With the news that the Bank of England has raised interest rates from 1.25 percent to 1.7 percent, in the highest increase in interest rates since 1995 and bringing them to their highest level since January 2009, it has been confirmed that the UK will now likely enter a recession.

The recession, which is thought will last 5 quarters, could have a significant impact on any rent reviews due to take place during the next 12 months.

For those tenants who are due a rent review on a market rent basis, the news could be good. A recession usually means that property prices fall, and consequently market rents could be reduced. Given that this type of rent review is upward only, this could mean that the review finds that the market rent of the property has not increased, or certainly not by as much as previous reviews, and therefore the rent shall remain the same or only increase fractionally.

Tenants with index linked rent reviews, however, are facing a bleaker review. The Bank of England confirmed that the Consumer Prices Index is expected to peak at 13.3 percent in October 2022, the highest level since September 1980. The Retail Prices Index is also increasing each month, and is expected to continue on a similar trajectory. Consequently, any rent due to be increased in line with this is likely to jump up significantly come the time of the review.

Landlords should however proceed with caution when increasing the rents linked to the consumer or retail prices index. The fact that they can increase the rent to such a degree does not mean that they should, as if the rent is too high, the tenant may simply be unable to meet this and the landlord could find themselves with an empty property.

If you are a landlord or tenant seeking legal advice on rent reviews, our experts at Farleys can help. Get in touch today on 0845 287 0939, by email, or through the online chat below.