scarcity
📖 What is scarcity? Meaning and definition
Scarcity is a key factor considered when determining a 'fair rent' for a property under a regulated tenancy. It specifically refers to the element of the market rent that is due to a substantial shortage of similar properties in the wider locality available for letting on similar terms, excluding the rent itself. If there are many more people seeking properties than there are properties available, this creates scarcity.
When a First-tier Tribunal determines a fair rent, they typically start with the market rent for the property. This market rent is often established by looking at rents for comparable assured tenancy properties. Once the market rent is determined, an adjustment or 'discount' is then applied to account for any scarcity that exists.
The Court of Appeal has emphasised that a fair rent is ordinarily the market rent, but with a deduction for scarcity. This means that if scarcity is identified, the final fair rent will be lower than the market rent would otherwise suggest. For example, a tribunal might calculate a market rent and then apply a percentage reduction, such as 20%, specifically for scarcity.
It's important to note that the Rent Acts (Maximum Fair Rent) Order 1999 can place a 'cap' on how much a fair rent can increase. Even if the uncapped fair rent, after accounting for scarcity, is lower than the capped rent, the lower figure will be registered as the fair rent for the property.
📋 Requirements
- The number of people wanting to become tenants of similar dwelling houses in the locality is substantially greater than the number of such dwelling houses available.
- The comparison of demand and availability is based on terms of the regulated tenancy, other than those relating to rent.
- The scarcity must be significant enough to contribute an identifiable element to the market rent.
- The assessment of scarcity considers the wider locality.
📝 Procedure
- Determine the market rent for the property, often using assured tenancy rents as comparables.
- Adjust market rent for any relevant differences between the subject property and comparables (e.g., condition, fittings).
- Assess if there is a significant shortage of similar properties in the wider locality available for letting.
- Apply a discount to the market rent for 'scarcity' if such a shortage is found.
- Compare the uncapped fair rent (after scarcity discount) with the capped rent under the Rent Acts (Maximum Fair Rent) Order 1999.
- Register the lower of the uncapped fair rent or the capped rent as the fair rent.
💡 Examples
- A tribunal calculates a market rent of £2100 per month for a London property, then applies a 20% reduction for scarcity, bringing the rent down by £210.
- If many families are looking for three-bedroom houses to rent in a specific town, but very few are available, this shortage would be considered scarcity when setting a fair rent.
- A property's market rent might be £1050 after accounting for its condition, but a further deduction of £210 is made because there's a high demand for similar homes in the area.
- The Court of Appeal has clarified that a fair rent is essentially the market rent, but with a specific discount applied if there's a notable lack of similar properties to let.
📚 Legal basis
- Rent Acts (Maximum Fair Rent) Order 1999
❓ Frequently asked questions
What does 'scarcity' mean in the context of my rent?
In tenancy law, scarcity means there are many more people wanting to rent homes similar to yours in your area than there are properties available. This shortage can push up market rents.
How does scarcity affect my fair rent?
If scarcity is present, the market rent for your property will be 'discounted' or reduced to arrive at a fair rent. This means the fair rent you pay will be lower than what the market rent would be without that shortage.
Who decides if there is scarcity?
A First-tier Tribunal or similar body determines if scarcity exists and how much of a discount should be applied to the market rent because of it, based on evidence of local housing supply and demand.
Can scarcity make my rent go up?
No, scarcity generally leads to a reduction in the market rent when determining a fair rent. It accounts for the part of the market rent that is inflated purely due to a shortage of properties.
Is scarcity always considered when setting rent?
Scarcity is a specific consideration for 'fair rents' under regulated tenancies. It's a crucial factor in ensuring the rent reflects the property's true value without being artificially inflated by high demand.
What is the 'cap' mentioned in relation to fair rent?
The Rent Acts (Maximum Fair Rent) Order 1999 sets a 'cap' on how much a fair rent can increase. The final registered fair rent will be the lower amount between the uncapped fair rent (after any scarcity discount) and this statutory cap.