Rent review is a critical aspect of residential property management for landlords, particularly when seeking lawful and justified increases. In England, rent increases for assured shorthold tenancies often occur under the framework of Section 13 of the Housing Act 1988, which provides the statutory basis for fair and reasonable rent adjustments.

Section 13: The Framework for Fair Rent Increases

Section 13 enables landlords to propose a new rent payable from a specified date, subject to procedural safeguards designed to prevent arbitrary or excessive increases. The underlying legal requirement is that increases must be fair and in line with the market, protecting tenants from unreasonable demands while allowing landlords a reasonable return on their investment.

Understanding Market Rent and Its Importance

Market Rent refers to the rent a willing tenant would pay and a willing landlord would accept, absent any compulsion, for a property of similar condition, location, and tenure in the current market. Determining Market Rent involves an analysis of comparable lettings, current demand and supply dynamics, and the general economic environment.

For landlords, establishing an accurate Market Rent figure is fundamental to any rent review exercise. It provides the reference point against which proposed increases are measured to ensure compliance with Section 13.

The Concept of Current Yield

Current Yield is a financial indicator expressing the annual rental income as a percentage of the property’s value or purchase price. It reflects the return a landlord receives on their investment before expenses such as maintenance or void periods.

By comparing the Current Yield to prevailing market yields and yields of similar properties, landlords can evaluate whether the current rent aligns with expected investment returns, informing the justification for rent adjustments.

Justifying Rent Increases: Balancing Market Rent and Current Yield

The primary method of justifying rent increases under Section 13 is to demonstrate that the proposed rent corresponds closely to Market Rent. The Market Rent figure must be defensible through evidence such as comparable rental data and, where possible, professional valuation reports.

Current Yield analysis supplements this by contextualising the rent in terms of investment performance. If the Current Yield is significantly below similar properties or prevailing market averages, a rent increase may be warranted to align returns with market expectations.

Conversely, a higher Current Yield than market norms may suggest the rent already exceeds what is reasonable, cautioning against a substantial increase.

Challenges and Considerations for Landlords

It is essential for landlords to approach Section 13 increases with caution and transparency. Overestimating Market Rent or ignoring local market conditions can lead to disputes or referral to the First-tier Tribunal (Property Chamber), where impartial adjudication will assess fairness.

Landlords should undertake thorough market research and consider engaging qualified professionals to produce credible rent assessments. Clear communication with tenants about the basis for increases enhances legitimacy and can reduce conflict.