Fair rents?

We have no choice

Isabel Montgomery

Following last week's SR disclosures, the president of the Private Rented Housing Panel admits that the decisions it makes 'can cause tenants considerable distress and hardship' but it is obliged to carry out the law

I refer to your article entitled 'The scandal of fair rents' which appeared in the November 3 edition of Scottish Review. I would like to respond by explaining the legislative framework within which Committees and Rent Officers work, which I hope will lead to a better and more accurate understanding of the current situation. It is, however, important to make the point from the outset that Private Rented Housing Committees (prhcs), as statutory creations, are constrained by the law and must carry out the exercise of fixing a 'fair rent' in accordance with the provisions of section 48 of the Rent (Scotland) Act 1984. Committees cannot exercise discretion and fix a rent lower than should be the case, simply because the result of carrying out the exercise properly will result in hardship for the tenant. Committees are required by section 48 to have no regard to the personal circumstances of either of the parties.
     Times change, and, if the Scottish Parliament decides that the legislation is no longer appropriate, then it has the power to legislate to change it. Committees, however, cannot put to one side the effects of applying the law properly simply because they do not like the result. I would point out also that any party who believes that the Committee has got a decision wrong has the right to appeal to the Inner House of the Court of Session. Although that might seem to be a cost prohibitive option, Legal Aid may well be available, as previous cases have shown.
     The 'fair rent' system is set out in the Rent (Scotland) Act 1984 which brought together a number of earlier provisions relating to rents and tenants' rights. It is not unique to Scotland, as similar legislation existed in England. Case law therefore exists from both sides of the border to assist with the understanding of the system. The crucial feature of the 'fair rent' system is that tenants are protected from having to pay rents which are artificially high because there is a shortage of suitable properties available to rent. In a situation where properties are scarce, tenants will pay more for a property than would otherwise be the case. The 'fair rent' system means that, in such a situation, a deduction must be made to reduce the rent to what would be the likely level of rent if there were plenty of houses available. This deduction is often referred to as the 'scarcity deduction'.
     For many years, scarcity was considered to exist in the private rented sector, and the scarcity deduction was made as a matter of course. This was often as much as 33% or more of the rent which would otherwise have been fixed. As a result, 'fair rents' were generally considerably lower than market rents. The 'market rent' is the rent which would be paid by a willing tenant to a willing landlord without any element of scarcity being taken into account. It is the level of rent that people at any point in time are prepared to pay for a particular type of house in a particular area.
     In recent years, what has happened is that there has ceased to be a scarcity of available properties in most parts of Scotland. That has resulted in no 'scarcity deduction' being made in most cases. That has led to substantial increases in rent for tenants who previously enjoyed the benefit of the 'scarcity deduction'. There is no doubt that these substantial increases can cause tenants considerable distress and hardship. Committees take no pleasure in that. However, they are obliged to carry out the exercise of determining the 'fair rent' in accordance with section 48.
     Section 48 requires the Committee to determine the 'fair rent' for the property in question. That must be done without regard to what the landlord in question has asked for. A register of 'fair rents' is kept and this information can be used in connection with the calculation of other 'fair rents'. It is important therefore that it is an accurate record of 'fair rents' set. The legislation does not allow for a 'cap' on the rent, fixed to the level the landlord has asked for. This may mean that a Committee will set a rent which is higher than that which is asked for. This happens where the evidence before the Committee shows that the market rent for the property in question would be higher than the rent asked for by the landlord. This is very often the case when the landlord is a Housing Association, as Housing Associations are not seeking to make a profit. Housing Associations will often ask for a rent which is well below the market rent. It is worth noting however, that although the Committees must fix the 'fair rent' at the higher level, the landlord is not required to impose that rent. The landlord cannot charge more than the rent fixed by the Committee but can charge less if so desired.
     You ask why the figures set by the Committees are different from those set by the Rent Officer when dealing with the same case. Rent Officers do not give reasons for their decisions, and therefore no explanation is available as to why their figure has been set or whether an inspection of the property has been carried out. Committees are not told what evidence the Rent Officer has taken into account when reaching the 'fair rent' determined. Committees on the other hand do inspect every property and give detailed reasons for their decisions. If the Committee's decision is wrong it can be challenged in the Court of Session as mentioned earlier. There has been only one such appeal in the last six years.
     It is also worth making the point that a 'fair rent' is only fixed once every three years and not on an annual basis. This means that the tenant knows what his or her rent will be for the next three years and can budget accordingly. It does, however, mean that the percentage increase can seem large, as it is being compared not to a rent fixed the previous year but to a rent fixed three years earlier. I would also point out that any increase in rent must be in accordance with section 33 of the 1984 Act which means that any substantial increase must be phased in over a period of time.
     I trust that the above information assists you and your readers to understand better why some 'fair rents' have increased considerably over the past few years. It is not due to harshness on the part of Committees but arises from a proper application of the law.

[click here] for SR's orginal investigation