Determination of a fair rent

The statutory definition of a fair rent is found in section 48 of the Rent (Scotland) Act 1984. This states that in determining a fair rent, regard must be had to all the circumstances, but not to personal circumstances. In particular the following must be considered:

• Comparable rents in the locality.

• The age, character, locality and state of repair of the dwelling.

• The quantity, quality and condition of any furniture provided for use under the tenancy.

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 that are available for letting on similar terms. [1] 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 a comparison, and then to make a deduction to allow for any scarcity in the area.

The determination of a fair rent should disregard certain elements:

• The personal circumstances of both the landlord and tenant. For example a rent officer must not take into account the financial circumstances of the tenant that 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, [2] for example to show the level of rent that local demand for properties would give rise to. The tenant's security of tenure is also a personal circumstance that must be disregarded. [3]

• Any disrepair attributable to failure by the tenant (or her/his predecessor) to comply with terms of her/his contract. [4]

• Any improvements carried out by the tenant over and above the obligations of the tenancy agreement. [5]

• Where furniture is provided, any deterioration of this because of ill treatment by the tenant [6]

In calculating a fair rent, First Tier Tribunals and rent officers can refer to recent registered rents of other similar properties as evidence of what the fair rent for a particular property might be. These are known as comparables. The rent levels of recent fair rent registrations can be found by looking at the rent register in the local rent office. Following the deregulation of the private rented sector, landlords argued that market rents for assured tenancies should be used as comparables, particularly as these became more widespread. This approach has not yet been accepted in Scotland. [7]

The Act directs that a fair rent is to be determined upon the assumption that there is no scarcity of accommodation to rent. If there is such scarcity, some allowance or deduction from market rents may have to be made. [8] Therefore, arguments about scarcity are an important factor for the tenant in restricting the level of a fair rent increase.

The Rent officer or First Tier Tribunal determines whether there is scarcity of accommodation to rent. It must be demonstrated that there is an excess of demand over supply that makes tenants enter into bargains they would not otherwise contemplate. [9] That scarcity must be reflected in the broader locality. The increase in value of a property must relate to scarcity in the area and not the level of amenity offered. For example, an increase in value attributable to the proximity of a desirable school was not treated as caused by scarcity. Scarcity is to be looked at on a much wider basis over a broad area.

Landlords should be required to show substantial evidence that scarcity no longer exists and advisers should argue that simply copying lists of local private rented accommodation does not provide sufficient evidence of a lack of scarcity, as there is no guarantee that an advertised property is still available.

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. [10] Relevant evidence should be available from local housing associations and local authority housing registers, and from housing advice centres regarding the level of housing need and from local homeless persons units about the number of people applying for housing who are 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 First Tier Tribunal's own knowledge and experience of the locality is considered to be of particular value. [11]

Where a fair rent is registered that is higher than the previous rent level, there is a restriction on the phasing of the increase to be paid by the tenant. The rent can only be increased by the greatest of:

• a maximum of £104 per annum above the previous rent level

• one quarter of the previous rent limit

• one half of the difference between the previous rent limit and the amount of the registered rent. [12]

Apart from considering comparables and scarcity, advisers should take into account other factors when preparing a submission to a rent officer or First Tier Tribunal concerning a fair rent.

Furniture

Furniture provided by the landlord should be included in the rent, based on the value to the tenant and not the cost to the landlord. There are different ways of valuing furniture. A rent officer or First Tier Tribunal may 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

A reasonable 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 First Tier Tribunal. Advisers should check with their clients whether the stated services are actually provided and whether the standard of those services is satisfactory. It has been established that landlords can charge management costs. [13] It has not been the custom in Scotland to include any profit in the provision of services. It is generally accepted that an administration charge is between 10 percent and 15 percent 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. The Rent (Scotland) Act 1984 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. However, the rent officer or First Tier Tribunal must consider the variation terms to be reasonable. [14]

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, the rent set should reflect this, and evidence such as environmental health officer reports can be presented to the rent officer or First Tier Tribunal.

Other factors

Inadequate lighting and heating, poor natural light, nearby disruptive businesses, number of local amenities, heavy traffic, and the size of rooms are all factors that may influence the level at which the fair rent is set.