Are you a landlord wondering how the new Renters' Rights Bill will impact your ability to increase rent? With rising costs and the need to maintain profitability, understanding these changes is crucial. The Renters' Rights Bill introduces a new statutory framework, replacing many of the flexible mechanisms that landlords have traditionally relied on. While rent increases will still be permitted once the Renters Rights Act comes into effect, the process will become more structured, transparent, and tenant focused.
What are the current mechanisms for rent increases?
Currently, landlords can include clauses in the tenancy agreement that allow for automatic rent increases after the end of the fixed term. Landlords can also agree rent increases with the tenants where the agreement does not contain a rent review clause. It is only when the landlord and tenant cannot reach an agreement, and the tenancy agreement does not contain a clause allowing for automatic rent increases, that a landlord can use a Section 13 notice under the Housing Act 1988 to increase the rent. A rent increase under section 13 does not take effect until after the end of the fixed term.
Under a section 13 notice, the landlord must give a months' notice (if the rent is paid monthly) and the proposed rent takes effect at the start of the rental period as the new rent unless the tenant disputes the proposed rent and challenges it in the First-tier Tribunal before the rent increase date. Once the rent increase date has passed, the tenant loses the ability to challenge the rent increase and must pay the new rent.
Where a tenant challenges a rent increase notice in the Tribunal, the Tribunal assesses the market rent by considering what would be reasonable for a particular property in an open and competitive market, taking into account similar properties in the same area, as well as factors such as size, condition, location, and features of the property. This means that the Tribunal can set a rent that is lower, higher, or the same as the proposed new rent. As the Tribunal can set a higher rent than the proposed rent it presents a risk to the tenants to challenge the rent increase notice in the Tribunal especially where the proposed rent is below the market rent.
What are the changes under the Renters' Rights Bill?
While landlords will still be able to raise rent once the Renters' Rights Act comes into effect, rent increases will only be allowed once per year regardless of what the tenancy agreement states. Additionally, any rent review clauses contained in tenancy agreements will be abolished, and automatic rent increases will be rendered void. Instead, all rent increases will only be initiated by the landlord serving a section 13 notice. The amount of notice required for the rent increase will also increase to two months' notice before the new rent takes effect.
Additionally, if a tenant believes a proposed increase is excessive, they will still be able to apply to the Tribunal. However, the Tribunal will only be able to award new rent that is lower than the proposed rent, or at the same amount as the proposed rent instead of a market rent higher than the proposed rent. Further, if a tenant challenges the increase, the new rent will not take effect until the Tribunal has made its decision. Therefore, tenants will be at a much lower risk and be more encouraged to appeal the notice in the Tribunal as even if the Tribunal upholds the proposed rent as a justifiable and reasonable increase, it will still delay the time by which the rent increase will come into effect. There is a serious concern that this will result in an increase in appeals in the Tribunal and cause delays and backlogs that the Tribunal might not be able to deal with in a timely manner. To overcome this an amendment has been proposed giving the Secretary of State the power to amend the date by way of regulations when the rent increase comes into effect. However, whether the Secretary of State will decide to introduce such regulations remains to be seen.
Despite these new restrictions, landlords and tenants can still agree to vary the rent outside of the statutory process. However, this will only be possible where the landlord has served a section 13 notice, and the landlord and tenant agree a rent lower than the proposed rent in the notice. Any such agreement must not be used to bypass the once-per-year limit. This will still allow for flexibility in cases where both parties are willing to negotiate, while still protecting tenants from unexpected or frequent increases.
Conclusion
Rent increases are crucial for landlords in the private rented sector as the increased rent can cover expenses like mortgage payments, property taxes, maintenance, and other operational costs which may increase over time. Additionally, rent increases can help landlords achieve a reasonable return on their investment (rental yield) and ensure the long-term viability of their property as a rental investment. If you are a landlord and concerned about these changes then now is the time to review your agreements and the rents therein.
While the government recognises this, the Renters' Rights Bill does not prohibit rent increases but imposes a clear and enforceable structure around them. Therefore, landlords will need to adapt to these changes by updating their tenancy agreements, ensuring compliance with notice requirements, and being prepared for potential Tribunal involvement. Landlords will also need to ensure that the initial rent and any proposed rent is set at a level to account for any increase in costs over the 12-month period during which they cannot increase rent. Finally, landlords will need to ensure that they pay particular attention to the section 13 notice form and ensure it is compliant, even where the proposed rent is likely to be upheld by the Tribunal as justifiable and reasonable so as to prevent any appeals on the validity of the section 13 notice and delay the proposed rent under the notice coming into effect.
Our team of solicitors have successfully served section 13 notices on behalf of landlords. We have also advised individuals and organisations on the upcoming changes and the likely impact of these changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
