This is day 11 of my 31 days of tips on tenancy agreements series. To see the rest of the series click here.
Setting the rent
The owner of a well known letting agency in Norwich told me once that they had a saying in the agency, that ‘the greedy man goes hungry’. There is not a lot of point in charging a high rental if no-one is prepared to pay it.
However advising on rent levels is best done by someone local who specialises in renting property. This is why, if you are a new landlord, getting a (good) local agency to help you let the property, even if you want to manage it yourself, is often a good idea. They will know what the correct rent levels are for your type of property, and will also be able to help you present the property so that it achieves the best price possible.
Rent ‘periods’
Rent is generally either paid monthly or weekly. Monthly is most common, mainly because the majority of people are paid monthly, and can pay by standing order. Often this is specified in the tenancy agreement. However note that if the tenant proffers payment in some other way, you should not refuse to take it (and thereby artificially put the tenant into arrears).
One important consequence of the rental period is that this will affect the ‘periodic’ tenancy which will come into effect if the tenant stays on after the fixed term comes to an end. Generally this will be either monthly or weekly. However if your agreement provides for the rent to be paid in some other way, if you are not careful, this may result in a quarterly or even annual periodic tenancy. This is not recommended because if you want to use section 21 to evict a tenant, the notice period is longer.
Probably the best way to deal with this is to make sure that any periodic tenancy following the end of the fixed term is provided for in the tenancy agreement, which should specifically say that it will be a monthly tenancy (and set out what the monthly rent will be).
If the rent is weekly, the other thing to remember is that you need to give the tenant a rent book, in the proper form. However failure to provide this does not mean that the tenant does not have to pay (as failure to provide a section 48 notice does). It does however put you at risk of prosecution, so compliance is a good idea!
You can generally get rent books from large stationers or on the internet. Lawpack do a good one.
Increasing rent
You will generally want to increase rent over time, to keep up with the level of inflation. Normally this is done by getting the tenant to sign a new tenancy agreement at the end of the fixed term. Letting agents generally insist on doing this and making a charge for it.
Strictly speaking a ‘renewal’ is not actually necessary (as the tenancy will roll on anyway as a periodic under the same terms and conditions – section 5 of the Housing Act 1988). However if you want to increase the rent, doing this by giving the tenant a new tenancy agreement (or renewal form) is the best way to do it. As the tenant has agreed to the new figure by signing the agreement, he cannot challenge it.
If you do not want to give a new tenancy or renewal form, you can also get the tenant to agree the rent by signing and returning to you a copy of a letter sent regarding the increase. The fact that the tenant has signed and dated the letter will be proof that they have agreed to it.
Rent review clauses in tenancy agreements
Another, but less common way (in the private rented sector anyway) for increasing the rent is by a rent review clause. Here you need to be careful that the clause is fair and complies with the Unfair Terms in Consumer Contracts Regulations 1999 (discussed in more detail on days 15 and 16).
The way to make a rent review clause fair is to make it referable to something external. For example the retail price index. Or you can specify what the new figure will actually be (ie say that it will increase to £X month after six months). This will be deemed fair as the tenant will have approved the actual amount by signing the agreement.
What will not be deemed fair is a clause saying, more or less, that the landlord can increase the rent to whatever he likes.
Avoid massive increases – per the Bankway case
However putting the new rent in the tenancy agreement does not always work, as the Court of Appeal decision in the case of Bankway Properties Ltd -v- Penfold-Dunsford and Another shows.
Here (in an assured tenancy agreement – where the section 21 ground for possession was not available) the draftsman put in a clause saying that the landlord had the option to increase the rent from £4,680 to £25,000. Needless to say once the increase was implemented, the tenant feel into arrears and the landlord sued for possession.
The Court of Appeal held that the rent increase clause was invalid, as, they said, it was merely a device, masquerading as a provision for an increase in rent, to enable the landlord to bring the assured tenancy to an end when it chose and to obtain possession of the property.
So very large rent increases that the tenant is obviously not going to be able to afford are not recommended (and will be unsustainable if challenged).
Problems with rent increase procedures,
If there is a procedure for increasing the rent set out in the tenancy agreement, this must be followed precisely. The importance of this is shown by another, and more recent case, Riverside Housing Association v. White.
Riverside Housing Association had a rent review clause in their tenancy agreements that permitted them to increase the rent annually at a rent variation date in June of each year. However they decided to increase the rent from a date in April, as this matched their financial year. This was done for several years.
Then later, in proceedings for possession, some tenants (Mr and Mrs White) defended on the basis that the increase was invalid, because it had been done on the wrong day. The Court of Appeal upheld this, and it was only the House of Lords who found that the increase was valid. But only, their lordships stressed, on the particular facts of this case.
Meaning no doubt, that they did not want the housing association to be made insolvent (as the Whites were not the only tenants whose rent had been increased in this way) but that they would be less kind to other landlords.
So *always* be very careful to follow to the letter any requirements set out in the rent review clause. And when drafting rent review clauses, make any procedures simple, and easy to follow.
Note also my earlier blog post about a High Court decision relating to using the s13 notice procedure to increase rent where there is a rent review clause in the tenancy agreement.
Do you have any comments on this section? Do you increase rent by getting the tenants to sign a new tenancy or do you use a rent review clause? Were you aware of the two cases and the points they make?
Tomorrow I will be looking at fixed terms in tenancy agreements
NB Read about my tenancy agreements service here.
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Hi,
I’ve had the same tenant for 3 years (the most recent AST has ended) and I want to increase the rent — and the tenant has accepted this will happen, but I don’t want to have to pay my agent to produce a new AST with the new rent in it. I thought about simply getting something in writing but I was told that if i wanted to change the rent, and didn’t want to give the tenant a new AST, it had to be ‘done as a deed’. Is this right?
No, it does not have to be done as a deed. You can get the tenant to sign and date a letter confirming the new rent increase, and that should be fine. Or you can use the statutory notice procedure.
Or if you want to have the agreement signed as a deed you can use one of the Landlord Law renewal forms.
The rent review clause looks to be a very good idea. We’re about to create an AST for a new tenant that we need a guarantor for. This would seem a good way of avoiding the trouble of getting all parties to re-sign, not just the tenant.