market rent comparison
📖 What is market rent comparison? Meaning and definition
When a rent needs to be assessed, such as for a regulated tenancy or social housing, a key step is to establish the 'market rent'. This is typically done by comparing the property in question to other similar properties that are available for letting on the open market. These 'comparables' are usually assured tenancy rents, which reflect current market conditions.
However, the market rent may need adjustments. For instance, if there's a significant shortage of similar properties in the wider area, an element known as 'scarcity' might be present. In such cases, the market rent is discounted to account for this scarcity, ensuring the fair rent isn't inflated by the lack of available properties. The level of scarcity can vary greatly across different parts of the country, and there's no fixed rule for how much to adjust for it.
Further adjustments to the market rent can be necessary to reflect differences between the comparable properties and the subject property. This might include variations in who provides carpets or curtains, who is responsible for internal decorations, or if the tenant has installed improvements like central heating, a walk-in shower, or additional kitchen cupboards. The condition of the property, such as dampness or mould growth, would also be considered.
📋 Requirements
- Identification of comparable properties available for letting on similar terms.
- Consideration of assured tenancy rents as appropriate comparables.
- Assessment of any 'scarcity' in the wider locality for similar properties.
- Adjustments for relevant differences between the comparable properties and the subject property.
📝 Procedure
- A Rent Officer or Tribunal assesses the open market rent for the property.
- Details of other properties available to rent are provided as comparables.
- Differences between the subject property and comparables are noted, such as tenant improvements or landlord responsibilities.
- The market rent is adjusted for factors like scarcity or property condition.
- The final fair rent is determined, potentially discounted from the market rent.
💡 Examples
- A Tribunal assesses a property's market rent at £3,450 per quarter, considering a landlord's agent's suggestion of £1,250 to £1,450 per month based on two other properties available at £1,495 per month.
- When determining a fair rent, the market rent for a property is discounted because there is a significant shortage of similar properties available for letting in the area.
- A social housing provider sets rents at 60% of market rents, meaning that if a Tribunal sets a rent above this, the tenant will still only pay the proposed lower rent.
- The market rent for a house is adjusted downwards because the tenant installed the central heating and replaced the bath with a walk-in shower, which are improvements not provided by the landlord.
📚 Legal basis
- Housing Act 1988
❓ Frequently asked questions
What is 'scarcity' in market rent comparison?
Scarcity refers to an element of the market rent that is due to a significant shortage of similar properties available for letting in the wider area. When scarcity is present, the market rent is typically discounted to ensure the fair rent is not unfairly high.
How are 'comparable' properties chosen?
Comparable properties are usually other properties available for letting on similar terms, with assured tenancy rents often used as appropriate comparables. These properties help establish what the open market rent would be.
Can tenant improvements affect the market rent comparison?
Yes, if a tenant has installed improvements like central heating, a new shower, or additional kitchen cupboards, these differences between the subject property and comparables may lead to adjustments in the market rent calculation.
Is market rent always the final rent charged?
Not necessarily. For regulated tenancies, the market rent is often discounted for scarcity to arrive at a fair rent. In social housing, the rent charged might be a percentage of the market rent, or capped by government policy, even if a Tribunal determines a higher market rent.
What if there are issues with the property's condition?
Issues like dampness or mould growth, as noted in a surveyor's report, are relevant differences that would be considered when adjusting the market rent to reflect the true value of the subject property compared to others.