Landlords poised for tidal wave of rent challenges from tenants as vast majority of cases go in their favour

Many landlords are considering rent increases following the Government's latest property tax hike - but they are also warned of a surge in challenges from tenants. From April next year, landlords will pay an extra 4 per cent in income tax on the rents they collect. Basic rate taxpayers will pay 24 per cent, while higher rate taxpayers will pay 44 per cent and additional-rate taxpayers 49 per cent. Seven in ten landlords are now considering rent increases, with a third of those specifically doing so to offset the additional tax burden, according to tenant referencing company Legal for Landlords.However, experts are warning that they may find their tenant is able to successfully challenge these rent hikes - or even reduce the rent below what is currently paid.Since the Renters' Rights Act came into force on May 1, a tenant who thinks a proposed rent increase is above the market rate can challenge it at the first-tier tribunal. Figures now reveal that the vast majority are resulting in a win for tenants. Not so fast: Renters are increasingly finding they can limit or even stop rent hikes if they believe the proposed rent is above the going market rateOf all 971 rent increase tribunal decisions tracked by property advisory firm PRSim since May 1, some 70 per cent have resulted in the rent being set below what the landlord proposed.In fact, 47 (5 per cent) tribunal decisions resulted in rents being cut below what the tenant was already paying.One case was that of a one-bed flat in London where the rent being paid was £1,300. The landlord proposed a hike to £1,400.The tribunal valued the rent at £1,500 a month if the flat had been in good order. However, the judge then deducted £450 for water damage, dated fittings and worn floors, and eventually set the rent at £1,050 per month - £250 less than the original amount. In the case of a two-bedroom flat in Maidstone, Kent, the landlord had proposed a rent increase to £1,540 a month, from the original £1,440. The tribunal decided that a fair market rent was just £1,300 - but then deducted a further £50 for poor thermal efficiency and noise from nearby commercial premises. The challenging tenant saw their rent reduce from £1,440 to £1,250 a month.Only 10 per cent of tribunal decisions, or 96 cases, resulted in the rent being held at its existing level.In 451 cases (46 per cent) the rent was increased by less than what the landlord was proposing. Only in a fifth of examples (22 per cent or 221 cases) was the landlord's proposed increase granted in full.Only 49 decisions (5 per cent) have resulted in rents being set above the landlord's proposal. While only 971 decisions have been tracked since May, Ashley Osborne, a chartered surveyor and founder of PRSim thinks the number of rent increases going to tribunal will only keep increasing as renters grow wise to their new powers.'The monthly count has climbed from around 100 in May to over 220 in September.' said Osborne. 'Tenants are becoming more aware that they can do this, and that it costs them nothing to apply. The bigger constraint is likely to be tribunal capacity rather than demand.'What landlords are having rent increases reversed? For the most part tribunals are trimming landlords' proposed rent increases, rather than blocking them or lowering the rent altogether.On average the rent set was only 4.6 per cent below the proposal and still 15.6 per cent above the rent already being paid, according to PRSim.In the cases where landlords are becoming unstuck, the poor condition of the property is often being used as justification. 'Landlords who are still charging well below market rent are generally getting most of the increase,' says Osborne.'The usual pattern is that the tribunal works out a market rent for the property in good order, then deducts for damp, mould, dated kitchens and bathrooms, poor heating or missing items. 'These deductions are behind most of the 47 cases where the rent was cut below what the tenant was already paying.'The paperwork and evidence landlords provide to tribunals also makes a difference.'Asking-rent listings and generic comparables often get limited weight, and tribunals regularly rely on their own knowledge of the local market instead,' says Osborne.'Paperwork sinks a lot of cases. About 11 per cent of applications ended with no rent determined at all, mostly because the landlord’s notice was invalid, usually a start date that didn’t line up with the tenancy period or less than two clear months’ notice. In those cases, the rent simply stays where it was.'What can landlords do?Since the Renters' Rights Act came into force, landlords are now restricted to one rent increase a year and cannot raise rents in the first 12 months of a new tenancy.The rent increase must be issued with a two-month written notice period and it must be in line with local market rents using a Form 4A.Osborne suggests landlords make any repairs before serving a notice to increase rent.'Fix outstanding repairs first, because every defect the tribunal sees is likely to cost you money off the rent,' says Osborne.'Check the notice is valid: the right form, at least two months’ notice, and a start date that matches the start of a rental period. 'Propose a figure you can support with evidence of rents actually achieved on similar homes nearby, not just asking prices on portals,' he says.Osborne also suggests taking any tribunal challenge by a tenant seriously.'Send in proper comparable evidence, records of repairs and photographs of the property’s condition. And talk to your tenant. 'A reasonable, evidence-backed increase agreed between the two of you is usually better for both sides than a tribunal hearing.' Ashley Osborne, founder of PRSim says he expects the number of tribunal decisons over rent increases to rise as renters catch onIs there any risk for tenants?Tenants have to pay £47 application fee to challenge a rent increase but the tribunal can order the landlord to reimburse it if they win. They must apply before the start date of the new rent given in the notice. That means they can essentially leave it right up until the two-month notice period is about to end.Before challenging, the tenant will need a copy of their tenancy agreement, the name, address and contact details of their landlord and a copy of the landlord’s notice if they're applying after the landlord sent you a notice proposing a new rent.When they make the application online, they are encouraged to share any floor plans, recent photo of each room and an outdoor photo and any details about the property such as whether it has central heating or double glazing.They are also advised to provide details and photos of any repairs or improvements that have been done or not done alongside information about the rent, including evidence from similar nearby properties to show the price they were rented for.'From a pure risk point of view, the downside for tenants is very limited,' says Osborne. 'It’s £47 to apply, and the tribunal generally can’t set the rent above the figure in the landlord’s notice. So for many tenants, applying is a low-risk move.'But it isn’t a guaranteed win. 22 per cent of increases were granted in full, and where a rent is genuinely at market level and the home is in good condition, the tribunal tends to confirm it. 'Tenants should also bear in mind that a challenge can strain the relationship with their landlord.'My view is that challenging makes most sense where the proposed rent is clearly above what similar homes are renting for, or where the property has real problems the landlord hasn’t fixed. Those are exactly the cases where tribunals are cutting rents.'If you're a landlord or tenant facing a tribunal decision over a rent increase please email editor@thisismoney.co.uk to tell your story.How to find a new mortgage Mortgage rates have jumped as conflict with Iran has driven up inflation expectations and dashed hopes of interest rate cuts.If you need a mortgage because you are buying a home, or your current fixed rate deal is due to end, you should explore your options as soon as possible. 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