What is Market Rent?

What is market rent?
The definition of market rent is “the amount a landlord might reasonably expect to receive, and a tenant might reasonably expect to pay. It needs to be similar to the rent charged for similar properties in similar areas. If a landlord charges significantly higher rent than the market rent, a tenant can apply to the Tenancy Tribunal to ask for the rent to be reduced”.

A tenant can challenge rent
The RTA states in Section 25 Market rent:

(1) On an application made to it at any time by the tenant, the Tribunal may, in accordance with the succeeding provisions of this section, on being satisfied that the rent payable or to become payable for the tenancy exceeds the market rent by a substantial amount, make an order reducing the rent to an amount, to be specified in the order, that is in line with the market rent.

So what is the definition of exceeding market rent by a substantial amount?
There is no definition, a loose guideline it is sometimes said is anything over around 5% to 10 % of market rent. So if market rent is stated as $600 and asking rent or rent review is over $660, it could be questionable, but there are lots of specifics to consider to reach any conclusion, hence a professional rental appraisal based on viewing of the property is very useful.

And in 25 (3) the Act states:

For the purposes of this Act, the market rent for any tenancy shall be the rent that, without regard to the personal circumstances of the landlord or the tenant, a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for the tenancy, taking into consideration the general level of rents for comparable tenancies of comparable premises in the locality or in similar localities and such other matters as the Tribunal considers relevant.

An interesting taking from this clause is “without regard to the personal circumstances of the landlord or the tenant”. Certainly, something to ponder on.

How is market rent determined?
How does Tribunal determine market rent? On one or two occasions we have represented our landlord clients at tribunal to defend rent increase notices where a tenant has said the increase delivered is not market rent. On both occasions the tenant’s application was dismissed, so how did we defend our clients against these claims?

Tribunal looks at:
• Market rent data from bond lodgements
• Property management database
• Advertised rental listings
• Property manager rental appraisal

Bond lodgement data is:
• Very broad
• Often suburbs are not differentiated and limited data exists
• As per a GV value on a property, it doesn’t take into account improvements or property quality and specific attributes

Advertised property listings are:
• Only asking prices and there are some cheeky ones out there which are well outside market rent ranges
• Asking prices can be negotiated and changed

Property Manager appraisals are:
• Completed after visiting the property to establish the specifics
• Tribunal considers a rental appraisal from a professional property manager to be the most useful evidence as it is the most detailed.

How we set Rents and our Rent Review process:
Our office uses all of the above analysis to determine market rent and our extensive experience also helps. We don’t provide one figure; we provide a range that is achievable under varying circumstances. The rental market is subject to sudden change, depending totally on tenant demand and the availability of vacant or becoming vacant properties at a point in time. Consequently, the achievable rent may change frequently as conditions change so we must make allowance for these variances, hence a range is always given.