Tribunal sets £10,162.50 fair rent for assured tenancy in London

First-tier Tribunal – Property Chamber File Ref No. LON/00BK/F77/2020/0016

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

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

Ms Aileen Hamilton-Farey

Landlord [APPELLANT]

Tenant Mrs [APPELLANT] [NAME]

1. The fair rent is 10,162.50 Per quarter (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 12 November 2020

3. The amount for services is n/a Per

negligible/not applicable

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

n/a Per

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

Heating by tenant, re-wiring by tenant in 2020.

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 £13,900 ................................................................................................................................................ per quarter including £ 0 per ................................. for services (variable).

(b) The fair rent to be registered is not limited by the Rent Acts (Maximum Fair Rent) Order 1999, because it is the same as/below the maximum fair rent of £ ........ per .................. including £ ...................................... per ..............................for services (variable) prescribed by the Order.

[NAME] Judge Aileen Hamilton-Farey Date of decision 12 November 2020

MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 293.3

PREVIOUS RPI FIGURE Y 278.1

X 293.3 Minus Y 278.1 = (A) 15.2

(A) 15.2 Divided by Y 278.1 = (B) 0.0546

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) 1.1046

Last registered rent* £9200.00 Multiplied by (C) = £10,162.32 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £10,162.50

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £10,162.50 Per quarter

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/00BK/F77/2020/0016 HMCTS code (paper, video, audio) : P: Paper Remote Property : [ADDRESS], London , [POSTCODE]. Applicant : [redacted] Representative : [RESPONDENT] Respondent : [redacted] : In person. Type of application : Application for the determination of a Rent under the Rent Act 1977. Tribunal members : Ms. [NAME]. [NAME] : Remote. Date of Reasons : 4 January 2021.

DECISION Decision

£10,162.50 is to be registered as the fair rent for the above property with effect from 12 November 2020 being the date of the Tribunal's decision.

The reasons for this decision are set out below.

Reasons

Background

On 25th September 2019, the landlords [COMPANY] applied to the Valuation Office Agency (Rent Officer) for registration of a fair rent of £10,580.00 per quarter for the property.

The rent payable at the time of the application was £9,208.00 per quarter, effective from 5 December 2017.

On 20 November 2019, the Rent Officer registered a fair rent of £9,400.00 per quarter, effective from 5 December 2019. The Rent Officer made no comments as to the uncapped rent, but it appears from the rent register that the rent had been capped in line with the Maximum Fair Rent Order (“MFR”).

By letter dated 18 December 2019, the landlord 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

(1) 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

(2) 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.”

Determination:

In view of the current pandemic, the Tribunal was unable to inspect the property, and instead relied on submissions by the parties and its own expert knowledge. In this instance, the tenant made representations as to the level of the increase but did not provide any comparable evidence of similar properties in the locality. The tenant did however confirm that the rewiring and heating to the property had been carried out by them, during the tenancy. The tribunal must therefore make a deduction in respect of the tenant’s improvements. The landlord produced a statement of comparable properties on which it wished to rely, including two properties in [ADDRESS] and [ADDRESS], which are in the locality of the subject property. The property is a three storey terraced house, comprising 6 rooms, 2 x bathroom/w.c. and a kitchen, as well as a garden. The property is located in a very popular area of London, close to all the usual amenities and transport links. As already noted, the heating and re-wiring has been undertaken by the tenant.

Terms of the tenancy

It is understood that this tenancy began on 25 December 1956. It is agreed that the landlord is responsible for structural repairs and external decoration; the tenant is responsible for internal decorations. The property is let unfurnished.

Landlord’s improvements

The landlord has not suggested that any improvements have been carried out to the property during the tenancy, or since the last registration, that should be taken into account by the tribunal.

Evidence

The Tribunal had copies of the Valuation Office Agency correspondence including the previous rent register.

The landlord provided three comparables. These were:

[ADDRESS], let at £7,500.00 per month (three bed, two bath house) [ADDRESS], let at £9,100.00 per month (three bed, three bath house) [ADDRESS] - £8,666.00 per month (three bed, three bath house)

Rightmove details were appended to the landlord’s submissions, and these showed that the comparables were in a good condition, some were furnished, and had modern fixtured and fittings.

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.

We consider that the subject property, if finished to the standard required in this location, would be likely to attract a rent under an assured shorthold tenancy of £27000.00 per quarter (£9,000.00 per month). This is the hypothetical market rent for the property.

However, we must adjust that hypothetical rent of £27,000.00 per quarter to allow for the differences between the terms of this tenancy, the lack of modernization, and white goods, and the tenant’s improvements.

Using our own expertise we considered that deductions of 10% should applied in order to take into account the terms of the tenancy, 10% for the lack of appliances, furniture and furnishings, and a further 20% to reflect the tenant’s improvements. This provides for a deduction of £9,504.00 per quarter from the hypothetical rent. Giving an adjusted market rent of £17,406.00 per quarter.

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. Greater London is 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 Greater London.

We therefore made a further deduction of approximately 20% from the adjusted market rent to reflect this element to produce a figure of £13,906.60 per quarter.

Conclusion

The capping provisions of the Rent Acts (Maximum Fair Rent) Order apply and therefore the above figure does not apply. The capped fair rent in accordance with the calculations provided on the decision template is £10,162.50 per quarter.

Therefore, the fair rent to be registered is limited by the Rent Acts (Maximum Fair Rent) Order 1999 with effect from the 12 November 2020 being the date of the Committee’s decision.

Tribunal: Ms. [NAME]. [NAME]: 4 January 2021.