UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 0276 (LC)
UTLC Case Number: RAP/32/2014	

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – RENT DETERMINATION – deduction from market rent on account of condition of premises – sufficiency of reasons for quantum of deduction – section 70,  Rent Act 1977 – appeal allowed

IN THE MATTER OF AN APPEAL FROM A DECISION
OF THE FIRST TIER TRIBUNAL (PROPERTY CHAMBER)

BETWEEN:

THE TRUSTEES OF THE ISRAEL MOSS CHILDREN’S TRUST
Appellants

and

MR NIGEL BANDY
Respondent

Re: Ground Floor Flat,
31 Mount Park Crescent,
London W5 2RR

Determination on Written Representations

© CROWN COPYRIGHT 2015
	DECISION
1.	This appeal raises a single short point concerning the sufficiency of the reasons given by the First-tier Tribunal (Property Chamber) (“the FTT”) on 10 October 2014 when explaining its determination of a fair rent for residential premises let by the appellants to the respondent on a regulated tenancy under the Rent Act 1977.  Permission for the appeal was given by the Tribunal and I have determined it on the basis of the parties written representations.  
2.	The appellants is the owner of the freehold interest in 31 Mount Park Crescent, London W5, which is a double-fronted two-storey detached house built around 1900, with gardens to the front and rear.  The property includes a flat on the ground floor (“the Premises”) which is occupied by the respondent, Mr Nigel Bandy, under a regulated tenancy at a fair rent.  On 11 April 2014, in response to an application by the appellants seeking an increase in the registered rent from the previous figure of £657.50 per month to a new figure of £825.00 per month, the rent officer registered a new fair rent of £722.50 pm with effect from 23 April 2014.  The respondent considered that the new rent was too high and on 10 May 2014 he referred it to the F-tT for reconsideration under section 70, Rent Act 1977.
3.	The FTT described the condition of the Premises in paragraphs 6 and 7 of its decision, as follows:
“6.  Externally the decorations require attention, there is evidence of structural movement on both sides of the front elevation, and the windows are the original single glazed sash windows.
7.  The flat, but for the tenants improvement, is un-modernised.  The accommodation originally comprised two rooms, kitchen and bathroom/wc.  The tenant has divided the rear room into two rooms to provide two bedrooms.  The plaster work, except where replaced by the tenant, is the original and extensively cracked.  A large part of the ceiling plaster in the living room has collapsed leaving the laths visible.  Several of the windows do not open.  The bathroom fittings are dated and worn.  The electrical wiring is old and the light switches pre-date the 1960’s.  There is no central heating.  There are structural cracks in the flat.  The tenant has provided the heating appliances, white goods, flooring and curtains.”  
4.	The respondent submitted a detailed statement to the FTT in which he provided evidence in support of his contention that the market rental value of the Premises, had they been in good condition and let on an assured tenancy, would have been £1,048 per calendar month.  He submitted that the market rent ought to be adjusted when determining a fair rent to reflect the poor condition of the Premises, including the un-modernised bathroom and kitchen, as well as the absence of furniture and white goods, carpets and curtains and central heating, all of which would have been expected to be available in a similar property let at his suggested market rent.  The respondent’s method for taking these disadvantages into account was to make an allowance equal to their annual replacement cost (assuming a five year replacement cycle for furniture, white goods, carpets and curtains, a ten year cycle for modernising bathroom and kitchen, and a twenty year life for central heating).  A further annual allowance was proposed to reflect what he suggested were the more onerous repairing and decoration obligations of a regulated tenant.  Having aggregated these allowances the respondent arrived at a total deduction of £362.36 per month to reflect the differences between the condition and terms of letting of the Premises and their assumed condition and terms of letting at which they could be expected to achieve a market rent.  A further deduction was then required to reflect the statutory disregard of the effect of scarcity in the letting market, which the respondent quantified at £222 per month (equal to an allowance of 32.5%).  The respondent concluded that the uncapped fair rent should be £463 (a reduction of about 30% from the fair rent registered in 2012).
5.	The appellants criticised the respondent’s approach to quantifying deductions from the market rent, but submitted no substantial evidence of their own to the FTT and expressed themselves content to rely on its judgment and experience.  Neither party requested an oral hearing.  
6.	The FTT summarised the parties’ submissions and, after a short explanation of relevant legal principles, proceeded to its valuation in paragraphs 16-18 of its reasons.  In the first of those paragraphs the FTT determined that the open market rent of the Premises, if modernised and centrally heated, would have been £1,200 per month.  It then considered the actual condition of the premises in paragraph 17 where it said this:
“However, the actual property is not in the same condition usual for a modern letting at a market rent.  Therefore it was first necessary to adjust the hypothetical rent of £1,200 per month to allow for the differences between the terms and conditions considered usual for such a letting and the condition of the actual property at the date of inspection, ignoring tenant’s improvements, (disregarding the effect of any disrepair or other defect attributable to the tenant or any predecessor in title).  The Tribunal considered that this required a deduction of £600 per month to reflect those matters noted at paragraph 6 and 7 above.”
7.	Finally, in paragraph 18 the F-tT explained its reasons for making a deduction of 20% from the adjusted open market rent of £600 per month to reflect scarcity.  The result was an uncapped fair rent of £480 per month which the F-tT directed should be registered with effect from 26 September 2014, that being the date of its determination.
8.	The appellants sought permission to appeal on a large number of points but was restricted by the Tribunal to one only, namely whether the FTT had given sufficient reasons for making a deduction from the market rent equivalent to 50% to reflect the factors mentioned in paragraphs 6 and 7 of its reasons in circumstances where the rent officer had made a much smaller reduction of £325 per month and the respondent in his detailed evidence having sought a reduction of only about 35% for the same factors.  
9.	In their written submissions the appellants contended that the reasons given by the F-tT for its reduction from the market rent of 50% were entirely unexplained.  The decision on the quantum of the deduction for condition was contained in the single sentence at the end of paragraph 17 which I have quoted above.  No comparables had been provided nor any other indication of the means by which the matters described in paragraphs 6 and 7 of the decision had been quantified.  The appellants also placed reliance on the fact that the reduction of £600 exceeded the reduction of £362 sought by the tenant and the £325 deducted by the rent officer. 
10.	In his own submissions the respondent contended that the FTT’s decision was adequately reasoned.  He explained that his starting point, an open market rental value of £514 per month, had been based on the lower quartile of weekly rental values for one-bed lettings in London W5 and that his evidence had been that the lower quartile was appropriate to reflect the poor state of the exterior of the premises.  He acknowledged that the deduction made by the F-tT was greater than his own deduction, but this was from a higher market rent, and the difference was not so marked when it was appreciated that part of the respondent’s deduction for condition was reflected in his lower assessment of market rental value.
11.	The FTT is only required to give reasons for its decisions when determining a fair rent when reasons are requested.  When a request for reasons is made the reasons need not be elaborate or lengthy but they must be intelligible and deal with the substantial points which have been raised.  Having read the reasons the parties should be able to understand why the decision has been reached.  In Curtis v The London Rent Assessment Committee [1999] QB 92 Auld LJ considered the content of the reasons which could be expected from the rent assessment committees which were the FTT’s predecessor, at page 118H:
“In those cases where a committee’s determination is close to the market rent indicated by good market rent comparables and there is no actual scarcity, little or no arithmetical explanation may be necessary.  But where a committee’s assessment of a fair rent differs significantly from the market rent indicated by market rent comparables, I agree … that they must have good reasons for it and they must explain them.  In both such cases …. an explanation will require some “working through” as Morritt LJ put it in the Spath Holme case.”
What this “working through” will amount to in any individual case will depend on the nature of the issue and the evidence. Often the FTT will have been provided with little or no relevant evidence, but it is still required to explain how and why it reached its own determination.  It must avoid the appearance of simply picking figures out of the air, but it should be able to achieve that without going into any greater detail than the subject matter requires. 
12.	In its reasons in this case the FTT explained that it considered that a deduction of £600 per month, equivalent to 50% of the market rent, was required to reflect differences between the terms and conditions usual for a market letting and the condition of the Property.  The deduction was explained in the final sentence of paragraph 17, but that sentence expressed a conclusion without providing an explanation of how that conclusion had been reached, and in particular how the figure had been quantified.  The striking feature of this case is that the FTT’s deduction exceeded the carefully quantified deduction for the same factors requested by the respondent in his impressively detailed submissions.  I regret that I consider the FTT’s reasons to have been insufficient because they failed to explain how its deduction of £600 per month had been arrived at.   It is unclear whether it was based on the method adopted by the respondent, but criticised by the appellants, of assessing an annual allowance based on capital cost of replacement, or whether some other method or approach used.  The decision fell short additionally by failing to explain why the FTT considered that the respondent’s deduction of £362 was inadequate and required to be increased by more than 60%.  It may be that it considered that as it was starting from a higher market rent a greater allowance was appropriate, as the respondent has argued, but if it did, it did not say so.  The fact that the rent officer had made a much lower deduction was also a matter which ought to have been addressed.  An informed reader of the decision, familiar with the evidence and background, would, I suggest, be unable to understand why a deduction as great as £600 was considered to be justified.  
13.	When it was asked for permission to appeal the FTT refused but acknowledge in paragraph 8 of its decision dated 26 November 2014 that it had not fully recorded the reasons for its original decision.  It gave brief supplemental reasons in which addressed some of the points made by the appellants, including the following:
“4.  The deduction for condition was in respect of all the matters set out in paragraph 6 and 7 of the decision and also the fitting out of the kitchen by the tenant, not just the condition of the plaster work. 
5.	The Tribunal took into account the repairing liability of both the landlord and the tenant including the obligations in section 11 Landlord and Tenant Act 1985.
6.	The Tribunal did not assume that repair of the collapsed ceiling was the tenant’s responsibility.  The ceiling is part of the structure of the building.
7.	The rent officer has not inspected since 2012.  There is no evidence that he was aware of the collapsed ceiling or current condition of the premises.  The Tribunal has carried out a valuation in accordance with section 70 Rent Act 1977 based on the condition of the premises at the date of its inspection.
14.	These additional reasons, given when refusing permission to appeal, add a little but only a little to the understanding of the decision.  In particular, the divergence in view between the FTT and the rent officer may be explained in part by the observation that the rent officer had not inspected since 2012.  Nonetheless I do not think these additional reasons go far enough and, in particular, they do not explain how the deduction was quantified nor do they address the fact that the FTT’s deduction was so much greater than the deduction proposed by the respondent.
15.	In my judgment the decision of the FTT was flawed in failing adequately to explain the quantum of the deduction.  I therefore allow the appeal.
16.	The parties do not agree what should now happen.  The appellants suggest that the appeal should be remitted to a differently constituted tribunal for redetermination.  The respondent argues that all that is required is for the matter to return to the original FTT so that the same members can explain in greater detail how they arrived at their original conclusion.  In this case I think the better course is that suggested by the appellants.  The FTT which made the decision has already been asked to grant permission to appeal on the grounds of the inadequacy of its original reasons.  It refused permission and supplied further reasons which do not sufficiently address the inadequacy of the original.  In those circumstances I think there is real justification for the appellants’ fear that, were the matter to go back to the same Tribunal for a further exposition of its reasons,  however inadvertently, it might seek to explain its original decision on the basis of new reasons which did not form part of its original thinking.  
17.	Rather than remitting the matter for further statement of reasons I therefore set the original decision aside and remit the appeal for redetermination.  The constitution of the tribunal which re-hears the appeal is a matter for the FTT but, in agreement with the appellants, I would suggest that it would be preferable for a differently constituted tribunal to determine the matter afresh.

							Martin Rodger QC, 
							Deputy President
							
							1 June 2015