scarcity factor
📖 What is scarcity factor? Meaning and definition
When determining a 'fair rent' for a property under a regulated tenancy, the First-tier Tribunal considers the market rent but then applies a discount for 'scarcity'. This discount accounts for any part of the market rent that is inflated because there are not enough similar properties available to rent in the wider locality on similar terms (excluding the rent itself). The Court of Appeal has emphasised that a fair rent is typically the market rent, minus this scarcity element.
To work out the market rent, the Tribunal usually looks at rents for assured tenancies, which are considered appropriate comparables. These comparable rents might need to be adjusted if there are notable differences between those properties and the one being assessed. Once the market rent is established and any other necessary adjustments are made (for example, for improvements or disrepair), the scarcity factor is then applied as a percentage reduction.
The level of scarcity can vary greatly across different parts of the country, and there isn't a fixed rule or general guideline for what adjustment should be made. Instead, the Tribunal assesses each case individually based on its specific merits. The aim is to ensure the determined fair rent accurately reflects the property's value without being artificially inflated by a lack of available housing.
📋 Requirements
- The property must be subject to a regulated tenancy.
- There must be a significant shortage of similar properties in the wider locality available for letting.
- The shortage must be on similar terms to the regulated tenancy (other than as to rent).
- The Tribunal must consider the specific merits of the case, as there is no general rule for scarcity adjustments.
📝 Procedure
- Determine the market rent for the property, often using assured tenancy rents as comparables.
- Adjust the market rent for any relevant differences between the comparables and the subject property (e.g., condition, improvements).
- Identify if there is a significant shortage of similar properties in the wider locality.
- Apply a percentage discount to the adjusted market rent to account for the scarcity factor.
- The Tribunal considers the case on its merits, as there is no 'rule of thumb' for the scarcity adjustment.
💡 Examples
- If the market rent for a flat is £1200 per month, but there's a severe shortage of similar flats in the area, the Tribunal might apply a 20% scarcity discount, reducing the rent to £960.
- A Tribunal might assess the market rent for a property at £660 per month after accounting for disrepair, and then apply a 20% scarcity deduction, bringing the fair rent down to £528 per month.
- When setting a fair rent, the Tribunal first establishes an open market rent, then makes deductions for things like the tenant's responsibility for internal decoration or white goods, and finally applies a scarcity adjustment.
- Even if a property has been previously registered, the scarcity factor is still considered when assessing a new fair rent, especially if there haven't been significant improvements by the landlord.
❓ Frequently asked questions
What is a 'fair rent' in the UK?
A 'fair rent' is a specific type of rent determined by the First-tier Tribunal for properties under regulated tenancies. It aims to be a reasonable rent, taking into account various factors including the market rent and any scarcity of similar properties.
How does the scarcity factor affect my rent?
If a scarcity factor is applied, it means the market rent for your property is reduced to arrive at the 'fair rent'. This reduction happens because there's a shortage of similar properties available to rent, and the law prevents your rent from being inflated by this high demand.
Is the scarcity factor the same everywhere in the UK?
No, the level of scarcity varies considerably across different parts of the country. The Tribunal considers each case on its own merits, meaning there's no general guidance or 'rule of thumb' for what the scarcity adjustment should be.
What is the difference between market rent and fair rent?
Market rent is what a property would typically let for on the open market. Fair rent is the market rent, but then discounted for any 'scarcity' (i.e., if there's a shortage of similar properties), and also adjusted for other factors like the property's condition or improvements.
Can I challenge the scarcity factor applied to my rent?
The Tribunal makes a decision on the scarcity factor based on the evidence presented. If you believe the Tribunal's decision is incorrect, you might be able to appeal, but this is a complex process. You should seek advice from a qualified solicitor.
How is 'scarcity' actually measured?
The Tribunal assesses whether there is a 'significant shortage of similar properties in the wider locality available for letting'. This is a factual assessment made by the Tribunal based on the evidence and local knowledge, rather than a precise mathematical measurement.