England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (ADMINISTRATIVE
COURT LIST) (MAURICE KAY J.)

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th October 2001

LORD JUSTICE SEDLEY:

1. These appeals are brought by permission of Maurice Kay J who, as judge of first instance, declined to quash four determinations affecting the housing benefit payable to each of the present four appellants. Their contention is that rent officers of the Greater Manchester Registration Area erred in law in setting the local reference rent which limited the amount of housing benefit to which each appellant was otherwise entitled: the error, if error it was, consisted of taking the whole of Stockport, and not a more limited area, as the "locality" for which the local reference rent was to be ascertained. The appeal thus has nationwide implications.
2. The material facts of each case, taken verbatim from the judgment below, are scheduled to this judgment. For the purposes of the appeals they can be summarised in this way: each appellant was the assured shorthold tenant of a small house at a contractual rent which, when adjusted in one case for under-occupancy, was neither significantly nor exceptionally high (these being terms of art in the Regulations) but which, because it exceeded the local reference rent, was eligible for benefit only at the level of the latter. In each case the local reference rent had been determined initially by the Greater Manchester rent service pursuant to the statutory scheme. By the time of the hearing below, two of the four applicants had been forced to leave their homes because they could not make up the shortfall.
3. The key provisions are all to be found in Schedule 1 to the Rent Officers (Housing Benefit Functions) Order 1997 (SI 1997 no.1984). Article 3(1) requires the rent officer to make the material determinations in accordance with the following provisions of the schedule:

"Significantly high rents

1. (1) The rent officer shall determine whether, in his opinion, the rent payable under the tenancy of the dwelling at the relevant time is significantly higher than the rent which the landlord might reasonably have been expected to obtain under the tenancy at that time.

(2) If the rent officer determines under sub-paragraph (1) that the rent is significantly higher, the rent officer shall also determine the rent which the landlord might reasonably have been expected to obtain under the tenancy at the relevant time.

(3) When making a determination under this paragraph, the rent officer shall have regard to the level of rent under similar tenancies of similar dwellings in the locality (or as similar as regards tenancy, dwelling and locality as is reasonably practicable) and shall assume that no one who would have been entitled to housing benefit had sought or is seeking the tenancy.

Size and rent

2. (1) The rent officer shall determine whether the dwelling, at the relevant time, exceeds the size criteria for the occupiers.

(2) If the rent officer determines that the dwelling exceeds the size criteria, the rent officer shall also determine the rent which a landlord might reasonably have been expected to obtain, at the relevant time, for a tenancy which is-

(a) similar to the tenancy of the dwelling;

(b) on the same terms other than the term relating to the amount of rent; and

(c) of a dwelling which is in the same locality as the dwelling, but which-

(i) accords with the size criteria for the occupiers;

(ii) is in a reasonable state of repair, and

(iii) corresponds in other respects, in the rent officer's opinion, as closely as is reasonably practicable to the dwelling.

(3) When making a determination under sub-paragraph (2), the rent officer shall have regard to the same matter and make the same assumption as specified in paragraph 1(3), except that in judging the similarity of other tenancies and dwellings the comparison shall be with the tenancy of the second dwelling referred to in sub-paragraph (2) and shall assume that no one who would have been entitled to housing benefit had sought or is seeking that tenancy.

Exceptionally high rents

3. (1) The rent officer shall determine whether, in his opinion, the rent payable for the tenancy of the dwelling at the relevant time is exceptionally high.

(2) In sub-paragraph (1) "rent payable for the tenancy" means-

(a) where a determination is made under sub-paragraph (2) of paragraph 2, the rent determined under that sub-paragraph;

(b) where no determination is so made and a determination is made under sub-paragraph (2) of paragraph 1, the rent determined under that sub-paragraph; and

(c) in any other case, the rent payable under the tenancy.

(3) If the rent officer determines under sub-paragraph (1) that the rent is exceptionally high, the rent officer shall also determine the highest rent, which is not an exceptionally high rent and which a landlord might reasonably have been expected to obtain at the relevant time (on the assumption that no one who would have been entitled to housing benefit had sought or is seeking the tenancy) for an assured tenancy of a dwelling which-

(a) is in the same locality as the dwelling;

(b) has the same number of bedrooms and rooms suitable for living in as the dwelling (or, where the dwelling exceeds the size criteria for the occupiers, accords with the size criteria): and

(c) is in a reasonable state of repair.

(4) For the purpose of determining whether a rent is an exceptionally high rent under this paragraph, the rent officer shall have regard to the levels of rent under assured tenancies of dwellings which-

(a) are in the same locality as the dwelling (or in as similar a locality as is reasonably practicable); and

(b) have the same number of bedrooms and rooms suitable for living in as the dwelling (or, in a case where the dwelling exceeds the size criteria for the occupiers, accord with the size criteria).

Local reference rents

4. (1) The rent officer shall make a determination of a local reference rent in accordance with the formula-

H + l

R = -----------

2

where-

R is the local reference rent;

H is the highest rent, in the rent officer's opinion,-

(a) which a landlord might reasonably have been expected to obtain, at the relevant time, for an assured tenancy of a dwelling which meets the criteria in sub-paragraph (2); and

(b) which is not an exceptionally high rent; and

L is the lowest rent, in the rent officer's opinion,-

(a) which a landlord might reasonably have been expected to obtain, at the relevant time, for an assured tenancy of a dwelling which meets the criteria in sub-paragraph (2); and

(b) which is not an exceptionally low rent.

(2) The criteria are-

(a) that the dwelling under the assured tenancy-

(i) is in the same locality as the dwelling;

(ii) is in a reasonable state of repair, and

(iii) has the same number of bedrooms and rooms suitable for living in as the dwelling (or, in a case where the dwelling exceeds the size criteria for the occupiers, accords with the size criteria); and

…."

The essential difference between significantly high rents and exceptionally high rents is that the former relate to overpriced tenancies while the latter relate to over-comfortable lettings.

4. The remainder of the scheduled provisions have no direct bearing on the present cases, but it needs to be noted that, for what is nowadays called studio accommodation, paragraph 5 replaces local reference rents with single room rents calculated by a different formula. Within the body of the Order, Article 4 allows a second rent officer, on the local authority's application (which may well be triggered by the tenant's objection), to redetermine a local reference rent. That was done in these cases by the North East area rent service after consultation, as is required, with Greater Manchester rent officers.
5. The question is what is meant in paragraph 4(2)(a)(i) by "locality". The Rent Service, through Mr Fetherstonhaugh, contends that it allows the rent officer to settle upon any suitable area which cannot be classed as irrational, including – as here – the whole of Stockport. For the tenants Mr Luba contends that it means the same as in the preceding paragraphs of the schedule, namely the immediate locality – in the present cases, Hazel Grove, Bredbury, Reddish and Cheadle Hulme respectively. The difference between the two approaches is radical, but the effects are not linear or uniform. The Rent Service's approach means that the local reference rent is elevated where the larger area includes more desirable dwellings than those in the immediate area of the subject tenancy, and depressed where the converse is the case. In theory this creates an advantage for tenants in poorer areas and a handicap for tenants in pleasanter areas; but in practice the benefits payable to the former will be capped, where appropriate, under one or more of the preceding paragraphs of the schedule, while the latter (as in three of these cases) may escape capping under those paragraphs and yet be ineligible under paragraph 4 for enough benefit to pay the rent. The tenants' approach would elevate the cap for a better-off area above the cap for a poorer one, though always subject to the more specific caps in paragraphs 1 to 3.
6. The present cases illustrate the issue and its effects very clearly. The judge accepted the following description of Stockport, a metropolitan borough of 300,000 inhabitants, from a 1997 report, Profiling Stockport (page 1):

"Stockport may not generally be seen as deprived, but it is a borough of great inequality. It contains neighbourhoods at both ends of the advantaged / disadvantaged spectrum"

For this entire area the rent officer service has found that the top end of the market for dwellings of four living rooms in reasonable repair is £108 a week (giving Cheadle Hulme as an instance ) and the bottom end £60 a week (giving Edgeley as an instance). For the appellant Mrs Saadat, whose tenancy is – or was – in Cheadle Hulme, as for the others, none of whom lives in Edgeley, the significance is palpable.

7. At counsel's invitation Maurice Kay J looked at the legislative history but found it equivocal. In the end this is probably right, but it is nevertheless relevant to note a handful of things about it. Housing benefit is a means-tested contribution to contractual rents, payable by local authorities with central government support. Its status as an entitlement was constituted by s.130 of the Social Security (Contributions and Benefits) Act 1992; it is now constituted by s.122 of the Housing Act 1996. The Secretary of State's power to make a scheme has been exercised in the Housing Benefit (General) Regulations 1987 and the later amendments to it. These have included in particular the addition in 1994 of what is now paragraph 3 of Schedule 1, and the addition in 1995 of what is now paragraph 4.
8. The criterion of benefit is the eligible rent, but this sum will not necessarily be met in full even where the tenant cannot pay it out of his or her own resources. The policy reason for this is to prevent abuse, principally by capping benefit for under-occupied dwellings or inflated rents: see R v Housing Benefit Review Board for E.Devon, ex parte Gibson (1993) 25 HLR 487, 490, per Lord Bingham MR. In order to secure an independent and informed determination of the level at which the necessary caps are to be set the rent officer service is used, pursuant to powers contained in s.122 of the Housing Act 1996. The mandate of the rent officer service is accordingly contained in the Order cited above. A rent registration area can include several local authority districts.
9. The concept of the local reference rent as an additional cap was an innovation, initially introduced into the Order by the Rent Officers (Additional Functions) Order 1995 which, together with an amending Order, came into force on 2 January 1996. These provisions are now consolidated in the 1997 Order. Their avowed purpose was to bring the global housing benefit bill down. The Social Security Advisory Committee had urged caution in the proposed use of local reference rents. The Government accepted that single rooms needed to be hived off so that multi-occupied properties did not drag down the mean level, but for the rest went ahead with its proposal.
10. It is evident that the local reference rent is a blunt instrument which can depress an individual's benefit below a level which is neither "significantly" nor "exceptionally" high, but cannot elevate it if for other reasons it falls below the local reference rent level. It is also evident, both from the text and from its history, that this effect is intentional. So an argument simply from hardship cannot succeed. Nor, however, should an argument simply from economic policy succeed – for example that it is consonant with the intent of the Order that as large an area as possible should be taken in order to depress the local reference rent level for better-off areas and so limit the housing benefit bill. Mr Fetherstonhaugh rightly disavows any such construction: he accepts that the comment of Lord Bingham MR in Ex parte Gibson (above) that the benefit assessment procedure is not designed to produce homelessness is as true of the amended Order as it was of the earlier version. Both counsel accordingly have concentrated their submissions on making sense of the words on the page.
11. Although both counsel start from the proposition that it is an ordinary English word, "locality" as used here, while certainly not a term of legal art, necessarily has a meaning, or a range of meanings, geared to its context and purpose. The context, Mr Luba submits, includes the use of the same word in the three preceding paragraphs to denote a plainly more restricted area than has been adopted for paragraph 4. While paragraphs 1 to 3 do not use the word "locality" to mean some defined geographical or administrative area, in all three places it clearly requires regard to be had to the near neighbourhood of the subject letting: why else would two of the three paragraphs need to contain fallback provisions introducing some elasticity into the concept of locality in the interests of practicability? But as Mr Fetherstonhaugh points out, wholly different meanings of this very word within a few lines are not unknown - for example as used subsections (1) and (2) respectively of s.70 of the Rent Act 1977 (see Metropolitan Property Holdings Ltd v Finegold [1975] 1 WLR 349, DC). It does not follow, therefore, that the meaning in paragraph 4 is necessarily the same as in the preceding three.
12. To decide whether it is the same or not, and at all events whether it is on any view large enough to encompass the whole of Stockport, it is necessary to consider the policy and objects of this Order in its amended form. We are not concerned here with policy in the sense of what ministers hoped or intended to achieve in financial terms, but with what the amended Order itself (which by s.122(6)(a) of the Housing Act 1996 was subject to negative resolution in Parliament) displays as its essential objective. This, in my judgment, is to limit the housing benefit which is otherwise payable on grounds of reasonable individual need to the median point between the upper and lower ends (excluding exceptional cases) of the local market in dwellings with similar living space (actual or assumed) and in a reasonable state of repair. To this extent, but no more, its purpose is to intervene in the market. It is not to drive people who have had to fall back on housing benefit out of more affluent areas where the benefit rules would otherwise have enabled them to remain and into poorer areas. If that were desired, it would require clear provision – for example by a recasting of paragraph 3, which is designed to avoid subsidising market-priced but excessively comfortable accommodation. It cannot fairly be deduced from the terms of paragraph 4.
13. It follows that it offends the purposes of the Order to take as the relevant locality an area so large that the poorer dwellings in it will inexorably bring the median, and with it the cap, down to a level which drives out or pauperises otherwise eligible housing benefit claimants. The fundamental purpose of the housing benefit scheme is the very opposite: it is to ensure that people who are not under-occupying property and not over-paying rent are not made homeless through genuine inability to pay. This is the context in which the purpose of the local reference rent has to be established. While, as a limiting procedure, it undoubtedly qualifies the basic purpose, it is not designed to negative it. Its objective, in its context, is that a rent should not be subsidised above the median or average level (the two are mathematically the same here) for the locality. That in turn implies a necessary geographical and demographic restraint on what can be legitimately regarded as the locality. Just as the court will intervene if too narrow an area is taken to accommodate the statutory purpose (Metropolitan Property Holdings Ltd v Finegold [1975] 1 WLR 349, DC), so it must intervene if too large an area is taken.
14. As the Secretary of State pointed out in the memorandum referring his proposals to the Social Security Advisory Committee (paragraph 20), "Localities are fluid representations of property markets and can be quite variable in size." In his witness statement Mr Cannon, the rent officer who made the redetermination in Ms Dinsdale's case, explains that

"If a general level for four-room accommodation were required, to restrict researches to just a few streets or a neighbourhood at the heart of the area would not provide the generalised view and would be based on limited evidence…. Hazel Grove…is a semi-suburban area … Residential property is principally semi-detached or terraced houses, mainly in owner-occupation. There is limited evidence of private rented accommodation…"

This one accepts; but it leaves open the question whether an area as large as the metropolitan borough of Stockport, containing as it does twelve discrete named areas, is the only alternative. Mr Luba points out that the Order, which could perfectly well have specified the rent registration area or the local authority area, does not do so; and Mr Fetherstonhaugh accepts that to take, say, Greater Manchester (of which Stockport forms part) as the material locality would be irrational, though he did not find it easy to say why.

15. In my judgment the reason is that it is contrary to the meaning and purposes of the Order and of the statutory scheme of which it forms part to treat an area as large and diverse as Stockport, and even more so Greater Manchester, as the relevant locality for the purposes of setting a local reference rent under paragraph 4 of the first schedule to the Order when an immediate locality capable of furnishing a local reference rent can readily be identified. If locality does not stop here, there is no answer to the question "Where does it stop?"
16. As a matter of construction, accordingly, I would hold that in none of the first four paragraphs of Schedule 1 to the Order as amended does "locality" necessarily refer to a particular geographical or administrative area, and that in all of them it signifies an area no greater than will enable the rent officer reliably to make the specified calculations and judgments. In each case this will depend on the character of the area in which the dwelling is located and on the data available there; but in none of the four paragraphs, for the reasons I have given, can it lawfully be an area as diffuse or as arbitrarily related to the subject dwelling as the administrative borough of Stockport.
17. For this reason the four material decisions must be quashed. Beyond this point, the court should heed what has been said more than once about the importance of letting expert decision-makers such as rent officers form their own view about the precise extent of a locality so long as they stay within the law: see Metropolitan Property Holdings v Finegold (above, 353-4). It will be for the rent officer service to redetermine the local reference rent in each of these four cases in accordance with the judgment of this court.
18. Counsel have helpfully agreed, in order to save further costs, that in this event the appeals should be disposed of without the need of further attendance. The order will be that:

(1) The appeals be allowed

(2) The orders made by Mr Justice Maurice Kay be set aside

(3) The applications for judicial review be allowed

(4) The redeterminations of the rent officers in the instant cases be the subject of quashing orders

(5) The defendant do pay the claimants' costs in this court and below

(6) There be a Community Legal Service Fund assessment of the claimants' costs.

There will also be liberty to apply.

LORD JUSTICE MUMMERY

I agree.

LORD JUSTICE KENNEDY

I also agree.

Order: appeal allowed; the applications for judicial review allowed; re-determinations of Rent Officers in instant cases to be subject of quashing orders; respondent's to pay appellant's costs here and below; Community Legal Aid service find assessment of the claimant's costs and if necessary liberty to apply. (Order not part of approved judgment).
* * * * * * * * SCHEDULE

"Catherine Dinsdale

Ms Dinsdale and her two children lived in a three-bedroomed semi-detached house at 53 Clarendon Road, Hazel Grove, Stockport, pursuant to an assured shorthold tenancy agreement which stipulated the contractual rent to be £100 per week. Prior to taking the tenancy, she had requested a pre-tenancy determination as is permitted under regulation 12A of the 1987 Regulations. It determined a maximum rent for housing benefit purposes to be £100 per week which was not a "significantly high rent". Under the regulation, that protected her for twelve months. However, in April 1999, almost a year after the commencement of the tenancy, the Rent Service determined the local reference rent to be £81 per week. In due course, she required the Council to seek a redetermination and on 4 February 2000 the redetermination produced the same local reference rent of £81 per week. The redetermination letter described the location of the property as:

"a fairly good residential area, convenient for shopping and commercial services in Hazel Grove. The immediate vicinity is very similar to properties built in the 1930's."

It referred to the local reference rent as:

"the general level of rent in your area with the number of rooms you can claim benefit for."

In the local reference rent formula, the high rent was £100, the low rent £62 and the midpoint £81. Ms. Dinsdale's housing benefit was reduced to that figure and, apart from a period for which she received an exceptional hardship payment (a period which is limited by regulation), the effect was an accumulation of arrears until she left the property with arrears in the region of £800.

The rent officer who carried out the redetermination, Mr Cannon, described his approach in this way:

"In redetermining the local reference rent I considered seventy one pieces of evidence extracted from the database relating to tenancies at rents ranging from £125 per week to £55 per week. After excluding those items where I considered the rent to be exceptionally high and exceptionally low, the range which remained was between £100 and £62. The midpoint between those figures is £81 and this was the figure at which I redetermined the local reference rent."

……………………

Caroline Wilson

Ms Wilson and her son live in a two-bedroomed semi-detached house at 31 Edward Avenue, Bredbury, Stockport under an assured shorthold tenancy with a contractual rent of £90 per week. Initially, she received housing benefit of £85 per week in line with a pre-tenancy determination. In due course this was reduced to £75 per week when a rent officer determined that to be the local reference rent for such a property. A subsequent redetermination produced the same figure.

Mr Cannon was again the redetermining officer. In the redetermination notice he stated:

"Location: The property is situated in the Bredbury district of Stockport in a fairly good residential area convenient for shopping and commercial services in Bredbury and also Stockport town centre."

As to rents, he said:

"Having considered the market evidence for similar accommodation let on similar terms in the locality. I am of the opinion that the referred rent of £90 per week is reasonable for this property in this locality … The local reference rent is the general level of rent in your area with the number of rooms you can claim benefit for."

He found the high rent to be £95, the low rent £55 and, consequently, the local reference rent to be £75.

Ms Wilson has been unable to cope with the shortfall of £15 per week and the rent has fallen into arrears. Her case is the same as Ms Dinsdale's, substituting Bredbury for Hazel Grove as "the same locality", whereas Mr Cannon again focused on the whole of the area of Stockport MBC.

Barbara Shaw

Mrs Shaw lives alone at 39 Fairford way, Reddish, Stockport. That is a three-bedroomed house owned by her daughter. Mrs Shaw is an assured shorthold tenant at a rent of £433.33 per month (£99.99 per week). Until September 1999 she was receiving housing benefit of £84.26 per week. In June 1999 a rent officer determined the local reference rent for such a property to be £286 per month, a figure that was confirmed on redetermination in April 2000. The redetermining officer was Mr Fearon. Under the heading "Location", he said:

"The property is situated in a good residential area off Reddish Road … There are a variety of shops on the main road and further away in Stockport and Reddish."

Having examined "the market rental evidence for similar houses in the area", he concluded that the market rent for the property was £410 per month. He then applied the size criteria and decided, unsurprisingly, that a smaller house was appropriate, the market rent for which would be £368 per month. However, the local reference rent for such a property, having regard to "rent levels across the whole area" in respect of the same size criteria, was £286 per month. Thus, the claimant's case is that "the same locality" means the Reddish area, whereas Mr Fearon erroneously took it to be the area of Stockport MBC.

Safina Saadat

Ms Saadat lives with her three children at 4 Hastings Close, Cheadle Hulme, Stockport. She is an assured shorthold tenant with a contractual rent of £520 per month which was later increased to £600 per month as a result of improvements carried out by the landlord. It is a three-bedroomed property. A pre-tenancy determination had assessed the local reference rent at £520 per month but, following the period of protection, a rent officer determined it at £364 per month and Mr. Fearon came to the same figure on redetermination. In the notice he described the location thus:

"The property is situated in a good residential area which is reflected in the high capital value of houses locally … There are a number of good schools in the area and it is well-served by shops and services in Cheadle Hulme centre."

He was satisfied that "£600 per month does not exceed a market rent for this locality", but came to a local reference rent of £364 per month after looking at "rent levels across the whole area" for similar properties. The battle lines are therefore drawn in the same way, Ms Saadat contending for Cheadle Hulme as "the same locality" as against Mr Fearon's choice of the entire area of Stockport MBC.

Before leaving the basic facts of the four cases, I should add that they have another common feature in that each of the claimants states (and it is not contradicted) that it is simply not possible to obtain an equivalent property in the locality for which they respectively contend in relation to the local reference rent."