Valuing properties subject to a Registered Fair rent
If a tenancy started before 15th January 1989, it may be that it has a regulated rent. This means rent determined by the Valuation Office Agency that very often will be substantially below Market rent. These regulated tenancies are sometimes known as protected tenancies or Rent Act tenancies.
Whilst rent can be increased, the maximum fair rent calculation is based on the existing registered rent multiplied by a figure (based on the change to the Retail Price Index from the last registration to the current registration) plus 5% and then rounded up to the next 50 pence.
This means that even if the rent is substantially below Market rent, there is little that can be done to achieve a much higher rent.
Fair rents also have a restriction on being able to secure vacant possession. Evictions will only be granted with a court order for a breach such as rent arrears. No fault evictions such as for if the Landlord wants to rent to someone else or occupy themselves are not permitted.
It is also possible for someone with a regulated tenancy to pass it onto someone else once they die. There are various factors here which come into play such as whether it’s a joint tenancy, who lives in the property, how long they’ve lived there and whether the property was inherited from someone else. In most cases, tenancies can only be passed on once.
Where this comes into Valuation is looking at an investment into a property where there are restrictions on the owner of who they can rent out to and what rent they can charge.
Quite often the tenants tend to be in in the later phases of life so the practicality is that Landlords may not have to wait many years until they are able to achieve a Market rent or occupy the property themselves. However there are no guarantees as someone in their late 80s could still live to over a hundred. Similarly someone much younger may live for a far shorter period of time.
It is all rather morbid but when valuing properties that are subject to these restrictions, we have to consider the tenants health, their age and if they are able to pass the property onto someone else, how old they are and what their health is. For example, we once valued a property where the tenant was in his late 80s and in very poor health. There would be an adjustment to Market Value to reflect the reduced rent but arguably not a significant reduction because statistically someone in that position would be unlikely to live for long. However, the tenant’s wife would have been able to inherit the agreement. She was almost thirty years younger and in far better health and was unlikely to want to move out for a long time given that the rent was comfortably below Market Rent. We had to account for the likelihood that the Landlord would be likely to only be able to receive a very low rent for a very long time.
These sort of properties are often sold at Auction so looking at the buyers pack and asking the appropriate questions about the tenant and any potential successors is crucial. Our Chartered Surveyors are able to advise on the valuation implications and if necessary, combine this with a Home Survey for comprehensive advice on both the condition of the property and the impact of the regulated tenancy on Market Value.
Regulated by the Royal Institution of Chartered Surveyors and with most of our reports provided within a few days of instruction, you can rest assured that you are in safe hands with Websters Surveyors.
Our services span most of London and some surrounding areas including Hertfordshire, Buckinghamshire, Essex and parts of Surrey and Sussex.
Please contact us if you would like to discuss your requirements on 020 8017 1943.