market rent
📖 What is market rent? Meaning and definition
Market rent refers to the rental value of a property as determined by the open market. This value is often established by comparing the property to similar properties that are available for letting on similar terms. For example, assured tenancy rents are commonly used as appropriate comparables when determining market rent, though adjustments may be necessary to account for any differences between the properties being compared.
The determination of market rent is a process often undertaken by a First-tier Tribunal (Property Chamber) in the UK. This can occur, for instance, when a landlord proposes a new rent under sections 13 and 14 of the Housing Act 1988, and the tenant refers this notice to the Tribunal for a decision. The Tribunal will then assess the market rent based on the evidence presented, which may include an inspection of the property and a review of relevant documents.
While market rent is a primary consideration, it's important to note that for some tenancy types, such as regulated tenancies, the final 'fair rent' might be the market rent discounted for 'scarcity'. Scarcity refers to any element of the market rent attributable to a significant shortage of similar properties in the wider locality available for letting. The level of scarcity can vary considerably across the country, and there is no general rule of thumb for determining the adjustment needed.
The Tribunal's decision on market rent will specify the amount, for example, £700 per month, and the date from which it takes effect. This determination is a formal outcome following an application, often conducted remotely based on papers and sometimes an inspection.
📋 Requirements
- An application or referral for determination of market rent must be made, such as under Section 14 Housing Act 1988.
- The Tribunal will consider comparable assured tenancy (market) rents for similar properties.
- Any relevant differences between the subject property and comparable properties must be adjusted for.
- For regulated tenancies, market rent may be discounted for 'scarcity' if there's a shortage of similar properties.
📝 Procedure
- A landlord serves a notice of increase of rent under Section 13(2) of the Housing Act 1988.
- The tenant refers the landlord’s notice to the First-tier Tribunal (Property Chamber) for determination.
- The Tribunal reviews documents, potentially conducts an inspection, and holds a remote hearing (often on papers).
- The Tribunal determines the market rent and specifies the date from which it takes effect.
💡 Examples
- A tenant referred their landlord's proposed rent increase from £1,050 to £1,650 per month to the Tribunal, which then determined a market rent of £1,200 per month.
- The Tribunal determined a market rent of £700 per month for a property, effective from a specific date in October 2022, following a remote hearing and inspection.
- For a regulated tenancy, the Tribunal considered the market rent but then discounted it because there was a significant shortage of similar properties available for letting in that rural area.
- The Tribunal used assured tenancy rents for properties with similar features and locations as a basis to calculate the market rent for the property in question.
📚 Legal basis
- Housing Act 1988
❓ Frequently asked questions
What is the difference between 'market rent' and 'fair rent'?
Market rent is what a property would fetch on the open market. For regulated tenancies, a 'fair rent' is usually the market rent, but with a discount applied if there's a significant shortage of similar properties in the area (known as 'scarcity').
How is market rent determined in the UK?
Market rent is typically determined by a First-tier Tribunal (Property Chamber). They usually look at rents for similar properties (assured tenancy rents are often used as comparables) and make adjustments for any differences between those properties and the one in question.
When might a Tribunal determine market rent?
A Tribunal might determine market rent when a landlord proposes a new rent for an assured tenancy under sections 13 and 14 of the Housing Act 1988, and the tenant refers that proposal to the Tribunal for a decision.
Can market rent be adjusted for local housing shortages?
Yes, for certain tenancies like regulated tenancies, the market rent can be adjusted (discounted) if there is a significant shortage of similar properties available for letting in the wider locality. This adjustment is known as a 'scarcity' discount.
What evidence does the Tribunal use to decide market rent?
The Tribunal considers various documents, may inspect the property, and reviews comparable rents, particularly assured tenancy rents, to establish the market rent. They look for properties with similar characteristics and in similar locations.