A very important decision to make as a landlord is to determine when/whether to increase the rent. A well-managed rent increase can improve your returns dramatically while a botched attempt may see a perfectly good tenant leave.
Rent can be increased in three ways:
- Incorporate rent increases within an AST (e.g. 2.5% increase in rent every 12 months) – in practice, you may find tenants are reluctant to agree to this and hence such clauses are pretty uncommon.
- Issuance of a S13 notice – this effectively keeps the tenant in their existing AST/periodic tenancy while changing the rent. For a monthly, weekly or fortnightly tenancy, one month’s notice is required. For a yearly tenancy, six months notice is required. Also, it is worth noting that the rent increase cannot occur within 12months of a previous S13 notice (I.e you cannot increase the rent more than once a year). The rent increase must start on the same day of the month that the tenancy originally started. So if the tenancy started on the 5th, then the rent increase should also be due from the 5th of a month. Once a tenant received the S13, they have three options. The first is that they can accept the increase. The second is that they can challenge this and ask for it to be reviewed by the “Rent Assessment Committee”. The third option is for them to hand in their notice to quit and find alternate property.
- New AST – the final way to increase the rent is to issue the tenant with a new AST with the revised rent. This has the advantage of giving both parties more security over the tenor of the tenancy.
As a landlord you must firstly consider whether a rent increase is actually appropriate. You must compare the rental being achieved versus the market rents. However, just as important to take into consideration is the quality of the tenant and the risk of a void. Many experienced landlords will refrain from increasing the rent if they have a good tenant in place. Remember every new tenancy is a risk – while you may take as much care as you can with respect to vetting your tenants, you don’t know what they will be like until they have moved in. If you have a tenant that pays their rent on time and looks after their property, you must treat them like gold dust and not risk losing them if you can possibly avoid it. You also need to consider the void period and the additional costs of re-letting. Even if you have just a one week void between tenants, that is roughly 2% of your annual rent. Add on top of that other letting fees (advertising, check-in/out etc..) and it is likely that unless your rent is significantly below market, it would make more sense to keep the tenant rather than replace with a slightly higher rent.