Tenancy renewal and rent increase. Should I renew?

I would be grateful for some advice. What would you do in this situation?

I’m currently charging considerably below market rate (around 80%). I was happy with this arrangement but due to some of the regulation changes coming in, I’ve now proposed a rent increase to 90% (at renewal). At 90% the property is still good value compared to similar properties in the area.

My current tenants (2 friends on a joint tenancy) have made it clear they can’t afford my rent proposal (90% market rate). We exchanged a few friendly emails on the subject, and they specifically told me what their maximum budget is.

Since then they’ve come back to me and agreed the rent increase I originally proposed. I suspect they’re struggling to find a new property! They’ve also proposed the following: A) a 12 month tenancy contract, B) a ‘tenant-only rolling break option, subject to 2 months notice’. They’ve also been honest and warned me that one of the two tenants is now looking to move out of the area!

Is it a good idea to renew the tenancy, knowing that the new rent level is unaffordable?
If I do renew, should I give them another fixed term, or make it periodic?
Is there anything I should be concerned about? One thing I want to avoid is the tenancy ended at Christmas, for example, when it will be impossible to find new tenants.

I guess they’re trying to give themselves time to a bit of time and flexibility to make new plans, which I totally understand. I’m trying to be flexible but at the same time I don’t want to agree to anything I’ll later regret! One option I have considered is a 6 month contract (so I’m not tied in for a full year), but also making the break-clause longer, so they can’t give notice and leave over the Christmas period.

Thoughts please!

Its better for both you and them to just let the tenancy go periodic, (rolling monthly). Assuming there is no rent review clause, you can then serve a s13 notice to increase the rent. Both you and they would then have the ability to serve notice straight away if things get difficult.

You dont need to do anything for this as it happens automatically. Just serve the latest version of How to Rent just in case.

Thanks for your help David

I agree with David122, let it go periodic. You don’t even need to issue a section 13 notice, if you have already agreed a change in rent (verbally or by email), just ask them to start paying it.

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