Tribunal Sets Fair Rent for Property Considering Condition and Market Scarcity

OUTCOME: Allowed

First-tier Tribunal – Property Chamber File Ref No. TR/LON/00BJ/F77/2023/0108

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

Address of Premises The Tribunal members were 34 [ADDRESS] [POSTCODE]

[NAME]

Landlord [RESPONDENT] & [COMPANY] [NAME] [RESPONDENT]

1. The fair rent is £2730.00 Per quarter (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 16 May 2023

3. The amount for services is NIL included Per

negligible/not applicable

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

nil 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.

7. Details (other than rent) where different from Rent Register entry

As rent register.

The landlord may charge rent at any level provided it does not exceed the Registered Fair Rent.

8. For information only: Part (b) below, applies.

(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 £ per week…… including ………………………… 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 £2949.49 per quarter including £ ......................................... per ................................ for services (variable) prescribed by the Order.

[NAME] of decision 16 May 2023

MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 367.20

PREVIOUS RPI FIGURE Y 294.60

X 367.20 Minus Y 294.60 = (A) 72.60

(A) 72.60 Divided by Y 294.60 = (B) 0.2464

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) 1.2964

Last registered rent* 2275 Multiplied by (C) = 2949.31 *(exclusive of any variable service charge)

Rounded up to nearest 50p = 2949.50 /qtr

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £2949.50 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.

© CROWN COPYRIGHT 2013

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00BJ/F77/2023/0108 Property : 34 [ADDRESS] [POSTCODE] Applicant : [redacted] Representative : None Respondent: [redacted] Representative : [COUNSEL] [RESPONDENT] of Application : S.70 Rent Act 1977 – Determination of a new fair rent Tribunal Member : [NAME] and venue of Meeting : 16 [ADDRESS] [POSTCODE] Date of Decision : 16 May 2023 14 July 2023 (reasons)

REASONS FOR DECISION

Background

1 The landlord applied to the Rent Officer for registration of a fair rent. The rent registered as already payable at the time of the application was £2275 per qtr, from 23 March 2021. The landlord stated in its notice RR1 that it was at a monthly rent of £758.33 pcm.

2 Although the Rent Officer set a rent of 2450.50 from February 2023, subsequently a party (it is unclear from the correspondence available the Tribunal) objected and sought a re-hearing of the application, by the Tribunal.

2 Inspection

3 The Tribunal did not inspect the Property owing to the department’s ongoing health restrictions imposed and arising from Covid 19. The Property appears from Google Streetview (@August 2021), to be part of a purpose built low rise, 1950’s block of flats in a residential area. There are four floors of self contained residential accommodation accessed off communal pavement or walkways.

4 The Property has 1 rooms, kitchen, shower room & WC with partial central heating. It is assumed judging from the exterior appearance and existing records that there is no double glazing to windows. The main roof appears to be flat but, it is not possible to see beyond the eaves from ground level photography. The front elevation of the building within which the Property lies, appears in fair condition.

5 The Tribunal made the assumption common in older established tenancies such as this one, that there were no carpets or curtains, or white goods included in the letting by the landlord and that the kitchen and bathroom were functional but basic only. The tenant did not report to the Tribunal any improvements which they had carried out or any items of disrepair which the landlord had not.

Evidence

6 Directions, for the progression of the case were issued. The Tribunal received brief representations. Neither party requested a hearing. The case was determined only on the papers.

Law

7 When determining a fair rent the Committee, in accordance with the Rent Act 1977, section 70, 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.

8 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 emphasized

(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

3 (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).

Decision

9. The condition of a property is inferior of that of comparable properties, so that the rents of those comparables are towards twice that proposed rent for the subject property, it calls into question whether or not those transactions are truly comparable. Would prospective tenants of modernized properties in good order consider taking a tenancy of an unmodernised house in poor repair and with only basic facilities or are they in entirely separate lettings markets? The problem for the Tribunal is that the only evidence of value levels available to us is of modernised properties. We therefore have to use this but make appropriate discounts for the differences, rather than ignore it and determine a rent entirely based on our own knowledge and experience, whenever we can.

10. On the evidence of the Tribunal’s general knowledge of market rent levels in this location, the subject property if modernized and in good order would let on normal Assured Shorthold Tenancy (AST) terms, for £4,550 per quarter.

11. Tribunal makes allowance for the absence of carpet and curtains, for the lack of white goods, only a basic kitchen and bathroom, partial central heating and no double glazing. These adjustments total a £1137 deduction, producing a market rent of £3413 per quarter, prior to considering scarcity.

12. The Tribunal also has to consider the element of scarcity and whether demand exceeded supply. The Tribunal found that there was a substantial scarcity in the locality of Greater London and therefore makes a further deduction of 20% from the adjusted market rent to reflect this element. This deduction results in an uncapped fair rent of £2730 per quarter.

13. The Tribunal is also required to calculate the Maximum Fair Rent Cap (MFRCap) which serves to limit the extent of increase in a fair rent on review. The cap is determined by a formula under statutory regulation, which whilst allowing for an element of inflation may serve to prevent excessive increases. The cap as the date of the Tribunal’s determination produces a figure of £2949 per quarter. This figure is a combination of the previously registered rent being subject to the change in RPI between registration dates rounded up to the nearest 50p. There is no service charge element. In this case the cap did not apply according to the MFRCap regulations.

4 14. The new rent calculated above is not capped. The fair rent is £2730 per quarter. It takes effect from and including the date of determination, 16 May 2023.

[NAME] 14 July 2023