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Private rents relevant to setting social housing rents, Inner House rules

8 August 2017

Social housing should be treated in the same way as other rented property for the purpose of setting a fair rent under s 48 of the Rent (Scotland) Act 1984, unless special circumstances apply, the Inner House of the Court of Session has ruled.

Three appeal judges agreed that a committee or panel setting a rent for a property owned by a housing association could have regard to evidence both of registered rents, including those where the landlord was a social landlord, and of rents fixed by the market in the private sector so far as they were comparable.

However they were divided over whether a committee of the Private Rented Housing Panel had erred in law when it determined a fair rent for a property in Glasgow, owned by Elderpark Housing Association and tenanted by James Wright, at £6,200 per annum, where the rent had previously been £3,500 per annum and the tenant had appealed against the landlord's proposed increase to £4,791.96 per annum. Lord Drummond Young and Lady Clark of Calton held that it had erred in its approach, whereas Lord Malcolm was of opinion that it had not.

The property was a two storey mid-terrace house with a floor area of 91 sq m. Before the committee the main dispute was over which properties were properly comparable. The committee did not consider comparable rents from the rent register to be the best evidence, as they had only been fixed by the rent officer, and using comparable market rents was the best evidence available.

On appeal it was argued for the tenant that commercial rents in the private sector were not comparable to the social rented sector; that the committee should not have disregarded registered rent; and that it should not have carried out a general internet search of properties advertised in the locality.

Lord Drummond Young, with whom Lady Clark of Calton agreed, said the court should follow the approach of Western Heritable Investment Co v Hunter (2004), which set the principles for determining a fair rent. 

"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", he stated. "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."

Further, "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 s 48".

This was for three reasons: s 48 applied equally to private rented and to social housing; these were not two distinct markets but two aspects of the same market; and "it would be wrong in my opinion to treat housing associations and other social landlords as if commercial considerations were irrelevant".

Lord Drummond Young went on to rule that the commnttee had erred in four important respects. First, registered rents had been accepted by both landlord and tenant, "which is itself an indication that the rent is truly a fair rent". Secondly, the committee had wrongly disregarded two comparables where a lower rent had been set. Thirdly, it was wrong to give priority to evidence of market rents over registered rents, in the absence of particular circumstances. Fourthly, it was wrong to regard evidence from an internet search as the best evidence available, where it was not apparent that the figures taken were truly comparable with the property in question.

Lord Malcolm agreed that housing association lets should be treated in the same way as other rented property, but disagreed that the committee had erred in these respects. It had inspected the property and had given reasons for disregarding the registered rents. It had selected the most comparable property, and "Bearing in mind that the committee is a specialist panel entitled to use its own knowledge and expertise, and identify what it considers to be the best available evidence, I have difficulty in identifying any challengeable error of law in the assessment carried out... The fact that the fair rent as assessed by the committee was higher than that asked for by the landlord does not indicate an error of law. The task of the committee is to apply the statutory provisions and fix what it decides is the appropriate figure."

He feared it might not be clear to the committee on a reconsideration what was expected of it. However the case was remitted to be heard by a different committee, Lady Clark of Calton commenting that "the committee should give reasons as to why properties are identified as comparable in a situation where the committee apparently chose to disregard properties which are almost identical in the same street".

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