open market value
📖 What is open market value? Meaning and definition
When a landlord seeks to increase rent for an assured tenancy, or a tenant refers a rent increase notice to a Tribunal, the Tribunal's role is to determine the 'open market value' of the rent. This means they assess what the property would realistically let for in the current market, assuming a willing landlord and an assured tenancy agreement. This assessment takes into account the property's condition at the time of valuation.
The Tribunal must consider the specific terms of the existing tenancy, such as whether it's a periodic tenancy and its duration, and assume these terms would remain the same, except for the rent amount itself. Certain factors are specifically disregarded when determining this value. For instance, any increase in value due to improvements made by the tenant, unless they were obliged to do so by the landlord, is ignored. Similarly, any decrease in value caused by the tenant failing to meet their tenancy obligations is also disregarded, meaning the property is valued as if it were in a reasonable decorative condition.
This valuation process ensures fairness for both landlords and tenants. It prevents landlords from benefiting from tenant improvements when setting new rents and ensures tenants are not penalised for minor decorative issues when the rent is being assessed. The Tribunal uses its general knowledge of local residential market rent levels and may consider comparable properties to arrive at a fair open market rent.
📋 Requirements
- The property must be let under an assured tenancy.
- The valuation considers the property in its current condition at the proposed date of increase.
- The rent is determined as if let by a willing landlord in the open market.
- The terms of the tenancy (other than rent) are assumed to be the same as the actual tenancy.
- Any increase in value due to tenant improvements (unless obligated) is disregarded.
- Any decrease in value due to tenant's failure to comply with tenancy terms is disregarded, assuming reasonable internal decorative condition.
📝 Procedure
- Landlord serves a notice under Section 13(2) of the Housing Act 1988 seeking to increase rent.
- Tenant refers the notice to the Tribunal for a determination of the market rent.
- The Tribunal issues directions for the conduct of the matter.
- The Tribunal considers evidence, including comparable properties and its own general knowledge of market rent levels.
- The Tribunal determines the rent the property might reasonably be expected to achieve in the open market under an assured tenancy.
💡 Examples
- A landlord proposes to increase the rent from £1,523 to £1,829 per month, and the tenant refers this to the Tribunal for a determination of the open market value.
- The Tribunal determines that a property, in its current condition as at 1st January 2024, might reasonably achieve £1,675 per month in the open market under an assured tenancy.
- When assessing the rent, the Tribunal ignores the new kitchen units installed by the tenant because they were not required to do so by their landlord.
- The Tribunal values a property as if it were in a reasonable internal decorative condition, even if the tenant has caused some minor damage, when determining the open market rent.
📚 Legal basis
- Housing Act 1988
❓ Frequently asked questions
What does 'open market value' mean for my rent?
It means the amount of rent your property would likely achieve if it were advertised and let to a new tenant today, under the same type of tenancy agreement you have, and with a landlord willing to let it.
Can my landlord include the cost of my improvements when calculating open market value?
No, the Tribunal will disregard any increase in the property's value that is due to improvements you carried out, unless you were specifically required to do them by your landlord.
What if my property isn't in perfect condition? Will that lower the open market value?
The Tribunal will value the property as it stands, but it will assume it is in a reasonable internal decorative condition. Any decrease in value due to your failure to comply with tenancy terms will be disregarded.
How does the Tribunal decide the open market value?
The Tribunal uses its general knowledge of local rental market levels and may consider comparable properties to let in the area, taking into account the specific terms of your assured tenancy.
Does 'open market value' apply to all types of tenancies?
Based on the cases, this term is specifically applied when determining rent for assured tenancies, particularly when a tenant refers a rent increase notice to the Tribunal under the Housing Act 1988.
What if my landlord includes broadband or pet fees in the proposed rent increase?
The Tribunal will determine the global rental figure, which may include such items. In one case, the landlord confirmed the global figure included amounts for broadband and a pet, leading to a net rent calculation.