UPDATED: consider these things before you increase your tenant’s rent

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With interest rates rising and this reflected in mortgage rates, landlords are being forced to contemplate rent increases. If you go down this road you need to be aware and follow the rules.

As landlord you can’t legally increase your rent whenever you like, or by any amount you see fit. You need to follow certain rules if you decide that the rent is inadequate and you need your tenant to pay more. Keeping your rent reasonably in-line with local market rents is sensible because if you allow the rent amount to fall too far behind you will find it difficult if not impossible to catch it up.

If you can agree a new rent which is acceptable to both you and your tenant, all well and good. If not you have to follow the correct legal procedure using Section 13 of the Housing Act 1988. This is subject to change with the introduction of the Renters (Reform) Bill 2013, currently passing through Parliament.

The economic environment has changed considerably within the last 12 months making it more likely that you will need to consider a rent increase, even if you have not done this before with your long-term tenants. With inflation hovering around 10 per cent in the UK and mortgage rates approaching 6 per cent many landlords will have no choice but to increase if they are to avoid running at a loss.

Before embarking on the process of increasing your rent, consider these points:

1  – It could force good tenants to leave.

It might not be a large amount you’ve increased the rent by, but don’t underestimate how this could offend a good tenant who pays rent on time and looks after the property. If you reward good tenants who want to stay and make your property their home for a long period of time, does it really make a difference to get a bit extra each month? Consider carefully if you’re prepared to put your property back on the market if the tenant doesn’t accept the increase…

2 – Can the rental market sustain an increase?

Should your tenant decide not to accept the increase they may give you notice to leave. During a periodic term, this will be 1 month. This will mean you will need to prepare your property for market, take photos, book in any repairs and try to arrange viewings with a potentially disgruntled tenant in place. Along with this, you’ll have your fees for advertising and management percentages to fork out, unless you self-manage.

The agent’s fees can be reduced if you go it alone or use an online letting agent. Once on the market, you don’t know if it will let for the increased amount. You also need to consider seasonal variations; such as the decline over the Christmas period, and general market conditions i.e. is supply exceeding demand?

Currently the market is strong in most areas, so bringing the rent to a market level, or ideally just below that, should not trigger a move, but until you try you will never know. Speak you your tenant and explain the situation you are in, with your increased costs and what the market rent should be.

3 – Can the tenant afford a rent increase?

Let’s say your tenant accepts the rent increase, can they even afford it? Affordability checks at the initial referencing stage were based on the rent price then and their salary at that point in time. As we know from being a landlord – things change. There is a chance they may not be able to afford the increased amount. Also consider that they may be earning less than before if they changed jobs. Plus, it’s well documented that wages aren’t increasing at the same rate as rents, particularly in the South East and London.

4 – An increase could lead to your tenant falling into arrears.

If your tenant accepts the increase, not wanting to leave the property but also not seriously considering the implications on their finances, it may lead them to fall into arrears. Even a difference of £50 a month could trigger this, particularly if a tenant’s wages aren’t increasing but their monthly outgoings are. It could end up costing you a significant amount if you need to issue court proceedings for possession based on rent arrears. There are currently more landlords dealing with tenant arrears and this is only set to worsen with the cost of living crisis, tax changes  and rents predicted to rise even faster than wages due.

5 – Will you be left with a void period?

If your existing tenant leaves because of the rent increase, you could be left with a void period because there is no guarantee you can quickly find a new tenant. Void periods can be very costly, even a 1 month void means you’re not only missing out on a month’s rent, utility bills and council tax, you will also have to pay the mortgage that month. Many investors rushed to complete purchases before April this year when the increased stamp duty tax rate affecting landlords came into play. Although the rental market is strong, not all areas are in high demand, so do your research and determine if there is enough demand before embarking on an increase.

6 – Do you really need to?

If you’re currently achieving a good yield then remember this is a long term investment based also on the capital growth of the property. Of course there are these increased expenses for you as a landlord and particularly with the new tax regime post 2017, your profits will be affected. But on balance it might be better to keep hold of a long-term tenant that looks after your investment and pays the rent in full and on time each month.

7. Consider small incremental increases

If you rent has fallen a long way behind with your long-term tenant don’t thing about going for a large increase in one go. Consider small incremental increases to bring you rent back into line over a period of years. You tenants should appreciate the need if you explain this to them and that you are only increasing by a smaller amount that is really necessary. If you increase annually by a small amount your tenants will usually accept this without question and even come to expect it as they see all their other costs increasing.

8. Using the legal process

If you decide you really must increase the rent but cannot come to an agreement you must you the legal process.

Section 13 of the Housing Act 1988 is a statutory mechanism in the Act that enables the rent to be increased for any type of assured tenancy. There are a number of specific rules to comply with:

1 – The section 13 notice applies only in periodic tenancies, it cannot be used during a fixed term tenancy. If the fixed term is very long, because of this it is important to include some kind of rent increase mechanism in the tenancy agreement, most standard agreements will include one of these. If this is absent, unless the tenant voluntarily agrees to an increase, it will not be possible to increase the rent during the whole fixed term.

2 – A section 13 notice cannot be used where there is a contractual periodic tenancy that contains a rent review clause. However, where a fixed term tenancy becomes a statutory periodic tenancy a rent review clause will no longer apply. To increase the rent the landlord or agent must then use the section 13 procedure or obtain the tenant’s agreement.

3 – A section 13 notice is a prescribed form, that means the wording must comply with the Act as it dictates what wording needs to be on the notice (there is a free Form 4 notice online – see below) and what it must look like. When a section 13 notice is served the notes explain to the tenant how to fill in the form and it also explains to the tenant how to go about appealing the rent increase.

4  – Once served, a section 13 notice cannot be used a second time until after 12 months. The first time can be served immediately after the fixed term. So with a six month tenancy, you can serve a section 13 notice at the start of a statutory periodic tenancy. But if the tenancy is a periodic one from the outset, the 12 month limit applies from the start of the periodic tenancy.

9. The Section 13 notice

The landlord serves a notice of increase of rent in the prescribed form (Form 4). This includes information for the tenant advising them of their right to refer the increase to a https://www.gov.uk/courts-tribunals/first-tier-tribunal-property-chamber.

Once the notice has been served with the proposed increase in rent it cannot take effect earlier than a minimum period set out in the Act: for a year’s fixed term that is six months, less than a month, it is one month and for a tenancy of a month or more (but less than a year), it is one period of the tenancy. The increased rent will apply from the expiry of the notice period, unless either the tenant refers the notice of increase to the tribunal or landlord and tenant agree to a different rent.

The tribunal will determine a market rent for the property, a rent that could reasonably be expected to be obtained in the open market for a similar property let on similar terms.

10. Keep an eye out for the new regulations – Renters (Reform) Bill

The Bill has yet to become law, but there will be changes. The new Act will remove the fixed term tenancy. It will end the use of rent review clauses and only allow rents to increase once per year. Rent increases will be through one mechanism, replacing the existing section 13 process under the Act, and landlords will have to give 2 months’ notice of any rent change. That’s how things stand at this time unless there are changes as the Bill passes thorough Parliament.

The Renters’ (Reform) Bill white paper said it plans to end the use of rent review clauses, “preventing tenants being locked into automatic rent increases that are vague or may not reflect changes in the market price” and it goes on the say that “any attempts to evict tenants through unjustifiable rent increases are unacceptable”.

In cases where increases are disproportionate, the Government says it will “make sure that tenants have the confidence to challenge unjustified rent increases through the First-tier Tribunal” and it will “prevent the Tribunal increasing rent beyond the amount landlords initially asked for when they proposed a rent increase”.

View Full Article: UPDATED: consider these things before you increase your tenant’s rent

Stop, read, contact – if you don’t there is a cost of delay!

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Unless you’ve been travelling around on Jeff or Elon’s space rockets recently, you would not have missed the chaos and turmoil in the mortgage market. In just the last week or so, major lenders pulled all of their products from the market and did not replace them straight away.

View Full Article: Stop, read, contact – if you don’t there is a cost of delay!

Powerless councils could make or break reforms, says Labour MP

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A Labour MP has called on the government to extend notice periods from two to four months to prevent landlords from unjustly evicting tenants.

Yvonne Fovargue, MP for Makerfield in Greater Manchester, believes the notice periods set out in the Renters Reform Bill – with the longest being two months and the shortest two weeks depending on the type of eviction notice used – are a flaw in the legislation, that also lacks support for authorities to act on injustices.

Enforcement powers

“I would like to see measures in the Bill to strengthen enforcement powers, require councils to report on enforcement activity and allow them to cap the advance rent that local landlords can request,” she tells Wigan Today. “The government owes local authorities an explanation of why it has neglected to give them the means to ensure the new legislation is successfully enacted.”

Fovargue says while landlords who are dealing with antisocial behaviour or even criminal activity from their tenants should be supported in reclaiming their properties, the government must ensure that such exemptions can’t be exploited by bad-faith landlords to unjustly evict tenants.

Benefit claimants

“It is also troubling that the Bill does not include a ban on landlords refusing to rent to benefit claimants or those with children,” she says. “This oversight should be reviewed and amended.”

Fovargue adds: “After years of delay, broken promises and arguments amongst themselves, the private rented sector increasingly resembles the wild west and it’s far from clear that this government can deliver.”

Instead, Labour’s Renters’ Charter would ban section 21 evictions, end automatic evictions for rent arrears, introduce a national register of landlords, make deposits fairer and more flexible, permit pets, allow tenants to make reasonable alterations to their home, require landlords to give four-month notice periods, and give tenants the right to request speedy repairs.

View Full Article: Powerless councils could make or break reforms, says Labour MP

‘Despicable fraudster’ gets eight-year ban for stealing landlords’ deposits and rent

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A letting agent who ripped off dozens of landlord clients has been banned from being a company director for eight years.

Frank Smart, 46, the owner of Smart Residential Letting Agents in Newmarket, admitted two counts of fraud by retaining rent and deposits last August, by pocketing tenancy deposits instead of putting them in a deposit protection scheme.

Betrayed customers

He was jailed for 32 months by a judge at Ipswich Crown Court last summer, who said Smart’s actions were “particularly sad” adding that the agent had “betrayed those who trusted you and caused a lot of distress”.

More than 30 witnesses told the court they had faced substantial losses after using Smart’s services; he was found to have defrauded customers by over £80,000 when the business closed in 2018. Numerous landlords hadn’t received rental income and were forced to refund tenancy deposits out of their own pocket, resulting in individual losses ranging from £700 to over £8,000.

Some comfort

Graham Crisp, head of Suffolk Trading Standards, says the fact Smart won’t be allowed to be involved in the forming, marketing or running of a company should bring some comfort to his clients who lost thousands of pounds due to his lies and deceit, and that he would not be able to repeat these actions once out of prison.

Councillor Andrew Reid, cabinet member for public health and public protection at Suffolk County Council, adds that securing justice against Smart is the latest in a long line of successful court cases for the team. “I have no doubt that their actions have stopped landlords, including those who bought an investment property to fund their retirement, from facing any further losses from a despicable fraudster who didn’t think twice about blatantly disregarding the law.”

View Full Article: ‘Despicable fraudster’ gets eight-year ban for stealing landlords’ deposits and rent

Landlord pleads with council to consider HMO tenants as housing shortages bite

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An HMO landlord says desperate new tenants are moving in hours after the previous tenants leave due to a dearth of available properties.

In her planning application, the landlord tells Arun district councillors that she is witnessing a chronic shortage of rooms available to workers on low income in Bognor Regis. The problem is so bad that she and fellow landlords are regularly unable to satisfy demand.

Daily enquiries

“We are receiving daily enquiries of people who say they are desperately looking for rooms because their landlords are selling,” the landlord explains. “Our existing tenants are also staying put presumably because they can’t find anywhere else.”

She tells councillors that her tenants are key workers working in care homes, hospitals, food production and distribution, shops and farms who are paid minimum wage or on a zero hours contract and unable to afford conventional tenancies even though they work very hard.

Attract staff

Problems with cars clogging up residential streets don’t apply, she explains. “Our HMO tenants rarely have cars as they generally can’t afford them and therefore need to live close to amenities.

“There are a lot of businesses and farms who depend on these people within our local area and HMO accommodation availability is also essential for these businesses to attract and house their staff.”

A professional HMO landlord since 2005, her property in Ockley Road has been used as an HMO since 2007 and needs a lawful development certificate for the existing use. She adds that the financial situation has led many landlords to leave the private rental sector and sell their properties and these are not being replaced.

View Full Article: Landlord pleads with council to consider HMO tenants as housing shortages bite

Property ownership questions?

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Hi, I am unsure of what actions we as a family need to take in the situation we are in now. I bought a property in 2009, transferred it to my two children 50/50 in 2010. However, I continued to manage the property

View Full Article: Property ownership questions?

Licencing scheme off to weak start after only a third of landlords register

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Only one-third of Oxford’s private rental properties have been registered for its city-wide selective licensing scheme – and could soon face steeper fees or a hefty fine.

The scheme, which launched last September, has received more than 10,500 licence applications from the 30,500 homes in Oxford’s private rented sector, with the council warning landlords and agents that a big increase in the application fee kicks in on 1st September.

A standard fee of £480 for a five-year licence applies during the first year of the scheme and a higher rate of £1,100 will apply from September unless a property is newly rented within 12 weeks of the date of application.

Oxford Council is also warning that unlicensed landlords and agents are at risk of enforcement action as it can issue financial penalties of up to £30,000 while the courts have the power to impose unlimited fines.

Half of city

Before last September only HMOs needed a licence to operate, although these make up less than 15% of private rented homes in Oxford. The authority then received Secretary of State approval for its controversial scheme which covers half (49.3%) of all Oxford’s homes.

During its consultation, landlords and agents told the council that responsible landlords and agents making an early application should not have to bear the costs of enforcement against those who applied late or did not apply at all. So far, the council has issued 986 licences and about 2,000 draft licences.

Councillor Linda Smith (pictured), cabinet member for housing, says it’s making good progress with issuing licences, but she adds: “If you’re a landlord or agent who hasn’t applied yet then you need to get a move on. The application fee will increase from £480 to £1,100 on 1st September and you’re already at risk of enforcement action if your properties are unlicensed.”

Read more about selective licencing.

View Full Article: Licencing scheme off to weak start after only a third of landlords register

Housing experts and charities call for EPC deadline for the PRS

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The Chartered Institute of Housing (CIH) has teamed up with a group of charities and consumer organisations, dubbed ‘Warm this Winter’, to encourage the government to decide on a deadline for the implementation of EPC rules for the private rented sector (PRS).

View Full Article: Housing experts and charities call for EPC deadline for the PRS

Do HMOs still stack up as an investment?

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Over the last 15 years, the HMO market has been transformed and there has been a boom. The reason for the boom  was, quite simply, that HMOs could generate far better returns than single home lets.  

But as the market grew, regulations tightened. On top of the extra duties, obligations, costs and tax changes that affected every landlord, HMOs were subjected to additional health and safety rules, including these two in October 2018:

1. Minimum sizes for bedrooms were introduced, meaning some landlords could no longer let certain rooms, dramatically reducing their income
2. The ‘three storeys or more’ criteria for needing a licence was removed, meaning any HMO housing five or more unrelated individuals had to be licensed.

HMO landlords have a lot to know, do and stay on top of. And now, in addition to higher mortgage interest rates, HMO landlords are finding their profits dented further by rocketing energy costs. This begs the question, do HMOs still stack up as an investment?

The upsides of HMOs

There are two big benefits to letting a property as a HMO. Firstly, while HMOs will always be more time-consuming than single-let properties, the reality is that they still usually generate a higher profit.

Secondly, a change in tenancy in a single-let home often means you have a void period with no rent coming in. The benefit of having each room let individually is that if you have one room vacant between lets, the other rents should be more than enough to cover your costs until the room re-lets.

And there’s a potential bonus to having an HMO: because they are larger properties, they may have better scope for adding value through extending than a smaller single let and if you can refurbish and extend when you buy, you could increase the capital value substantially.

5 things to consider if you’re thinking of investing in HMOs

1. Capital – As HMOs are considered higher risk, they require specialist mortgages and lenders tend to offer lower loan to value percentages, meaning you’ll probably need to find a bigger deposit than if you were getting a traditional buy-to-let mortgage.
2. Demand – Generally speaking, every major city should be able to offer decent HMO investment opportunities, but some areas have become saturated. As with any investment, research the market and make sure there’s good demand before you buy anything.
3. Speak to local council – Every local authority has the power to make its own licensing and planning rules, and some are far stricter than others on what they will and won’t allow – particularly if you’re looking at converting an existing standard home to an HMO.
4. Invest in quality fittings – If you’re targeting working professionals, aim to fit out the property with the amenities you’d want in your own home – e.g.
   • Fast WiFi
   • Good quality showers
   • Modern cooking appliances
   • Efficient laundry facilities
   • Plenty of storage
5. Maintenance schedule and budget – HMO properties have higher traffic, so you’ll need to redecorate and carry out other maintenance and repairs more often than you would with a single let. But it’s worth staying on top of things so that your existing tenants are encouraged to stay and to make sure you’ll be able to re-let rooms at a good rent as and when they come up.

As with any buy-to-let, investing in HMOs should be seen as a long-term investment. Make sure you plan and budget well ahead for maintenance and repairs over time. Not only will that help you secure the best rental income, but it will also help protect the capital value, which should appreciate well over time.

If you’d like any advice about HMO investing, get in touch with your local Leaders branch who will be happy to advise.

View Full Article: Do HMOs still stack up as an investment?

REFORM: ‘We need legislation that works with landlords, not against them’

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With one in five households now renting, the private rented sector is an essential part of the housing market.

As the government has reduced its housebuilding strategy for all local authorities from mandatory to advisory, with some councils scrapping targets all together, the housing market is shrinking in relative terms.

With fewer houses being built, and no Help to Buy scheme, more renters will be stuck renting for longer.

Meanwhile, the Renters (Reform) Bill – which creates a big change to the way landlords can regain possession of their properties – is being brought in at a time when some are already looking at selling their buy to let portfolios.  

Whilst there is widespread support for raising the standards of private rented properties, interestingly the Decent Home Standard is notable for its omission within the Bill.

Too far

The latest tranche of regulation and rules however are a step too far for some landlords.

Recently, the sector has become a target for the press on the basis that a minority of landlords cause problems for tenants in the lack of care for their properties and the people they house.

However, rented properties create independent living for millions – and contribute hugely to the British economy – so, we need a piece of legislation that works with landlords, rather than against them.

Related to these reforms, where is the pledged investment in our court system? The government have shied away from creating a Housing Court.

Never in my 27 years as a lawyer have I felt more embarrassed by the delays and unhelpful decisions produced by courts.

Eviction date

A client who requested a warrant for possession through me back in November 2022 is still waiting for an eviction date.

With the latest crises in London courts, and bailiffs requiring more personal protection equipment before carrying out evictions, he will be waiting even longer.

With significant rent arrears when the order was made, he is losing £1,500 per month until the tenant leaves, meanwhile his mortgage payments have risen in line with interest rate increases. Where is the justice in this? 

There is a very real danger that this Bill will be the last straw for landlords and there will be an exodus from the sector, with many more previously let properties being put up for sale.

This will add to the already shrinking housing stock available to rent, and consequently with rental properties in high demand, rents could continue to surge.

Over the years, landlords have faced increasing demand to improve their stock and make it safer for tenants.

Shrinking

That is no bad thing, but the higher cost of living affects everyone – including landlords. As interest rates continue to rise and impact mortgage repayments, the investment within the rented sector and the yield available – following the required improvements – is shrinking.

Further effective lobbying is clearly needed on the details and implications of this Bill if it is to benefit all parties, otherwise securing a rented property is going to become much harder.

Even once the changes to the reforms are finalised and in place, what the Bill really needs to address is the infrastructure for landlords seeking possession of their properties for genuine reasons.

Default in rental payments as debt rises, rising antisocial behaviour and a need to sell the property to realise the capital, are some of those reasons.

All the rules can be in place, and are currently, but without a court system that works to support such situations, landlords will continue to feel persecuted by a broken system and this will not improve the current housing crisis.

Author bio

Gina Peters is Head of the Landlord and Tenant department at Dutton Gregory, which has specialised in residential landlord and tenant law for 22 years.

View Full Article: REFORM: ‘We need legislation that works with landlords, not against them’