First-tier Tribunal Sets Fair Rent After Tenant Improvements Considered

OUTCOME: Allowed in Part

FR24 First-tier Tribunal – Property Chamber File Ref No. CHI/40UE/F77/2023/0051

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 4 [ADDRESS], [POSTCODE]

Mr [NAME] Mr [RESPONDENT] Mr [APPELLANT]

Landlord [NAME]

Tenant Mrs [APPELLANT]

1. The fair rent is £132.69 Per Week (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 25 October 2023

3. The amount for services is

Per

negligible

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

n/a Per n/a

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

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 below the maximum fair rent of £167.00 per Week prescribed by the Order.

[NAME] Mr [NAME] of decision 25 October 2023

FR24 MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 378.4

PREVIOUS RPI FIGURE Y 257.7

X 378.4 Minus Y 257.7 = (A) 120.7

(A) 120.7 Divided by Y 257.7 = (B) 0.468

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) 1.518

Last registered rent* £110.00 Multiplied by (C) = 166.98 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £167.00

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £167.00 Per Week

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.

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : CHI/40UE/F77/2023/0051 Property : 4 [ADDRESS] [POSTCODE] Applicants (Tenant) : Mrs [COUNSEL] [NAME] : None Respondent (Landlord) : Mr [COUNSEL] : Sworders Type of application : Section 70 of the Rent ACT 1977 Tribunal members :

Mr [NAME] Mr [NAME] Mr [NAME] : Paper Determination Date of Decision : 25th October 2023

Reasons

2

The Tribunal determines £132.69 (£575 per month) is to be registered as the fair rent for the above property with effect from 25th October 2023 being the date of the Tribunal's decision.

The reasons for this decision are set out below.

Reasons

Background

On the 30th January 2023 the landlord, applied to the Valuation Office Agency (Rent Officer) for registration of a fair rent of £600 per month (inclusive of a service charge of £150 per annum for servicing and maintenance of the boiler) for the property.

The rent payable at the time of the application was 500 per month, effective from June 2017. The previous Rent Registration was registered on the 10th October 2014 at a rent of £110 per week (£476.66 per month)

On 28th July 2023 the Rent Officer registered a fair rent of £117.62 per week(£509.68 per month) effective from that date. The rent increase imposed by the Rent Officer had not been “capped” or limited by the operation of the Rent Acts (Maximum Fair Rent) Order 1999 ( the Order).

By a letter dated 22nd August 2023 [RESPONDENT] [NAME]) [NAME] the landlord’s agent, 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

3 (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.”

Facts found without Inspection.

In the circumstances, the Tribunal did not consider it necessary and proportionate to undertake an inspection of the property. The Tribunal was assisted by Google Maps, Rightmove and relied on its expert knowledge of the Taunton area.

The property is an end of terrace house with rendered elevations under a pitched and tiled roof located in a semi-rural village.

The accommodation comprises: two bedrooms, living room, dining room, kitchen,bathroom/WC. The tenant has formed a partition wall in the main bedroom which now forms two inter-connecting rooms. Rear garden, garage and off street parking.

There is central heating installed by the landlord in 2000 and double glazed windows installed by the landlord 1998-2000.

Terms of the tenancy

The Tribunal issued Directions on the 20th September 2023 which set out a timetable for the matter and requested the tenant to submit a copy of the

4 tenancy agreement. This was not forthcoming; however, the landlord’s application confirms the agreement commenced in 1962.

It is assumed this made the landlord responsible for structural repairs and external decorations. The tenant is responsible for internal decorations. It is assumed the property was let unfurnished.

Tenant's improvements

In her completed Reply Form the tenant confirms the following improvements have been undertaken during the tenancy: a partition wall erected in the bedroom, front and rear porches, installation of kitchen units and a single radiator.

Evidence

The Tribunal had copies of the Valuation Office Agency correspondence including the rent registers effective 10th October 2014 and 28th July 2023 together with the calculations for the most recent registration.

In her Fair Rent Appeal Statement, the tenant challenged the proposed increase in rent and set out the condition of the property which is in need of general modernisation and has damp issues in the dining room which the landlord attended to in August 2023 . The Landlord’s agent also submitted a completed Fair Rent statement which included helpful photographs and a floor plan. In the statement there was a schedule of comparable evidence for 2 and 3 bedroom properties recorded by the Rent Officer in the area which ranged from £563.33 to £625.79 per month.

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.

Based upon the evidence provided by the parties together with its expert knowledge of the Taunton area, the Tribunal consider that the subject property, if finished to a reasonable standard would be likely to attract a rent let on an assured shorthold tenancy, of £196 per week (£850 per month)

Next, the Tribunal needs to adjust that hypothetical rent of £196 per week to allow for the differences between the terms of this tenancy, the unmodernised condition, dated sanitary fittings and kitchen units, the lack of white goods, carpets and curtains, and the tenants decorating responsibilities (disregarding the effect of tenant’s improvements and any disrepair or other defect attributable to the tenant).

5

The Tribunal has considered very carefully the information prepared by the Tenant.

Using its own expertise, the Tribunal considers that deductions of approximately 32.5% should be applied in order to take into account the terms of the tenancy, the condition of the property and the lack of carpets, curtains and white goods. This provides a deduction of £63.31 per month from the hypothetical rent. This reduces the figure to £132.69 per week.

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.

In the Tribunals opinion there should be no deduction for scarcity as it is considered demand does not outweigh supply of rented properties in the area.

Conclusion

The capping provisions of the Rent Acts (Maximum Fair Rent) Order do not apply and therefore the above figure applies. For information, the capped rent is accordance with the attached calculations.

Therefore, £132.69 per week (£575 per month) is the fair rent to be registered limited by the Rent Acts (Maximum Fair Rent) Order 1999 with effect from the 25th October 2023 being the date of the Tribunals decision.

Detailed calculations for the capped maximum fair rent are provided on the back of the decision form.

[NAME]

25th October 2023

6

RIGHTS OF APPEAL

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application by email to [EMAIL] to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28 day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.