Tribunal Sets Fair Rent for Property Considering Condition and Scarcity

OUTCOME: Allowed

First-tier Tribunal – Property Chamber File Ref No. LON/00BK/F77/2022/0289

Notice of the Tribunal [NAME] 1977 Schedule 11

Address of Premises The Tribunal members were 10A [ADDRESS], [POSTCODE]

Mr Robert Latham Mr [RESPONDENT]; RICS Registered Valuer

Landlord Northumberland and [APPELLANT]

Tenant Mr [APPELLANT]

1. The fair [NAME] is £4992.00 Per Quarter (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 £151.31 Per Quarter

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

£20.35 Per Quarter

5. The [NAME] is not to be registered as variable.

6. The capping provisions of the [NAME] ([NAME]) Order 1999 apply (please see calculation overleaf).

7. Details (other than [NAME]) where different from [NAME] entry

8. For information only:

(a) The fair [NAME] to be registered is not limited by the [NAME] ([NAME]) Order 1999, because it is below the maximum fair [NAME] of £5398 per quarter including £151.31 per quarter. Order.

Chairman Judge Robert Latham Date of decision 28 March 2023

[NAME] FIGURE X 360.3

PREVIOUS RPI FIGURE Y 293.5

X 360.3 Minus Y 293.5 = (A) 66.8

(A) 66.8 Divided by Y 293.5 = (B) 0.227592

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) 1.277598

Last registered [NAME]* 4225 Multiplied by (C) = 5397.85 *(exclusive of any variable service charge)

Rounded up to nearest 50p = 5398

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

[NAME] = £5398 Per Quarter

Explanatory Note

1. The calculation of the maximum fair [NAME], in accordance with the formula contained in the Order, is set out above.

2. In summary, the formula provides for the maximum fair [NAME] to be calculated by:

(a) increasing the previous registered [NAME] 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 [NAME] determination was made.

4. The process differs where the tenancy agreement contains a variable service charge and the [NAME] is to be registered as variable under section 71(4) of the [NAME] 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 [NAME].

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00BF/F77/2022/0289 Property : 10A [ADDRESS], [POSTCODE] Landlord :

[APPELLANT]

Tenant : Mr [APPELLANT] of Application : Assessment of [NAME] Tribunal Members : Judge [NAME] and venue of Determination : 28 March 2023 at 10 [ADDRESS] [POSTCODE] Date of Reasoned Decision : 28 March 2023

EXTENDED REASONS

Background

1. On 2 September 2022, the landlord applied to the [NAME] for the registration of a fair [NAME] of £5,366.22 per quarter for 10A [ADDRESS], [POSTCODE] (“the flat”) pursuant to Part IV of the [NAME] 1977 (“the Act”). The existing [NAME] was £4,225 per quarter.

2. On 31 October 2022, the [NAME] registered a fair [NAME] of £5,180.50 per quarter, with effect from 13 November 2022. He first assessed the market [NAME] to be £750 per week. He then made adjustments of £300 (40%), having regard to four factors: no white goods, tenants' decoration liability; no floor coverings/curtains and unmodernised kitchen. He finally made a deduction of £45 pw (10%) for scarcity. He assessed the fair [NAME] at £5,265 pq.

3. He then computed the “capped [NAME]” to be £5,180.50 pq. As the capped [NAME] was lower than the fair [NAME], it was the capped [NAME] of £5,180.50pq which was registered. He assessed the amount for fuel charges at £20.25 pq and the sum attributable to services to be £151.31 pq.

4. The tenant requested the [NAME] to refer the matter to the First-tier Tribunal (Property Chamber) (the “Tribunal”). Neither party made written representations or requested an oral hearing.

The Inspection

5. The Tribunal inspected the property. The tenant was present. There was no representative from the landlord. The tenancy was granted on 10 February 1969.

6. The flat is in Kensington Gore in a prime central London location close to the Royal Albert Hall. The mansion block was built in the 1880s with a number of large apartments. It was constructed with steel beams between the flats. The construction incorporated clinker bricks. Both the thermal insulation and the noise insulation between flats is poor.

7. After the 1914-18 War, a number of the apartments were divided to provide much smaller flats for single people. The subject flat has three living rooms. However, one of the rooms has large panel doors which open onto the living room. It might therefore be more accurately considered to be a one bedroom flat with two living rooms, rather than as a two bedroom flat. The [NAME] records it as having "3 rooms, 1 kitchen and 1 Bath/wc". There is no central heating. Although the flat is on the ground floor, it has a poor view, looking out onto a lightwell.

8. In 1969, the flat was let to Mr [NAME] in 1969 in a very basic condition. Mr [NAME] described how it was let with "bare boards". There was no gas supply or central heating. There was a single socket for a cooker in the kitchen.

9. Over the subsequent years, the tenant has carried out substantial improvements. The kitchen was extremely basic. The tenant installed a new kitchen. The hand wash basin and toilet in the bathroom were cracked. The tenant installed new units. The tenant has put down teak flooring. He has also replaced a number of the windows with leaded frames. In 1989, the tenant installed a new fuse box and upgraded the wiring in the kitchen. In the kitchen and bedroom there were open coal fireplaces. The tenant has installed gas units. The tenant has maintained the flat to a high standard.

The Law

10. When determining a fair [NAME] 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 [NAME]. In other words that the effect of any such ‘scarcity’ on rental values is not reflected in the fair [NAME] of the subject property.

11. 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 [NAME] is the market [NAME] for the subject property discounted for ‘scarcity’ and

(b) for the purposes of determining the market [NAME], 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).

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

13. Having assessed a fair [NAME], a Tribunal must consider the effect of the [NAME] ([NAME]) Order 1999. We annexe this as Appendix 2.

14. In reaching our determination, the Tribunal has taken into account the documents provided by the [NAME], the limited representations provided by the parties and our findings on viewing the property.

Our Assessment of the [NAME]

(i) The [NAME]

15. The Tribunal first determines the fair [NAME] in accordance with section 70 of the Act. Our starting point is to determine the [NAME] 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.

16. The [NAME] has provided a schedule of rents for two bedroom units in SW7 ranging from £379.85 to £2,575.00. He adopted a market [NAME] of £750 pw. This is a difficult flat to value. The rentals at the top end of the market would be let to an extremely high standard. This flat has an unusual configuration. Applying our knowledge as an expert tribunal, we are satisfied that the figure adopted by the [NAME] is slightly low and assess the market [NAME] for this flat at £800 pw.

(ii) The [NAME]

17. Secondly, this property is not let under the terms or in the condition considered usual for a modern letting at a market [NAME] in this highly desirable area. Substantial adjustments must be made for this. The [NAME] made a deduction of 40% for these.

18. We have also agreed to make a deduction of 40% (£320 pw) in respect of the following and determine an adjusted [NAME] of £480 pw having regard to:

(i) The very basic condition in which the flat was let and the substantial improvements carried out by the tenant, particularly to the kitchen;

(ii) Terms and conditions;

(iii) No carpets, curtains or white goods;

(iv) No central heating;

19. We considered these factors separately and then considered whether the overall reduction is justified. We are satisfied that it is.

(iii) Scarcity

20. Finally, we must consider the issue of scarcity. The [NAME] 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 [NAME] by £96 pw (20%). This results in our assessment of a fair [NAME] of £384 per week, or £4,992 per quarter.

24. The [NAME] has recorded that £20.25 per quarter should be recorded as the amount for fuel charges and £151.32 per quarter for services. These figures have not been challenged and we confirm them.

The [NAME]

25. It is then necessary for the Tribunal to compute the “capped [NAME]” applying the [NAME]. We annexe our calculation to our decision and computed a figure of £5,398 per quarter. We note that the capped [NAME] which we have computed is higher than that determined by the [NAME]

(£5,180.50). We are computing the capped [NAME] some five months later over which period there has been a significant increase in the RPI.

26. As the capped [NAME] is higher than the fair [NAME] that we have determined, it is the fair [NAME] that is payable.

Decision

27. The Tribunal determines a fair [NAME] of £4,992 per quarter.

28. We note that on 13 November 2020, a Tribunal determined a fair [NAME] of £4,225 per quarter. We are satisfied that the approach that we have adopted is consistent with that adopted by that Tribunal. The Tribunal determined the [NAME] during the Covid-19 lock-down when tribunals were not carrying out inspections. We have had the benefit of inspecting the flat.

Judge Robert Latham 28 March 2023

Appendix 1: Calculation of fair [NAME]

1. [NAME] in good condition with modern amenities £800 pw

2. Less adjustments for the following (40%): £320 pw

(ii) Terms and conditions;

(iii) No carpets, curtains or white goods;

(iv) No central heating;

[NAME]: £480 pw

3. Less scarcity in locality (Greater London) (20%): £96

[NAME]: £384 pw or £4,992 pq

[NAME] limit provided for by the [NAME] ([NAME]) Order 1999 £5,398 pq

[NAME] £4,992 pq

Appendix 2

The [NAME] ([NAME]) Order 1999 (SI 1999 No.6)

Article 2

(1) Where this article applies, the amount to be registered as the [NAME] of the dwelling- house under Part IV shall not, subject to paragraph (5), exceed the maximum fair [NAME] 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 [NAME]; LR is the amount of the existing registered [NAME] for the dwelling-house; x is the index published in the month immediately preceding the month in which the determination of a fair [NAME] is made under Part IV; Y is the published index for the month in which the [NAME] was last registered under Part IV before the date of the application for registration of a new [NAME]; and P is 0.075 for the first application for [NAME] registration of the dwelling-house after this Order comes into force and 0.05 for every subsequent application.

(3) Where the maximum fair [NAME] calculated in accordance with paragraph (2) is not an integral multiple of 50 pence the maximum fair [NAME] 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 [NAME] shall be the existing registered [NAME].

(5) In applying this article no account shall be taken of any variable sum to be included in the registered [NAME] 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 [NAME] 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 [NAME] 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 [NAME] that is determined in response to an application for registration of a new [NAME] under Part IV exceeds by at least 15% the previous [NAME] registered or confirmed.

(8) For the purposes of this article:

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

(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.