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Rent Increase Clauses and Statutory Periodic Tenancies

In a periodic Assured or Assured Shorthold Tenancy the provisions of section 13 of the Housing Act 1988 are used to increase the rent. This is not a wholly satisfactory system as it is overly technical and ultimately allows appeals to the Rent Assessment Committee which can be somewhat capricious.

It has been thought that a clause in the agreement which set out a mechanism for increasing the rent, however abbreviated, would be sufficient to oust the provisions of section 13 and the clause would prevail.

In London District Properties Management Ltd v Goolamy [2009] EWHC 1367 (Admin) this view has been overturned. The High Court ruled that the prevailing view was inaccurate. Taking a literal view of section 5(3) of the Act the Court held that in a statutory periodic tenancy the provisions of section 13 would overrule any rent increase clause.

Bizarrely, the legislation appears to draw a distinction between tenancies which are intended to be periodic from the outset and those which start out as fixed term tenancies and become periodic by operation of section 5. The former can incorporate rent increase clauses, the latter will have theirs overruled by the section 13 process once the tenancy has become periodic. While the Court does not mention this point it would seem that the way around the problem is to simply agree a tenancy for a fixed term with a contractual provision that it will then continue as a periodic tenancy. Presumably if it is pre-agreed that this will occur then the provisions of section 5 will not be required to create a periodic tenancy and thus the section 13 provisions will not be given the primacy that section 5(3) provides.

Whether this will work or not remains to be seen.

2 Comments

  • Francis Davey 16th July 2009 at 11:21 am

    Yes, its a question Megarry raised a long time ago which we’ve only just had the answer to. I’m not sure its quite right, but certainly the situation is different for tenancies which are granted as periodic (and thus for which s.5 does not operate). They are common in the social housing sector and (on authority) and clause in the tenancy agreement will oust s.13. Not all housing associations realise that.

    There may be other ways around this. Obviously one could just grant a periodic tenancy. Periods can be long (yearly for instance) but with contractual break clauses.

    There’s nothing in principle wrong with a tenancy from year to year, terminable by break clause with 2 month’s notice, rent payable monthly. Whether a court would find that overly technical is another matter (and in practice it might be a rent assessment committee doing the finding).

    I’m sure there is a creative way out of this, especially if the goal is to provide a contractually certain method of establishing the rent that is less fraught for both parties than s.13.

  • Francis Davey 16th July 2009 at 11:22 am

    PS: Little known fact, s.13 applies to any stat. periodic tenancy even if its not assured. Not that that is ever likely to come up.

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