market comparables
📖 What is market comparables? Meaning and definition
When a fair rent needs to be determined for a property, particularly under a regulated tenancy, the starting point is often to look at the market rent. To establish this market rent, legal tribunals typically consider 'market comparables'. These are rents from other properties, usually those let under assured tenancies, that are similar to the property in question and located in the wider locality.
The process involves comparing the subject property to these comparables. However, it's crucial that these comparables are genuinely similar. Adjustments may be necessary to account for any relevant differences between the comparable properties and the subject property. For instance, if the condition of a property is significantly poorer than that of the comparables, or if it lacks certain features like modernised kitchens or bathrooms, the rents of those comparables might need to be adjusted downwards to reflect these disparities.
The goal is to arrive at a market rent that accurately reflects what a property would fetch if freely let, before any discounts for 'scarcity' (a shortage of similar properties) are applied. If the comparable rents are vastly different, for example, twice the proposed rent for the subject property, it raises questions about whether those transactions are truly comparable, suggesting they might not be suitable for comparison.
📋 Requirements
- Comparables must be from properties in the wider locality.
- Comparables are usually assured tenancy (market) rents.
- Comparables should be for properties available for letting on similar terms (other than rent) to the subject property.
- Adjustments must be made to comparable rents to reflect relevant differences with the subject property.
- The condition of the comparable property should not be vastly superior to the subject property, as this may make them not truly comparable.
📝 Procedure
- Identify the market rent for the property.
- Use assured tenancy (market) rents as appropriate comparables.
- Adjust the comparable rents to reflect any relevant differences between those comparables and the subject property (e.g., condition, features).
- Consider if the comparable transactions are truly comparable, especially if their rents are significantly higher than the proposed rent for the subject property.
- Apply a discount for 'scarcity' if there is a significant shortage of similar properties in the wider locality.
💡 Examples
- A tribunal determining a fair rent for a flat with a basic bathroom and dated kitchen might look at rents of other flats in the same area, adjusting them downwards if the comparable flats have modern facilities.
- If a tenant argues their rent is too high compared to neighbours, the tribunal would need to check if those neighbours' properties are truly comparable in terms of tenancy type (e.g., social housing vs. market rent) and condition.
- When assessing a property with double-glazed windows and gas-fired central heating, the tribunal would seek comparables with similar features, making adjustments if the comparables lack these or have more advanced amenities.
- If a property has issues like mould or interference with light from nearby trees, the rents of otherwise similar comparables might need to be adjusted to account for these negative factors.
❓ Frequently asked questions
What kind of properties are used as market comparables?
Usually, market comparables are rents from properties let under assured tenancies. These are considered appropriate for determining the market rent of a property.
Do market comparables have to be exactly the same as my property?
No, they don't have to be exact. However, they should be similar, and any relevant differences between the comparable properties and your property will lead to adjustments in their rents to ensure a fair comparison.
What kind of differences might lead to adjustments in comparable rents?
Differences in property condition (e.g., a dated kitchen versus a modern one), features (e.g., double glazing, central heating), or even issues like mould or light interference can lead to adjustments in the comparable rents.
Can I use social housing rents as market comparables?
The case excerpts suggest that assured tenancy (market) rents are usually appropriate comparables. If you are comparing your rent to social housing rents, you would need to demonstrate why these are relevant, as they often operate under different schemes.
What if the comparable rents are much higher than what I think my property is worth?
If the rents of comparable properties are significantly higher, for example, towards twice the proposed rent for your property, it raises questions about whether those transactions are truly comparable. This suggests they might not be suitable for your case.
Where can I find market comparables for my area?
While the excerpts don't specify where to find them, in practice, you might look at rental listings for similar properties in your local area. However, a tribunal will ultimately assess the suitability of any comparables presented.