How right to challenge rents pits tenants against landlords

Giving tenants the right to challenge an unreasonable rent increase is a good thing, isn’t it?

If a landlord proposes a rent wildly out of line with the local market, there ought to be somewhere a tenant can go to question it. The First-tier Tribunal provides that protection.

So far, so reasonable.

But legislation doesn’t only create rights, it creates incentives and sometimes the end result isn’t quite what was expected (or even thought about).

That was what struck me reading your comments beneath our story about the surge in rent tribunal cases.

Thedeadgoldfish was refreshingly candid.

“Being totally honest, if I was a tenant I would pay £49 to challenge ALL rent increases as its financially beneficial to do so and there are no downsides.”

His reasoning was straightforward: the increase can be delayed, any eventual increase isn’t backdated, and the tribunal cannot respond by imposing a rent higher than the landlord originally proposed.

In other words, he wasn’t criticising tenants for using the system. He was saying he’d do exactly the same thing.

Jo Westlake made a similar point. Even if the tribunal ultimately agrees that the proposed increase is justified, the lack of backdating means the landlord still loses the additional rent during the intervening period.

That’s where intentions and incentives begin to part company.

If challenging an increase carries little downside and a potential financial benefit, we shouldn’t be surprised if more tenants do it.

And that raises another problem. The tribunal system has to be sufficiently resilient to cope with the claims. If applications surge and cases take longer to process, delay itself becomes part of the incentive.

But there’s another possible unintended consequence.

Plenty of landlords don’t charge the maximum rent the market will bear.

Tricia Urquhart says an inflation-linked formula would actually have resulted in bigger rent rises for her tenants in most years. Michael Foley points out some of his rents are £700 to £1,000 a month below comparable local properties – while acknowledging that his existing tenants couldn’t realistically absorb an increase of that size.

There, perhaps, is another incentive policymakers should consider.

A good tenant pays reliably and looks after the property. The landlord values them and doesn’t push the rent to its limit. Over time, the rent drifts below market value.

But if allowing that gap to develop makes a larger future increase more difficult, landlords may decide the safer course is to review rents every year and keep them closer to market value. Little and often becomes the remedy.

There’s a human consequence too.

Tricia says she is retaining properties because she has good tenants, but that if one challenged her rent increase, she would regard the trust between them as broken and consider selling.

You don’t have to agree with that reaction to recognise what it tells us.

Last time, Natter concluded that good legislation should protect good tenants from bad landlords and good landlords from bad tenants.

Perhaps there’s another test we should add.

The intention behind protecting tenants from unreasonable rent increases is perfectly sound. But good legislation also needs to consider the incentives it creates.

Because it shouldn’t give good landlords and good tenants reasons to start treating each other like enemies.

Until next time,

N