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Agree rent rises up front in proposed three year tenancies

Monday 09 July 2018

Rent increases during proposed new 36-month standard tenancy agreements will have to be agreed and made clear up-front, the government has said.

Rents under a possible three year contract are mentioned in paragraphs 72 to 74 of a consultation document. 

In a foreword to the document, James Brokenshire MP, Secretary of State for Housing, Communities and Local Government says he 'seeking views on a new model – one that balances tenants’ need for protection, with landlords’ needs to regain their property when their circumstances change.

'He says this would be 'a model that gives tenants certainty over rents, and retains the flexibility that many desire.'

"I think this is a model that could work across the market, but I am keen to hear your views," he said. "Together we can achieve a market that delivers the protection and security that all tenants deserve."

One clause states: “The proposed model therefore permits a rent increase but does not cap the amount of increase except that it must be a level that is agreed at the outset of the tenancy agreement with the tenant.” 

It later says: “Rents can only increase once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property. 

“We recognise that landlords may need to increase the rent to respond to market conditions and do not want to unfairly penalise them financially. 

"The proposed model therefore permits a rent increase but does not cap the amount of increase except that it must be a level that is agreed at the outset of the tenancy agreement with the tenant. 

"An alternative option would be to cap the rent increase at the rate of inflation in the Consumer Price Index or other measure. 

“However, we want to mitigate the risk of default rent rises. A capped rent rise within longer term tenancy agreements may lead to some tenants experiencing rent rises they might not otherwise have had. 

"We believe limiting the frequency of a rent rise and prescribing that any such rent rise must be agreed by the landlord and tenant is a preferable and fairer option. 

"This mirrors the proposal in the existing model tenancy agreement and should overcome the barrier of landlords wanting to retain flexibility with regards to rent setting whilst giving tenants assurance that they will not be subject to surprise rent increases.” 

Earlier in the consultation document is a clear statement ruling out rent caps:

“Rent regulation is often associated with longer tenancy agreements and cited as a potential barrier. Landlords need to be assured of a regular rental income and are keen to minimise void periods. 

 “We agree that rent caps are not beneficial since they can impact supply. The historical evidence is clear that rent controls do not work. They resulted in the size of the private rented sector shrinking from 55 per cent of households in 1939 to just nine per cent in the late 1980s, before the reforms in the Housing Act 1988 were introduced. 

 “This would not help landlords or tenants. However, we do want to ensure that any rent rises are fair and affordable. 

“A capped rent rise within longer term tenancy agreements may lead to some tenants experiencing rent rises they might not otherwise have had, which we would be keen to mitigate in any future longer tenancy model. 

“Data from a 2016 YouGov survey commissioned by Shelter  found that 68 per cent of landlords surveyed kept the rent the same when agreeing a new fixed term tenancy with a sitting tenant compared to 45 per cent who signed with new tenants.”

Agents and landlords must respond to the consultation by August 26.

The document can be found here. 

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