Tribunal Sets Fair Rent for Property Under Rent Act 1977

OUTCOME: Allowed

FR24 First-tier Tribunal – Property Chamber File Ref No. CHI/00HB/F77/2023/0020

Notice of the Tribunal Decision

Rent Act 1977 Schedule 11

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

[NAME] Mr [RESPONDENT] Mr [APPELLANT]

Landlord [NAME]

Tenant [NAME]

1. The fair rent is £184.50 Per Week (excluding water rates and council tax but including any amounts in paras 3&4)

2. The effective date is 30 June 2023

3. The amount for services is negligible Per

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

n/a Per n/a

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 the maximum fair rent as prescribed by the Rent Acts (Maximum Fair Rent) Order 1999. The rent that would otherwise have been registered was £232.61 per Week.

[NAME] [NAME] of decision 30 June 2023

FR24 MAXIMUM FAIR RENT CALCULATION

LATEST RPI FIGURE X 375.3

PREVIOUS RPI FIGURE Y 280.7

X 375.3 Minus Y 280.7 = (A) 94.6

(A) 94.6 Divided by Y 280.7 = (B) 0.337

First application for re-registration since 1 February 1999 NO

If yes (B) plus 1.075 = (C)

If no (B) plus 1.05 = (C) 1.337

Last registered rent* £133.00 Multiplied by (C) = 184.47 *(exclusive of any variable service charge)

Rounded up to nearest 50p = £184.50

Variable service charge NO If YES add amount for services

MAXIMUM FAIR RENT = £184.50 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 : CHI/00HB/F77/2023/0020 Property : [ADDRESS] [POSTCODE] Applicant (Landlord) : [NAME] : None Respondent (Tenant) : [NAME] : None Type of application : Section 70 of the Rent ACT 1977 Tribunal members : Mr [NAME] Mr [NAME] Mr [NAME] : Paper determination Date of decision : 30th June 2023

DECISION

2 The Tribunal determines £184.50 per week is to be registered as the fair rent for the above property with effect from 30th June 2023 being the date of the Tribunal's decision.

The reasons for this decision are set out below.

Reasons

Background

On the 20th January 2023 the landlord, applied to the Valuation Office Agency (Rent Officer) for registration of a fair rent of £176.50 per week for the property.

The rent registered at the time of the application was £133 per week effective from 18th May 2018.

On 21st February 2023 the Rent Officer registered a fair rent of £139.80 per week, effective from that date. The rent increase imposed by the Rent Officer has not been “capped” or limited by the operation of the Rent Acts (Maximum Fair Rent) Order 1999 (the Order).

By an email dated 21st March 2023 from [NAME], 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

(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).

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.”

Facts found without Inspection

The parties did not request the Tribunal to inspect the property and the Tribunal were satisfied this was not required and relied on information provided by the parties together with its expert knowledge.

The property is a good size converted flat located on ground and basement level which forms part of a Georgian Grade II Listed mid terrace building located in an established road convenient to local amenities.

The accommodation over two floors comprises: living room, kitchen, two bedrooms, bathroom, communal garden.

There is gas central heating to radiators and single glazed windows and on streeet permit parking arrangements.

Terms of the tenancy

The Periodic Protected Tenancy commenced on the 15th September 1986 with [COMPANY]. It is agreed that the landlord is responsible for structural repairs and external decoration; the tenant is responsible for internal decorations. The property was let unfurnished.

4

Tenant's improvements and Condition

The tenant has not made any comment in connection with any improvements during the term of the tenancy. However, the landlord confirms carpets, curtains and any white goods were not provided by landlord.

Evidence

The Tribunal had copies of the Valuation Office Agency correspondence including the rent registers effective from the 18th May 2018 and 21st February 2023 although the Tribunal were unable to view the calculations for the most recent registration.

In a bundle of documents, the landlord provided information in connection with the property in the form of a completed Reply Form, the front page of the tenancy agreement, reasons of the objection and somewhat generic list of comparables taken from “Rightmove” which range from £1,100 pcm- £3250 pcm. These details did not provide any precise addresses, no date of transaction or floor area. The tenant has not engaged with this application.

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.

Based upon the generic list of comparable evidence provided by the landlord together with its expert knowledge, the Tribunal consider that the subject property, if finished to a reasonable standard would be likely to attract a rent let on an assured shorthold tenancy, for £323.08 per week. (£1400 per month)

The landlord has confirmed that the sum of £14.74 per week is attributed to services from the 3rd April 2023. This sum is considered negligible by the Tribunal and does not form part of these calculations.

We now need to adjust that hypothetical net rent of £323.08 per week to allow for the differences between the terms of this tenancy and the lack of white goods, carpets and curtains, and the tenants decorating responsibilities (disregarding the effect of tenant’s improvements and any disrepair or other defect attributable to the tenant).

The Tribunal has considered very carefully the landlord’s submissions and the calculations prepared by the Rent Officer.

Using our own expertise, we considered that deductions of 20% should applied to take into account the terms of the tenancy, and the condition of the property at the commencement of the tenancy. This provides a deduction of £64.62 per week from the hypothetical rent. This reduces the figure to £258.46 per week.

5 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.

In the Tribunals opinion there should be a deduction of 10% for scarcity as it is considered demand outweighs supply of rented properties in the area. This provides a figure of £25.85 and therefore reduces the rent to £232.61 per week.

Conclusion

The capping provisions of the Rent Acts (Maximum Fair Rent) Order apply and therefore the capping figure applies. The fair rent in accordance with the attached calculations is £184.50 per week.

Therefore, this is the fair rent to be registered limited by the Rent Acts (Maximum Fair Rent) Order 1999 with effect from the 30 June 2023 being the date of the Tribunals decision.

Detailed calculations for the capped maximum fair rent are provided attached this decision. This calculation for this figure is based upon the indexation of the Retail Price Index (RPI) during the period of the two rent assessments. During the past 12 months, the RPI has increased dramatically due to the cost-of-living crisis and therefore this rental calculation has escalated significantly.

The rental figure determined by the Tribunal exceeds that proposed by the landlord. Such figure is the maximum rent payable. However, the landlord is under no obligation to charge the full amount.

[NAME]

30th June 2023

6 RIGHTS OF APPEAL

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application by email to [EMAIL] to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28 day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for 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.

4. The application for permission to appeal must 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.