Does your tenancy agreement have an unenforceable rent increase clause?

I write a regular column for Property Investor News, and I was recently asked a question there about rent increases.

The question was about how often a landlord was allowed to increase the rent, but his question included the wording of a clause in his tenancy agreement which was as follows:

The landlord may increase the Rent at any time after the initial Term by giving the tenant at least one month notice (if the tenancy has become a periodic one) or two months notice (if another six-month Term has been agreed) in writing prior to a rent payment day specifying the new rent.

Now I don’t know whether you have a similar clause in your tenancy agreement but if you do:

• If you are a landlord, you should get it changed, and
• If you are a tenant, note that it is probably unenforceable

Why?  Because it breaches the ‘unfair terms’ rules set out in Part 2 of the Consumer Rights Act 2015.

The Unfair Terms Rules

These were initially introduced by way of a European directive which member countries were then required to incorporate into their own law.  It is unaffected by Brexit as it was incorporated into UK law in the Consumer Rights Act.

The regulations aim to level the playing field between consumers and businesses so far as contracts are concerned.

Businesses generally have long, hard-to-read contracts drafted by lawyers (frequently containing ‘legal language’ and jargon), whereas most consumers are wholly unfamiliar with contract law and, in most cases, don’t even read the contracts.

So what the unfair terms rules do is make clauses unenforceable if they are deemed to be ‘unfair’ under the rules.

So why is the rent clause above unfair?

The reason is that it purports to give the landlord an unfettered right to increase the rent to whatever he wants.  For example, it does not:

• Limit the possible rent increase, for example by giving a percentage for the rent increase which must not be exceeded, or
• Link it to one of the various indexes such as the retail price index or the CPIK index
• Specify that the rent increase be referred to arbitration if it is not agreed by both parties

The only requirements seem to be that the rent increase is notified to the tenant in writing before the rent payment day and that the tenant be given either one or two months notice depending on the circumstances.

So, going just by the wording in the clause, the landlord could arguably increase the rent by £50,000 per week!

Which would be unfair.

Which is why the Unfair Terms regulations make this type of clause unenforceable.

So what does this mean?

It means that if a landlord increases rent under such a clause, the rent increase will be unenforceable (and the tenant will not have to pay it).

So if, for example, during possession proceedings based on rent arrears, the tenant challenges the rent arrears claimed by the landlord, saying that it was increased under an unfair clause, the Judge may hold that as the rent was not properly increased, part of the arrears figure is disallowed.

Which could cost the landlord his possession claim and make him vulnerable to a costs order ordering him to pay his tenant’s legal costs.

However, if the tenants have paid the rent for a period of time without complaint, then they may be held to have consented to the increase.  So, if you are a tenant, and you consider that your landlord’s rent increase clause is invalid – challenge it from the start and refuse to pay the increased rent. Although you may want to seek legal advice first (see here for some possible services you could use).

If you are a landlord, I suggest you check your tenancy agreement now.  Not all tenancy agreements have rent review clauses, but if yours does, make sure it is enforceable.

Otherwise, you may have problems.

Looking to the future

It may be that this post will go out of date fairly soon if the Renters Reform Bill comes into law, as that will outlaw rent review clauses altogether, and landlords will only be able to increase rent under the section 13 notice procedure.

But at the time of writing, that has not happened yet.