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History of rent regulation in England and Wales

                  

              Eun Hee LEE(Chungbuk National University, South Korea)



A. Research purpose


South Korea's Residential Tenancy Protection Act provides that the landlord can increase the rent during the term by reason of a change of circumstances and that the increase should not exceed 5%. Except this provision, the Act imposes no restriction on the rent level. In Korea most residential tenancies has a fixed term of two years. If the landlord requests an excessive rise in rent as the condition of re-grant, the tenant has to move to another house unless he can afford the rent increase. So it is argued that rent regulation should be introduced by reference to policies abroad. I would like to get lessons on rent regulation policy from the history of rent regulation in England and Wales.

B. Research Details

Since 1915, there have been three main statutory regimes for regulating rents: rent control, rent regulation and assured tenancies scheme.

Ⅰ. rent control

1. old control
Rent control started in the 1915 legislation and continued through to 1957. Rent controls in 1915 and 1939 were introduced in national emergencies to avoid riots caused by rent rises. The effect of the 1915 Act was to freeze rents at the level which existed on August 3, 1914. The protection of tenants against eviction at the end of their lease was also provided so that the rent control would not ineffective (s 1(3)). This Act was applied to the properties whose net rateable value was £26 (£35 in London) or below.

2. decontrol between the wars
Between the Wars the Rent Restrictions Act were reviewed five times. The Increase of Rent and Mortgage Interest (Restrictions) Act 1919 permitted increases of 10% in rent levels and doubled the rateable value limits. These controls and their subsequent amendments up to 1939, only applied to houses already in existence in April 1919, not to new building.

3. new control
The Rent and Mortgage Interest Restrictions Act 1939 froze rents at their September 1939 levels. These would be 1914 rent plus 40% for (some 3 million) accommodation that had remained subject to control through the inter-war years, or market rents for accommodation that had been decontrolled or had been built after 1919.

4. decontrol in the 1950s
Decontrol recommenced in the 1950s. By the Housing Repairs and Rents Act 1954 all new housing built or converted for letting was placed outside Rent Act control. The Rent Act of 1957 decontrolled all houses with rateable values above £30 (£40 in London). Other properties would be decontrolled when the landlord obtained vacant possession.
It was during this period that Rachman gained notoriety. His strategy involved buying up properties with controlled rents and offering tenants money to leave the property; he relet the properties exploiting the lack of controls on furnished properties. If tenants refused to leave, he made their lives uncomfortable.

Ⅱ. rent regulation

1. the Rent Act 1965
By the Rent Act 1965 a new system of rent registration was introduced. The rent was to be a "fair rent" determined by rent officers or rent assessment committees. Rents as registered could be re-registered not less than three years later, which provided a mechanism that could allow for general inflation of costs and prices. The rateable value limits for this protection were set at £200 (£400 in Greater London). So most of the houses which had become decontrolled under the 1957 Act were brought within the scope.
The fair rents policy marked an implicit acceptance on the part of a Labour government that in general the market is the appropriate mechanism for setting the level of rents in the private rented sector.

2. the Housing Act 1969
The Rent Act 1965 did not touch controlled rents. Registered rents were much more advantageous to landlords than were controlled rents under the 1957 Act. The first move to transfer lettings from control to regulation was made by the Housing Act 1969, which provided for such a transfer of dwellings provided with standard amenities and in good repair. 76,000 dwellings were the subject of rents registered through this procedure by the end of 1972.

3. the Housing Finance Act 1972
The policy of the Conservative government coming into power in 1970 was to transfer to the registered rent system all tenancies under rent control by the 1957 Act. The Housing Finance Act 1972 made provision for automatic transfer from control to regulation in six batches, defined by rateable value, at half yearly intervals.
Transfer from control to regulation would bring about a steep increase in rents. So Part Ⅱ of the 1972 Act introduced for the first time a nation-wide system of rent allowances. Tenants was expected to be protected against financial hardship by the scheme.

4. the Housing Rents and Subsidies Act 1975
In 1974 when the Labour government took office, the first three batches of controlled tenancies had been transferred to regulation, but transfer of the other three batches was stopped by the Housing Rents and Subsidies Act 1975.
As mentiond above, rents as registered could be re-registered not less than three years later. At the high rates of inflation during the 1970s, the increase in the rent at three year internals created difficulties for tenants. So the Housing Rents and Subsidies Act 1975 provided for "phasing" of rent increases, by which they took effect in three annual steps.

5. the Rent Act 1977
The Rent Act 1977 consolidated the legislation known as the Rent Acts.

Ⅲ. Assured tenancy scheme

1. the Housing Act 1980

Soon after coming to power in 1979 the Conservative Government began to try to implement a policy of deregulation in the private sector. Controlled tenancies were abolished altogether by the Housing Act 1980(s 64). And it introduced two forms of tenancy : assured tenancy and protected shorthold tenancy. The occupants under assured tenancies would have no rent control and only the limited security of tenure modelled on the 1954 Act(ss 56-58).
The protected shorthold tenancy enabled a landlord to let for a fixed term not being less than one year or more than five. Such a tenancy was free from the security of tenure enjoyed by ordinary Rent Act tenants but remained subject to the fair rent scheme(ss 51-55).

2. the Housing Act 1988

The Housing Act 1988 commenced the phasing out of Rent Acts.

(1) creeping deregulation
A regulated tenancy in existence before January 15, 1989 remains governed by the Rent Act until the tenancy comes to an end. However, new tenancies created on or after this date are assured tenancies or assured shorthold tenancies,  under which a market rent might be charged, even by housing associations.

(2) restrictions on the amount of rent
The restrictions on the amount of rent operate only by enabling certain assured tenants to refer their rents to the rent assessment committee. There are two separate categories: assured periodic tenancies and  original assured shorthold tenancies. There is no provision for referring the rents of any tenancies outside these categories to the committee.
At any time after the first year of an assured periodic tenancy, the landlord may increase the rent by duly serving a statutory notice of increase on the tenant(s 13). The increase, however, is subject to the tenant's right to refer the increased rent to the rent assessment committee. The Rent Assessment Committee must determine the rent at which they consider the dwelling house might reasonably be expected to be let in the open market(s 14(1)).
As for assured shorthold tenancies, if the tenant considers that the rent agreed is excessive he can apply to a rent assessment committee to have the rent reduced to the appropriate market level. However, RACs cannot make a determination unless they consider that the rent is significantly higher than market rents. This tenants' right is little used because the tenant with no security beyond the fixed term does not want to upset the landlord.

(3) reasonable rent for benefit subsidy purposes
The 1988 Act conferred on rent officers a new role of assessing whether the market rent payable by a tenant is reasonable for the purposes of housing benefit subsidy and whether the premises are too extensive for the tenant's reasonable needs(s 121). However, the rent officers' determinations could be exceeded in the amount of the actual payment of housing benefit.

3. the Rent Officers (Housing Benefit Functions) Order 1997

The deregulation of private sector rents have meant an increase in real terms in housing benefit expenditure in all tenures. Measures have been introduced to limit housing benefit expenditure on private sector rents.

(1) local reference rents
Housing Benefit pays up to and including 100% of the rent. This willingness to pay the full rent has led to various accusations against both landlords and tenants--for example, it has been suggested that claimants do not need to negotiate with their landlords for lower rent.
Since January 1996 100% housing benefit has only been payable on eligible rents that do not exceed the 'local reference rents'. These are set by rent officers to reflect the average market rents for properties of a specified size. Once the rent officer has assessed a maximum eligible rent for benefit, the local authority will be bound by this determination in the assessment of housing benefit. This has no affect on the rent contractually agreed between the tenant and the landlord.

(2) single room rents
Rent officers took on an additional role from 6 October 1996 in setting single room rents for housing benefit claimants who are single individuals, under the age of 25 in private rented property. These rents will be based on the average costs of non self-contained accommodation in the locality, that is bedsits and rooms in shared flats and houses.
Single room rents under 25 were introduced so that the state would not be required to pay for rents which would be more than they could afford to pay from their own resources.

4. the Rent Acts (Maximum Fair Rent) Order 1999

The fair rent must be established in accordance with the formula in s 70 of the Rent Act 1977. However, the overall concept of "fairness" reflected in the fair rent formula remained elusive. While landlords consistently asked the courts to lay down a clear and unambiguous method of fixing fair rents, the judicial line was largely abstentionist. Rent officers and rent assessment committees tended to determine fair rents using the evidence of their own previous decisions for comparable properties.
Judicial attitudes changed after the deregulation of private sector rents in 1988. In Spath Holme Ltd v. Greater Manchester and Lancashire Rent Assessment Committee [1995] 49 EG 128.
Harisson J. held that where the rent officer or rent assessment committee departed substantially from market rent they would have to show weighty reasons for doing so. In Curtis v London Rent Assessment Committee [1997] 4 All E.R. 842.
the Court of Appeal held that a fair rent is a market rent, adjusted for scarcity and the other statutory disregards. The reason why the court of appeal rejected the future use of registered fair rent comparables was that "such an approach would freeze the fair rents rather than achieve an exercise in valuation." A direct consequence of Spath Holme and Curtis was a significant increase in levels of 'fair rent' on redetermination.
The New Labour Government coming into power in 1997 introduced a maximum limit to fair rent increases by the Rent Acts (Maximum Fair Rent) Order 1999. The limits are the Retail Prices Index + formula used for RSLs. The formula allows for a 7.5% jump over RPI on the first registration and 5% thereafter.


C. Summary and Lessons

Among the three regimes for regulating rents since 1915 the most effective one to reduce rents was rent control. Rent regulation had a function of affording to tenants protection against exceptionally high rents rather than reducing rents like rent control. The current assured tenancy scheme gives to tenants no effective protection even against exceptionally high rents.

From the research I got these two lessons :
First, for those who cannot afford to pay 'market' rents there should be a provision of social housing.
Secondly, there should be given to tenants a protection against exceptionally high rents. I suggest that maximum rents be set at certain per cent of the capital value of the property.
* 민주법연님에 의해서 게시물 복사되었습니다 (2006-07-11 20:27)
* 민주법연님에 의해서 게시물 이동되었습니다 (2006-07-11 20:29)
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