Trend in tracker tenancies on the rise as agents forced to increase rents at every BoE base rate change

 I saw a very intriguing article in i-news the other day and it got me thinking.

The article claims to have identified a new practice amongst London letting agents, driven directly by their landlords, which sees a property advertised at a specific monthly rent but with a tenancy clause that states if the Bank of England increase the base rate, the rent will increase accordingly each month.

Now, although I can totally understand why landlords would want this security, it does open a very large can of worms in my opinion.

Firstly, the Bank of England has increased rates 14 consecutive times since the end of 2021, and is expected to raise again on 21 September, to 5.5%.

So, before we open the proverbial can of worms let’s look at how that would directly effect a tenants rental payments

If the 12 months fixed term tenancy started on 1^st August 2022 at a monthly rent of £1000, the BoE increased its rates as follows during that 12 month period

1/10/22 2.25%
1/12/22 3%
1/1/23 3.5%
1/3/23 4%
1/4/23 4.25%
1/6/23 4.5%
1/7/23 5%

This would see the tenants rent increasing by just shy of 30% or £296.74 in 11 months, would an extra £300pm even be affordable to the tenant?

Now concentrate, it’s the science bit….

Under section 13 of the Housing act 1998 a fixed term tenancy cannot have its rent increased in less than 365 days, also a fixed term contract implies that the terms and conditions are fixed for the duration of the term specified.

Most tenancy agreements already have a rent increase clause which is linked to the Rental price index (RPI), would this new practice override this clause or could the tenants see a further increase annually in line with the RPI.

The key question here “is this practice legal and enforceable” I would argue it is not.

Yes, you can increase rent in a fixed term contract if the tenant agrees, and arguably signing an AST with clauses stating the increase, would indicate that the tenant has agreed, but as we do not know what each BoE increase will be can the tenants confidently agree to an increase, they do not know they can afford to maintain.

Is the clause enforceable, the argument that it breaches s13 is heavy and I would say on the balance of probability that a judge wouldn’t allow rent arrears to be accrued in such an untransparent way.

Does the clause breach the Tenant Fees Act 2019, which is clear that rent paid at the start of the tenancy cannot be higher than the rest of the tenancy, unlike Wales tenant fee ban act wording ' it cannot be higher or lower in consecutive payments.' in England it cannot be lower than the first payment, so we are confident it doesn’t breach the TFA.

But now we move onto Consumer protection, adverting standards and contract law, clauses that present undisclosed variable rental amounts would understandably be deemed as an unfair clause as it not only lacks transparency but also doesn’t allow the prospective tenant to make an informed decision about the rental.

Advertising a property for rent at one price but with the knowledge this will not be the continued price could fall under misleading advertising rules.

It could also affect a landlords rent guarantee insurance and any guarantor agreement that may be signed.

How would referencing of these tenants also be accurate, as referencing is carried out based on the tenants affordability of the monthly rent, but if this is to rise by an undisclosed amount what affordability do we asses on?

Equally, if the BoE base rate decreased, would the rent reduce accordingly.

It is also worth remembering that the tenant still has the option of submitting an appeal to the First tier tribunal in the first 6 months of any ast if they think the rent is too high

So inconclusion, its definitely unfair and coercive but maybe not directly illegal. It is however falling into the governments trap of bringing in rent controls   as they can now say ' look at what the greedy landlords are doing now - we must have rent control even though we didn't really want it!'

 

Source https://inews.co.uk/news/rent-tracker-contracts-landlords-forcing-tenants-deals-increase-interest-rate-rises-2587712