Managing a Rent Reduction
Landlords looking to reduce their tenants rent.
It’s a sign of the times that we should be talking to landlords about managing a rent reduction.
Over the last couple of years most landlords have faced the opposite challenge of ensuring that they do not get behind the market rent by instigating regular rent increases.
However, rising unemployment amongst tenants and a general deterioration in the economic environment are resulting in some tenants having to take a pay cut. The ‘fall out’ from this is that a tenant will then approach a landlord to either ask for a rent reduction or to give notice that they need to move to a cheaper property. This has meant that many landlords are moving into un-chartered territory. How do they reduce their tenant’s rent?
Avoiding rent reductions
Firstly, a landlord should always where possible try and avoid giving a rent reduction. This can be done by offering the tenant improved accommodation thereby encouraging them to stay by making them feel that they are getting better value for money.
Obvious additions to a rental property that will appeal to tenants are improvements to media facilities such as a WIFI network or digital TV. These ‘extras’ can often be added to a property at relatively little cost. A couple of hundred pounds for a router or new aerial to enable the tenants to receive these services might be all that is needed.
These one off cost to a landlord could ensure that the tenant stays and doesn’t go down the road looking for a better deal.
Landlords need to keep on top of rental property maintenance
The other thing that landlords should ensure is that they keep on top of property maintenance. It’s no good promising to upgrade the fridge freezer, redecorate the lounge or replace the tatty carpet if you don’t actually deliver. In the current climate landlords may well find that at the end of the tenancy the tenant just presents you with a choice of granting a large rent reduction or they will simply move to an apartments or property where the landlord has maintained their property more effectively.
Mechanism of reducing rent
The means by which a landlord actually instigates a rent reduction are varied and will depend on the circumstances of the tenancy.
The most obvious way to do it one would think would be to issue a section 13 notice.
However the section 13 notice can only be used by landlords to increase the rent.
It is not possible either to just grant a rent reduction verbally or even in a letter because both would be unenforceable because of the lack of contractual consideration.
The only sure ways to reduce rent are:
a. Creating a new tenancy agreement at the reduced rent; or
b. Deed of Variation (because anything embodied in a Deed circumvents the ‘lack of contractual consideration’ problem).
For most landlords the easiest solution is to grant a new tenancy. The complication to this arises is if the tenant is behind on their rent. This is because by granting a new tenancy the arrears will become a ‘former tenant’ debt and so cannot be used as a formal ground for possession in relation to the new tenancy.
The only way around this is to insert a rather technical clause in the tenancy agreement making the repayment of any former arrears a condition of the new tenancy agreement. The other way is to get the tenant to sign a deed.
The simplest and most advisable method is to require the tenant to bring their rental account up to date before revising the agreement.
Taking a rent reduction is never a good feeling but it may be a function of these ‘tough times’. The one thing we would say is LESS rent is better than NO rent. Landlords should avoid a void at all costs.