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Landlords Raising Rents on Rental Property – Advice on the Tenancy Agreements

By Chris Horne

Letting agents are seeing booming demand for rental property as first time buyers and foreign workers defer buying homes amid continued uncertainty over UK house prices.

Letting agents around London and the south east in particular are seeing up to 25% more activity in their letting business compared with a year ago. Much of this rental demand is coming from young professionals and City workers who are not prepared to gamble and buy property in a weak housing market.

The result of this boom in property lettings activity are fast rising rents in certain areas as strong competition amongst potential tenants bids up prices. Reports show that landlords in these ‘rental hotspots’ are managing to secure significant rent increases.

Lucinda Richardson, lettings Manager at the Westbourne Grove branch of Winkworth said tenants renewing their agreement were typically paying 5-10% more per year, while new occupants are paying 20% more than they would have done a year ago.

Things for landlords to avoid

Therefore if a landlord is lucky enough to own residential investment property in areas of strong rental demand, what should they be doing? Firstly landlords should always be wary of offering a tenant a longer term contract than the standard 6 month fixed term tenancy in areas where rental demand is strong and rents are rising. Glynn Judd, head of lettings at the Surrey Quays branch of Kinleigh Folkard & Hayward reports that he is aware of tenants pushing for 18 month even 2 year fixed term tenancy. This is because once agreed most tenancy agreements do not allow a landlord to increase the rent during this fixed term.

Therefore the initial rent that the landlord agrees may look very appealing at the outset, but will it still look so good in 24 months time? During this time employing a standard 6 month fixed term tenancy a landlord could have legally raised the rent three times. The other alternative to a landlord is to opt for a periodic tenancy.

How can landlords raise their rents

Fixed term tenancy

How a landlord goes about raising the rent will largely depend on the type of tenancy in place. Most landlords use a fixed term tenancy agreement such as the one available on Property Hawk. In most cases a landlord will opt for a 6 month tenancy although it can be longer. This means that without the tenancy agreement you as the landlord cannot put up the rent during this period, unless the tenancy agreement makes specific provisions allowing this. These specific provisions may be by way of an escalator clause for instance stating that the rent will go up by inflation after six months.

The vast majority of landlords avoid such clauses. This is because they are seen as overly prescriptive and inflexible. Most landlords opt to review the rent when they decide whether to re-let at the end of the fixed term tenancy. This way a landlord can judge the prevailing market conditions and work out what the rental market will bare at that particular time. For instance in places such as central London and parts of the south east, rental inflation is running well ahead of general inflation, therefore for a landlord just to track inflation would mean their rents are falling behind the market.

If a landlord decides to opt to re-let to the existing tenant then raising the rent is relatively easy as all they do is create a new assured short hold tenancy with the new rent included.

Periodic tenancies

The other type of tenancy that a landlord might employ is a periodic tenancy. These are tenancies where there is no specific end date. The two types of periodic tenancy are the contractual periodic tenancy in which from the outset there is no end date, or the much more common statutory periodic tenancy. The statutory periodic tenancy comes about when a fixed term tenancy lapses.

In the case of periodic tenancies, increasing the rent is slightly more complicated because the landlord will need to go through the formal procedure as set out in section 13 of the Housing Act 1988. If the landlord wants to increase the rent and intends to keep the tenancy on a statutory periodic tenancy, they can use the special form titled Landlord’s notice proposing a new rent under an Assured Periodic Tenancy or Agricultural Occupancy sometimes known as a section 13 notice. This form allows a landlord to propose a rent increase as soon as the statutory tenancy begins. For a contractual period tenancy a landlord can use the same form to propose an increase which will take effect one year after a tenancy begins. In both cases a months notice of the increase is required for rents paid on a weekly or monthly basis (more if the rent period is longer). With both periodic tenancies a landlord can propose further rent increases at yearly intervals, after the first increase.

Potential snags for a landlord raising rents

There are a number of potential snags for landlords when raising the rent. Not least amongst these can be scaring off perfectly good tenants by making the rent unaffordable. A landlord has to be therefore confident that they their existing tenant will be able to afford the new rent or that they will be able to quickly fill any vacancy and avoid a protracted void period.

Firstly, the snag with section 13 rent increases is generally a landlord can only raise rents once a year. In a fast moving market such as the one being experienced in parts of London and the South-East currently, annual rental increases will not keep pace with market rents meaning that a landlord towards the end of the 12 month rental period will have a rent below the open market value and therefore be missing out on potential rental income.

The other aspect about a landlord with a periodic tenancy who needs to use a section 13 notice is that it entitles a tenant who is not happy with the rental increase to apply to a Rent Assessment Committee for a determination of what rent a landlord could reasonably expect to pay if he or she was letting it on the open market under a new tenancy on the same terms. The committee has the power to agree the rent or set a rent higher or lower. The rent then fixed by the committee is the legal maximum the landlord can charge. The new rent will be payable from the date specified in the landlord’s notice unless the committee considers this would cause a tenant undue hardship in which case it may specify a later date. The landlord can propose that the rent is increased a year after the date on which the rent decided by the committee was payable.

Power of the Rent Assessment Committee

All this may sound quite daunting to a landlord. The reality is it shouldn’t be. Whilst on the face of it the Rent Assessment Committee seems to have a considerable amount of power, in reality they don’t. For a start they can only set a new rent if it is demonstrably unreasonable. The other factors that limits the scope of the Rent Assessment Committee and the tenant in ultimately setting rental levels is that the landlord retains the right to issue a section 21 notice.

This means that providing the fixed term period has come to an end by the time the notice has expired a landlords ultimate response to a rent that is unsatisfactory is to regain possession of their rental property and simply re-let it to another tenant at the rent that they and the market will bare.

What should landlords do?

The simple answer is that landlords should normally opt for a fixed term tenancy such as the free tenancy agreement available within Property Hawk’s Property Manager. A landlord should avoid the tenancy lapsing and becoming a periodic tenancy. They can do this by going through the motions of issuing a section 21 notice for possession even at the start of the tenancy to ensure that a landlord can bring the tenancy to an end. In this way a landlord is in the perfect position at the end of the fixed term to either re-let to the existing tenant at a higher rent, or if the tenant objects, to regain possession and then let their buy-to-let investment property to another tenant at the higher rent.

A word of caution to landlords in less high demand areas. Tenants can be sometimes unsettled by receiving a section 21 notice and therefore a landlord needs to approach the situation sensitivity and explain that the notice is a just a formal procedure and that they have no intention of seeing it through. The reality is for any landlord is that having a tenant paying rent, even if it is not the absolute top rate, is far preferable than having no rent at all!

Chris Horne is an experienced landlord and property professional who now runs the website Property Hawk, a site aimed directly at UK Landlords. The site incorporates free property management software that enables landlords to track all their financial data relating to their portfolio. It allows users to print tenancy agreements and other forms FREE FOREVER. The site generates a real time rent book for each property as well as calculating a landlords tax liability. The service is totally free to use at http://www.propertyhawk.co.uk

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Should Landlords Look To Sell Their Property Investment?

By Chris Horne

House prices in Britain have risen at an average annual rate at least 10 times higher than in other developed nations, such as Japan and Switzerland, and twice as fast as in the United States. The research by Policy Exchange, a Right-wing think-tank, shows that since 1970, prices have gone up by more than four per cent a year over inflation.

Property prices in Britain have risen for 13 successive years, and in the past decade the increase has been particularly steep. The price of an average home has risen from £70,000 when Labour came to power in 1997, to nearly £200,000 today. In the same period, the retail price index rose by only 30 per cent.

Should landlords sell & lock in gains

This all suggests on the face of it that a landlord should sell now and thereby lock in the capital gains they have made over the last few years on their residential buy-to-let investments.

However, a simple analysis of figures that show by how much the value of an asset has gone up doesn’t always give a clear indication that an asset is over valued. Any investor who has watched the rise in the price of gold in the last few years can verify that. Equally landlords who have watched the value of their property investments double in the early part of the Millennium only to watch them continue to spiral upwards in value all the way to the end of 2007 would have lost out on huge amounts of capital growth if they had taken such a view & sold.

An evaluation of the correct value of housing and residential property investment is far more complex than ‘prices have gone up a lot & therefore its time to sell’.

We as landlords really need to understand the factors that drive the value of residential investments and the housing market.

One key factor is affordability.

Affordability

The fact remains that buy-to-let investing takes place in a housing market which is still dominated by homeowners. Therefore a key factor in setting a price for a property is its’ affordability, particularly by the vast majority of purchasers who are buying a property for owner occupation.

Traditionally, the key metric has been the multiple of average income to property value. Historically this has been about 3.5 times average household income; it now stands at over 6. Some economists argue that this measure is no longer relevant because of a paradigm shift downwards in long run interest rates, making higher multiples more sustainable.

In the 80s interest rates were for most part in or near double figures; in the 90s they probably averaged 6-7%. This is still high by current levels; particularly when the fact that mortgage margins have reduced i.e. the differential a borrower pays above the prevailing base rate. In the 90s it ranged between 1-2%; before the recent credit crunch this had shrunk to in some cases to zero reducing the real costs of a mortgage even further. Even today after the ‘credit crunch’ it is possible to get a lifetime tracker at 6.39% or 0.89% above the Bank of England base rate.

House price “Bulls”

What the housing ‘bulls’ (those individuals that still believe we are in a rising market) argue is that what is more relevant in judging housing affordability is the proportion of household income paid out each month on servicing housing debt. After all they argue, people don’t think of multiples or margins when judging whether they can afford a property.

Their first thoughts are how much it will cost per month and how much income they have got after tax and other vital household expenses. For an indication of this we can go to the statistics provided by the Council of Mortgage Lenders (CML). These stats make interesting reading. The good news for the ‘bulls’ is that the latest figures for interest payments as a percentage of median household income was 18.8% in November 07 which is well below the 27.1% reached in the first part of 1990 at the time of the house price crash of the early 90s.

However it should be remembered that this high rate was prompted by interest rates which reached 15%. What is important is that this rising figure is the highest since 1992 when the housing market was still languishing in the depths of the last housing depression. Whilst these figures are not conclusive on their own; it shows that by any measure the costs of servicing a housing debt are becoming an increasing constraint on future house price rises.

Yields

One measure which has always been popular with property investors is the gross yield.

For landlords with a good memory, they may be able to recall when gross yields on some investment properties were in double figures. It was also up until relatively recently that many landlords could secure a reasonable level of income from their residential investment properties. However, for many residential landlords those days have gone. Small rental increases have not been sufficient to keep pace with rising capital values and rising interest rates.

The result is that the last Association of Residential Letting Agents (ARLA) review showed that gross yields had fallen to less than 5% as a UK average. This falls to 4.6% when taking into account rental voids. If management charges are also taken off, then the net yield is likely to fall below 4%. All this means that many landlords now face a cash outflow, which will remain with them for a number of years whilst rents increase and / or interest rates fall.

Housing ‘fully valued’ so shouldn’t I sell?

In conclusion then it looks on the face of it that UK housing is fully valued. Therefore, shouldn’t a landlord sell up and lock in their profits now? The decision on whether to sell a buy-to-let investment property isn’t quite as straight forward as it might first seem for a landlord. For instance, here are 5 things to consider before a landlord puts their buy-to-let property up for sale:

1 There is the small case of capital gains tax (CGT)

The Chancellor is proposing a new tax regime with a 18% band for all. However, that is still near enough a fifth of any gains a landlord has made. If a landlord has held their property for 10 years or so this is going to be a fairly high percentage of the overall value of their asset, meaning that they will have considerably less assets to reinvest in any alternatives following a sale.

2. Selling a residential investment property is not cheap.

Where an estate agent is involved and including legal fees and the new Home Information Pack (HIP) a landlord is probably looking at a minimum of 1.5% of the value of their property and that could easily increase to 2.5 or 3% in certain cases such as investment properties in London.

3.On top of this a landlord who tries to sell their residential investment property is probably best selling their buy-to-let property with vacant possession i.e. without tenants.

By doing this a landlord’s residential investment property should also appeal to the almost 90% of the residential market that are owner occupiers. This means that their investment property is empty and no rent is received during the sale period. A situation that can be particularly painful for a landlord where they still have a mortgage in place because not only are they missing out on rental income but they are also having to pay out ‘dead money’ whilst the property is being marketed. Even worst, every property speculator come opportunist knows this and assumes that you the landlord is in trouble and has to sell up. Therefore and in particularly at the moment be prepared for silly offers unless you are the lucky owner of a ‘trophy asset’ property.

4. Many landlords also buy a residential property for security.

In a world of increasing family & relationship break ups, having an additional property should the worse happen is seen by many landlords as an insurance policy against themselves or a member of their family being homeless. In addition many landlords have invested considerable time and effort buying, refurbishing and setting up their buy-to-let investment so the outright sale of their buy-to-let investment property is a large step for many landlords to take.

5.The other dilemma for landlords is what to do with any investment funds released following the sale of their residential investment property.

Many landlords have been ‘stung’ by previous investments in other asset classes such as shares. Whist the short-term gains are potentially higher, these investments are far more volatile than investments in a physical asset such as a residential investment property. At the moment cash savings are attracting a good rate of interest in the order of 6%, however most experts predict interest rates to fall throughout 2008 which means that the base rate could be as low as 4.5% by the end of the year reducing significantly the returns on cash investments.

Long -term landlords

The reality for landlords is that it’s not easy to respond quickly to trends in the housing market. For instance to sell up now and then wait 12 months to buy on a low. For a start, on a cost basis, the transaction costs of buying and selling will probably amount to 5% of setting up an investment by the time estate agents fees, legal costs and stamp duty have been factored in. Then there are the practical issues and time of identifying a suitable residential investment property, agreeing the deal and then putting it into a lettable state, not to mention finding suitable tenants. This probably goes a long way to explaining why a recent survey by the Alliance & Leicester revealed that the average period that a landlord planned to hold their investment for was 18 years. This means that most landlords choose to take a long-term approach and thereby ‘ride out’ any short term weakness in the housing market.

Financial sustainability & opportunities

A key objective for landlords now should be to ensure that their residential investment portfolio is financially sustainable. Landlords should focus on their cash-flows and take a conservative view over future property price projections.

The very nature of a property market in a slump, which appears to be the likely outcome for the UK housing market in 2008 is that it will throw up potential residential investment opportunities. Distressed sellers, repossessed buy-to-let investment properties sold at auction all make potentially excellent investments if a landlord has done their research properly, does not over borrow & invests in a ‘cash cow’ using a traditional repayment mortgage. This way a landlord will be sheltered from any down turn in residential values, as the tenant will be paying for any costs associated with these investments. A repayment mortgage will deliver a constantly reducing loan amount that should protect a landlord’s equity even in times of small falls in residential property values.

Therefore, my thoughts are that landlords thinking of selling should think through their decision carefully and make sure they are comfortable that it is the right long-term decision for them. Equally, for some landlords they might want to see the current turmoil in the credit markets and slump in house prices as a long-term buying opportunity. One thing that we are sure about is that landlords can no longer bank on rapid gains in housing values that they may have become accustomed to over the last decade. Whether a landlord decides to buy or sell; they should make sure that their investment strategy adjusts to this ‘new reality’.

Chris Horne is an experienced landlord and property professional who now runs the website Property Hawk, a site aimed directly at UK Landlords. The site incorporates free property management software that enables landlords to track all their financial data relating to their portfolio. It allows users to print tenancy agreements and other forms FREE FOREVER. The site generates a real time rent book for each property as well as calculating a landlords tax liabilty. The service is totally free to use at propertyhawk.co.uk

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Letting Tips for Landlords Renting Property to Students

By Chris Horne

Here are further tips and advice for landlords letting rental property for students. A potentially high maintenance sector of the property rental market can be made easier for landlords by following these helpful tips.

An Inventory or Schedule of condition is vitally important when landlords let a property to students. Landlords should try and find a free example of an inventory on the Internet and compile a detailed ‘Inventory, Schedule of Condition and Safety Check List’. It is worth landlords spending time on compiling an inventory that records every detail of a rental property, its contents, decoration and condition so that any damage or loss occurred during a tenancy can be claimed back.

The safety section should include: number of smoke/heat alarms, carbon monoxide alarm, make a note ‘all tested and in working order’; Landlord’s Gas Safety Certificate, PAT (Portable Appliance Test certificate of the Landlord’s electrical goods) and the 5 year, electrical certificates all supplied; burglar alarm, include note ‘demonstrated and in working order’ and fire safety equipment has been checked.

Landlords should attach photos, dated and signed by both tenant and landlord on the reverse. They should include photos of all rooms, showing positions of furniture plus key potential problem areas such as inside the cooker, behind kitchen appliances, cleanliness of lounge carpet and the condition of the garden and lawn, if they are maintaining this area.

Landlords should write ‘cleaned to a good standard’ against rooms in the inventory and provide a definition, so there can be little doubt as to what this means, such as: ”No dust or debris behind, underneath and on top of furniture, fixtures and appliances; cookers are clean and virtually free from burnt on grease, particularly on oven racks and trays; fridges, freezers and microwaves are clean and empty; Venetian blind slats, curtains and covers are clean; hard floors are mopped and any mirrors are clean; bins are washed; walls are free from washable marks and blu-tak type stains.’ and so on. A detailed inventory will support claims for damage and cleaning at the end of the tenancy.

Checkout leaflet

Landlords should devise a simple checkout leaflet, outlining the procedures and expectations at the end of the tenancy. Give it to the students at the start of the tenancy. When issuing a Section 21 notice, probably towards the end of the tenancy, remind them about the checkout leaflet.

Duty of care

A landlord’s ‘duty of care’ should include a thorough safety check of their buy-to-let property. A landlord should also provide a ‘Household Folder’, packed with helpful information. Contents could include: Moving and Living in the Premises, Student and Landlord Responsibilities, General Health and Safety, Location of Services in the House and Electrical Safety, Disposal of Refuse, Condensation, Pest Control, Use of Candles, Noise, Nuisance and Neighbour Disputes, Who is Responsible for what Repairs, Cleaning, Visits by the Landlord, Crime Prevention, Fire Safety, First Aid and Useful/Emergency Telephone Numbers. The landlord’s ‘Household Folder’ could also contain the legal certificates, instructions on the use of appliances and the buy-to-let investment’s property’s checkout leaflet.

Avoid the Tenancy Deposit Scheme (TDS)

Landlords should stop taking a security deposit and avoid the Tenancy Deposit Scheme altogether. Instead when the contract is signed, landlords should charge each student tenant a perfectly legal, £50 non-returnable administration fee. Landlords shouldn’t bother paying for a credit reference check. Students usually have very little credit history. Instead, landlords should create a separate guarantor agreement, which is usually a parent, for each tenant and include ‘joint and several’ responsibility. Landlords should remind guarantors that if they default ‘you may record this with a Credit Referencing Agency and IDS Ltd, who may supply the information to other credit companies or insurers in the quest for the responsible granting of tenancies, insurance and credit.’ Landlords should give guarantors the checkout leaflet, so they understand the standards expected at the end of the tenancy. Landlords should make sure the agreement is a deed by including the statement ‘This document is a DEED and has been executed as a DEED. This Deed of Guarantee is governed by English Law and is subject to the exclusive jurisdiction of the courts of England and Wales.’ Increasingly foreign students rent buy-to-let property and in an extreme case landlords don’t want to end up in a foreign court. If landlords are storing guarantor details, register under the ‘Data Protection Act’.

If you as a landlord no longer take a security deposit; you must not harass students for money for damage and lack of cleaning, instead send a duplicate copy of your request for compensation to the student’s guarantor and they will do the legal harassment for you. Landlords should keep copies of all correspondence.

Insurance cover for a landlord’s emergency plumbing

Landlords should purchase 24-hour emergency plumbing cover. One example of this is British Gas Homecare Agreement for central heating, plumbing, drains and electrics. The British Gas plumbing and drains insurance will cover the replacement of a washer in a leaking tap.

As far as the tenant’s responsibility for replacing tap washers, I would suggest a landlord includes a general clause in the tenancy agreement such as:

‘Replace all defective electric light bulbs, fluorescent tubes, starters, fuses, tap and flexible pipe connections to a washing machine washers and vacuum filters and belts ensuring all reasonable safety precautions are observed.’

Landlords should ensure that all their properties have accessible inline valves in the pipe work, so that leaking taps are easily isolated in order for the repair to be carried out by the tenant, if necessary.

Tenantable Repairs

Landlords should also include the following under the definition of Tenantable Repairs in their modified tenancy contract which aims to shift the responsibility for minor repairs onto the tenant & make this clear from the outset:

“Tenantable Repair” means you are responsible for carrying out safely, day to day small repairs that any home-occupier would normally do e.g. re-hanging a

cupboard/wardrobe door, replacing light bulbs and batteries, tightening screws on furniture and fixtures, refitting a door handle, bleeding radiators

of air, replacing a tap washer, removing mould, refitting a toilet seat or toilet roll holder, tightening or replacing a washer in a flexible water pipe on a washing machine. This list is indicative and not prescriptive of the types of reasonable every day repairs that need to be done to keep the Premises in the same condition as at the start of the Tenancy. This excludes items, which the Landlord has responsibility in law.

How does it work? The tenant either makes the repair. This is easy with inline valves in place or in one particular case they paid for someone to do it for them.

I suggest that it offers a landlord a way of reducing their repair costs. We would suggest that the wording in the clause is slightly amended to include the following sentence as well.

“BUT nothing in this clause imposes on the Tenant any duty placed on the Landlord by:

a. s.11 of the Landlord and Tenant Act 1985; or

b. this Agreement.”

Landlords in interpreting tenant repairs & responsibilities may find it useful to refer to Lord Denning judgment in the case Warren v Keen (1954)

Warren v Keen (1954)

(Court of Appeal, 1953)

In this judgement, Denning LJ stated:

“What does ‘to use the premises in a tenant-like manner’ mean ? ..The tenant must take proper care of the place. He must, if he is going away for the winter, turn off the water and empty the boiler. He must clean the chimneys when necessary, and also the windows. He must mend the electric light when it fuses. He must unstop the sink when, it is blocked by his waste. In short, he must do those little jobs about the place, which a reasonable tenant would do. In addition, he must, of course, not damage the house wilfully or negligently; and he must see that his family and guests do not damage it; and if they do, he must repair

Chris Horne is an experienced landlord and property professional who now runs the website Property Hawk, a site aimed directly at UK Landlords. The site incorporates free property management software that enables landlords to track all their financial data relating to their portfolio. It allows users to print tenancy agreements and other forms FREE FOREVER. The site generates a real time rent book for each property as well as calculating a landlords tax liability. The service is totally free to use at http://www.propertyhawk.co.uk

Article Source: http://EzineArticles.com/?expert=Chris_Horne
http://EzineArticles.com/?Letting-Tips-for-Landlords-Renting-Property-to-Students&id=948253

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Landlords Raising Rents on Rental Property – Advice on the Tenancy Agreements

By Chris Horne

Letting agents are seeing booming demand for rental property as first time buyers and foreign workers defer buying homes amid continued uncertainty over UK house prices.

Letting agents around London and the south east in particular are seeing up to 25% more activity in their letting business compared with a year ago. Much of this rental demand is coming from young professionals and City workers who are not prepared to gamble and buy property in a weak housing market.

The result of this boom in property lettings activity are fast rising rents in certain areas as strong competition amongst potential tenants bids up prices. Reports show that landlords in these ‘rental hotspots’ are managing to secure significant rent increases.

Lucinda Richardson, lettings Manager at the Westbourne Grove branch of Winkworth said tenants renewing their agreement were typically paying 5-10% more per year, while new occupants are paying 20% more than they would have done a year ago.

Things for landlords to avoid

Therefore if a landlord is lucky enough to own residential investment property in areas of strong rental demand, what should they be doing? Firstly landlords should always be wary of offering a tenant a longer term contract than the standard 6 month fixed term tenancy in areas where rental demand is strong and rents are rising. Glynn Judd, head of lettings at the Surrey Quays branch of Kinleigh Folkard & Hayward reports that he is aware of tenants pushing for 18 month even 2 year fixed term tenancy. This is because once agreed most tenancy agreements do not allow a landlord to increase the rent during this fixed term.

Therefore the initial rent that the landlord agrees may look very appealing at the outset, but will it still look so good in 24 months time? During this time employing a standard 6 month fixed term tenancy a landlord could have legally raised the rent three times. The other alternative to a landlord is to opt for a periodic tenancy.

How can landlords raise their rents

Fixed term tenancy

How a landlord goes about raising the rent will largely depend on the type of tenancy in place. Most landlords use a fixed term tenancy agreement such as the one available on Property Hawk. In most cases a landlord will opt for a 6 month tenancy although it can be longer. This means that without the tenancy agreement you as the landlord cannot put up the rent during this period, unless the tenancy agreement makes specific provisions allowing this. These specific provisions may be by way of an escalator clause for instance stating that the rent will go up by inflation after six months.

The vast majority of landlords avoid such clauses. This is because they are seen as overly prescriptive and inflexible. Most landlords opt to review the rent when they decide whether to re-let at the end of the fixed term tenancy. This way a landlord can judge the prevailing market conditions and work out what the rental market will bare at that particular time. For instance in places such as central London and parts of the south east, rental inflation is running well ahead of general inflation, therefore for a landlord just to track inflation would mean their rents are falling behind the market.

If a landlord decides to opt to re-let to the existing tenant then raising the rent is relatively easy as all they do is create a new assured short hold tenancy with the new rent included.

Periodic tenancies

The other type of tenancy that a landlord might employ is a periodic tenancy. These are tenancies where there is no specific end date. The two types of periodic tenancy are the contractual periodic tenancy in which from the outset there is no end date, or the much more common statutory periodic tenancy. The statutory periodic tenancy comes about when a fixed term tenancy lapses.

In the case of periodic tenancies, increasing the rent is slightly more complicated because the landlord will need to go through the formal procedure as set out in section 13 of the Housing Act 1988. If the landlord wants to increase the rent and intends to keep the tenancy on a statutory periodic tenancy, they can use the special form titled Landlord’s notice proposing a new rent under an Assured Periodic Tenancy or Agricultural Occupancy sometimes known as a section 13 notice. This form allows a landlord to propose a rent increase as soon as the statutory tenancy begins. For a contractual period tenancy a landlord can use the same form to propose an increase which will take effect one year after a tenancy begins. In both cases a months notice of the increase is required for rents paid on a weekly or monthly basis (more if the rent period is longer). With both periodic tenancies a landlord can propose further rent increases at yearly intervals, after the first increase.

Potential snags for a landlord raising rents

There are a number of potential snags for landlords when raising the rent. Not least amongst these can be scaring off perfectly good tenants by making the rent unaffordable. A landlord has to be therefore confident that they their existing tenant will be able to afford the new rent or that they will be able to quickly fill any vacancy and avoid a protracted void period.

Firstly, the snag with section 13 rent increases is generally a landlord can only raise rents once a year. In a fast moving market such as the one being experienced in parts of London and the South-East currently, annual rental increases will not keep pace with market rents meaning that a landlord towards the end of the 12 month rental period will have a rent below the open market value and therefore be missing out on potential rental income.

The other aspect about a landlord with a periodic tenancy who needs to use a section 13 notice is that it entitles a tenant who is not happy with the rental increase to apply to a Rent Assessment Committee for a determination of what rent a landlord could reasonably expect to pay if he or she was letting it on the open market under a new tenancy on the same terms. The committee has the power to agree the rent or set a rent higher or lower. The rent then fixed by the committee is the legal maximum the landlord can charge. The new rent will be payable from the date specified in the landlord’s notice unless the committee considers this would cause a tenant undue hardship in which case it may specify a later date. The landlord can propose that the rent is increased a year after the date on which the rent decided by the committee was payable.

Power of the Rent Assessment Committee

All this may sound quite daunting to a landlord. The reality is it shouldn’t be. Whilst on the face of it the Rent Assessment Committee seems to have a considerable amount of power, in reality they don’t. For a start they can only set a new rent if it is demonstrably unreasonable. The other factors that limits the scope of the Rent Assessment Committee and the tenant in ultimately setting rental levels is that the landlord retains the right to issue a section 21 notice.

This means that providing the fixed term period has come to an end by the time the notice has expired a landlords ultimate response to a rent that is unsatisfactory is to regain possession of their rental property and simply re-let it to another tenant at the rent that they and the market will bare.

What should landlords do?

The simple answer is that landlords should normally opt for a fixed term tenancy such as the free tenancy agreement available within Property Hawk’s Property Manager. A landlord should avoid the tenancy lapsing and becoming a periodic tenancy. They can do this by going through the motions of issuing a section 21 notice for possession even at the start of the tenancy to ensure that a landlord can bring the tenancy to an end. In this way a landlord is in the perfect position at the end of the fixed term to either re-let to the existing tenant at a higher rent, or if the tenant objects, to regain possession and then let their buy-to-let investment property to another tenant at the higher rent.

A word of caution to landlords in less high demand areas. Tenants can be sometimes unsettled by receiving a section 21 notice and therefore a landlord needs to approach the situation sensitivity and explain that the notice is a just a formal procedure and that they have no intention of seeing it through. The reality is for any landlord is that having a tenant paying rent, even if it is not the absolute top rate, is far preferable than having no rent at all!

Chris Horne is an experienced landlord and property professional who now runs the website Property Hawk, a site aimed directly at UK Landlords. The site incorporates free property management software that enables landlords to track all their financial data relating to their portfolio. It allows users to print tenancy agreements and other forms FREE FOREVER. The site generates a real time rent book for each property as well as calculating a landlords tax liability. The service is totally free to use at http://www.propertyhawk.co.uk

Article Source: http://EzineArticles.com/?expert=Chris_Horne
http://EzineArticles.com/?Landlords-Raising-Rents-on-Rental-Property—Advice-on-the-Tenancy-Agreements&id=1041166

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