Purchasing with the intention to rent commercial property is a popular choice due to the returns. However, this is only guaranteed if the rental income outweighs any of the running costs and other expenses associated with the property. When factors cause costs to rise, increasing rents serves as a way for buy-to-let owners to maintain profitability. Discover how much and how frequently a landlord is permitted to increase the rent on their properties below.
Why might a landlord want to increase rent?
There can be many reasons for rent increases which tenants might not consider. Property purchases are an investment which provide a steady return through rental income and appreciation of value over time. As such, factors that are likely to influence rental rates typically represent a cost to the landlord. Examples include:
- Market Rate Adjustments: Rental prices are often set based on the average in the local area. Setting a higher rent allows the landlord to align the property with the current market and receive appropriate value. Landlords might also increase rents if the property is located in a high demand area.
- Inflation: The continued rise in the cost of goods and services due to inflation can affect property rent too, as landlords seek to the maintain the profitability of their asset.
- Rising Operating Costs: As properties get older, they are likely to develop faults through use and degradation. A landlord might increase rent as a means to cover the expenses of ongoing maintenance and repair works. Tax, insurance, and utilities are other operational factors that may cause landlords to increase the rent on their property. This can also include additional costs brought on by changing regulations and legal requirements. For instance, new accessibility or safety standards might require the landlord to raise rents.
- Property Upgrades: Improvements to a property or specific areas of a property can lead to rent increases to reflect the enhanced value of the property. For instance, an updated kitchen in a property or a dedicated parking space nearby.
- Increased Property Management Costs: Many landlords use third parties to help manage their property investments. If a property management company increases their fees, or there are increased administrative costs for the property, the landlord might pass this on to the tenant in the form of higher rent.
The law around rent increases
The law around rent increases and many other aspects of private rental properties can be found in the Landlord and Tenant Act 1985. The tenancy agreement should contain all the information surrounding rent payments, including how and when they can be reviewed by the landlord. Generally, landlords must give notice and ask for permission if they want to increase the rent outside of the tenancy agreement. The amount by which the rent is increased must be deemed fair and realistic with consideration of the average local rates.
If rent payments are made on a weekly or monthly basis, the landlord can typically only increase the rent rate once a year unless agreed by both parties. For fixed-term tenancies (set period), the rent can only be changed once the tenant has reached the end of the fixed term.
Process for increasing rent
Landlords are required to follow the procedure for rent increases outlined in the tenancy agreement. This might be done through the renewal of the tenancy agreement with an increased rate of rent. Equally, a written record agreeing to the rent increase can be signed by both landlord and tenant. Note that a yearly tenancy requires 6 months’ notice for a proposed rent increase.
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At Toomey Legal, our knowledge of property law goes back more than two decades. Whether you’re an established commercial landlord or someone looking to invest in residential property for rent, the Toomey team can help. Our conveyancing services are perfect for anyone seeking a property to rent Newcastle Upon Tyne investment. Contact us if you have any questions about the conveyancing process.