Housing association tenant wins appeal in ‘fair rent’ dispute

By a majority of two-to-one, judges in the Inner House of the Court of Session ruled that a PRHP committee “erred in law” in its approach to deciding that a fair rent for the property in Glasgow, tenanted by James Wright and owned by Elderpark Housing Association, was £6,200 per annum, after the tenant sought a review of the landlord’s proposal to increase the annual rent from £3,500 to nearly £4,800.

The court held that social rented housing should be treated in the same way as private rented properties for the purpose of fixing a fair rent in terms of section 48 of the Rent (Scotland) Act 1984 unless there were exceptional circumstances, but the “fundamental flaw” in this case was the committee’s failure to take into account registered rents of “comparable properties”.

Fair rent

Lord Drummond Young, Lady Clark of Calton and Lord Malcolm heard that the appellant Mr Wright had been a tenant of the three-bedroom terraced house in Fairfield Gardens, Glasgow since it was built in 1996.

In April 2016 the landlord sought to increase the rent payable by 37% to £4,791.96 per annum, or £399.33 per month, and Mr Wright referred that decision to the PRHP for reconsideration on the basis that the increase was “unfair and unjustifiable”.

Following an inspection of the property and having carried out an internet search for evidence of all properties available to rent in the G51 postcode area, as opposed to comparable registered rents in the area, the committee issued a decision on 10 September 2016 that the fair rent for the property was £6,200 per annum.

Mr Wright appealed against that determination, arguing that the PRHP was required by section 48 to consider “current rents of comparable property in the area” and that it should not have “disregarded” registered rents for social housing in the locality.

Comparable properties

Lord Drummond Young, with whom Lady Clark of Calton agreed, said the court should follow the principles laid down in the 2004 case of Western Heritable Investment Co Ltd v Hunter, in which it was held that in determining a fair rent regard must be had to rents for dwelling houses of a “comparable nature”.

In a written opinion, Lord Drummond Young said: “Following Western Heritable I am of opinion that it will normally be appropriate for a committee, or a rent officer, to have regard to registered rents and to market rents, according to the evidence that is available. Indeed, there may be advantages in using market rents as a cross-check against registered rents, to ensure that, where there is no local scarcity, registered rents do not come to be markedly out of line with current market conditions, and to provide an adjustment for general inflation. In all cases, however, registered rents, if evidence of comparable properties is available, will potentially be relevant.”

He added: “Against that background, in the absence of any justification in the particular circumstances of the case, there is in my opinion 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 judge observed that the provisions of section 48 “apply equally” to privately rented properties and to social housing, and that they were not two wholly distinct markets but “different aspects of a single market”, adding that “it would be wrong…to treat housing associations and other social landlords as if commercial considerations were irrelevant”.

Fundamental flaw

Lord Drummond Young concluded: “I am of opinion that the approach taken by the committee in the present case was fundamentally flawed, and that their decision was erroneous in law and cannot be sustained. In doing so, however, we should make two matters clear.

“First, we do not endorse any submission that the private rented sector and the registered social rented sector are wholly distinct and that accordingly the committee ought only to have had regard to rents in the latter sector. Both sectors may be relevant. Secondly, the method followed by the committee should be that set out in Western Heritable…both registered rents and market units should be taken into account, if evidence exists. It is important, however, that the rent should be determined on the basis of properties that truly are comparable.

“In the present case, the fundamental flaw in the committee’s reasoning was to disregard registered rents of comparable properties without good reason and to rely instead on a range of rents derived from an internet search without a proper assessment of whether the properties involved were truly comparable. I accordingly propose that we should quash the committee’s decision of 10 September 2016 and remit the case back to a differently constituted committee in order that a fair rent may be determined in accordance with section 48 of the 1984 Act, applying the approach discussed above.”