Three-year tenancies - will rent rises have to be agreed in advance?

Close examination of the consultation document on possible three year tenancies issued by the government suggest that it may want rent increases during a new 36-month standard term to have to be agreed and made clear up-front.

Rents under a possible three year contract are mentioned in paragraphs 72 to 74 of the document, and include a particularly specific clause:

“The proposed model therefore permits a rent increase but does not cap the amount of increase except that it must be a level that is agreed at the outset of the tenancy agreement with the tenant.” 

Overall, this section of the document, which discusses rents in the event of a three year standard term being agreed as the norm for private tenants, says:

“Rents can only increase once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property. 

“We recognise that landlords may need to increase the rent to respond to market conditions and do not want to unfairly penalise them financially. The proposed model therefore permits a rent increase but does not cap the amount of increase except that it must be a level that is agreed at the outset of the tenancy agreement with the tenant. An alternative option would be to cap the rent increase at the rate of inflation in the Consumer Price Index or other measure. 

“However, we want to mitigate the risk of default rent rises. A capped rent rise within longer term tenancy agreements may lead to some tenants experiencing rent rises they might not otherwise have had. We believe limiting the frequency of a rent rise and prescribing that any such rent rise must be agreed by the landlord and tenant is a preferable and fairer option. This mirrors the proposal in the existing model tenancy agreement and should overcome the barrier of landlords wanting to retain flexibility with regards to rent setting whilst giving tenants assurance that they will not be subject to surprise rent increases.” 

Earlier in the consultation document - which, to the surprise of some, appears to have a more conciliatory tone towards agents, buy to let investors and landlords than some recent Whitehall statements - there are other references to rents, including a clear statement ruling out rent caps:

“Rent regulation is often associated with longer tenancy agreements and cited as a potential barrier. Landlords need to be assured of a regular rental income and are keen to minimise void periods. 

“We agree that rent caps are not beneficial since they can impact supply. The historical evidence is clear that rent controls do not work. They resulted in the size of the private rented sector shrinking from 55 per cent of households in 1939 to just nine per cent in the late 1980s, before the reforms in the Housing Act 1988 were introduced. 

“This would not help landlords or tenants. However, we do want to ensure that any rent rises are fair and affordable. 

“A capped rent rise within longer term tenancy agreements may lead to some tenants experiencing rent rises they might not otherwise have had, which we would be keen to mitigate in any future longer tenancy model. 

“Data from a 2016 YouGov survey commissioned by Shelter found that 68 per cent of landlords surveyed kept the rent the same when agreeing a new fixed term tenancy with a sitting tenant compared to 45 per cent who signed with new tenants.”

The entire document runs to 39 pages and agents and others can respond by August 26; you can see the consultation here.