market value
📖 What is market value? Meaning and definition
Market value is a key concept when determining rent, especially in cases where a tribunal is asked to set a 'fair rent' or a 'market rent'. It represents the theoretical rent a property could command if it were freely available for rent in the current market. This initial market value is often assessed by considering general knowledge of rental values in the area and by reviewing comparable local properties.
Once an open market value is established, it is then adjusted to account for specific differences between the hypothetical market letting and the actual property or tenancy. These adjustments can include deductions for the property's condition, such as an old immersion heater, lack of central heating, or issues with the kitchen, bathroom, or electrical installation. Other deductions might be made for the absence of landlord-provided items like curtains or white goods, or for specific problems like damp.
Crucially, any improvements made by the tenant are disregarded when calculating the market value. Further deductions may also be applied for factors like the scarcity of similar properties in the area. The final 'fair rent' or 'market rent' determined by a tribunal is the result of these initial assessments and subsequent adjustments, ensuring the rent reflects the actual circumstances of the tenancy.
📋 Requirements
- Assessment based on general knowledge of rental values in the area.
- Review of comparable local properties.
- Hypothetical market value is adjusted for differences between typical market terms and the actual property's condition.
- Tenant's improvements are disregarded.
- Deductions are made for specific property conditions or lack of amenities.
📝 Procedure
- A landlord serves a notice proposing a new rent under Section 13(2) of the Housing Act 1988.
- The tenant refers the landlord’s notice to the Tribunal for determination of a market rent under Section 13(4)(a) of the Housing Act 1988.
- The Tribunal assesses an open market rent for the property.
- Deductions are made from the open market rent for factors like property condition, lack of amenities, and scarcity.
- The Tribunal determines the final market rent.
💡 Examples
- A tribunal might determine an initial open market rent of £35,000 per annum for a property, then make deductions for its dated kitchen, bathroom, lack of central heating, and damp, reducing the final fair rent.
- A landlord's agent suggests a theoretical open market rent of £1,400 per month, from which deductions are made for the tenant's provision of white goods and floor coverings, and for the general condition of the flat.
- A tribunal determines a market rent of £1,000.00 per calendar month for an assured shorthold tenancy after a tenant referred the landlord's proposed new rent for review.
- An open market rent of £1,350 per month is assessed, followed by deductions for various factors including a 10% reduction for scarcity of similar properties.
📚 Legal basis
- Housing Act 1988
- Landlord and Tenant Act
❓ Frequently asked questions
What is the difference between 'market value' and 'fair rent'?
Market value is the starting point, representing what a property would rent for on the open market. Fair rent is the market value adjusted for specific conditions of the property, tenant improvements, and other factors like scarcity, as determined by a tribunal.
How do tribunals calculate market value for rent?
Tribunals typically consider their own knowledge, review local rental values, and compare the property to others in the area. They then make adjustments for the actual condition of the property, amenities provided, and any tenant improvements are disregarded.
Can a tenant's improvements affect the market value of the rent?
No, any benefit derived from the tenant's improvements is specifically disregarded when calculating the market value or fair rent, ensuring the tenant is not penalised for their own investment in the property.
What factors can lead to deductions from the market value?
Deductions can be made for various factors, including the condition of the kitchen or bathroom, lack of central heating, state of electrical installations, absence of landlord-provided white goods or curtains, damp, and scarcity of similar properties.
When would a market rent determination be necessary?
A market rent determination is necessary when a landlord proposes a new rent for an assured shorthold tenancy, and the tenant refers this proposal to a tribunal for review, or when a fair rent is being set for other types of tenancies.