Section 70 of the Rent Act 1977 sets out the criteria that rent officers must use to determine fair rents and the word locality is used in two separate sub-sections.
“to all the circumstances (other than personal circumstances) and in particular to –
the age, character, locality and state of repair of the dwelling-house, …” (See the page “market rent”)
In addition, rent officers must assume:
“that the number of persons seeking to become tenants of similar dwelling-houses in the locality on the terms (other than those relating to rent) of the regulated tenancy is not substantially greater than the number of such dwelling-houses in the locality which are available for letting on such terms.” In simple terms, this means that the rent officer must discount scarcity.
The Courts have determined that each of these two separate uses of the word ‘locality’ mean different things and so need separate definitions.
When having regard to all the circumstances in assessing a fair rent, the rent officer must “have regard to the sort of factors which tend to push rents up and down on the market”. They must have regard to the age of the premises, their character and their locality . “Their locality is important because a house situate in pleasant surroundings, and with the advantage of local amenities, may very well command a higher rent than an identical house in a less attractive setting.”
For the initial market rent starting point, rent officers should concentrate on market evidence in a relatively small locality. This is the immediate vicinity of the dwelling - probably a street or adjoining streets, where there is recent market evidence for similar, if not identical, property.
Rent officers should be aware of the surrounding locality or neighbourhood to ensure that they know about all local factors, amenities and any specific factors, which influence local rent levels.
In some areas, or for some property types, it may be found that there is a shortage of comparable evidence. In these circumstances, rent officers should extend their search for evidence more widely and where necessary use the interpolation or extrapolation process.
But when rent officers have to eliminate the ‘scarcity value’ they are not concerned with the scarcity caused by property-specific or local factors . Scarcity in this context is “a broad, overall, general scarcity affecting a really substantial area”.
Rent officers have to assume for the purposes of the Fair Rent valuation that market rents are not inflated because of scarcity of similar accommodation in a broad locality. The assumption for the Fair Rent valuation should be that the market for a certain type of dwelling is more or less balanced between supply and demand.
Rent officers must distinguish between scarcity which flows from the special amenity value of a dwelling and scarcity which arises as a result of an excess of demand over supply in a large locality.
Rent officers should only make deductions for scarcity which results from excessive demand. They should not make deductions for difficulty in finding properties to meet specific needs (such as wanting a thatched cottage with roses round the door, or trying to live within walking distance of a particular amenity like a school).
This was confirmed in 1998 when the court said that when disregarding scarcity, locality “will generally be a much wider area than the “locality” relevant to the assessment of market rent”. But the judge thought it wrong for the court to seek to define (or redefine) the expression by prescribing particular geographical or similar tests, such as “an area within reasonable commuting distance”, which had been suggested. The choice of area is a matter for the rent officer or rent assessment committee and they should not be tied to any particular formula. They should have in mind the purpose of the scarcity provision and choose an area sufficiently large to give effect to that purpose.
The judge added that an approach which did meet the legislative policy “is to consider what reasonable alternatives are available to potential tenants of the subject property.” If, as a result of the level of amenities in the area of the subject property, there was a scarcity, but over a wider area where potential tenants could be expected to live there was no shortage, then no deduction for scarcity should be made. But if there is a shortage of property throughout the wider area, where potential tenants of the property could reasonably be expected to live, then the rent officer should make a deduction for scarcity, even if the shortage is attributable to the relatively high amenity of that wider area. The judge considered, however, that whilst such a test may be a useful pointer in marginal cases it should not be regarded as an essential analytical tool in formulating the choice of locality generally.
- Valuation - Market rent start point
- Valuation - Scarcity