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Are substantial rent increases legal?

Residents of a rural Welsh village are being priced out of their community by a London-based investment company.

Tenants in a historic mining village, Aberllefenni, are set to have their rent increased by some 60% after the entire village was bought last year by an investment company for around £1m.

Aberllefenni house and bus

Property litigation specialist, Chris Bowen, takes a look at the case which could result in the disappearance of an entire community.

Unaffordable rent increases

There are 16 former miners cottages in Aberllefenni, Gwynedd, some of which date back to the 16th century and are currently rented to the local community through residential tenancy agreements. Tenants have already or will receive notices increasing the rents from the new owner, Walsh Investment Properties, which has also served a number of eviction notices following its purchase in October last year, according to BBC Wales.

The proposed increase in rent will make it unaffordable for most of the tenants, some of whom have lived in the cottages for more than two decades. Many will be left with no other option but to vacate.

Under the previous owner, the family of John Lloyd from Inigo Jones Slate Works, the rent rose by 3% per annum. Walsh Investment Properties are looking to raise rents by up to 60%.

In the article published on BBC Wales website, Walsh Investment Properties spokesman Chris Walsh stated to the BBC: “We can confirm that we haven’t raised any rents to date, however, we do intend to raise all of the rents to bring them in line with current market values. Most of the properties have been paying a low rent for a number of years; unfortunately, this is not sustainable in the current economy. We feel it is fair and reasonable to charge a market rent.”

Are these large rent increases legal?

As most tenants have been living in Aberllefenni for over 20 years, it is highly likely that their tenancies, once under a fixed term, have become periodic and have continued year on year.

Under Section 13 of the Housing Act 1988, a landlord may serve notice on a tenant to increase the rent once a year.

Any proposed rent increases must be based on the ‘market rates’ and are calculated by surveyors using the average cost of similar properties in the local area. The rent increase must be fair and realistic.

If a tenant is unhappy with the proposed rent increase, they can apply to the First Tier Property Tribunal under Section 14 of the Housing Act. The Tribunal determines the rent at which it considers the property might reasonably be expected to be let in the open market, by a willing landlord, under an assured tenancy. They must be on the same terms as the existing tenancy, ignoring any increase in value attributable to a tenant’s improvements and any decrease in value due to a tenant’s failure to comply with any terms of the tenancy. The property falls to be valued as it stands, assuming it is in a reasonable internal decorative condition.

How does a landlord calculate a ‘market’ rent?

As mentioned, any rent increases must be based on a market rent, calculated by a surveyor on the average rent of similar properties in the local area. Since the local area arguably is the village of Aberllefenni, and all properties within the village have been on similar low rents for years, a surveyor might argue that that is the market rent for that area.

It appears the rural community is not contesting these rent increases, and Councillor John Pughe Roberts is trying to work with Gwynedd Council to help the tenants, especially the most vulnerable, to try and find a solution.

If you have any issues with a residential tenancy, or other property related questions, please do not hesitate to contact the Property Dispute Resolution team at Lodders.

If you enjoyed reading this article, you might find our forthcoming Landlord & Tenant seminar interesting. Find out more here.

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Chris is a litigation solicitor and specialises in resolving property disputes. He works with and supports all types of property owners, from individual homeowners with a boundary dispute, to large developers with issues over their titles.