First-tier Tribunal sets fair rent for property after assessing condition and scarcity

OUTCOME: Allowed

FR24 First-tier Tribunal – Property Chamber File Ref No. JM/LON/00BB/F77/2022/0290

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 81 [ADDRESS], [POSTCODE]

Judge Robert Latham Mr Oliver Dowty MRICS

Landlord [NAME]

Tenant Ms [APPELLANT]

1. The fair rent is 112.00 Per Week (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 28 March 2023

3. The amount for services is not applicable Per

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

not applicable 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 below the maximum fair rent of £140 per week.

Chairman Mr Robert Latham Date of decision 28 March 2023

FR24 MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 360.3

PREVIOUS RPI FIGURE Y 295.4

X 360.3 Minus Y 295.4 = (A) 64.9

(A) 64.9 Divided by Y 295.4 = (B) 0.219702

First application for re-registration since 1 February 1999 NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.269702

Last registered rent* 110 PW Multiplied by (C) = 139.67 *(exclusive of any variable service charge)

Rounded up to nearest 50p = 140

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £140 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.

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : JM/LON/00BB/F77/2022/0290 Property : 81 [ADDRESS], [POSTCODE] Landlord :

[APPELLANT] and [NAME]

Tenant : [APPELLANT] of Application : Assessment of Fair Rent Tribunal Members : Judge Robert Latham Oliver Dowty MRICS Date and venue of Determination : 28 March 2023 at 10 [ADDRESS] [POSTCODE] Date of Reasoned Decision : 28 March 2023

EXTENDED REASONS

Background

1. On 22 September 2022, the landlord applied to the Rent Officer for the registration of a fair rent of £130 per week for 81 [ADDRESS], [POSTCODE] ("the property") pursuant to Part IV of the Rent Act 1977 (“the Act”). The landlord was charging a rent of £110 pw.

2. On 2 November 2022, the Rent Officer registered a fair rent of £110 per week. He first assessed the market rent to be £276.92 per week. He then made adjustments of £155 (50%), having regard to four factors: tenant's decoration liability, poor repair/decorations, no white goods, and no floor coverings/curtains. The Rent Register records that the tenant installed the bathroom and demolished the external wc. He finally made a deduction of £11.92 pw (10%) for scarcity. He assessed the fair rent at £110 pw.

2 3. He also computed the “capped rent” to be £110 pw. However, this seems to be unduly low.

4. The landlord requested the Rent Officer to refer the matter to the First-tier Tribunal (Property Chamber) (the “Tribunal”). [NAME], from Stock Page Stock, has made written representations. He argues that rents in the street are at lease £250 pw. The property is in "mint condition". He enclosed invoices of expenses incurred to in respect of works to the front of the house. He suggests a fair rent of £150 pw.

The Inspection

5. The Tribunal inspected the property. Ms [RESPONDENT] was present. The landlord did not attend.

6. The property is a "Docker's Cottage" which was constructed in the 1900s. It is a two storey terraced property with two bedrooms upstairs and two rooms downstairs. There was a scullery in a rear extension and an external toilet.

7. The tenancy commenced in 1975. Ms [RESPONDENT] husband was a builder. With the consent of the landlord, he carried out major refurbishments. He constructed a ground floor rear extension which accommodated a new kitchen and bathroom. He removed an internal partition on the ground floor to create a large living room. He changed the direction of the stairs.

8. There have been problems of dampness. The landlord has made a number of attempts to address dampness at the front of the property, which now seem to have proved successful. There was some evidence of dampness in the rear bedroom. Mrs [NAME] has maintained the property to a high standard.

The Law

9. When determining a fair rent in accordance with section 70 of the Act, the Tribunal:

(1) has regard to all the circumstances (other than personal circumstances) including the age, location and state of repair of the property;

(2) disregards the effect on the rental value of the property of (a) any relevant tenant improvements and (b) any disrepair or other defect attributable to the tenant or any predecessor in title under the regulated tenancy;

(3) assumes (as required by s.70(2)) that, whatever might be the case, the demand for similar rented properties in the locality does not significantly exceed the supply of such properties for rent. In other words that the effect of any such ‘scarcity’ on rental values is not reflected in the fair rent of the subject property.

3 10. In [COMPANY] v Chairman of the Greater Manchester etc. Committee (1995) 28 HLR 107 and [NAME] v [NAME] [1999] QB 92 the Court of Appeal emphasised that section 70 means that:

(a) ordinarily a fair rent is the market rent for the subject property discounted for ‘scarcity’ and

(b) 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).

11. Thus, once the market rent for the property has been determined by the exercise in (2) above that rent must be adjusted, where necessary, for any scarcity.

12. Having assessed a fair rent, a Tribunal must consider the effect of the Rent Act (Maximum Fair Rent) Order 1999. We annexe this as Appendix 2.

13. In reaching our determination, the Tribunal has taken into account the documents provided by the Rent Officer, the representations provided by the landlord and our findings on viewing the property.

Our Assessment of the Fair Rent

(i) The Market Rent

14. The Tribunal first determines the fair rent in accordance with section 70 of the Act. Our starting point is to determine the rent which the landlord could reasonably expect to obtain for the premises in the open market if it were let today in the condition that is considered usual for such an open market letting in this locality.

15. The Rent Officer has provided a schedule of rents in E6 which range from £185 to £484.62. The Rent Officer took a figure of £253.85 which is at the lower end of the scale.

16. Applying our knowledge as an expert tribunal, we are satisfied that the figure adopted by the Rent Officer is unduly low and we assess the market rent at £350 pw.

(ii) The Adjusted Rent

17. Secondly, this property is not let under the terms or in the condition considered usual for a modern letting at a market rent. Substantial adjustments must be made for this and for the disrepair that we have identified. The Rent Officer made a deduction of 56%.

18. We are satisfied that substantial deductions should be made and we assess this at 60% in respect of the following:

4 (i) The very basic condition in which the property was let and the substantial improvements carried out by the tenant, including the erection of the rear addition;

(ii) Terms and conditions;

(iii) No carpets, curtains or white goods;

(iv) Some disrepair

19. The most significant factor is the very basic condition of the property at the commencement of the tenancy and the major improvements which have been executed by the tenant. We make a deduction of 40% in respect of this. We make a deduction of 20% in respect of the other factors. We considered these factors separately and then considered whether the overall reduction is justified. We are satisfied that it is. We determine an adjusted rent of £140 pw.

(iii) Scarcity

20. Finally, we must consider the issue of scarcity. The Rent Officer made a reduction of 10% in respect of this.

21. In [COMPANY] v [NAME] [2002] All ER (D) 148 (Apr), Ousley J held that scarcity must be considered over a wider area than a particular locality. Greater London is now considered to be an appropriate area to use as a yardstick for measuring scarcity.

22. Applying our own general knowledge, and having regard to the collective knowledge of our expert members on Tribunals in London, we conclude that 20% is the appropriate reduction to make for scarcity in Greater London.

23. We therefore reduce the adjusted rent by £28 pw (20%). This results in our assessment of a fair rent of £112 per week.

The Capped Rent

24. It is then necessary for the Tribunal to compute the “capped rent” applying the Maximum Fair Rent Order. We annexe our calculation to our decision and computed a figure of £140 pw.

25. As the capped rent is higher than the fair rent that we have determined, it is the fair rent that is payable.

Decision

26. The Tribunal determines a fair rent of £112 per week.

Judge Robert Latham, 28 March 2023

5 Appendix 1: Calculation of fair rent

1. Market rent in good condition with modern amenities £350 pw

2. Less adjustments for the following (60%): £210 pw

(i) The very basic condition in which the property was let and the substantial improvements carried out by the tenant, including the erection of the rear addition;

(ii) Terms and conditions;

(iii) No carpets, curtains or white goods;

(iv) Some disrepair

Adjusted Rent: £140 pw

3. Less scarcity in locality (Greater London) (20%): £28

Fair Rent: £112 pw

Rent limit provided for by the Rent Acts (Maximum Fair Rent) Order 1999 £140 pw

Fair Rent Determined £112 pw

6 Appendix 2

The Rent Acts (Maximum Fair Rent) Order 1999 (SI 1999 No.6)

Article 2

(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)/y + P

where–

MFR is the maximum fair rent; LR is the amount of the existing registered rent for 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)/y + P is less than zero the maximum fair rent shall be the existing registered rent.

(5) In applying this article no account shall be taken of any variable sum to be included in the registered rent in accordance with section 71(4) of the 1977 Act.

(6) Subject to paragraph (7), this article applies where an application for the registration of a new rent in respect of a dwelling-house is made after this Order comes into force and, on the date of that application, there is an existing registered rent under Part IV in respect of that dwelling-house.

(7) This article does 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 [NAME], 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.

(8) For the purposes of this article:

(a) references to Part IV are to be Part IV of the 1977 Act;

7 (b) “common parts in relation to a building, includes the structure and exterior of the building and common facilities provided for the occupiers of the dwelling-houses in the building; (c) “index” means the monthly United Kingdom Index of Retail Prices (for all items) published by the Office for National Statistics.