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Determination of fair rents

This content applies to England

How fair rents are determined. What factors the rent officer should and should not have regard to when determining the fair rent, including comparables and scarcity value.

How fair rent is determined

The statutory definition of a fair rent is found in section 70 of the Rent Act 1977. This states that in determining a fair rent regard must be had to all the circumstances, but not to personal circumstances.[1]

In particular the following must be considered:

  • the age, character, locality and state of repair of the dwelling[2]
  • the quantity, quality and condition of any furniture provided for use under the tenancy[3]
  • any premium which has been or may be paid on the grant, renewal, continuance or assignment of the tenancy.[4]

The rent officer will consider whether or not the property is in a desirable location or on a busy street, and whether or not there is good access to parks, transport, shops and other amenities.

The assumption is also made that the number of people seeking to become tenants of similar properties in the area on similar terms to the tenancy in question (other than as to rent) is not substantially greater than the number of such properties in the area which are available for letting on similar terms.[5]

An important way of determining the fair rent of a property is, therefore, to look at the rent of other similar properties in the area to use as comparables and then to make a deduction to allow for any scarcity in the area (both these terms are explained in detail below).

Factors to be disregarded

The determination of a fair rent should disregard:

  • personal circumstances of both the landlord and tenant. A rent officer, for example, must not take into account the financial circumstances of the tenant which may affect her/his ability to pay the rent or a landlord who claims that s/he cannot afford to keep the property in good repair. However, the general level of wages in the locality can be looked at,[6] for example to show the level of rent which local demand for properties would give rise to. The tenant's security of tenure is also a personal circumstance that must be disregarded[7]
  • disrepair attributable to failure by the tenant (or her/his predecessor) to comply with terms of her/his contract[8]
  • any improvements carried out by the tenant over and above the obligations of the tenancy agreement.[9] However, the Court of Appeal held that the improvements made by the same tenant under a previous tenancy of the same premises were not to be disregarded when determining the rent under a new assured periodic tenancy, unless the previous tenancy was an assured tenancy.[10]

When determining a fair rent, the First-tier Tribunal (Property Chamber) is entitled to prefer the results of its own inspection of premises, rather than a surveyor's report.[11]

Comparables

In the past, rent officers and the First-tier Tribunal (Property Chamber) used recent registered rents of other similar properties as evidence of what the fair rent for a particular property should be; these were known as comparables. However, following the deregulation of the private rented sector landlords argued successfully that market rents for assured shorthold tenancies should be used as comparables, particularly as these became more widespread. This has had the effect of increasing fair rents. Evidence of market rents can be found by looking at advertisements for similar rented property in local newspapers, advertisements in shop windows etc.

The approach of using market rents as comparables has become progressively more established by case law.[12] Although the courts have acknowledged that there may be more than one approach to determining a fair rent, every approach must start from a comparison with a market rent which may then be adjusted to take into account scarcity and any disregards. It would only be in exceptional circumstances that this is not the case, for example, where the nature and/or condition of the property was such that there was no comparable property let on an assured shorthold tenancy.

Scarcity value

Arguments about scarcity are an important factor for the tenant in restricting the level of a fair rent increase. Scarcity value was included in the determination of a fair rent to protect tenants from the high rents, which result from the fact that the demand for rented housing far outstrips supply, ie because of the scarcity of rented accommodation. Fair rents must be assessed on the level they would have been if there was no scarcity, thereby keeping the rent low.[13]

To contest this presumption, a landlord would have to show there was no scarcity in the broader locality.[14] Landlords have to provide substantial evidence that scarcity no longer exists and advisers should argue that simply copying lists of local private rented accommodation is not sufficient evidence of a lack of scarcity, as there is no guarantee that an advertised property is still available. Landlords can refer to a fairly large locality when presenting evidence of scarcity.[15]

Advisers should gather information about the pressure on housing in the locality, as case law has established that scarcity in an area could be shown by demand as well as supply. The First-tier Tribunal (Property Chamber) can use council housing registers and housing association waiting lists when assessing scarcity because a high demand for public sector housing may reflect pronounced scarcity in the private sector.[16] However, this should be done with caution.

Relevant evidence should be available from local registered social landlords and local authority housing registers; from housing advice centres regarding the level of housing need and from local homeless persons units about the number of people applying for housing considered not in priority need. Case law has also held that rather than introducing inflexible rules as to the burden of proof of scarcity, the Tribunal's own knowledge and experience of the locality is considered to be of particular value.[17]

However, where the committee's determination of a fair rent differs significantly from the market rent indicated by comparables, the committee must show good reason for its decision, providing arithmetical workings if necessary.

Other factors influencing the level of fair rents

Apart from considering comparables and scarcity, advisers should take account of other factors when preparing a submission to a rent officer or to the Tribunal concerning a fair rent, including the following:

  • Furniture – furniture provided by the landlord should be included in the rent on the basis of the value to the tenant and not the cost to the landlord. There are different ways of valuing furniture. A rent officer or the Tribunal may either look at the property as a whole including furniture and set a rent for a furnished dwelling, or may consider a rent for an unfurnished dwelling then add an amount for the furniture.
  • Service charges – an amount attributable to service charges will be included in the fair rent set and landlords who provide services normally give details of their service charge expenditure to rent officers and the Tribunal. Advisers should check with their clients whether the stated services conform with the terms of the tenancy agreement, whether the standard of the services is satisfactory and the reasonableness of the landlord's charges. It has been established that landlords can charge management costs and are entitled to some profit on the provision of services; it is generally accepted that this charge is between 10 per cent and 15 per cent of the total service charge bill. Where there is a block of flats there are recognisable methods of apportioning the service charge between them by dividing by the number of flats, rateable values or according to the floor space of each dwelling, which advisers should use. The Rent Act provides that where the sums payable to the landlord include sums that vary according to the cost of services provided by the landlord, the fair rent may be registered as a variable amount.[18] However, the rent officer or the Tribunal must consider the variation terms to be reasonable.
  • Disrepair – full details of all disrepair should be presented to the rent officer (such as ill-fitting windows, broken heaters and dangerous wiring). Where a landlord is not fulfilling her/his repairing obligations (for example under section 11 of the Landlord and Tenant Act 1985), the rent set should reflect this and evidence can be presented to the rent officer or the Tribunal such as environmental health officer reports or repair notices which have been served.
  • Inadequate lighting and heating, poor natural light, nearby disruptive businesses, access to local amenities, heavy traffic and the size of rooms – these are all factors which may influence the level at which the fair rent is set.

Maximum limit for fair rent increases

In the 1990s many tenants with registered rents faced very substantial rent increases as a result of the use of comparable market rents. In response to concerns that these increases were causing hardship the UK Government implemented regulations limiting fair rent increases.

The regulations stipulate the maximum level for fair rent increases and do not replace, but operate in parallel with, the provisions of the Rent Act 1977.

Where an application for a fair rent has been made after 1 February 1999 and the rent has been previously registered as a fair rent under the Rent Act 1977, then any increase will be subject to a maximum limit.[19]

If the rent officer decides a fair rent is more than the maximum fair rent limit, the maximum fair rent becomes the registered rent. However, if the fair rent determined is less than the maximum fair rent limit, then that fair rent will be the new registered rent.

Exempt from the maximum fair rent limit

The limit does not apply where:

  • the rent has not previously been registered or
  • if, as a result of repairs or improvements carried out by the landlord to the dwelling-house or the common parts at any time since the previous rent registration[20], the fair rent determined is at least 15 per cent more than the existing registered rent. Repairs or improvements include the replacement of any fixture or fitting. Common parts includes the structure and exterior of the building and common facilities provided for the occupiers of the dwelling-houses in the building.

Calculating a maximum fair rent

The maximum fair rent limit is calculated on the basis of the change in the retail price index (RPI) – (the monthly UK index of retail prices (all items) published by the Office for National Statistics) since the last registration, plus 7.5 per cent for first reregistrations after 1 February 1999 or 5 per cent for subsequent re-registrations.

The formula is complex and in brief is the existing registered rent multiplied by an fraction plus the percentage mentioned above of 7.5 per cent or 5 per cent. The retail price index fraction is the retail price index in the month before the month in which the rent officer determines the fair rent minus the published retail price index for the month in which the fair rent was previously registered divided by the published retail price index for the month in which the fair rent was previously registered. The maximum fair rent is then rounded up to the nearest 50 pence.

Example calculation of maximum fair rent

The rent officer receives an application to re-register a rent after 1 February 1999. The maximum fair rent is calculated as follows:

  1. the rent was last registered at £100 per month in March 1997
  2. the published retail price index (all items) for March 1997 was 155.4
  3. the rent is due to be reregistered on 31 March 1999 and the retail price index for March is £165.40 (assumed)
  4. the change in the retail price index since last registration is 165.4 - 155.4 = 10
  5. the change in retail price index as a proportion of the retail price index at the last registered rent is 10 ÷ 155.4 = 0.06435
  6. since this is the first reregistration after 1 February 1999 7.5 per cent is added (0.06435 + 0.075 = 0.13935)
  7. adding 1 and then multiplying by the last registered rent gives the maximum fair rent: (0.13935 + 1) x £100 = £113.935
  8. rounding up to the nearest 50 pence gives a maximum fair rent of £114 so the rent officer can only increase the rent to that amount.

[1] s.70(1) Rent Act 1977.

[2] s.70(1)(a) Rent Act 1977.

[3] s.70(1)(b) Rent Act 1977.

[4] s.70(1)(c) Rent Act 1977.

[5] s.70(2) Rent Act 1977.

[6] Guppy's (Bridport) v Carpenter [1973] RVR 573.

[7] Palmer v Peabody Trust [1975] QB 604; Mason v Skilling [1974] 1 WLR 1437, HL.

[8] s.70(3)(a) Rent Act 1977.

[9] s.70(3)(b) Rent Act 1977.

[10] Hughes v Borodex Ltd [2010] EWCA Civ 425.

[11] R (on the application of Gidvani) v London Rent Assessment Panel [2007] EWHC 2525.

[12] Spath Holme Ltd v Greater Manchester and Lancashire Rent Assessment Committee (1996) 28 HLR 107; Curtis v London Rent Assessment Committee (1998) 30 HLR 733.

[13] s.70(2) Rent Act 1977.

[14] Metropolitan Property Holdings v Finegold [1975] 1 WLR 349, 1 All ER 389.

[15] R Wolters (London) Ltd v London Rent Assessment Committee and others [2003] EWHC 1465; Yeoman's Row Management Ltd v Chairman of London Rent Assessment Committee and others [2002] EWHC 835, Admin.

[16] Forebury Estates Ltd v Chiltern Thames and Eastern Rent Assessment Panel and others [2000] 20 June 2000, QBD.

[17] Curtis v London Rent Assessment Committee (1998) 30 HLR 733.

[18] s.71(4) Rent Act 1977; Cavendish Square Investments Ltd v Moule [2012] EWHC 1839 (Admin).

[19] Rent Acts (Maximum Fair Rent) Order 1999 SI 1999/6.

[20] art.2(7) Rent Acts (Maximum Fair Rent) Order 1999/6; Hill v Helix Housing Association [2017] UKUT 238 (LC).

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