Is it fair to determine an appropriate level of rent for social housing by comparing a proposed rent to a similar property in the private rented housing market?
That was one of the questions for the Inner House in Wright v Elderpark Housing Association, an appeal by a secure tenant against a decision of the Private Rented Housing Committee.
Details of the case
In brief, Elderpark sought to increase the rent paid by Mr Wright from £3,500 per year to £4,791.96 per year; an increase of 37%. The tenancy converted into a Scottish Secure Tenancy in 2002, but because of that the parties remained able to apply for a fair rent determination under the Rents (Scotland) Act 1984. A rent officer registered a rent of £4,791.96 with effect from 28 July 2016. Mr Wright appealed that decision to the Private Rented Housing Panel, which appointed a Committee to determine the matter.
The Committee determined that a fair rent for the property (a two-storey mid-terrace dwelling house with a living room, dining room, three bedrooms, kitchen, WC and bathroom on the south side of Glasgow) was £6,200. In reaching that decision, the Committee had regard to (but excluded as not best evidence) rents noted for comparable properties in the rent register. Instead, the Committee preferred the evidence it was able to garner from its own internet search of properties available to rent in the area. Those properties were primarily private (as opposed to social) lets.
The Inner House was tasked with answering three questions of law:
- did the Committee err in law in its interpretation of the term "current rents of comparable property in the area" in its determination of a fair rent;
- did the Committee apply the principles previously set down by the First Division in Western Heritable Investment Co Ltd v Hunter, 2004 SC 635 that regard must be had to rents for dwelling houses of a comparable nature, which was a matter of judgment; and
- did the Committee err in law in failing to have regard to registered social rented sector rents and instead by having sole regard to open market rents in the private rented sector in determining a fair rent.
By a majority of 2:1, the Inner House answered all of those questions in the affirmative, and ordered that a new Committee be appointed to consider this matter.
Explaining the decision - comparable properties in the private & social rented sector
The general consensus in this matter is that the Committee did not explain itself particularly well. Lord Drummond Young and Lady Clark agreed that the Committee had disregarded the registered rents7, and focused solely on the open market rents. Lord Malcolm, however, believed that the Committee had given regard to the registered rents, but had exercised its judgment by preferring the evidence afforded by the open market rents. If the latter (and I strongly suspect that the latter is the true approach that the Committee took), then the terms of the Committee's decision did not reflect that approach.
However, the most interesting matter to arise out of this decision is the Inner House's refusal to acknowledge any difference in social rented sector and private rented sector housing for the purposes of determining a fair rent. The appellant invited the court to find that there was a distinction between the rents in those sectors, and to hold that "comparable" properties ought to be from the same sector.
The Inner House rejected that approach. At paragraphs  and , Lord Drummond Young sets out the legal background to the test, before holding that there was, "no warrant for treating houses let by housing associations in a fundamentally different manner from other rented property for the purpose of fixing a fair rent under section 48. Thus in setting a fair rent for property owned by a housing association or other social landlord, a committee may have regard to evidence both of registered rents, including obviously those where the landlord is a social landlord, and of rents fixed by the market in the private sector so far as those are comparable."
The Court goes on to say that, in exercising judgment, the Rent Officer or Committee (as the case may be) may elect to put greater emphasis on rents charged to properties in the social rented sector than in the private rented sector given that those properties appear more directly comparable, but that is a decision for the Committee.
What does this mean for landlords and tenants?
What this means for those in the social rented sector is not entirely clear. It is unclear how many pre-September 2002 tenancies currently exist and so it is difficult to assess how large the impact will be.
However, given that the social rented sector typically offers low- to mid-market rents, the effect of this decision is to give greater flexibility to RSLs to increase their rents in those tenancies, which will almost certainly be significantly less than the open market rent in the private sector.
The practical reality, however, is that RSLs will not take unfair advantage of this situation. Their properties will continue to be let at significantly lower rents in order to achieve their public functions.
However, what does seem clear is that the scope for tenants to challenge significant increases which remain under the average open market rent level has been diminished.
The full text of the decision is available at here.
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