Fair Rent Determination for a London Property

OUTCOME: Allowed

First-tier Tribunal – Property Chamber File Ref No. LON/00AN/F77/2020/0001

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were [ADDRESS], [POSTCODE]

Ms [NAME]-Farey

Landlord [COMPANY]

Tenant Ms [APPELLANT]

1. The fair rent is £20,577.00 Per annum (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 12 November 2020

3. The amount for services is £1,186.92 Per annum

4. The amount for fuel charges (excluding heating and lighting of common parts) not counting for rent allowance is

n/a Per

negligible/not applicable

5. The rent is not to be registered as variable.

6. The capping provisions of the Rent Acts (Maximum Fair Rent) Order 1999 apply (please see calculation overleaf).

7. Details (other than rent) where different from Rent Register entry

None

8. For information only:

(a) The fair rent to be registered is the maximum fair rent as prescribed by the Rent Acts (Maximum Fair Rent) Order 1999. The rent that would otherwise have been registered was £24,336.00 per annum including £1186.92 per annum for services.

[NAME] Judge Hamilton- Farey Date of decision 12 November 2020

MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 293.3

PREVIOUS RPI FIGURE Y 275.8

X 293.3 Minus Y 275.8 = (A) 17.5

(A) 17.5 Divided by Y 275.8 = (B) 0.06345

First application for re-registration since 1 February 1999 YES/NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.11345

Last registered rent* £18,480.00 Multiplied by (C) = £20,576.58 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £20,577.00

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £20,577.00 Per annum

Explanatory Note

1. The calculation of the maximum fair rent, in accordance with the formula contained in the Order, is set out above.

2. In summary, the formula provides for the maximum fair rent to be calculated by:

(a) increasing the previous registered rent by the percentage change in the retail price index (the RPI) since the date of that earlier registration and

(b) adding a further 7.5% (if the present application was the first since 1 February 1999) or 5% (if it is a second or subsequent application since that date).

A 7.5% increase is represented, in the calculation set out above, by the addition of 1.075 to (B) and an increase of 5% is represented by the addition of 1.05 to (B).

The result is rounded up to the nearest 50 pence.

3. For the purposes of the calculation the latest RPI figure (x) is that published in the calendar month immediately before the month in which the Tribunal’s fair rent determination was made.

4. The process differs where the tenancy agreement contains a variable service charge and the rent is to be registered as variable under section 71(4) of the Rent Act 1977. In such a case the

variable service charge is removed before applying the formula. When the amount determined by the application of the formula is ascertained the service charge is then added to that sum in order to produce the maximum fair rent.

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AN/F77/2020/0001 HMCTS code (paper, video, audio) : P: Paper Remote Property : [ADDRESS], London [POSTCODE]. Applicant : [redacted] Representative : [RESPONDENT] Respondent : [redacted] Representative : In person. Type of application : Application for the determination of a Rent under the Rent Act 1977. Tribunal members : Ms. [NAME]. [NAME] : Remote. Date of Reasons : 4 January 2021.

DECISION Decision

£20,577.00 per annum is to be registered as the fair rent for the above property with effect from 12 November 2020 being the date of the Tribunal's decision.

The reasons for this decision are set out below.

Reasons

Background

On 18 October 2019, the landlords [COMPANY] applied to the Valuation Office Agency (Rent Officer) for registration of a fair rent of £1,946.00 per month for the property. The rent payable at the time of the application was £18,480.00 per annum, inclusive of a £741.38 service charge, effective from 21 November 2017, following a previous tribunal referral.

On 4 December 2019, the Rent Officer registered a fair rent of £18,250.00the, effective from the same date. The Rent Officer made no comments as to the uncapped rent, but it appears from the rent register that the rent had been capped in line with the Maximum Fair Rent Order (“MFR”).

By letter dated 19 December 2019, the landlord objected to the rent determined by the Rent Officer and the matter was referred to this Tribunal.

The law

When determining a fair rent the Tribunal, in accordance with the Rent Act 1977, section 70, must have regard to all the circumstances including the age, location and state of repair of the property. It also must disregard the effect of (a) any relevant tenant's improvements and (b) the effect of any disrepair or other defect attributable to the tenant, on the rental value of the property.

Section 70(2) of the Rent Act 1977 imposes on the Tribunal an assumption that the number of persons seeking to become tenants of similar dwelling house in the locality on the terms ( other than those relating to rent) of the regulated tenancy is not substantially greater than the number of such dwelling houses in the locality which are available for letting on such terms. This is commonly called ‘scarcity’.

[COMPANY] v [NAME] of the Greater Manchester Council (1995) 28 HLR 107 and [NAME] v [NAME] Tribunal [1999] QB 92 the Court of Appeal emphasised

(a) that ordinarily a fair rent is the market rent for the property discounted for 'scarcity' (i.e. that element, if any, of the market rent, that is attributable to there being a significant shortage of similar properties in the wider locality available for letting on similar terms - other than as to rent - to that of the regulated tenancy) and

(b) that for the purposes of determining the market rent, assured tenancy (market) rents are usually appropriate comparables. (These rents may have to be adjusted where necessary to reflect any relevant differences between those comparables and the subject property).

The Rent Acts (Maximum Fair Rent) Order 1999 places a “cap” on the permissible amount of the increase of a fair rent between one registration and the next, by reference to the amount of the increase in the United Kingdom Index of Retail Prices between the dates of the two registrations. Where the cap applies the Rent Officer and

the Tribunal is prevented from increasing the amount of the fair rent that it registers beyond the maximum fair rent calculated in accordance with the provisions of the Order and the mathematical formula set out in the Order. By article 2(7) of the 1999 Order the capping provisions do not apply “in respect of a dwelling-house if because of a change in the condition of the dwelling-house or the common parts as a result of repairs or improvements (including the replacement of any fixture or fitting) carried out by the landlord or a superior landlord, the rent that is determined in response to an application for registration of a new rent under Part IV exceeds by at least 15% the previous rent registered or confirmed.”

Determination:

In view of the current pandemic, the Tribunal was unable to inspect the property, and instead relied on submissions by the parties and its own expert knowledge. In this instance, the tenant made representations as to the level of the increase but did not provide any comparable evidence of similar properties in the locality. The tenant did provide a written submission in which she said that the property remained in poor condition, with poor insulation and windows, and that the installation of a new boiler in 2019 had been due to the fact the existing boiler was beyond repair. The landlord produced a statement of comparable properties on which it wished to rely, including: [ADDRESS] (4 rooms, bath/w.c. and kitchen; - £2,400 pcm [ADDRESS], W14 – 4 rooms, 2 x baths, modern kitchen; - £2,816 pcm [NAME] - 4 rooms, bath, w.c. - £2,496 pcm. The landlord suggested that these comparables, supported the asking rent for the property. The tenant commented on the landlord’s comparables, and although accepting that the location was similar, said that the comparables appeared to have been modernized, and were not situated above shops (including a restaurant) in a busy parade, which was frequently grid-locked with traffic with the consequent noise and fumes. The tenant also confirmed that the subject property had not been decorated for some years and reiterated the poor condition of her flat. The tenant also referred to reports of falling rentals in London, partly due to the pandemic and partly due to an oversupply. The property is a first floor 5 roomed flat, with 2 bathrooms/w.c and full gas central heating. The property is located in a very popular but busy area of London, close to all the usual amenities and transport links

Terms of the tenancy

It is understood that this tenancy began on 1 January 1975. It is agreed that the landlord is responsible for structural repairs and external decoration; it is understood that the landlord is also liable for internal redecoration. The property was originally let in a furnished condition, but that furniture would now be passed its useful life and in this tribunal’s, opinion has no residual value.

Landlord’s improvements

The landlord has not suggested that any improvements have been carried out to the property during the tenancy, or since the last registration, and the tribunal considers that a replacement boiler is an improvement that would create an exemption to the Maximum Fair Rent Order. Accordingly, the tribunal has not taken the boiler replacement into consideration.

Evidence

The Tribunal had copies of the Valuation Office Agency correspondence including the previous rent register.

The landlord’s comparables have been referred to above.

Rightmove details were appended to the landlord’s submissions, and these showed that the comparables were in a good condition, some were furnished, and had modern fixtured and fittings. None appeared to be over shops.

Valuation

In the first instance the Tribunal determined what rent the landlord could reasonably be expected to obtain for the property in the open market if it were let today in the condition that is considered usual for such an open market letting.

We consider that the subject property, if finished to the standard required in this location, would be likely to attract a rent under an assured shorthold tenancy of £33,800 per annum. This is the hypothetical market rent for the property.

However, we must adjust that hypothetical rent to allow for the differences between the terms of this tenancy, the situation of the flat above shops and the lack of modernization.

Using our own expertise, we considered that a deduction of 10% should applied in order to take into account the terms of the tenancy and the lack of modernization, making a deduction of £3,3800.00 per annum. Giving an adjusted market rent of £30,430.00 per annum.

It should be noted that this figure cannot be a simple arithmetical calculation and is not based upon capital costs but is the tribunal’s estimate of the amount by which the rent would need to be reduced to attract a tenant.

Scarcity

Thirdly, the tribunal then went on to consider whether a deduction falls to be made to reflect scarcity within the meaning of section 70(2) of the 1977 Act. The tribunal followed the decision of the High Court in [COMPANY] v [NAME], in which it was held that scarcity over a wide area should be considered rather than scarcity in relation to a particular locality. Greater London is considered to be an appropriate area to use as a yardstick for measuring scarcity and it is clear that there is a substantial measure of scarcity in Greater London.

We therefore made a further deduction of approximately 20% from the adjusted market rent to reflect this element to produce a figure of £24,336.00 per annum.

Conclusion

The capping provisions of the Rent Acts (Maximum Fair Rent) Order apply and therefore the above figure does not apply. The capped fair rent in accordance with the calculations provided on the decision template is £20,577.00 per annum.

Therefore, the fair rent to be registered is limited by the Rent Acts (Maximum Fair Rent) Order 1999 with effect from the 12 November 2020 being the date of the [NAME]’s decision.

Tribunal: Ms [NAME]. [NAME]: 4 January 2021.