Rent Assessment Committee Hearing
June 2001
Representations on behalf of tenants of
Flat 6, 27 Anytown Street, W11
By John Richardson
HASKC
Housing Advice Service Kensington &
Chelsea
Offices 6 & 7
Canalside House
383 Ladbroke Grove
London W10 5AA
Age, Character & Location of the Subject Premises
The subject premises is a third floor flat, in a converted
Victorian Terrace House, consisting of 3 rooms, kitchen, bathroom
and WC. There is no lift and there are approximately 60 steps to
the flat's entrance door.
The subject premises is located in a residential street, very
conveniently placed for the shops and transport of Notting Hill
Gate.
The original tenancy commenced in 1966, and was originally
furnished. However, over the years, the tenants have gradually
replaced all the landlords' furniture, as and when it wore out. For
all intents and purposes the letting is now unfurnished.
The conversion is basic although the landlord did provide new
kitchen units a couple of years ago. The layout is not ideal, as
the rear bedroom can only be entered via the kitchen. The small
entrance hall is reliant on borrowed light and, to facilitate this,
there is no door to the kitchen. The bathroom is internal.
There is no central heating. There was originally an antiquated
wall mounted convector system, which has been defunct for many
years [although it remains in situ]. Heating is by way of the
tenant's portable calor gas heaters.
The age of the building is evident in the ill-fitting and draughty
sash windows, creaking floorboards; the plaster work to walls and
ceiling [which is nearly all original]; and the fuse board is not
boxed in.
There are minimal services of a door entry phone system and the
cleaning and lighting of the common parts.
The tenants have long suffered from problems in getting repairs
done and in the past have had to resort to the Local Authority who,
I understand, were required to serve statutory notices against the
landlord and there is still an on-going problem.
Tenants Improvements
The tenants improvements as follows are to be disregarded. The
tenants have improved the bathroom by putting in stained wood
panelling to the wall to conceal rough plaster walls; replaced the
defective towel rail and provided lino floor covering.
In the lounge, the tenants have replaced the defective light
fitting to the ceiling.
Method of Rent Assessment
I would refer the Committee to the authority of
Roger.G.Curtis-v-The Chairwoman of the London Rent Assessment
Committee CA, 9th October 1997.
I would refer first of all to the proposition that a "fair
rent is a market rent adjusted for scarcity and disregards"
The Committee must first of all identify a market rent for these
premises. Of course, the Committee must also have regard to any
statutory disregards as set out in s.70 (1) & (3) of the Rent
Act 1977.
The Judgement goes on to state that market rent comparables will be
the best evidence of what the fair rent should be. However the
Judge makes it clear that the market rent comparables will have to
be "close" and that it will be possible for a party to
"dislodge them as suitable comparables"
The Committee must on identifying a suitable market rent for
comparison.
"Where the comparables are not exact and/or where there is a
need to make disputed adjustments for hypothetical lack of scarcity
or for disregards,…. Show…. Some working through - some sums,
however few and approximate - some arithmetical markers whether in
percentage form or otherwise on the way to the final
figure."
The problem in identifying a "close market comparable" is that
unmodernised flats are very rarely let on the open market as a
landlord can get a much better return by modernising and
furnishing.
In order to show what the costs will be, landlords often show a
schedule of costs which need to be expended to achieve the letting
figure the modernised let.
We reject this apportionment of cost approach as it hides
the enhanced rental beyond cost achieved through modernisation.
Consequently, it distorts the notional market rent for the flat let
in its present letting condition and on the current
terms.
By way of example, I would draw the RO's attention to the details
of two market lettings, Flats 58 and 62 Yeoman's Row, London SW3.
The following details are confirmed in a letter provided by the
landlords, Yeoman's Row Management Ltd. [Appendix 1].
Flat 58 was let unfurnished and unmodernised. Flat 62 was
modernised at a cost of £11,000 as confirmed by the landlord. The
difference in annual rents however was £10,000 for the unmodernised
premises, and £16,640 for the improved premises, which is not
provided with furniture but has carpets, curtains and white goods.
The difference between the two rentals is clearly very
substantial, being some 66% greater on refurbishment.
Market Rent Comparable
It is impossible to find a close market rent a la Curtis. When
the subject premises becomes vacant not only will the landlord
undoubtedly modernise and refurbish the flat but, it is also likely
that the layout will be restructured as I understand happened when
Flat 2 in the same building was refurbished.
In this instance, given the peculiarities of the flat and the
high market rents achievable in the locality, I believe
that the Enhanced Rental Value would be at least 50%.
At the Rent Office Consultation in January 2001, Mr Funnybone, of
Funnybone Associates, representing the landlord, stated that Flats
2 & 3 at the same address had been refurbished and let on the
open market.
Flat 2 is on the first floor and consists of 3 rooms and was
apparently let for £1,646 pcm. Flat 3 is on the second floor and
let at £1,300 pcm. He also provided details of three other lettings
in the street within this price range.
The less desirable position in the property of the subject premises
also needs to be borne on mind i.e. top floor flat - lower
ceilings, more stairs to climb.
Mr Funnybone stated that in his opinion the subject premises would
let refurbished on AST terms for in the region of £300 pw. The Rent
Officer accepted this estimate of the open market rental after
refurbishment.
By common consent, market rents have seen very little increase over
the last few years, if any. The Spring 2001 addition of
"Residence", a journal published by Chesterton plc [appendix 2],
contains a review of the London Letting Market. In regard to rent
levels, the review states,
"With rapid growth in 2000, rental levels are now 3.5% above
what they were at the end of 1998."
It is prudent to take a perspective on rental increases over
several years and on this basis, I would suggest that the
Notional Market Rent, modernised and let on usual AST terms,
remains approximately £300 pw
Working backwards to a notional market rent of the flat let in its
unmodernised condition, I suggest taking an enhanced rental value
of, say, 50%.
The notional market rent let in the original condition
would be £200 pw [£200 x 150%= £300]
The second adjustment that needs to be made is to take account
of the differing terms of the two types of letting. Open market
lettings are let on differing terms, not least the usual minimum
furnishings - white goods, curtains, carpet etc. and repairing
& decorating responsibilities.
It is standard under AST's that the landlord has an on going cost
for the above and as well as being responsible for all repairs and
internal redecoration. The latter is fairly onerous, as it has to
be carried out very regularly in order to achieve the market
rate.
AST's also incur greater management costs in terms of voids,
advertising and letting costs, due to a much higher turnover of
tenants.
For the above additional costs of an AST, I have allowed 15 %,
taking my lead from a Committee decision (LON/007/2511/98M)
[appendix 3].
Therefore, the notional market rent on the same terms
and conditions is £170 [£200 - £30].
Scarcity
In the recent case of Cowdrey & Neild and Ledgard Harrison
L.J. found that the central London Boroughs as defined in the
Private Sector Rents Bulletin produced by the LRC was a suitable
area for the test in Finegold.
Furthermore the court in that case found that when considering
scarcity it was the scarcity for premises of a similar nature which
need to be considered i.e. that in this case it would be properties
without modernisation and furniture which would be under
consideration.
The reason why this approach is appropriate is that these areas all
have a similar market for accommodation, i.e.
- They are in a highly desirable part of London.
- Premium prices are paid for company and holiday lettings.
- Properties are also similarly improved.
The question of supply is a very difficult one because in
practice agents' details rarely give sufficient details for a
determination to be made on the question of standards for obvious
reasons.
A lack of supply in the locality is due to such factors as the lack
of land for building development in the area and the very real
shortage of social housing, caused by high land values and the lack
of sites available to develop.
It is now recognised that the population of central London is
increasing and inevitably demand for private rented accommodation.
The Government estimated in 1992 that there would be a need for
some 630,000 extra homes in London between 1991 and 2016 [appendix
4].
Several factors have combined to produce this extra need which has
impacted on central London to a much greater proportion than in the
rest of the metropolis. These factors are:
- more births than expected
- better life expectancy
- net gain in migration, i.e. more coming into the central city
than leaving it.
In the latest addition, of Cluttons' "Property Review",
Spring/Summer 2001 [appendix 5], states that scarcity in the
lettings market in London is very high,
"The overriding feature of the lettings market, barring a few
exceptions, is the lack of supply. This factor, which is not being
helped by the surging sales market, is generating tremendous upward
pressure on rents."
The level of supply in this particular central London location is
influenced by exceptional circumstances not experienced elsewhere
in London. There is considerable foreign investment and corporate
letting, which is a specific and special factor and leads to higher
levels of scarcity than in other areas of London.
The May addition of "London Agents" [appendix 6] reports,
"A new report from agents FPD Savills says 45% of all central
London rented apartments are occupied by US tenants, mostly on
secondment to the City...
...Rival agents Hamptons say that the reliance on US corporate
tenants increases further to 55% in some pockets of central London,
chiefly Chelsea and Kensington."
Two recent "Reasons for the decision of a Rent Assessment
Committee" that we have received both put scarcity at 40% [appendix
7]. I believe that scarcity is much higher than this, but I will
adopt this figure until a Committee puts the figure higher.
Calculation of Fair Rent
| Notional Market Rent refurbished and let on AST terms |
£ 300pw |
| Notional Market Rent in present condition on AST terms |
£ 200pw |
| Notional Market Rent in present condition |
£ 170pw |
| Scarcity @ 40% |
say, £ 68pw |
| Fair Rent |
£
102pw |