New mandatory section 8/13 forms
A healthy business means a healthy bottom line.
While landlords should do their best to keep good tenants, there should also look after their finances and keep rents in line with the market. Moderate, periodic rent increases are a good way to achieve this without alienating tenants.
This begs the question: How to increase the rent?
There are essentially four ways to increase the rent under an assured shorthold tenancy:
- by mutual agreement
- by creating a new tenancy
- through a rent increase clause
- using a formal section 13 notice
In this chapter we look at each of these methods.
Whether the tenancy is a fixed term or a periodic tenancy, landlord and tenant may agree at any time to vary the rent.
If an agreement is reached it is of course advisable to get it in writing. In any case, once the tenant has started paying the new rent there is no turning back: The agreement is binding.
Such a mutual agreement to vary the rent does not create a new tenancy. Nevertheless, landlords should always check whether any action is required for the tenancy deposit, if any, to remain protected as tenancy deposit schemes may set their own rules.
The rent may also be increased by creating a new tenancy, which is another kind of mutual agreement.
The most common scenario is the grant of a new fixed term tenancy at a higher rent.
There is no special requirement regarding the amount of the increase or any notice period: Landlord and tenant a free to agree these terms.
As always when a new tenancy is created the landlord must check if any action is required for the tenancy deposit, if any, to remain protected. The consequences of failing to complain with the tenancy deposit scheme’s requirements easily dwarf any extra rent.
Rent increase clause
The tenancy agreement may include a clause providing for rent increases. This applies equally to both fixed term and periodic tenancies but is especially relevant to fixed term tenancies: Indeed, a rent increase clause is the only way to ensure a rent increase during a fixed term tenancy.
Drafting the clause correctly is important in order to avoid later challenges to its validity, e.g., on the ground that it is unfair under consumer protection regulations.
As always with legal issues landlords should take formal legal advice if in any doubt (and maybe even if not).
A valid rent increase clause must be unequivocally drafted and clear states the amount of the increase and when it will occur.
If the increase is variable the clause should state a reasonable maximum (e.g., 8% pa.) or runs a high risk of being deemed unfair.
Broadly, there are three ways to define the increase:
- as a fixed amount, either in absolute or relative terms
- by linking it to a public index, for example the inflation rate
- at the discretion of the landlord
If the increase can be calculated by the tenant there is no requirement to give notice although a timely reminder always helps.
If the increase is variable it should be known to the tenant sufficiently in advance to allow her to make payment arrangements. It is reasonable and common to provide a lead time of at least a rent period.
Section 13 notice
Lastly, if the tenancy is periodic the landlord may propose a new rent using a so-called “section 13 notice”.
One advantage of this method is that the new rent is binding on the tenant unless successfully challenged before a Tribunal (Rent Assessment Committee in Wales).
However, the procedure is formal and must be strictly followed, and may only be used once a year.
More on section 13 notices.