4.5 Changing the Rent
There are three ways to review the rent in an assured shorthold tenancy:
- by way of a rent review clause in the tenancy agreement or
- by agreement with the tenant or
- by notice under section 13 of the Housing Act 1988.
4.5.1 Rent Review Clauses in the Tenancy Agreement
Normally, it is not possible to review the rent during the fixed term of the tenancy unless either there is a valid rent review clause, or the tenant agrees to the review. If the tenant agrees, this should be recorded (perhaps by seeking the tenant’s signature on a new tenancy agreement). A clause can also be included to review the rent within the tenancy agreement. The clause must comply with the unfair terms provisions of the Consumer Rights Act 2015 and be fair. Clauses allowing the landlord to review (and particularly to increase) the rent as he sees fit are likely to be unenforceable. Any increase upon a valid rent review is more likely to be enforceable if it can be justified by a recognised/established factor (such as significant improvements to the property or general cost increases reflected in the Retail Prices Index). To be a valid enforceable rent increase it must be a ‘provision. This means there is certainty about the level of the increase. This could be an increase of £20 per month or an increase equal to the Consumer Price Index. Both of these create certainty and are therefore ‘provisions’. If the clause says the rent can be increased to the open market level or to a level decided by the landlord then it will not be a provision and the landlord would have to have the tenant’s agreement or use section 13.
Clauses which provide for very large increases will normally be void. (for example where the rent increase is not to achieve a fair rent for the property but to increase the rent to a level where it would jeopardise the security of the tenant or by causing rent arrears or artificially raising it over £100,000). A rent review clause could also be challenged by referring it to the First-tier Tribunal (Property Chamber – Residential Property).
4.5.2 Rent Increase by Agreement
It is also possible to review the rent by seeking the tenant’s signature to a document (such as a copy letter to the tenant proposing the new rent) which confirms agreement. Landlords wishing to do this are encouraged to speak to the tenant first to gauge whether or not they are content with the proposed new rent.
Once agreement has been reached, the landlord should send a formal duplicate letter proposing the new rent and asking the tenant to sign, date and return one copy to confirm their agreement. If the tenant fails to return the letter or fails to pay the new rent, then the rent will not have been validly reviewed. The review will be less susceptible to challenge if the landlord gives the tenant something in exchange for any increase in rent – for instance allowing the tenant to stay longer than would otherwise be the case, or improving the facilities or condition of the property. If this is to be the case, it should be recorded in a letter from the landlord to the tenant.
It is not possible to increase the rent unilaterally by simply sending a letter to the tenant telling them that their rent will be increased from a specific date. If the tenant agrees to this and starts paying the rent, the increase is agreed but if the tenant does not agree they can refuse to pay the increase.
4.5.3 Rent Increase by Notice Under Section 13 of the Housing Act 1988
If the tenancy is an assured or assured shorthold tenancy the landlord can use a formal procedure in section 13 of the Housing Act 1988 to propose a rent increase. To do this a special form is needed, which is obtainable from law stationers, some landlord associations, and some of the online services for landlords on the internet.
The form must be completed in full, and served on the tenant. At least one month’s notice must be given to the tenant. If the tenant does nothing during this period, then the rent increase will take effect.
It should be noted that the rent can only be increased by section 13 after the fixed term has ended, and that this facility can only be used once every 12 months.
If the tenant feels the rent increase is too high then they can refer it to the First-tier Tribunal (Property Chamber – Residential Property) for review. The application must be made no later than the last day of the notice period or it will be invalid and the increased rent will stand. If the rent is challenged the matter will be considered by the First-tier Tribunal who, if they consider the rent is not a market rent, will substitute what they consider is a market rent. The First-tier Tribunal’s view is not always in the tenant’s favour and it is not unknown for them to consider that the proposed rent may be too low.
4.5.4 Rent Act (Regulated) Tenancies
Regulated tenancies are tenancies governed by the provisions of the Rent Act 1977. They will all have been created prior to 15 January 1989.
The Rent Act provides for the tenant (or the landlord) to apply to have a ‘fair rent’ registered for the property and once this has been done the fair rent is the only rent the landlord can charge.
These are rents fixed by the local office of the Rent Service. The Rent Service does not take account of the impact of scarcity on the market value of rented accommodation. Contact details for the local Rent Service can be obtained from the council’s housing advice service.
If a fair rent has been registered, a new registration cannot be made less than two years after the date the existing registration came into effect unless:
- landlord and tenant apply jointly or
- there has been a change of circumstances, for example, major repairs, improvements or changes in the terms of the tenancy.
It is in the landlord’s interest to apply promptly for rent increases every two years otherwise the rent charged might fall behind market rents because the amount of increase is capped under a complicated calculation set out under regulations – The Rent Acts (Maximum Fair Rent) Order 1999.
In the unlikely event that the rent has not already been registered a landlord can increase the rent if the tenancy agreement or contract allows for rent increases. If the agreement does not allow for increases in rent it can only be increased if:
- the landlord and tenant make a formal rent agreement which must follow special rules or
- the Rent Officer registers a fair rent.