limited to a certain amount, each year or every few months. This clause is known as a rent review clause. Landlords do not need to increase the rent using the rent review clause if they do not want to, but the option is there for them should they choose to do so.
The landlord would need to serve notice on the tenant that they are relying on the clause and then adhere to the limitations within the clause.
2. Serving a s.13 Notice on the Tenant.
A section 13 notice cannot be relied upon during the fixed term of any tenancy agreement. It does allow the landlord to increase the rent unilaterally. While the s.13 notice is a powerful tool to use for landlords, it is fraught with difficulties. A landlord can only rely on a section 13 notice once a year.
Despite the wording on the notice, the ‘starting date for the new rent’ will not be the date the rent is due, but the next day of a new period of the tenancy. If a monthly tenancy commenced on the 13th then the 13th is the relevant date. If the weekly tenancy commenced on a Tuesday, then a Tuesday is the relevant date. Further, the s.13 notice must give the tenant adequate time to respond to the notice before the rent increase takes effect. Therefore, the s.13 notice does not increase the rent immediately like some of the below options may do.
A tenant may challenge the validity of the s.13 notice and send it to the First-tier Tribunal. They will then review the notice ensuring that all names, notice periods and dates are correct. This a lengthy process which will usually require an assessment of documentation supporting both parties claims and potentially, a property visit. The Tribunal will then determine a rent payable that they deem reasonable.
If the notice is incorrect, then the s.13 notice fails. As many tenants challenge the s.13 notice once received, landlords may wish to use a s.13 notice to increase the rent to market value, or a reasonable amount based on the property in question. This will enable you to have a more realistic expectation on their determined rent amount, or they will be more likely to agree to your proposed rent increase as stated.
3. Agreeing with the Tenant for Them to Pay an Increased Rent.
This can be done over the telephone, in person or in writing (including email). Once both parties agree to the increased rent, payment of the increased rent should be made on the next rent due date. It is important to note that payment of the agreed increased rent (and not any other increased sum) is acceptance from the tenant as they cannot then attempt to revert to the previous lower rent thereafter. The new rent increase payment demonstrates the tenant’s agreement to the same and that all parties intend to rely upon the new increase rent amount.
Court proceedings can be complicated on agreed increases, especially where the parties agree to an increased rent, the tenant pays the increased rent once or twice while being in previous rent arrears, and then the tenant reverts to paying the lower rent. The tenant typically argues that the increased payments were not acceptance of the increased rent but rather payment of the lower rent amount and an additional sum payable towards the arrears. It is for this reason that any agreement with the tenant should be in writing and well documented, especially for clarity.
4. Signing a memorandum of agreement with the tenant which stipulates an increase in the rent.
Similar to the option above, this requires the consent of the tenant. An advantage of using a memorandum of agreement, which essentially states the important terms of the tenancy agreement showing any changes that may have been made such as a new fixed term or increased rent, is within a physical document. Consequently, this can be relied upon, should the tenant refuse to pay the increased rent or reverts to paying the lower rent in the future.
Similar to a memorandum of agreement would be agreeing a new a new full tenancy agreement signed by all parties to stipulate an increased rent. Although, this may be subject to a new term also being agreed for the security of rent for new set period of time.
5. Removing the tenant and finding a new tenant who will pay an increased rent.
If the tenant is refusing to agree to a rent increase or if they have a history of inconsistent payments, a landlord may wish to seek a possession of the Property and advertise the Property at an increased rent. Having possession of the Property will allow the landlord the opportunity to inspect the Property and carry out any repairs that may be required or invest in upgrading the Property prior to re-letting. Such improvements may increase the rental value of the property.
Given that the Courts have the power to enforce a reduced rent should the Property be in disrepair, or award damages for a percentage of rent payable over the period of disrepair, it is essential that all landlords maintain their property and repair any issues when brought to their attention. It is also important for a landlord to ensure that all licences are up to date and in the correct names. These include Houses in Multiple Occupation (HMO) licences and Selective licences. If these licences are not up to date, not only can a landlord not rely on a s.21 notice for possession, but they may also have to pay the rent back to the tenant. Landlords should ensure they do not breach any of their duties as landlord in order to ensure they get to keep the rent they are paid from the tenant.
If any landlord wants any assistance with increasing the rent or removing their tenants, Ashley Taylors Legal have an experienced team who dedicate each day to providing landlords with possession of their property or finding a solution that works for both landlords and tenants.
By Matthew Andruchow
Disclaimer: The content of any article posted on this website is for general information only and shall not be deemed to be,or constitute legal advice on any general or specific matter.