England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(The Honourable Mr Justice Ouseley)

		Royal Courts of Justice Strand London WC2 Monday, 29th July 2002

Monday, 29th July 2002

1. LADY JUSTICE ARDEN: Mr Justice Cresswell will give the first judgment.
2. MR JUSTICE CRESSWELL: This is a renewed application for permission to appeal from the order of Ouseley J dated 19th April this year. The appellant is the landlord of 44 Yeoman's Row, London SW3 ("the property"). The second respondent is the tenant. The decision subject to challenge before Ouseley J was a Rent Assessment Committee's determination of a fair rent for the property under section 70 of the Rent Act 1977.
3. Second appeals to this court are governed by CPR 52.13:

"(1) Permission is required from the Court of Appeal for any appeal to that court from a decision of a county court or the High Court which was itself made on appeal.

(2) The Court of Appeal will not give permission unless it considers that-

(a)the appeal would raise an important point of principle or practice; or

(b)there is some other compelling reason for the Court of Appeal to hear it."

Introduction

4. The London Rent Assessment Committee ("LRAC") determined a fair rent for 44 Yeoman's Row and gave written reasons for its decision on 10th August 2001. It determined that the rent to be registered as the fair rent under the Rent Act 1977 was £10,039.50. It provided on the register, "for information only", that the market rent was assessed at £20,000, and that the uncapped fair rent was £14,000 after the application of a "scarcity" element of 30%. The maximum fair rent provisions in the Rent Acts (Maximum Fair Rent) Order 1999 SI/6 were applied so as to cap the fair rent at £10,039.50.
5. Before Ouseley J the appellant sought to challenge the lawfulness of that decision by a statutory appeal alleging that it was dissatisfied in point of law with the decision. The landlord's grounds, in summary, were as follows. The LRAC had adopted an impermissible approach to the question of whether any "scarcity" deduction fell to be made and its assessment of that deduction as 30%. It had erred in the way in which it dealt with the purpose of the deduction, the relevant area to be examined, and the ability of potential tenants to pay a market rent. The scale of the deduction was not warranted on the evidence and was based on internally contradictory reasoning. The landlord also submitted that the application of the Maximum Fair Rent Order was legally erroneous because it, too, depended on internally contradictory reasoning. In each instance the reasoning provided was legally inadequate.
6. The property is a first floor flat in a three-storey and basement block of flats built about 1954. The block is situated in a narrow residential cul-de-sac, with limited residents' parking spaces, on the boarders of Chelsea and Knightsbridge. The flat in question comprised five rooms which could be used as either four bedrooms and one living room, or three bedrooms, two living rooms, plus kitchen, bathroom, WC and basement store. A rent had been registered in November 1997 at £8,700, and in January 2000 the landlord requested the registration of a rent at £21,000. The rent officer registered a rent of £12,000. To this the landlord had objected, leading to a first quashed decision of the LRAC and then to its decision under challenge.

The statutory framework

7. Section 70 of the Rent Act 1977 provides:

"(1) In determining for the purposes of this Part of this Act, what rent is or would be a fair rent under a regulated tenancy of a dwelling-house, regard shall be had to all the circumstances (other than personal circumstances) and in particular to-

(a) the age, character, locality and state of repair of the dwelling-house, ...

(b) if any furniture is provided for use under the tenancy, the quantity, quality and condition of the furniture, and

(c) any premium, or sum in the nature of a premium, which has been or may be lawfully required or received on the grant, renewal, continuance or assignment of the tenancy.

(2) For the purposes of the determination it shall be assumed that the number of persons seeking to become tenants of similar dwelling-houses in the locality on the terms (other than those relating to rent) of the regulated tenancy is not substantially greater than the number of such dwelling-houses in the locality which are available for letting on such terms."

8. The Rent Act (Maximum Fair Rent) Order 1999 provides in effect for an increase in rent on the first application for the registration of the rent made after 1st February 1999 of no more than 7.5% plus the increase in the Retail Prices Index. This cap is disapplied in the circumstances set out in article 2(7):

"This article does not apply in respect of a dwelling-house if because of a change in the condition of the dwelling-house or the common parts as a result of repairs or improvements (including the replacements of any fixture or fitting) carried out by the landlord or a superior landlord, the rent that is determined in response to an application for registration of a new rent under Part IV exceeds by at least 15% the previous rent registered or confirmed."

The judgment of Ouseley J

9. There was no dispute before the judge below as to the lawfulness of the LRAC's conclusion that the open market rent was £20,000. As to scarcity, the LRAC said in paragraph 25 of its decision letter:

"Using our knowledge and experience we consider that there is substantial scarcity in all parts of London. This view is supported by publicly available official and influential non-government sources which consider that housing in the London area will remain in short supply for some years. For example the DETR Key Housing Statistics for September 2000 (the latest generally available at the date of this decision) show that 27,840 households were accepted as homeless in Greater London in 1999, an increase of 1,680 over the previous year. Thus we must apply a discount for scarcity for `similar dwelling houses', that is the type of property under consideration, in accordance with the guidance set out in Metropolitan Properties v Finegold [1975] 1 WLR 349."

10. The judge held that if scarcity had been the key issue, he would have concluded that the decision letter should be quashed because it was erroneous in its approach or inadequately reasoned. The judge held:

(1)When relying on the DETR statistics in paragraph 25 of its decision letter, the LRAC failed to draw any distinction between those homeless households, which are not in the housing market at all, let alone in the market for accommodation in Knightsbridge at "non-scarcity" affected rents, and those who in that market.

(2)Paragraph 25 only made sense on the basis that homeless people would affect the market rents for large flats in Knightsbridge.

(3) Where the LRAC proposed to rely upon particular statistics, whether as an example of a general proposition or not, it ought to give the parties the opportunity to comment on them. The LRAC was procedurally unfair in this respect.

(4)It is very important that the distinction be carefully observed between an increased demand arising from the amenity of a property or its location, and an imbalance arising from a shortage of similar accommodation over a wide area in relation to those seeking such accommodation. The LRAC failed to observe that distinction in paragraph 27 of the decision letter.

(5) The LRAC's reasoning gave the impression that the 30% was no more than a figure plucked from the air. Its reasoning was wholly absent.

11. As to the Maximum Fair Rent Order, the key issue for the LRAC was whether the improvements to the common parts and exterior of the block of flats had caused a rise of at least 15% in the rent of Flat 44 since it had last been determined at £8,700 in November 1997. The LRAC, in agreement with the tenant, was of the view that they had not caused such an increase. The LRAC held:

"Taking account of all the evidence on this point the Committee agrees with the landlord to the extent that the works would have had some effect, but does not agree that the increase in rental values due to those works is as great as the landlord suggests. We take the market rent today (£20,000) with the improvements to the common parts and discount for scarcity (£14,000). We then take the market rent today without the improvements (which in our opinion would be 5% less) (£19,000) and make the same discount for scarcity (£13,300). If the difference is greater than 15% then capping does not apply. Clearly here the increase in the fair rent determined as a result of repairs or improvement is £700 per annum. This is clearly less than 15% of the previous registered rent of £8,700 per annum. Paragraph 2(7) therefore does not apply and the fair rent is subject to capping."

12. Ouseley J held that the approach to the assessment of the proportion of the rent increase attributable to the improvements to the block was entirely one for the LRAC. It was not incumbent on the LRAC to take the November 1997 figure of £8,700 fixed by the Rent Officer and treat that as the starting point. The LRAC's reasoning for its figure of £1,000 was short, but it reflected a view about all the factors influencing the rent increase, including new management, against which it set the improvements.
13. The judge concluded in paragraph 115:

"For those reasons I reject Mr Gavaghan's submissions in relation to the Maximum Fair Rent Order. In the light of those conclusions I see no reason to quash the decision notwithstanding the conclusions I have reached in relation to `scarcity'. There is no overlap in the issues as I have analysed them. The decision would inevitably be the same even if I were to quash it because of the `scarcity' error. I have dealt with them because they may assist the landlord, tenant and the LRAC if the issue of the fair rent has to be considered without the effect of the Maximum Fair Rent Order, or if in other circumstances the landlord can persuade the LRAC that the cap does not apply."

14. Mr Gavaghan submitted that this appeal raises two important issues in relation to fair rents under the Rent Act 1977 that require a ruling from this court:

(a) what is the correct approach to Article 2(7) of the Rent Act (Maximum Fair Rent) Order 1999?

(b) which of two diverging approaches by the Administrative Court (between Ouseley J in the present case and Collins J in Spath Holme v North Western Rent Assessment Committee [2001] EWHC Admin 541) is correct when dealing with quashing and remission of rent assessment committee decisions?

15. Mr Gavaghan advanced four submissions as to the Maximum Fair Rent Order. I will take these in turn.
16. (1) There was an inconsistency between the Committee's apparent finding that the rents between November 1997 and May 2001 had been rising sharply and paragraph 12 of its reasons, where it said:

"... we note from the landlord's evidence that the rent of the very similar Flat 56 agreed in March 2001 is the same as the rent of No 48 agreed in November 2000. This suggests that the market is in fact flat. Our knowledge and experience also does not indicate that rents are rising strongly."

17. In my view the finding in paragraph 39 that

"...flat rents in the prime central London South West Area did rise and that the South West Index is a more accurate reflection of the market in this location..."

is not inconsistent with the LRAC's observations in paragraph 12 in relation to a more limited period in time.

18. (2) Mr Gavaghan's second submission was that it is not at all clear that the tenant did in fact put the South West Index forward as being representative of the market. There was no comparable evidence suggesting that the South West Index was more accurate in relation to the type of property in the neighbouring locality of the property.
19. As the judge said, the choice of index which best represented the overall market for the type of property under consideration was pre-eminently for the judgment of the LRAC, and is not a matter of law.
20. (3) Mr Gavaghan's third submission was that before the Rent Officer the tenants' representatives, including Mr Smith, had agreed that the improvements had caused the majority of the increase in the rent of the property.
21. The judge did not find as a fact, however, that the relevant material was before the LRAC.
22. (4) Mr Gavaghan's fourth submission was that the judge was wrong to state in paragraph 113:

"It was not incumbent on the LRAC, contrary to [counsel for the appellant's] submission, to take the November 1997 figure of £8,700 fixed by the Rent Officer and treat that as the starting point."

23. This, submitted Mr Gavaghan, was a question of law, not fact, i.e. the construction of article 2(7) and how it can be lawfully and rationally applied. The starting point of the analysis under article 2(7) must, he submitted, be what was the previous rent, registered or confirmed, and then to compare it with the fair rent now determined - thus to identify the increase in the rent (if any) since the last registration or confirmation.
24. As the judge said in paragraph 112 of his judgment the approach to the assessment of the proportion of the rent increase attributable to the improvements to the block was entirely one for the LRAC.
25. Although the second sentence in paragraph 113 of the judgment is criticised (the reference to the fixed figure being pre-Curtis), the judge was entitled to conclude that there was force in the point that the LRAC was agreeing to Mr Smith's assessment that as a matter of commonsense, looking at the nature of the improvements in the block and other factors, only a relatively small sum should be attributed to the improvements. Further, as the judge said, the LRAC was reaching a judgment which it was entitled to reach, namely that the improvements were not significant in the context of the rental increase. The LRAC took as its starting point the conclusion, not challenged before the judge, that the open market rent was £20,000.
26. In my judgment there are no public law grounds for interfering with the LRAC's approach and reasoning in this connection.
27. I turn to the second main issue raised by Mr Gavaghan, which relates to what he submitted are diverging approaches by the Administrative Court.
28. In Spath Holme (supra) Collins J said:

"I say: `if this case is returned', since I did wonder, in the course of argument, whether, because of the cap, the error in reducing the amount as it did was material. However, [counsel for the committee] supported Mr Gavaghan in submitting that if I decided that the committee had erred in its approach to voids, I should quash the decision and send the case back for reconsideration. The reason for this is the importance of the figure for fair rent in case the cap is removed, having regard to the impossibility of any further application by the landlord for two years without the tenant's agreement.

Accordingly, I shall order that the decision is quashed, and that a differently constituted committee reconsider the whole matter. This means that the appellant will be able to put before the committee such evidence as it wishes to try to establish that it is entitled to avoid capping through Article 2(7) of the 1999 Order."

29. I have already quoted Ouseley J's reasons in paragraph 115 of his judgment for not quashing the decision.
30. As Peter Gibson LJ said in refusing permission:

"The judge was well aware that he could have quashed and remitted, but his decision not to do so for the reasons he gave also does not raise an important point of principle or practice. The fact that Collins J did so in the particular circumstances of Spath Holme does not give rise to such a point."

31. This case, in my opinion, does not raise an important point of principle or practice. There is not some other compelling reason for the Court of Appeal to hear it.
32. For the reasons explained by the judge in his judgment having regard to his conclusions in relation to the Maximum Fair Rent Order, any further consideration of scarcity is academic.
33. I would refuse permission.
34. LADY JUSTICE ARDEN: Despite Mr Gavaghan's careful and comprehensive written and oral submissions, I agree that this application must be dismissed for the reasons which Cresswell J has given.
35. The LRAC concluded that the rise in reputative registered rent over the previously registered rent was not due to a change in the condition of the property as a result of improvements made by the landlord. Mr Gavaghan challenges that conclusion on a number of grounds. In particular he challenges the methodology used by the LRAC and the reasons which they gave. So far as the methodology was concerned, it cannot in my judgment be said to have been irrational to start from market rent and ask what the market rent would be if there were no improvements. That avoided using fair rent, which, after all, is not a rent in the real world. Moreover, as the period since the last registration (November 1997) to the date of the LRAC's decision (July 2001) was not the same as the period from the completion of the improvements (1999) to the date of the hearing or the decision of the LRAC, the methodology and approach of the LRAC may be said to have had some advantages.
36. The second challenge was to the adequacy of the reasons given by the LRAC. In particular, this challenge was mounted on the fact that there had been a 61% rise in the rent over the period from the date on which it was last fixed, a period of three and a half years. In addition, a point was made about the inconsistency of the approach to rises in rents in paragraphs 12 and 39 of the decision of the LRAC. On that matter, I agree with what Cresswell J has already said.
37. In my judgment, logically the LRAC did not have to define all the reasons for the rise that had taken place in the rent to determine whether or not the cap applied. The LRAC evidently thought there had been a rise, and it may have been as much as 30% or more. They also thought that the change in landlord had had some effect, although they did not quantify that. Over and above that, it seems to me that they must, as the judge held, have accepted the evidence of Mr Smith, the tenant's valuer, and applied their own experience. Mr Smith's evidence was that improvements of the kind in question here were unlikely to have any sizeable impact on the rent the tenant would be offering for very basic unimproved accommodation. The LRAC had photographs and indeed may have carried out an inspection.
38. In all the circumstances, in my judgment the LRAC were entitled to conclude, using their own judgment, that the element of the increase in rent due to improvements was 5%. I agree with what the judge said at paragraph 112 of his long and careful judgment:

"This not a point of law at all. The approach to the assessment of the proportion of the rent increase attributable to the improvements to the block is entirely one for the LRAC. There was nothing irrational in its approach."

39. It was, after all, for the landlord to show that the cap was disapplied by Article 2(7).
40. Having reached that conclusion, in my judgment, an appeal on any other issue would be academic. There is no expectation at the current time that the cap would be lifted.
41. I have considered whether this is a case where there ought to be liberty to apply in case the cap is lifted. But the position is that the two-year period is now running and the landlord can apply to fix a new rent within 12 months. It seems to me most unlikely that it would be proportionate to pursue a further application for permission should the cap be removed when the rent payable would become the fair rent of £10,039.50 which the LRAC fixed.
42. Accordingly, for these reasons and those which my Lord has already given, I would dismiss this application.
Order: Application dismissed.