First-tier Tribunal Sets Fair Rent for Property Based on Condition and Market Value

OUTCOME: Allowed

FR24 First-tier Tribunal – [NAME] No. JM/LON/00AN/F77/2022/0248

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

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

[NAME] Mr [NAME] JP

Landlord [APPELLANT]

Tenant Ms [APPELLANT]

1. The fair rent is £20,000 Per Year (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 17 February 2023

3. The amount for services is £410.64 Per Year

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:

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 £26,295.50 per year with attributable £ 410.64 per year for services (variable) prescribed by the Order.

(a)

[NAME] of decision 17th February 2023

FR24 MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 360.4

PREVIOUS RPI FIGURE Y 293.5

X 360.4 Minus Y 293.5 = (A) 66.90

(A) 66.90 Divided by Y 293.5 = (B) 0.2279

First application for re-registration since 1 February 1999 NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.2779

Last registered rent* 20577 Multiplied by (C) = £26,295.35 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £26,295.50

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £26,295.50 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 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.

Case Reference

: JM/LON/OOAN/F77/2022/0248

Property : [ADDRESS], [POSTCODE]

Tenant

: [NAME]

Landlord : [COMPANY] [RESPONDENT] of Application : Determination of a Fair Rent under section 70 of the Rent Act 1977

Tribunal

: Mr [NAME] MA LLM FRICS Mr [NAME] JP

HMCTS Code : On Papers (paper, video, audio)

Date of Decision : 17th February 2023

Date of Statement of Reasons: 17th February 2023

_______________________________________________

Statement of Reasons

____________________________________

© CROWN COPYRIGHT 2021

FIRST - TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY)

Background The Tribunal gave formal notice of its decision by a Notice dated 17th February 2023 of the determined Fair Rent of £20,000 per year with effect from same date. By way of application, dated, 2nd September 2022 made by the landlord of the property, applied for re registration of a fair rent of £23,421.82 per year with £929.33 per year attributed to services. Previously the Rent Officer had registered a rent of £18250 per year with £738.17 per years noted as attributed to services with effect from 4th December 2019. With subsequent Tribunal decision of £ 20577 per year with £1186.92 attributed to services with effect from 12th November 2020. The Rent Officer registered a fair rent of £19800 per year with £410.64 per year attributed to services with effect from 12th November 2022. In a letter dated 9th November 2022 the landlord [RESPONDENT] objected to the rent registered and the matter was referred to the First –tier Tribunal ([NAME]) (Residential Property). Directions were issued by the Tribunal on the 17th November 2o22. Thereafter, the Directions made provision for the filing with the Tribunal of the parties’ respective written submissions and, in particular, for the completion of a reply form giving details of the Property and including any further comments the parties wished the Tribunal to take into account in making its determination. The tenancy is a statutory (protected) periodic tenancy. The tenancy (not being for a fixed tenancy of 7 years or more) is subject to section 11 of the Landlord and Tenant Act 1985 which sets out the landlords statutory repairing obligations; the tenant is responsible for internal decorations. The Property The tribunal inspected the property on 17th February 2023. The property is a self-contained purpose-built flat dating around 1900, situated on the first floor with 4 rooms, a kitchen/dinner and 2 bathrooms and WC. The inspection found the flat be very largely in an original specification as built. In one living room there was substantial cracking of one of the load bearing walls. The bathrooms contain original cast iron baths and a new combination boiler fitted. The windows are all single glazed and in poor condition. The flooring is largely bare boards. Relevant Law Provisions in respect of the jurisdiction of the Tribunal and the determination of a fair rent are found in Schedule 11, Part 1, paragraph 9(1) to the Rent Act 1977, as amended by paragraph 34 of the Transfer of Tribunal Functions Order 2013, and section 70 of the Rent Act 1977. Rent Act 1977

Schedule 11, Part 1, paragraph 9 (as amended) “Outcome of determination of fair rent by appropriate tribunal 9.-(1) The appropriate tribunal shall- (a) if it appears to them that the rent registered or confirmed by the rent officer is a fair rent, confirm that rent; (b) if it does not appear to them that that rent is a fair rent, determine a fair rent for the dwelling house.” Section 70: Determination of fair rent (as amended) “(1) In determining, for the purposes of the Part of this Act, what rent is or would be a fair rent under a regulated tenancy of a dwelling house, regard shall be had to all the circumstances (other than personal circumstances) and in particular to- (a) the age, character, locality and state of repair of the dwelling-house, … (b) if any furniture is provided for the use under the tenancy, the quantity, quality and condition of the furniture [, and (c) any premium, or sum in the nature of a premium, which has been or may be lawfully required or received on the grant, renewal, continuance or assignment of the tenancy.] (2) For the purposes of the determination it shall be assumed that the number of persons seeking to become tenants of similar dwelling-houses in 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.

(3) There shall be disregarded- (a) any disrepair or other defect attributable to a failure by the tenant under the regulated tenancy or any predecessor in title of his to comply with any terms thereof; (b) any improvement carried out, otherwise than in pursuance of the terms of the tenancy, by the tenant under the regulated tenancy or any predecessor in title of his; (c), (d) …[repealed] (e) if any furniture is provided for use under the regulated tenancy, any improvement to the furniture by the tenant under the regulated tenancy or any predecessor of his or, as the case may be, any deterioration in the condition of the furniture due to any ill-treatment by the tenant, any person residing or lodging with him, or any sub-tenant of his.”

Consequently, when determining a fair rent the Tribunal, in accordance with the Rent Act 1977, section 70, has regard to all the circumstances including the age, location and state of repair of the Property. It also disregards the effect of (a) any relevant Tenant’s improvements and (b) the effect of any disrepair or defect attributed to the Tenant of any predecessor in title under the regulated tenancy, on the rental value of the Property. 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:

(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 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. (The rents may have to be adjusted where necessary to reflect any differences between the comparables and the subject property).

In considering scarcity under section 70 (2), the Tribunal recognises that: (a) there are considerable variations in the level of a scarcity in different parts of the country and that there is no general guidance or “rule of thumb” to indicate what adjustments should be made; the Tribunal, therefore, considers the case on its merits; (b) terms relating to rents are to be excluded. A lack of demand at a particular rent is not necessarily evidence of scarcity; it may be evidence that the prospective tenants are not prepared to pay that particular rent. Fair rents are subject to a capping procedure under the Rent Acts (Maximum Fair Rent) Order 1999 which limits increases by a formula based on the proportional increase in the Retail Price Index since last registration. The only exception to this restriction on a fair rent is provided under paragraph 7 of the Order where a landlord carries out repairs or improvements which increase the rent by 15% or more of the previous registered rent. Pre hearing Submissions Landlord No submissions from landlord other than initial application to register a fair rent and the objection notice. Tenant

The tribunal was in receipt of a Reply Form completed by the Tenant Ms [APPELLANT] undated.

Under accommodation the rooms and their sizes are specified, noting in particular that Living Room 2 has “number of windows makes it exceptionally cold in winter”. With feature – the central heating is present and installed by landlord, no double glazing, but curtains, carpets and white goods provided by the tenant. Under improvements, “a new gas boiler was provided by the Landlord in 2019 who requested that the cost be taken into account when determining the fair rent due to set from November that year. No further improvements have been made to date”. With defects, Bathroom 1 – the plastic cistern which replaced a cast iron cistern circa 2010 was replaced for the second time during lockdown due to a large leaking crack. Unfortunately …....it fails to flush efficiently. The paint on the wood batten to which the cistern was attached …...is badly stained. The ceiling which was repaired some years ago following water leakage from the flat below, has begun to hang from the ceiling. Bathroom 2 – In February 2020 the second bathroom was badly damaged again by water leaking from flat above. Other comments Gaps under some doors causing draughts and adding to extremely cold environment Energy costs are a great concern The Hearing No hearing was requested by the parties nor one felt proportionate, so the matter was addressed on papers. Reasons for Decision The tribunal has also inspected. The rent to be determined must reflect the condition found on the date of the hearing disregarding all tenants' improvements. The tribunal finds on balance that the central heating system that is boiler and radiators were installed by the tenant in 1990 with the tenant adding a later radiator in 2010. The tribunal also finds on balance that the landlord replaced the boiler in 2018 or 2017 with a new boiler at the landlord's expense. The process for determining a fair rent is the application of Rent Act 1977 section 70 on the subject property and then comparison with the maximum rent permitted under the Maximum Fair Rent Order 1999. This means that comparison with other properties the subject of Fair Rent is not material.

Initially 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. Considering evidence submitted and the Tribunal acting in its capacity as an expert tribunal and using its general knowledge of market levels in the area, concluded that such a likely market rent, if a market rent is adopted would be £ 40,000 per year However, the Property is not in the condition considered usual for a modern letting at a market rent. Therefore, it is necessary to adjust the above hypothetical rent, a deduction of 20% is made. In addition, the Tribunal determined that there should be a further deduction of 10% to reflect the fact the terms and conditions and goods supplied under the tenancy would differ from those of a contemporary assured shorthold tenancy, from which the rental comparables are derived. Thereafter the Tribunal considered the question of scarcity in section 70 (2) of the Rent Act 1977. A figure of 20% was adopted. Market derived rental level - £40,000 per month Less 20% condition Less 10% for terms and supplied goods inc white goods Less 20% for scarcity. The rent after this final adjustment was £20,000 per year.

Rent Acts (Maximum Fair Rent) Order 1999 The rent to be registered is limited by the Rent Acts (Maximum Fair Rent Order) 1999. The rent calculated in accordance with the Order is £ 26,295.50 per year with £410.64 per year attributable for services. This figure is higher than the figure calculated by reference to the market rent with adjustments, of £20,000 per year with £410.64 per year attributed for services.

Accordingly, the sum of £20,000 per year will be registered as the fair rent with effect from 17th February 2023, being the date of the Tribunal’s decision. Valuer Chair: [NAME]: 17th February 2023 Extended reasons: 17th February 2023

Appeal to the Upper Tribunal A person wishing to appeal this decision to the Upper Tribunal ([NAME]) on a point of law must seek permission to do so by making a written application to

the First-tier Tribunal at the Regional Office which has been dealing with the case which application must: a. be received by the said office within 28 days after the Tribunal sends to the person making the application written reasons for the decision. b. 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. If the application is not received within the 28 –day time limit, it must include a request for an extension of time and the reason for it 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.