market scarcity
📖 What is market scarcity? Meaning and definition
In the context of determining a fair rent for a property, particularly under regulated tenancies, market scarcity is an important factor. A fair rent is generally considered to be the market rent for a property, but with a deduction made for any element of that rent that is solely due to a significant shortage of similar properties in the wider locality. This means that if there are very few comparable homes available for rent, the market price might be higher than it would be in a more balanced market.
The First-tier Tribunal, when assessing a fair rent, will often start by considering the open market rent for the property in its current condition. From this initial market rent, adjustments are then made for various factors, including the impact of market scarcity. The aim is to arrive at a rent that reflects the property's true value, without the upward pressure caused by a lack of available homes.
For example, tribunals have been observed to apply a percentage deduction for scarcity, such as 20%, from the adjusted market rent. This deduction is applied after other adjustments have been made for the property's condition, terms of tenancy (e.g., no white goods, no carpets or curtains, defective windows, no central heating), and other specific features like sloping ceilings or dated fixtures and fittings. The final figure, after all deductions including scarcity, represents the uncapped fair rent.
📋 Requirements
- A significant shortage of similar properties in the wider locality available for letting on similar terms to a regulated tenancy.
- The market rent for the property needs to be determined first.
- The scarcity must be an element that inflates the market rent.
📝 Procedure
- The Tribunal considers its own expert knowledge of rental values in the area.
- The open market rent for the property in its current condition is determined.
- Adjustments are made for terms of tenancy and property condition (e.g., no white goods, defective windows).
- A specific percentage adjustment is then made for scarcity.
- The final figure, after all deductions, is the uncapped fair rent.
💡 Examples
- A tribunal determined an open market rent of £1700 per calendar month for a property, then made a 30% adjustment for the property's condition and terms, followed by a 20% deduction for scarcity.
- A tenant's rent was reduced after the tribunal considered deductions for a sloping ceiling, dated fixtures, and the effect of market scarcity in the area.
- The Court of Appeal emphasised that a fair rent is typically the market rent discounted for any element attributable to a significant shortage of similar properties.
- When comparing a flat in poor condition to others on the market, the tribunal also considered a previous decision where scarcity was a factor in rent deductions.
📚 Legal basis
- Rent Acts (Maximum Fair Rent) Order 1999
❓ Frequently asked questions
What does 'market scarcity' mean for my rent?
If there's a shortage of similar properties to rent in your area, the market rent might be higher than it should be. When determining a fair rent, a tribunal can reduce your rent to account for this 'scarcity element'.
How is market scarcity calculated?
Tribunals assess the open market rent and then apply a percentage deduction for scarcity, typically after other adjustments for the property's condition and tenancy terms have been made. The specific percentage can vary depending on the local market.
Can I argue for a scarcity deduction myself?
Yes, if you believe there is a significant shortage of similar properties in your area, you can present this argument to the First-tier Tribunal when your fair rent is being determined. You might need to provide evidence of comparable properties or the lack thereof.
Does market scarcity apply to all types of tenancies?
The concept of market scarcity, as discussed in these cases, is particularly relevant for regulated tenancies where a 'fair rent' is determined. For assured tenancies, market rents are usually appropriate comparables, adjusted as necessary.
What kind of evidence do I need to show market scarcity?
You might refer to local rental listings, expert opinions on the local housing market, or previous tribunal decisions in your area that have acknowledged scarcity. The tribunal will also use its own expert knowledge.
Is market scarcity the only factor that reduces my rent?
No, market scarcity is one of several factors. Tribunals also make adjustments for the property's condition (e.g., defective windows, no central heating), the terms of the tenancy (e.g., no white goods, no carpets), and other specific features of the property.