First-tier Tribunal Determines Fair Rent for Central London Property

OUTCOME: Allowed in Part

FR24 First-tier Tribunal – Property Chamber File Ref No. LON/00BK/F77/2024/0001

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 23 [ADDRESS], [POSTCODE]

Judge [NAME]

[APPELLANT]

Tenant Dr [APPELLANT] & Mr [APPELLANT] N [APPELLANT]

1. The fair rent is £14880.00 Per Year (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 26 February 2024

3. The amount for services is £5,440 Per Year

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

N/A Per

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

8. For information only:

(a) The fair rent to be registered is not limited by the Rent Acts (Maximum Fair Rent) Order 1999, because it is the same as/below the maximum fair rent of £16,738.50 per year.

Chairman Judge Sarah McKeown Date of decision 26 February 2024

FR24 MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 378

PREVIOUS RPI FIGURE Y 314.3

X 378 Minus Y 314.3 = (A) 63.7

(A) 63.7 Divided by Y 314.3 = (B) 0.202673

First [NAME] for re-registration since 1 February 1999 NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.252673

Last registered rent* £13,362 Multiplied by (C) = £16,738.21 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £16,738.50

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £16,738.50 Per Year

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 [NAME] was the first since 1 February 1999) or 5% (if it is a second or subsequent [NAME] 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 [NAME] of the formula is ascertained the service charge is then added to that sum in order to produce the maximum fair rent.

1

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BK/F77/2024/0001 HMCTS code (paper, video, audio) : P: PAPERREMOTE Property : 23 [ADDRESS] [POSTCODE] Applicant : [redacted] : None Respondents : [redacted] (2) Mr. [COUNSEL]. [COUNSEL]. [COUNSEL] : None Date of [NAME] : 14 July 2023 Type of [NAME] : Determination of the registered rent under Section 70 Rent Act 1977 Tribunal member(s) : Tribunal Judge [NAME] : 10 [ADDRESS] [POSTCODE] Date of decision : 26 February 2024

DECISION

© CROWN COPYRIGHT 2014

Description of hearing This has been a remote hearing on the papers which has been not objected to by the parties. The form of remote hearing was P: PAPERREMOTE. A face- to-face hearing was not held because no request was made for a hearing. Background 1. The Landlord applied to the Rent Officer for the registration of a fair rent for this property on 11 September 2023, seeking a rent of £16,634 per annum. It was said that various services were provided: cleaning and lighting common parts, door entry-phone, TV Aerial, refuse disposal, overnight security guard, high speed broadband/Wifi, said to be worth £5,440 per annum.

2. A fair rent of £14,976 per annum was registered on 7 November 2023, effective from 18 November 2023 following the [NAME]. The Landlord subsequently challenged the registered rent on 17 November 2023 and the Rent Officer requested that the matter be referred to the tribunal for determination.

3. The landlord’s objection, in summary, was that since its involvement, the rents of its properties had been increased by same % increase each review, but in the most recent reviews, each flat had a different % increase and in a number of cases, similar flats had different % increases, which, it was said, made no sense. The landlord set out a table of increases, showing that the increase for this property was 23.3%.

4. Directions were issued by Tribunal on 2 January 2024.

5. The parties were invited to submit any relevant information and submissions. Relevant information was received from both parties.

6. In terms of services, the landlord states that the services (total, rather than just for the Property) are as follows:

Cleaning

£23,500

Electricity £90,000

Fire alarm £6,000

Entryphone £4,000

Security

£20,00

Lighting

£8,000 Pest control £4,000

Health & safety £20,000

Repairs/replacement common parts: Internal

£35,000

External

£8,000

Internal floors £30,000

Window cleaning £8,000

Gutters

£4,000

Insurance £47,000

High-speed Internet/Wifi £13,500

7. The Respondents, in summary, said the following: the landlord was seeking £5,440 for services provided under the tenancy, and this contrasted with c£3,000 in the [NAME] two years earlier. The Respondents were seeking more information from the landlord, but said that the increase seemed excessive and that there was no material which justified such an increase. Nothing further has been received by the Tribunal.

Inspection

8. No inspection of the property was carried out by the Tribunal as none was requested.

The property 9. The property is a self-contained flat on the second floor (over commercial premises), comprising 3 rooms, a kitchen/diner and a bathroom/WC.

The law 10. When determining a fair rent the Tribunal, in accordance with the Rent Act 1977, section 70, “the Act”, had regard to all the circumstances including the age, location and state of repair of the property. It also disregarded the effect of (a) any relevant tenant's improvements and (b) the effect of any disrepair or other defect attributable to the tenant or any predecessor in title under the regulated tenancy, on the rental value of the property.

11. In [COMPANY] v Chairman of the Greater Manchester etc. Committee (1995) and [NAME] v [NAME] [1999] the Court of Appeal emphasised that

ordinarily a fair rent is the market rent for the property discounted for 'scarcity'. This is 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.

12. The Tribunal is aware that [NAME] v [NAME] (1999) QB.92 is a relevant authority in registered rent determination. This authority states where good market rental comparable evidence i.e., assured shorthold tenancies is available enabling the identification of a market rent as a starting point it is

wrong to rely on registered rents. The decision stated: “If there are market rent comparables from which the fair rent can be derived why bother with fair rent comparables at all”.

13. The market rents charged for assured tenancy lettings often form appropriate comparable transactions from which a scarcity deduction is made.

14. These market rents are also adjusted where appropriate to reflect any relevant differences between those of the subject and comparable rental properties.

15. The Upper Tribunal in Trustees of the Israel Moss Children’s Trust v Bandy [2015] explained the duty of the First Tier Tribunal to present comprehensive and cogent fair rent findings. These directions are applied in this decision.

16. The Rent Acts (Maximum Fair Rent) Order 1999 applies to all dwelling houses where an [NAME] for the registration of a new rent is made after the date of the Order and there is an existing registered rent under part IV of the Act. This article restricts any rental increase to 5% above the previously registered rent plus retail price indexation (RPI) since the last registered rent.

Valuation

17. 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. It did this by having regard to its general knowledge of market rent levels in this area of Central London.

18. Having consideration of our own expert, general knowledge of rental values in the area, we consider that the open market rent for the property on the condition and with the amenities the market would expect to be in the region of £3,100 per calendar month (i.e. £37,200 per annum). This includes an allowance for fixed service charges of £5,440 per annum.

19. This hypothetical rent is adjusted as necessary to allow for the differences between the terms and condition considered usual for such a letting and the condition of the actual property at the date of the inspection. Any rental benefit derived from Tenant’s improvements is disregarded. It is also necessary to disregard the effect of any disrepair or other defects attributable to the Tenant or any predecessor in title.

20. The provisions of section 70(2) of the Rent Act 1977 in effect require the elimination of what is called “scarcity”. The required assumption is of a neutral market. Where a Tribunal considers that there is, in fact, substantial scarcity, it must make an adjustment to the rent to reflect that circumstance. In the present case neither party provided evidence with regard to scarcity.

21. The Tribunal then considered the decision of the High Court in [COMPANY] v [NAME] [2002] EWHC 835 (Admin) which required it to consider scarcity over a wide area rather than limit it to a particular locality. Central London is now 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 Central London.

22. Assessing a scarcity percentage cannot be a precise arithmetical calculation. It can only be a judgement based on the years of experience of members of the Tribunal. The Tribunal therefore relied on its own combined knowledge and experience of the supply and demand for similar properties on the terms of the regulated tenancy (other than as to rent) and in particular to unfulfilled demand for such accommodation. In doing so, the Tribunal found that there was substantial scarcity in the locality of Central London and therefore made a further deduction of 20% from the adjusted market rent to reflect this element.

23. The valuation of a fair rent is an exercise that relies upon relevant market rent comparable transactions and property specific adjustments. The fair rents charged for other similar properties in the locality do not form relevant transaction evidence.

24. The Tribunal assessed the fair rent on the basis, among other things, that: (a) No furniture or white goods were provided when the Property was let; (b) No floor coverings/curtains were provided by the Landlord; (c) There was no central heating and no double-glazing; (d) The landlord is responsible for repairs and external decorations, the tenant is responsible for internal decorations and s.11 Landlord and Tenant Act 1985 applied.

25. Table 1 below provides details of the fair rent calculation:

Property: 23 [ADDRESS], [POSTCODE]

Market Rent

£37,200 p.a.

Deductions: As a % of the rent

No decorating and internal repairing obligations on landlord 10%

No white goods provided by Landlord 10%

No central heating 10%

No floor covering/curtains 10%

No double-glazing 10%

Total deductions 50% £18,600 p.a.

Adjusted rent per week

£18,600 p.a.

Less scarcity at 20% £3,720

Final adjusted market rent

£14,880 per annum

Decision 26. The Rent Acts (Maximum Fair Rent) Order will not apply to this determination as the fair rent determined by the Tribunal is less than the capped rent.

27. The uncapped fair rent determined by the Tribunal for the purposes of Section 70 is £14,880 per annum. By virtue of the Rent Acts Maximum Fair Rent Order 1999 the maximum fair rent that can be registered for this property is £16,738.50 per annum.

28. The statutory formula applied to the previously registered rent is at Annex A.

29. Accordingly, the sum that will be registered as a fair rent with effect from 26 February 2024 is £14,880 per annum.

Tribunal Judge: Sarah McKeown Dated: 26 February 2024 Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the Tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written [NAME] for permission must be made to the

First-tier Tribunal at the [NAME] which has been dealing with the case. The [NAME] should be made on Form RP PTA available at https://www.gov.uk/government/publications/form-rp-pta-[NAME]-for- permission-to-appeal-a-decision-to-the-upper-tribunal-lands-chamber The [NAME] for permission to appeal must arrive at the [NAME] within 28 days after the Tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the Tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).

Appendix A The Rents Act (Maximum Fair Rent) Order 1999 (1) Where this article applies, the amount to be registered as the rent of the dwelling-house under Part IV shall not, subject to paragraph (5), exceed the maximum fair rent calculated in accordance with the formula set out in paragraph (2).

(2) The formula is:

MFR = LR [1 + (x-y) +P]

y

where:

• 'MFR' is the maximum fair rent; • 'LR' is the amount of the existing registered rent to the dwelling- house; • 'x' is the index published in the month immediately preceding the month in which the determination of a fair rent is made under Part IV; • 'y' is the published index for the month in which the rent was last registered under Part IV before the date of the [NAME] for registration of a new rent; and • 'P' is 0.075 for the first [NAME] for rent registration of the dwelling-house after this Order comes into force and 0.05 for every subsequent [NAME].

(3) Where the maximum fair rent calculated in accordance with paragraph (2) is not an integral multiple of 50 pence the maximum fair rent shall be that amount rounded up to the nearest integral multiple of 50 pence.

(4) If (x-y) + P is less than zero the maximum fair rent shall be the y existing registered rent.