First-tier Tribunal Sets Fair Rent for London Property

OUTCOME: Allowed

First-tier Tribunal – Property Chamber File Ref No. LON/00AG/F77/2022/0032

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 58A [ADDRESS], [POSTCODE]

Ian B [NAME]

Landlord [APPELLANT]

[NAME] [APPELLANT]

1. The fair rent is £280.50 Per week (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 26th May 2022

3. The amount for services is Not applicable Per week

negligible/not applicable

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

Not applicable Per week

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 £327.00 per week.

Chairman

Judge Ian B Holdsworth

Date of decision 25th May 2022

MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 334.6

PREVIOUS RPI FIGURE Y 256.7

X 334.6 Minus Y 256.7 = (A) 77.9

(A) 77.9 Divided by Y 256.7 = (B) 0.30346

First application for re-registration since 1 February 1999 NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.35346

Last registered rent* 207.00 Multiplied by (C) = 280.1676 *(exclusive of any variable service charge)

Rounded up to nearest 50p = 280.50

Variable service charge NO If YES add amount for services N/a

MAXIMUM FAIR RENT = £280.50 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.

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AF/S77/2022/0032 HMCTS code (paper, video, audio) : P: PAPERREMOTE Property : 58A [ADDRESS] [POSTCODE] Applicant : [redacted] : [COUNSEL], Counsel instructed by [NAME] Respondent : [redacted] : None Date of application : 22 June 2021 Type of application : Determination of the registered rent under Section 70 Rent Act 1977 Tribunal member(s) : Mr Ian B [NAME] : Remote Date of decision : 15 July 2022

DECISION

© CROWN COPYRIGHT 2014

Covid-19 pandemic: 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 it was not practicable. It was agreed between the parties that all issues could be determined in a remote hearing or on paper. The documents that the tribunal were referred to are supplied in a 53 page bundle and skelton argument, the contents of which have been noted. Background 1. The Landlord applied to the Rent Officer for the registration of a fair rent for this property on 22nd June 2021.

2. The fair rent was previously registered on 3 December 2014 at £162.00 per week by the Rent Officer and this was increased to £207.00 per week following an appeal to the First-tier Tribunal Chamber (FTT). This rent was registered on 5th February 2015.

3. A fair rent of £199.00 per week was registered on 18 August 2021 following the application. [NAME], on behalf of the Landlord subsequently challenged the registered rent on 3rd September 2021 and the Rent Officer has requested the matter to be referred to the Tribunal for a determination. Confirmation of the objection to the registered rent are at page 20 of the bundle.

4. Directions were issued on 3rd March 2022 and subsequently amended on 16th March 2022 following receipt of the objection. The Directions stated that the application was suitable for determination on the basis of a video hearing due to Covid restrictions.

5. The parties were invited to submit any relevant information and submissions. Relevant information was received from both the Landlord’s representatives and the Tenant.

6. The Landlord was represented by [COUNSEL], Counsel at the hearing. Ms [COUNSEL] was a litigant in person.

Inspection

7. No inspection of the property was carried out due to Covid restrictions.

The property 8. The Tribunal rely upon the description provided in the written submissions.

9. The property is a 1 bedroom ground floor flat with a garden. It is situated near to Hampstead Heath and approximately 0.5 miles from Hampstead Heath overground station.

Hearing

10. Counsel for the Landlord submitted a skeleton argument on behalf of the Applicant.

11. A 53 page bundle of documents is provided to tribunal. This included completed Pro Forma tenant and landlord reply forms.

12. The Applicants reply form described and detailed recent improvement works including updating of the electricity, sanitary fittings, gas fire and kitchen fittings. It also referred the Tribunal to the tenancy agreement between the parties dated 14 January 1985 between [NAME] and [NAME]. The Applicants submission included a Market Rental opinion prepared by a local estate and letting agent.

13. The Tenants submission commented on the extent of dilapidation at the dwelling including damp, disturbance caused by previous workings and the recent works undertaken by the landlord and the nuisance caused by previous residents in the shared premises.

14. Counsel referred the Tribunal to the tenancy agreement and in particular clause 2(v) in which the Tenant covenants, “to keep and maintain the premises and the rear garden throughout the tenancy in good tenantable and habitable repair and condition together with the landlords fixtures and fittings including gas, electricity and water supplies and sanitary fitments and water pipes and garden tools but excluding main bearing walls and main bearing timbers” and clause 3(c) where the Landlord only covenants, “to keep in repair the exterior of the premises and also subject to Tenants obligations as herein before stated the drains and main water supply to the premises.” 15. Counsel referred to a rental opinion prepared by a local letting agent The agent held that should the dwelling be let on an Assured Shorthold Tenancy the comparable evidence supports rents of around £2,150 per month. The Applicants also submitted the comparable evidence relied upon by the Valuation Office in determining the fair rent.

16. No Assured Shorthold tenancy rental comparable evidence was submitted by the Tenant.

The law 17. 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.

18. 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.

19. Counsel refer tribunal to [NAME] v [NAME] (1999) QB.92 as 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”.

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

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

22. 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.

23. 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 5th February 2015 at £207.00 per week. The rent registered on 18th September 2021 subject to an Objection and subsequent determination by tribunal is not relevant to this calculation.

Valuation

24. 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 their general knowledge of market rent levels in this area of West London.

25. 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. No adjustments are made to the transaction evidence in assessment of the rent for this property.

26. The responsibility for internal maintenance of this property under the tenancy agreement is the responsibility of the Tenant. This includes all service provision.

27. 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.

28. 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. West 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 West London.

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

30. 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.

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

Property: 58A [ADDRESS] [POSTCODE] Fair rent calculation in accordance with s(70) Rent Act 1977 Market rent £495.00 per week Disregards Deduction per week as % weekly rent £24.75 5.00% Full repairing and insuring lease ( see clauses 2(v) and 3c of lease) £61.88 12.50% Dilapidations Deduction per week as % weekly rent None advised responsibility of landlord £0.00 0.00% Improvements undertaken by tenant as % weekly rent None material to rental value £0.00 0.00% £86.63 17.50% Adjusted Rent balance £408.38 Less Scarcity 20.00% on adjusted market rent £81.68 Adjusted Market Rent £326.70 per week Uncapped rent Capped rent in accordance with 280.50 £ per week Capped rent Rent Acts (Maximum Fair Rent) Order 1999

Total deductions Carpets , curtains white, goods, soft furnishing

Decision 32. The Rent Acts (Maximum Fair Rent) Order will apply to this determination. The uncapped fair rent initially determined by the Tribunal for purposes of Section 70 is £326.70 per week by virtue of the rent acts maximum fair order 1999 the maximum fair rent that can be registered for this property is £280.50. This is based on a specific 5% increase plus any retail price increases on the previously registered rent of £207.00 per week.

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

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

35. Accordingly, the sum that will be registered as a fair rent with effect from 25 May 2022 is £280.50 per week.

Valuer Chairman: Ian B Holdsworth Dated: 15 July 2022

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.