Why Failing To Increase Rent Annually Is Bad for Business and Bad for Your Tenant

A fair article which I think would have been improved if the word 'increase' were replaced with 'review;'. It is not impossible that; inflation could turn negative, population could fall, pigs may fly - lol.
We also have a commercial lease which has upwards only 4 yrs reviews,. I've always' thought it a bit restrictive as the above could happen.

Reply to the comment left by Jim K at 02/09/2024 - 12:07
The advice that I used to get from my agent (not very long ago) was to hold rents down slightly to reduce the risk of void periods and encourage longer term tenancies.

The problem with this advice is these things:

(1) Rent controls like those imposed by the SNP in Scotland.
(2) The prospect of proposals like the labour party proposals to oblige landlords to be subject to a court test to determine whether you as the landlord should be your property back or whether the tenant gets to keep your property.
(3) The legislation that prevents you [if you are a small portfolio unincorporated landlord] from offsetting all your finance costs against rents.
(4) Proposals like this one:

https://www.brmlaw.co.uk/news/potential-proposal-to-charge-national-insurance-on-rental-income-for-landlords/

to make you pay National Insurance on rental income.

All of these things hit your profitability and can even cause you to make a loss. The only option that you have when faced with these challenges is to raise rents when you can.

So the problem with all of these proposals, some of which are presented as 'protection for tenants' is that they all leave you with no choice but to raise rents.

I'll keep raising the rent in moderation regardless. If the tenant leaves I'll sell up. Don't need/want the agro anymore. It's all equity which will be more than enough to last the rest of my lifetime.

A couple of thoughts on this one from me.

Increases due to your own expenses going up. Absolutely fine, no issues there, completely understandable. We know that you have expenses and so raises for this reason are absolutely fine.

The next point - Market conditions. I have always hated increases for this purpose. It basically sounds like you are trying to be a cartel by raising things to what you could. It is not a good look if your reason for raising rents is mostly "Because I can".
Giving that reason for increasing rent does not sit well with a tenant and does not improve relations.

Fairness to tenants - This is even worse. I would suggest that no landlord ever suggests to one of their tenant that they are increasing the rent to whatever level to be fair to them.
It may come as a bit of a shock, but we would probably prefer a few years at a set amount prior to a bigger jump. At least for those few years there is a chance for us to get savings together to get ourselves into a better position. If the rent is raised every year, then we stay in the same position without the potential to get ahead.
You may find that us tenants are fully aware of what a deal we are getting if you are charging us less than what you could be.

The fourth point in the article is mostly covered by the same reasoning as the first.

I know people are going to disagree, but I have to get our views out there.

Reply to the comment left by The Forever Tenant at 02/09/2024 - 16:12This is how things used to be: Back in the days when it made sense for an agent to advise a landlord to hold rent down slightly to encourage long-term tenancies. The trouble is that when the SNP start introducing measures like rent controls stopping you raising rents above a set percentage, or the labour party proposes moves that could result in you not getting any rent at all, then that presents a dramatic increase in the risk you face as a landlord. The only legal measure available to you as a landlord (other than insurance) to reduce your risk is to raise rents; you cannot take a bigger deposit, that has recently been reduced from 6 months to 5 months. Even if you take out additional insurance that is an additional cost that in the end you need to pass on.

Rent reviews annually no matter what and rent increase to follow kept just under market rate. Long gone are they days where I don't raise the rent now, even if it is a minimal sum. With all costs on the increase and the threat of ever more payouts for EPC upgrades etc, it's simply stupid not to gain what you can when you can. The threat of rent caps will always remain looming for as long as Starmer the Farmer is in charge (he who got turkeys to vote for Xmas)

A good tenant will stay as its cheaper than moving (unless downsizing or moving out of the area) and also they don't have to worry about getting a new 5 week deposit together and first month's rent in advance before they can sign up elsewhere. No physical moving costs and no time off work to spend moving etc. All this of course works on the basis they can actually find another rental in the first place they want to move to, and that the new LL is happy to wait a month until they can move in! (In the current market no tenant is going to give notice before they secure something else)

Tenants looking to buy at some point will want to be able to show consistent payment of rent and stability of tenure.

Reply to the comment left by The Forever Tenant at 02/09/2024 - 16:12the thing is a LL does not need to qualify a rent increase - only to a tribunal if the tenant appeals.
Does Tesco issue customers a warning every time the price of milk goes up?
A savvy tenant will know if the LL is being genuine and if it is under market rent, they ultimately benefit.

I have a clause in the contract for rent linked to RPI and every year recently send the tenant a letter with the current rpi and resulting revision to the rent. Never any problems, although the first one after many years of low inflation when I didn't bother was probably a shock to him .

I think people misunderstand what I am trying to say.

Rents go up, it's one of those expected things. All tenants expect it. Its nice if it doesn't happen but understandable that they will.

What I am trying to say is how you justify those increases does matter.

If you justify it because your own costs have gone up, because you have maintenance costs to cover, etc. that is perfectly fine and understandable.

If you are justifying a rent increase because of Market Rates or because it's in the tenants best interest, that comes over as callous.

I think what I am saying is, even if the reason for doing so is the latter... lie to us and say its purely for the former reasons. 🙂

Reply to the comment left by The Forever Tenant at 03/09/2024 - 09:40At the moment, Mr.Tenant, those of us landlords who have kept rents below the market rate for long-term trusted tenants are fearful of the Labour government introducing a measure limiting rises to a percentage of current rents, which would mean landlords have no chance to bring rents back to market rates at change of tenant, leaving us forever behind. For landlords at the mercy of variable rate mortgages that's a big risk.
Your advice to lie to tenants is not something I would do.