Rent increase issue

Tenant Discussion
1

Proposed rent increase issue

My sister has been renting a flat for the last three years through a well-known high street letting agent and I am named as her guarantor. Her tenancy is due for renewal in December ’24 and the estate agent wrote to us on 25th October ’24 to offer a further year’s tenancy with a rental increase from £650 to £690 per month. This equates to an increase of 6.2%.

The tenancy agreement is an assured shorthold tenancy which is defined as below in the document:-

The Tenancy shall be from and including the day of 19/12/2023 (“the Commencement Date”) to and including the 18/12/2024 and thereafter continuing as a contractual periodic tenancy from month to month and until terminated by either party serving a notice on the other in accordance with this Agreement (“the Expiration Date”), “the Term”.

The document includes the following rent review clause in a section headed ‘Mutual Obligations’ :-

It is mutually agreed as follows:

11.2 Rent Review

It is agreed that the Landlord may give not less than one month’s notice to the Tenant expiring on the next rent due date to increase the Rent every 12 months on the anniversary of the commencement of the Tenancy. The Rent shall be an upwards only increase by a percentage equal to the most recently published figure for the percentage change over twelve months in the Retail Prices Index (All Items) figure (Series ID: CZBH). Time will not be of the essence for the purposes of this clause.

This rent review clause has been changed from my sister’s previous tenancy agreements which did not reference the Retail Prices Index. I have checked the latest figure for the Retail Prices Index series CZBH, released on 16th October ’24, from the Office of National Statistics’ website. The value was 2.7% and my understanding is that this limits the amount by which the landlord can increase the rent. As 2.7% of £650 is £17.55, surely the maximum the rent can be increased to is £667.55 per month?

I wrote to the estate agent pointing out that the rent increase is limited by the rent review clause. I provided a screenshot of the Retail Price Index data and I was surprised to receive this response:-

I have referred this to our Director and the most recent information we have been given is the section in the tenancy agreement relates to if the tenancy goes to a periodic tenancy and is not renewed on a fixed term.

What the landlord is offering at this stage is to rent it to your sister again on a new fixed term at a new rate, which is more in line with what they would advertise it at, should it go onto the open market.

I know this may seem a little bit harsh and unfair but unfortunately rents have increased quite a lot in the area as a whole.

Can you let me know how you would like to proceed on this basis.

Kind regards

I don’t believe that the estate agent is correct in saying that the rent review clause is restricted to a periodic tenancy. My sister has never had a periodic tenancy; it has always been for a fixed year that is renewed at the end of the term. I am cautious as to how to proceed so as not to jeopardise my sister’s tenancy as she is very settled in her flat.

Any advice would be most welcome.

2

Your sister cannot be forced to sign a new AST and can continue her tenancy under the terms of the current one. It just becomes periodic (contractual) after the fixed term has ended. However, the notice period applicable will be in line with the rent payment frequency and the landlord could serve notice. Not necessarily something to be deterred by. Much information available on these forums and online about the Section 21 notice and time periods involved when dealing with tenants who refuse to leave.

Considering the terms of the current AST, the proposed rent increase could be at any reasonable rate in line with the local market as no reference index is mentioned. However, I believe the landlord would need to request the increase by serving your sister with Section 13 Form4 of the Housing Act 1988 which your sister can then challenge at the First Tier Tribunal. There are potential ups and downs to this.

Also, your status as guarantor ends as soon as the rent increases unless you sign a new guarantee by deed. Signing as a guarantor within a new AST for a sitting tenant is near impossible to enforce - has to be a deed. Maybe best to keep quiet about that with the agents.

How your sister chooses to proceed depends on many factors. Some financial, some reputational and some mental robustness. I’m sure many of the seasoned landlords or tenants on here will be able to give further insight/advice.

3

Doesnt it depend on if the guarantor agreement has a clause that says it will continue even on a rent increase?

4

Not heard that before @Nilesh. I’m concerned because it would mean the guarantors I have for my tenancies are no longer guarantors. Could you provide us with something to back that up for reference? Cheers.

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5

Link from Landlord Law Blog. ‘When do tenancy guarantees end’.

6

Had a read of this blog (extract below). To be fair, whilst I have increased rents on rental agreements where I have Guarantors, it does seem unfair that they would be allowed to be held liable for rent levels in excess of what they originally agreed to.

Until the tenancy changes significantly

This will normally be when the rent changes.

So if a guarantor agrees to guarantee a tenancy where the rent is £1,000 per month, the guarantee will end if the rent goes up to £1,500 per month. Because that is not the tenancy he agreed to guarantee.

You cannot alter the terms of an agreement without the consent of both parties. So a guarantor cannot be held to the terms of the tenancy where the rent is different. If the tenancy agreement specifically says that he will – that clause is will be unfair under the unfair contract terms rules.

The guarantor may also be able to object if a tenancy is changed significantly, for example, to allow the occupiers to change – say if one of the tenants moves out and someone else moves in. As they did not agree to guarantee a tenancy where that new person was in occupation.

7

Your sister may not sign the new contract, and instead allow the rental agreement to ‘roll into’ the periodic tenancy and request the agent to apply the rent increase as per the rent review clause. The potential downside to this is that a new 12m agreement would protect her tenancy for another 12months, whereas under the periodic tenancy, the Landlord might serve 2m notice to evict.

The rent review clause will likely only apply for this review only, as I understand the Renters Rights Bill (coming 2025) will invalidate all rent review clauses, so this clause which is presently protecting them, will become invalid in the gov’s attempt to protect tenants. How ironic.

8

I think that may depend on what the guarantor deed says and whether or not the periodic is contractual or statutory periodic

How old is the blog as it May predate her changing her contract from statutory to contractual periodic

If it’s a contractual periodic and the guarantor deed stipulates they cover the increase then one should be covered as the periodic is an extension of the original contract

The rent review clause in the original ast should also stipulate the increase and the frequency so they are aware of what increases may be

9

Here’s what my guarantors agree to in this regard (my emphasis):

In consideration of the Landlords agreeing at the request of the Guarantor to accept the Tenant as the Tenant of the Property the Guarantor hereby agrees to fully cover and compensate the Landlords for any loss, damage, costs or other expenses arising directly or indirectly out of any breach of this tenancy or any extension of continuation of the tenancy including any rental increase agreed between the Landlords and the Tenant.

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10

This is what the Open Rent AST states:-

15.3. This Guarantee is irrevocable and shall continue beyond the Guarantor’s death or bankruptcy (falling as a liability on the estate) throughout the period that the Premises are occupied by the Tenant and is not limited to the Term of this agreement.

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11

Thanks, Nilesh, for taking the time to reply to my query.

My sister’s current tenancy agreement does include a rent review clause that limits an increase to the latest Retail Prices Index (published last month at 2.7%). This appears to contradict the letting agent’s offer of renewing the tenancy for a further year’s term at a rent that is 6.2% higher than my sister is currently paying. The main purpose of my query was to ask if the letting agent can do this as I believe it is in breach of the tenancy agreement.

I merely mentioned that I was a guarantor for context and I am not particularly concerned to be a guarantor at a higher rate of rent.

If you have any further comments about the proposed rental increase, please let me know.

12

Thanks, Karl, for your contributions to my query.

Just to clarify, my sister’s current tenancy agreement (fixed term) includes a rent review clause that limits an increase to the latest Retail Prices Index (published last month at 2.7%). This appears to contradict the letting agent’s offer of renewing the tenancy for a further year’s term at a rent that is 6.2% higher than my sister is currently paying. The main purpose of my query was to ask if the letting agent can do this as I believe it is in breach of the tenancy agreement.

I merely mentioned that I was a guarantor for context and I am not particularly concerned to be a guarantor at a higher rate of rent.

If you have any further thoughts , please do let me know.

13

Judges dont like unlimited guarantee periods and the results of court challenges are likely to be highly variable.

14

I don’t read this as being in breach of the TA. They are offering a new TA with different terms and increased rent. Your sister has the option to stick with her existing TA if she chooses. What the LL will do in that case is unknown. Possibly increase rent as per TA, perhaps issue S21, perhaps both. I guess it comes down to how much your sister wants the security of another 12 month fix.

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15

I agree with this. My deed of guarantee stipulates the guarantors liabilities extending to the increase in rent and damages to the property in case the security deposit is insufficient. But I have never exercised this clause considering the damages, that the students have left me with.

So it really depends on the clauses included.

16

excellent, I am going to use that in mine now!

17

Janet
for what its worth I think the most important question is :
1 is it a reasonable rent for the area and is she happy living there. The increase may not be unreasonable
2 she can always ask if they could negotiate it down a little , if she pays on time and reasonable to deal with it’s worth a shot
3 agents sometimes can charge the LL more for new contracts, a rolling periodic is usually better for both parties
4 going the full legal can be at least an amber flag for the LL and goodwill is so important when the tenant wants something fixed so I would give careful thought to your next step

18

Questions have been raised in the past as to whether offering a tenancy could be regarded as a valid consideration in a contract with the guarantor. I am not aware of any case law either way which clarifies the position.

Unless you are using an automated system such as RentNow, it is advisable to ensure that a guarantor agreement is signed as a deed to avoid the situation.

19

Think the 3 options are

  1. let is run as periodic with smaller rent due but risk they could give 2 months notice or she could give 1 months notice if she saw something better.
    or
  2. Enter into new contract for 12 months at higher rent. All Parties tied into another contract on new terms for 12 months
    or
  3. Ask agent if any negotiation on rent rise if she is a good tenant and its more than the market rate for the area
20

Thanks, Tony, for your reply. We’ve now had advice from the Citizens Advice Bureau confirming that the rent review clause in the tenancy agreement would only apply if the tenancy became a periodic one. As the proposed rent increase is in line with local rents and my sister would like the security of another fixed term, she’s accepted the offer of another year’s tenancy at the higher rent.
Kind regards, Jan