Mandatory rent increase in tenancy agreement? (UK)

Question

I'm considering entering into a tenancy agreement as a private tenant for a house; this is quite a high value rental, around the top 1% of the market. I have not yet paid over the holding deposit, having requested a specimen tenancy agreement first.

I am concerned by the following clause:

After the first 12 months of this Agreement has passed, the rent shall be increased with such increase to be in line with the Retail Price Index (RPI) for the 12 months immediately preceding the increase with a minimum increase of 3% and a maximum increase of 8%. Thereafter once the fixed term of the Agreement has expired, if the tenancy rolls over into a periodic Agreement, the rent will continue to be increased on a yearly basis in line with the RPI for the preceding 12 months with a minimum increase of 3% and a maximum increase of 8%.

I've never seen a clause like this in any other tenancy agreement. On the scale of value of the property I'm looking at, between 3% and 8% is a significant amount of money.

My biggest concern is that RPI has been lower than 3% since 2012, so any rent increase would be governed by this arbitrary minimum of 3% - and preferably, I would have no mandatory rent increase at all in the lease.

I queried the clause with the letting agent, suggesting it be replaced with wording to the effect of "The Landlord can review and increase the Rent every twelve months on the anniversary of the date on which the Tenancy began." The landlord came back with:

This RPI clause cannot be changed, any rent increase must be tagged to this index for fairness. Any rent increase must be agreed with yourselves prior to enacting in any case.

Should I be worried about this clause? Should I continue to argue for its removal? Is this a reasonable thing to see in a tenancy agreement at all?

I'm based in the UK (greater London).

Answer 1

Essentially:

• your position is that a rent increase of that magnitude seems unreasonable;
• the landlord seeks to have an agreement such that they can lawfully increase the rent by 3-8% at their discretion at the end of each term;
• the landlord seeks to have an agreement such that you cannot legally challenge the increase.

Should I be worried about this clause?

Only you can say whether you should be worried about a 3-8% increase.

The government recommends that tenancy agreements include how and when the rent will be reviewed. But "the rent increase must be fair and realistic, ie in line with average local rents." https://www.gov.uk/private-renting/rent-increases

We can only speculate about whether the market will be 3-8% more expensive.

What will you get in return for a 3-8% increase in rent?

Perhaps counter-propose an increase inline with RPI - or better yet some other measure of inflation. After all, the ONS says the RPI "is a flawed measure of inflation with serious shortcomings and we do not recommend its use." https://www.kingsleynapley.co.uk/insights/blogs/real-estate-law-blog/indexed-rent-reviews-are-we-getting-them-right

"Any rent increase must be agreed with yourselves prior to enacting in any case."

Is that written in the contract? If it is, that solves the immediate problem...

Answer 2

Such clauses are common to the point of being de reguer in commercial leases

They are more unusual in residential agreements where increases are normally at the total discretion of the landlord, as your proposed clause does.

This clause actually increases certainty (i.e. reduces risk) for both parties, for a guaranteed minimum increase of 3% the maximum is capped at 8% no matter what the local rental market does. Essentially, your rent is tied to the national economy, not the local real estate market (as interpreted your your landlord) - if you are in London this is probably a good thing, if you are in the rural Yorkshire, probably not so much. In times of low inflation and economic certainty this is not so important - so if your government is planning a radical, unprecedented change to say, international trade relations, this might be a good thing.

Whether you think this is a good deal or not is up to you. At the end of the day, if the rent increase is unacceptable to you (or the landlord) you can always move out.