Rented Property Focus - February 2012

How do you ensure your rental income stays in line with market values?

This month, Stephanie Robinson outlines when to consider a rent increase and how to break the bad news to the tenant...

What happens when an assured shorthold tenancy expires – can the rent be increased with market conditions?

You should agree with your tenant the amount of rent, the arrangements for paying it and if possible the intervals at which it will be reviewed before a tenancy begins. All of these details should then be included in the tenancy agreement.

Assured shorthold tenancies generally have a fixed term of six or 12 months. Once an initial fixed term has elapsed, a new tenancy can be implemented for a further predetermined length of time at an increased rent, or the lease can be allowed to run on as a statutory periodic tenancy for an indefinite length of time, based on the frequency of rental payments. For example, if the tenant pays monthly, the agreement will be a monthly periodic tenancy.
  
A landlord can only make a rent increase after the initial fixed term has expired, unless the tenancy contains a clause allowing the landlord to increase the rent, or the tenant voluntarily agrees to a rise. You must inform the tenant in writing of your intention, using a prescribed form of letter, known as a section 13 notice.
  
This notice contains details about the rent rise, including a start date for the proposed changes. The timing of its delivery is usually based on the type of agreement you have. For example, if the tenant pays monthly, you must give them at least one month’s warning of a rent increase.
  
If you decide to increase the rent, but you do not serve a section 13 notice, the tenant is not obliged to acknowledge the rise, unless provision has been made to cover this eventuality in the tenancy agreement. Should a landlord then try to gain possession based on rent arrears caused by the increase, the case is unlikely to be accepted by the court and may be dismissed.
  
If your tenant feels the rent increase is unjustified, he or she can ask a Rent Assessment Committee to consider the proposal. There are five regional committees in England and Wales who usually consist of a property valuer, a layman and a solicitor. They will normally visit the property and carry out research into the area before deciding on an appropriate level of rent.
  
When settling disputes, the committee looks at what you could reasonably expect to receive if you were letting the property on the open market under a new tenancy on the same terms. It does not take into account any increase in the value of the property due to voluntary improvements made by the tenant or any reduction in value caused by their neglect. It may set the rent higher or lower than the sum proposed.
  
The rent fixed by the committee is the legal maximum you can charge and this amount will be payable from the date specified in the notice, unless it is deemed this will cause the tenant undue hardship.
  
You cannot appeal against the decision of a Rent Assessment Committee, except on a point of law. Therefore, rather than going down the section 13 route, some landlords decide to end their agreement if the tenant refuses to accept a rent increase. 
  
If you are not confident that the rental market in your local area will support your proposed increase, it may be worth negotiating a modest rise with your tenant, rather than risking the committee setting a lower rent or having to re-let the property. Alternatively, the tenant may agree to increase the rent in stages over a specific period of time.

Can I introduce further rent increases after the committee has made its decision?

You can propose a rent increase a year after the committee sets it, unless the tenant agrees to it happening earlier. The tenant must apply again to the Rent Assessment Committee if they want to contest the proposed increase. 

Stephanie Robinson is a solicitor specialising in property and commercial litigation at Sheffield’s Taylor&Emmet LLP. Telephone 0114 218 4000 or visit www.tayloremmet.co.uk and www.landlorddisputes.co.uk.