First-tier Tribunal Determines Fair Rent for Property

OUTCOME: Allowed

First-tier Tribunal – Property Chamber File Ref No. LON/00AK/F77/2022/0255

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 88 [ADDRESS], [POSTCODE]

Mr [APPELLANT]

Landlord [APPELLANT]

Tenant Mrs [APPELLANT] A [APPELLANT]

1. The fair rent is £920.70 Per Month (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 30th January 2023

3. The amount for services is N/A Per

not applicable

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

N/A Per

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:

The fair rent to be registered is not limited by the Rent Acts (Maximum Fair Rent) Order 1999, because it is below the maximum fair rent of £1,007.50 per month prescribed by the Order.

[NAME] of decision 30th January 2023

MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 358.3

PREVIOUS RPI FIGURE Y 294.3

X 358.3 Minus Y 294.3 = (A) 64

(A) 64 Divided by Y 294.3 = (B) 0.217465

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) 1.267465

Last registered rent* £794.50 Multiplied by (C) = £1,007.001 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £1,007.50

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £1,007.50 Per Month

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.

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

1

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AK/F77/2022/0255 Property : 88 [ADDRESS], [POSTCODE] Applicant : [redacted] : None Respondent : [redacted] : None Date of application : 9 September 2022 Type of application : Determination of the registered rent under Section 70 Rent Act 1977 Tribunal member(s) :

[NAME] : Remote Date of decision : 30th January 2023

REASONS FOR DECISION

© CROWN COPYRIGHT 2014

Background 1. The Landlord applied to the Rent Officer for the registration of a fair rent for this property on 9 September 2022.

2. A fair rent of £972.00 per month was registered on 11 October 2022 following the application, such rent to have effect from 21 November 2022. The Tenant Mrs [APPELLANT] subsequently challenged the registered rent and the Rent Officer has requested the matter be referred to the tribunal for determination.

3. Directions were issued on 18 November 2022 by the Tribunal.

4. The parties were invited to submit any relevant information and submissions. Written submissions were received from the Landlord; none was received from the Tenant.

5. Neither party requested a hearing in this matter, and the Tribunal did not consider that one was necessary. The Tribunal therefore determined this matter on the basis of the information provided to it in writing.

The property

6. Neither party indicated that they wished the property to be inspected. The Tribunal were of the view that sufficient information regarding the property had been provided to enable the determination of this matter without an inspection.

7. The property comprises a 3 bed mid-terrace, early 20th century house. The property is located on [ADDRESS] in the London Borough of Enfield.

8. The Tribunal has not been informed of any dilapidations at the property.

9. The Landlord has indicated to the Tribunal that the Landlord installed Central Heating and UPVC windows and doors in 2017; and that works of improvement were carried out to the bathroom and the kitchen at the property by the tenant at an unspecified date.

The law 10. When determining a fair rent the Tribunal, in accordance with the Rent Act 1977, section 70, “the Act”, it 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 [NAME] (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 are 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 application 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. The relevant registered rent in this matter was registered on 22 September 2020 at £794.50 per month. The rent registered on 11 October 2022 subject to an Objection and subsequent determination by the Tribunal is not relevant to this calculation.

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.

18. The Landlord provided evidence of two asking rents in their submissions, from [ADDRESS] and [ADDRESS], at asking rents of £1,650 and £1,750 per calendar month (PCM) respectively. Both

properties were said, in the listing details provided, to be 3 bedroom houses.

19. The Tribunal considered that the property on [ADDRESS] was too distant from the subject property to assist in the valuation of it.

20. Whilst closer to the subject property, the Tribunal considered that the property on [ADDRESS] was in a more desirable immediate location than the subject; and that on the evidence provided to it the property on [ADDRESS] offered a superior quality of accommodation, with bay windows noticeable in the particulars provided.

21. As the sole evidence of value submitted to the Tribunal was in the form of two asking rents, only one of which the Tribunal determined was helpful, the Tribunal considered the value of the property in the context of their general knowledge of rental levels in this area of North London.

22. The Tribunal determined that a rent of £1,485 PCM for the subject property, were it let on the open market in the condition considered usual for such a letting, would be appropriate.

23. This hypothetical rent is adjusted as necessary to allow for the differences between the terms and conditions considered usual for such a letting and the condition of the actual property at the date of the determination. 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.

24. The responsibility for internal decorations and internal repairs of the property under the tenancy agreement is the responsibility of the Tenant. This is a material valuation consideration and a deduction of 12.5% from the Market Rent is made to reflect this liability.

25. 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.

26. 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. North 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 North London.

27. 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 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 North London and therefore made a further deduction of 20% from the adjusted market rent to reflect this element.

28. 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.

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

Decision 30. The Rent Acts (Maximum Fair Rent) Order will not affect this determination. The uncapped fair rent initially determined by the Tribunal for the purposes of Section 70 is £920.70 per month. By virtue of the rent acts maximum fair order 1999 the maximum fair rent that could be registered for this property is £1,007.50 per month. This is based on a specific 5% increase plus any retail price increases on the previously registered rent of £794.50 per month.

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

32. Details of the maximum fair rent calculations were provided with the original notice of decision.

33. Accordingly, the sum that will be registered as a fair rent with effect from 30 January 2023 is £920.70 per month.

Valuer Chairman: [NAME]: 21 March 2023

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 application for registration of a new rent; and • 'P' is 0.075 for the first application for rent registration of the dwelling-house after this Order comes into force and 0.05 for every subsequent application.

(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.