Georgian townhouses in the UK with colourful painted doors and a church spire in the background.Renters Reform Bill update —the future landscape of private renting

Rent increases under scrutiny—new limits and tribunal challenges

Stephen Small, partner in the Russell-Cooke property litigation team.
Stephen Small
5 min Read

Partner Stephen Small looks at how the Renters’ Rights Bill makes subtle but important changes to the rules on rent increases and what they could mean in practice.

The Renters' Rights Bill introduces some subtle, yet significant, changes to how rent can be increased for most residential tenancies. The aim is to protect tenants from sudden or excessive rent rises, while still allowing landlords to adjust rents, albeit in a more regulated manner. Whether those aims will be met is likely to be the subject of much debate.

A modified statutory procedure for rent increases

Under the proposed new law, rent will only increase following:

  • the landlord issuing a formal rent increase notice under a revised statutory process
  • the tribunal determining the appropriate increase following challenge by the tenant (if not challenge then the rent increases according to what the landlord proposed) or
  • the landlord and tenant agreeing the level of increase with each other (but this can only happen after the tribunal has made its decision)

Other than in the circumstances in the third point above, the landlord and tenant will not be able to agree the rent increase with each other. The use of automatic rent escalation clauses in tenancy agreements will no longer be permitted. These are significant changes. 

Any existing rent increase provisions in tenancies will no longer be enforceable. Rent can only rise once per year, and the landlord must give at least two months’ notice, increased from the minimum of one at present.

Tenant challenges to rent levels

Tenants will have enhanced rights to challenge proposed rent increases. Applications can be made to the First-tier Tribunal to determine whether the rent proposed by the landlord exceeds the market rent for the property in question.

Tribunals will no longer have the power to determine that the market rent is higher than the rent proposed by the landlord. This is an important shift, as it removes the main risk that a tenant under the previous system faced when challenging a rent increase. Under the new system, a tenant will be able to challenge the rent in the knowledge that it will be determined at a level that is either what the landlord proposed, or less. This may result in significantly more challenges than is currently the case.  

Implications for landlords

These reforms increase the administrative burden on landlords and agents, particularly for portfolios with many properties. Key implications include:

  • greater reliance on accurate rental valuations to justify proposed increases
  • risk of delay or reduction where tenants seek tribunal review
  • decreased certainty of income forecasting and
  • a requirement to serve valid and timely notices on all tenants

Potential problems

Even though the system has only been lightly adjusted, it is likely to have a major effect on the rental market. Whilst all tenants will in theory be protected from rent increases that exceed the market rent, there are some noteworthy potential downsides detailed below. 

  • Landlords and tenants cannot agree the level of rent between themselves. This is an interference with the ability of people to freely contract with each other. It also prevents parties from agreeing rents that are below market rent, unless the tribunal process is pursued first. 
  • Tenants will be beholden to the concept of ‘market rent’, which has connotations of fairness and of resulting in a rent that would be lower than the landlord might wish to charge. These misconceptions could result in tenants being surprised by the rents set by the tribunal. There is a severe shortage of housing, meaning demand outstrips supply of housing in many areas. In such areas, the market rent determined by the tribunal will be as much a reflection of supply and demand in the area, as it is the size and quality of the accommodation.
  • With nothing to be lost for tenants by challenging rent increase proposals, landlords might conclude that there is little point in them attempting to ascertain a market rent themselves.  A landlord might be best off simply proposing whatever ambitiously pitched rent they choose to, which could be well in excess of market rent – if the tenant fails to challenge it, the new rent will apply, meaning the least well-informed tenants (often those most in need of assistance), will suffer. If the tenant does challenge it, then the worst that happens as far as the landlord is concerned is the rent is set at whatever the tribunal determines to be the market rent at a date that is later than the landlord had originally hoped. The chance of a significantly higher rent may be worth that risk for some landlords. 
  • The date the new rent comes into force, where the rent is being determined by the tribunal, will be the date the tribunal makes its decision. Under the outgoing system, the relevant date is the date specified in the landlord’s notice. This subtle change, is a further encouragement to tenants to challenge all proposed increases, regardless of whether the proposal by the landlord is at or below market rent. If it takes, say, two-three months for the tribunal to make a decision, even if that decision reflects that the landlord’s proposal was fair, then the tenant will have secured themselves that additional time at the lower rent. This is clearly open to abuse and is another factor that means there will be reduced incentive for landlords to attempt to accurately assess the market rent, especially in a fast-moving rising market.
  • A surge in tribunal applications may result in that resource being stretched and delays may begin to occur. Delays may work in a tenant’s favour, but a slower, more burdened tribunal system will be a backwards step overall, having a detrimental impact on all of those who use it.
  • The notices that landlords will need to serve are, in their current incarnation, technically difficult documents to get right. It is likely that many landlords will get them wrong, inadvertently delaying rent increases by months. It is hoped that the section 13 notice prescribed form is significantly simplified to mitigate this risk.

Whilst on the surface the changes being made look subtle and a sensible means of rebalancing the power dynamic between landlords and tenants, it would appear there is some significant risk of unintended consequences, which if they come to pass, will be to the detriment of landlords, tenants and to the tribunal system in general. 

About Stephen

Partner Stephen Small is in the property litigation team, acting for both landlords and tenants, advising on all aspects of commercial, residential and mixed use property related disputes.

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