England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LAMBETH COUNTY COURT
His Honour Judge Blunsdon

		Royal Courts of Justice Strand, London, WC2A 2LL
		10/05/2013

Lord Justice Briggs :

Introduction

1. This appeal raises a short but interesting point of construction of s.28 of the Housing Act 1988, where a local authority landlord unlawfully evicts a secure tenant from residential accommodation. In broad terms ss.27 and 28 entitle the tenant to elect to be paid as statutory damages for the loss of his right to occupy the premises an amount calculated by reference not to his loss but to the profit accruing to the landlord by reason of the eviction. In the days when spiralling property prices meant that unscrupulous private landlords could reap large profits from the unlawful eviction of protected or statutory tenants, followed by a sale with vacant possession or a re-letting at a market rent to a new assured tenant, greatly in excess of the common law (including exemplary) damages otherwise available, statutory damages under the 1988 Act represented a real deterrent.
2. It is common ground that ss.27 and 28 apply to all landlords of residential accommodation, including local authority landlords. Secure tenants of local authority landlords have a large measure of security of tenure, and a degree of de facto rent protection. Assured tenants have considerable security of tenure, but no rent protection. Assured shorthold tenants have virtually none. It is also common ground that, if a local authority landlord sells or transfers the reversion on a secure tenancy to a private landlord, this converts the secure tenancy into an assured tenancy, thereby exposing the tenant to having to pay a market rent: see ss. 38 and 13 of the 1988 Act. Such sales are uncommon, and need ministerial consent, but it is agreed that such is their effect. Secure tenancies from local authorities are thus inherently vulnerable to this, albeit unlikely, change in the benefits thereby obtained.
3. S.28 requires the statutory damages for unlawful eviction to be computed by reference to a comparison between the value of the landlord's interest subject to the tenant's rights, and the value of the landlord's interest free of them, in each case in the building in which the demised premises are comprised and at the time immediately prior to the unlawful eviction. The interests are to be valued on the basis of an open market sale to a willing purchaser of the landlord's interest other than the tenant or any member of his family, and upon further assumptions about development potential which are of no present relevance.
4. The question of construction arising on this appeal is whether the propensity for the rights of the tenant of a local authority to change from those of a secure tenant to those of an assured tenant on a sale of the reversion to a private landlord is to be factored into the hypothetical valuation of the landlord's interest subject to the tenant's rights. The appellant local authority's valuer assumed that it was, and concluded that the tenant's rights therefore had no adverse effect upon the value of the appellants' interest, because a private purchaser would pay the same for the building with one flat subject (in the purchaser's hands) to an assured tenancy as would be paid for it with that flat vacant. The respondent former tenant's valuer assumed that the purchaser should be deemed to take the building subject to an on-going secure tenancy of that flat, and advised that this would depreciate the value of the building by £90,500.
5. The trial judge was not called upon to consider the correctness of either valuation, apart from the question of construction which I have identified. This is because neither valuer was challenged as to the accuracy of his valuation, assuming the correctness of the different assumption which each of them made about the nature of the rights of the tenant. The judge's conclusion was that it had to be assumed that the tenant's rights were for all purposes to be deemed to be those of a secure tenant, even after a hypothetical sale to a private landlord, so the respondent obtained statutory damages of £90,500. From this decision the local authority appeals.
6. An additional ground of appeal is that the judge failed to mitigate the statutory damages payable by reason of the respondent's conduct prior to the eviction pursuant to s.27(7)(a) of the 1988 Act, but this arises only if the judge was correct on the question of construction which I have identified. If he was not, then the statutory damages are nil, and there is no room for mitigation.

The Facts

7. The reserved judgment of HHJ Blunsdon contains an admirable description of the facts, about which there is no challenge on this appeal. I need set out only the barest summary. The respondent Mr Loveridge was granted a secure tenancy by the appellant, Lambeth Borough Council, of a one-bedroom flat on the ground floor at 19 Moresby Walk, London SW8. I shall refer to it, as did the judge, as "the property". It formed part of a two flat purpose-built building, the upper flat (No. 20) having been let to a secure tenant throughout. I shall refer to the building containing the two flats as "the block".
8. Mr Loveridge's tenancy agreement required him to notify his landlord of any absence from the property for more than 8 weeks. On 9 July 2009 Mr Loveridge left the property for a lengthy visit to Ghana from which he did not return until 5 December 2009. He continued to pay his rent by standing order but failed to notify the council, although the judge noted, without making any finding one way or the other, that he may have attempted to do so.
9. A concern that Mr Loveridge might have died in the property led the council to effect forcible entry in September 2009. Thereafter the council cleared out Mr Loveridge's possessions, prepared the property for re-letting, and found a replacement occupant prepared to take an introductory tenancy of it on 4 December, one day before Mr Loveridge's return. The re-letting was not in fact completed until 7 December. In the meantime Mr Loveridge had returned and attempted to contact the council on Saturday 5 December, but his message did not get through in time to those responsible for the grant of the new introductory tenancy. Efforts to reinstate Mr Loveridge's tenancy of the property came to nothing.
10. Mr Loveridge brought proceedings against the council for unlawful eviction and for damages for the wrongful disposal of his possessions, in August 2010. By the time of the trial in June 2012, damages for the loss of his possessions had been agreed at £9,000 and, subject to liability, common law damages for unlawful eviction were agreed in the sum of £16,400 including the £9,000, as the appropriate measure of his actual loss.
11. It became common ground during the trial that, if liability for statutory damages was established under ss. 27 and 28 of the 1988 Act, then the appropriate amount for statutory damages should be either £90,500 or nil, depending upon the outcome of the question of construction which I have described. This was because, as the council's valuer asserted and Mr Loveridge's valuer did not dispute, a purchaser of the block on the open market would pay as much for it with the property subject to Mr Loveridge's rights, converted to those of an assured tenant upon sale to a private landlord, as would be paid if the block were offered with vacant possession of the property. In short, there was a buy to let market for the property, not merely an owner occupier market.

Statutory damages for wrongful eviction

12. The Housing Act 1988 created a sea change in the statutory control of residential lettings. Previously, (subject to irrelevant exceptions) ordinary dwelling-houses could only be let on protected or statutory tenancies, which conferred a measure of security of tenure on tenants, and a fair rent regime which had the effect of keeping rents well below what might otherwise have been obtainable on the open market. The 1988 Act introduced the assured tenancy, for new lettings made after its coming into force, conferring security of tenure broadly equivalent to a protected tenancy, but permitting market rents to be obtained: see s.13. It also enabled landlords to offer fixed term assured shorthold tenancies, with no significant security of tenure beyond the fixed term, again at market rents. The effect of these changes was to create a very large incentive on unscrupulous private landlords unlawfully to evict existing protected or statutory tenants, so as to be able to obtain market rents from assured tenants installed, after the coming into force of the Act, in their place. Although unlawful eviction had been made a criminal offence, by section 1 of the Protection from Eviction Act 1977 it was considered that an additional deterrent to unlawful eviction should be included within the 1988 Act, to deal with the additional incentive which I have described.
13. Section 27 of the 1988 Act provides, so far as is relevant, as follows:

"27 Damages for unlawful eviction

(1)This section applies if, at any time after 9th June 1988, a landlord (in this section referred to as "the landlord in default") or any person acting on behalf of the landlord in default unlawfully deprives the residential occupier of any premises of his occupation of the whole or part of the premises.

(3)Subject to the following provisions of this section, where this section applies, the landlord in default shall, by virtue of this section, be liable to pay to the former residential occupier, in respect of his loss of the right to occupy the premises in question as his residence, damages assessed on the basis set out in section 28 below.

(4) Any liability arising by virtue of subsection (3) above—

(a) shall be in the nature of a liability in tort; and

(b) subject to subsection (5) below, shall be in addition to any liability arising apart from this section (whether in tort, contract or otherwise).

(5) Nothing in this section affects the right of a residential occupier to enforce any liability which arises apart from this section in respect of his loss of the right to occupy premises as his residence; but damages shall not be awarded both in respect of such a liability and in respect of a liability arising by virtue of this section on account of the same loss.

(6) No liability shall arise by virtue of subsection (3) above if—

(a) before the date on which proceedings to enforce the liability are finally disposed of, the former residential occupier is reinstated in the premises in question in such circumstances that he becomes again the residential occupier of them; or

(b) at the request of the former residential occupier, a court makes an order (whether in the nature of an injunction or otherwise) as a result of which he is reinstated as mentioned in paragraph (a) above;

and, for the purposes of paragraph (a) above, proceedings to enforce a liability are finally disposed of on the earliest date by which the proceedings (including any proceedings on or in consequence of an appeal) have been determined and any time for appealing or further appealing has expired, except that if any appeal is abandoned, the proceedings shall be taken to be disposed of on the date of the abandonment.

(7) If, in proceedings to enforce a liability arising by virtue of subsection (3) above, it appears to the court—

(a) that, prior to the event which gave rise to the liability, the conduct of the former residential occupier or any person living with him in the premises concerned was such that it is reasonable to mitigate the damages for which the landlord in default would otherwise be liable, or

(b) that, before the proceedings were begun, the landlord in default offered to reinstate the former residential occupier in the premises in question and either it was unreasonable of the former residential occupier to refuse that offer or, if he had obtained alternative accommodation before the offer was made, it would have been unreasonable of him to refuse that offer if he had not obtained that accommodation,

the court may reduce the amount of damages which would otherwise be payable to such amount as it thinks appropriate"

14. Section 28 provides, so far as is relevant:

"28 The measure of damages

(1) The basis for the assessment of damages referred to in section 27(3) above is the difference in value, determined as at the time immediately before the residential occupier ceased to occupy the premises in question as his residence, between—

(a) the value of the interest of the landlord in default determined on the assumption that the residential occupier continues to have the same right to occupy the premises as before that time; and

(b) the value of that interest determined on the assumption that the residential occupier has ceased to have that right.

(2) In relation to any premises, any reference in this section to the interest of the landlord in default is a reference to his interest in the building in which the premises in question are comprised (whether or not that building contains any other premises) together with its curtilage.

(3) For the purposes of the valuations referred to in subsection (1) above, it shall be assumed—

(a) that the landlord in default is selling his interest on the open market to a willing buyer;

(b) that neither the residential occupier nor any member of his family wishes to buy; and

(c) that it is unlawful to carry out any substantial development of any of the land in which the landlord's interest subsists or to demolish the whole or part of any building on that land.

15. The court was referred to three authorities on the meaning and purpose of these provisions. In the earliest, Tagro v Cafane [1991] 1 WLR 378, the landlord was a private individual holding premises under a lease from a local authority which prohibited sub-letting and assignment. He sub-let to the plaintiff and then unlawfully evicted her. On the landlord's appeal against an award to her of statutory damages, it was submitted that the prohibition of sub-letting and assignment in the lease meant that the market value of the landlord's interest in the property under s.28 was virtually nil. Rejecting that submission, Lord Donaldson MR (with whom Russell and Nolan LJJ agreed) said, at page 387 B:

"I do not understand that section to contemplate, as Mr Carnwath's argument contemplates, that the premises will be treated as virtually inalienable and having no value in consequence. Subsection (3) clearly contemplates that there shall be no increase in the damages because the effect of the tenant being dispossessed is that it enables some very valuable development to take place. But the whole concept of the landlord in default selling his interest on the open market to a willing buyer assumes that he can sell it on the open market to a willing buyer, and that involves the subsidiary proposition on the facts of this case that the willing buyer would take a lease from the Lambeth London Borough Council on a monthly basis subject to the Landlord and Tenant Act 1954 with a covenant against subletting or assignment in exactly the same way as Mr Cafane had done. In my judgment, there is nothing in that point."

16. In the present case the council faced significant constraints upon an open market sale of the block to a private landlord but, as the Tagro case makes clear (and counsel agreed on this appeal), those constraints are of no relevance to the application of the open market valuation formula set out in s.28(3). The valuation formula requires it to be assumed that the landlord in default (even if a local authority) has an unconstrained right to sell its interest on the open market.
17. In the second case, Melville v Bruton (1996) 29 HLR 319, there is an authoritative explanation by Hutchison LJ (with which Stuart-Smith LJ and Buckley J agreed) as to the purpose and intent of ss. 27 and 28, at page 325. It repays reading in full but, in summary, it is to the effect that statutory damages are to be calculated by reference to a valuation based upon the actual realities affecting the premises, that there is no supervening requirement that all landlords in default are to be penalised by a substantial fine in excess of the profit, if any, derived from the unlawful eviction and that, in particular circumstances, the valuation may perfectly properly produce a nil outcome.
18. In the last of the three cases, Osei-Bonsu v Wandsworth London Borough Council [1999] 1 All ER 265, the council wrongly evicted one of two joint tenants (the husband) in misguided reliance upon an invalid notice to quit given to the council by the wife. On the husband's successful claim for unlawful eviction, statutory damages were agreed between the parties' representatives at £30,000. On appeal, the council argued that the true figure should have been nil, because of the precarious nature of the husband's rights of occupation, he being vulnerable to the giving of a 28 day valid notice to quit by the wife to the council, after which he would have no defence to eviction.
19. The ratio of the Court of Appeal's decision was that the parties should not be allowed, on appeal, to go back on their agreement as to damages. Nonetheless, Simon Brown LJ (with whom Pill and Thorpe LJJ agreed) said that, had the point been open, it would:

"…have had a very considerable impact upon the damages. As at 18 June 1990, the respondent's tenure was in the highest degree precarious, wholly dependent in law upon his wife not serving a valid notice to quit as she was clearly anxious to do. Even giving the respondent the benefit of all possible doubts as to the true extent to which his continuing rights in the property reduced its open market value, and recognising not least that he could undoubtedly have put the local authority to some expense and delay in securing the wife's necessary further co-operation and obtaining and executing the necessary court order for possession, I would have assessed statutory damages here at no more than £2,000."

20. Simon Brown LJ's analysis involved considering and rejecting the submission of Mr Lewison QC (as he then was) to the effect that, since the notional sale contemplated by the formula in s.28(1) and (3) was deemed to take place at the time of the valuation, a purchaser from the council would have had no power to compel or persuade the wife to give a notice to quit (for example by offering her alternative accommodation), so that the husband's tenancy was by no means as fragile as it might seem. Simon Brown LJ's response was:

"The clear answer to this argument, I am satisfied, lies in Mr Arden's submission that what is being valued is the interest of the landlord in default, not the abstract interest of a notional willing buyer. Although the concept of a willing buyer helps to fix the respective valuations, one postulates the landlord's continuing ownership in fact."

In my judgment all that Simon Brown LJ was saying was the sale did not have to be regarded as taking place instantaneously, before the landlord had time to effect a lawful eviction of the husband with the wife's willing assistance. He was not saying, as Mr Luba QC submitted and the judge appears to have thought, that it had to be assumed that there would be no sale. That would be contrary to the clear language of s.28(3)(a).

The trial judge's decision on the construction issue

21. After a careful recitation of the rival submissions at paragraphs 45-49 of his judgment, the judge decided the point, at paragraph 50, in the following manner:

"I refer back to s.28(1)(a). In this case the interest of the landlord in default before eviction was subject to a secure tenancy. The difference in value has to be determined as at the time immediately before eviction. I then read s.28(3) which defines by three assumptions the basis of the 2 valuations based on an assumed sale. However the sale is a fiction and to convert the secure tenancy to an assured tenancy for valuation purposes is to ignore the nature of the right to occupy the premises immediately before the eviction took place. Reading the section as a whole I conclude that the valuation under s.28(1)(a) requires no gloss or further assumptions. It requires a valuation of the Defendant's interest before eviction by way of a hypothetical sale subject to the continuation of a secure tenancy notwithstanding that on sale that tenancy would become assured. This gives a purposeful meaning to the words "continues to have" and "same right" in s.28(1)(a) and "that right" in the following subsection. It determines the value of the interest of the landlord in default, "not the abstract interest of a notional willing buyer". It also addresses the aim of the statutory provision as identified by Dillon LJ in Jones v Miah [1992] 24 HLR 578 "…of entitling the person injured to recover by way of damages from the landlord in default the profit which the latter has made from his wrong" page 587). Further it "postulates the landlord's continuing ownership in fact" (Osei-Bonsu idem)."

Analysis

22. With respect to the judge, and notwithstanding the valiant attempt by Mr Luba for Mr Loveridge to support his analysis, I consider it to have been wrong. The true analysis is, in my judgment, as follows.
23. First, s.28 clearly requires two valuations of the landlord's interest in the building (of which the demised premises form part) by reference to the date immediately prior to the eviction see: s.28(1). Both valuations require it to be assumed that the landlord in default is selling his interest on the open market to a willing buyer (other than the former tenant or his family) see: s.28(3). Secondly, for that purpose it is irrelevant that the landlord in default may be prohibited by the terms of his leasehold interest from selling, or (as in the present case) constrained in selling to a private landlord as purchaser: see the Tagro case. Thirdly, the valuation required by s.28(1)(b) (under which the occupier is assumed to have no relevant rights) is tantamount to a vacant possession valuation.
24. Turning to the valuation required by s.28(1)(a), the assumption that the residential occupier continues to have "the same right to occupy the premises as before that time" by no means requires an assumption that those rights are set in stone thereafter, immune from adverse change, whether by the landlord's lawful action or by operation of law. If there is anything which the landlord in default can lawfully do to mitigate the adverse effect of those rights upon an open market purchase that must be taken into account. Thus in the Osei-Bonsu case, the Court of Appeal would have expected the valuation (but for the parties' agreement as to damages) to have taken into account the ability of the landlord in default lawfully to evict the occupier, with his wife's consent, before making its open market sale.
25. By the same token, I consider that the valuer is equally obliged to take into account the inherent fragility of a secure tenancy to becoming downgraded by operation of law into an assured tenancy, on a sale of a local authority landlord's interest to a private landlord purchaser. In the first example, the fragility of the occupier's interest is assumed to be taken advantage of by the selling landlord in default. In the present case, the vulnerability of Mr Loveridge's secure tenancy to becoming downgraded into an assured tenancy on an open market sale to the highest bidder is inherent in the nature of his rights. This is, in particular, because on an open market sale, the highest bidder is likely to be a private rather than local authority landlord due to the depressing effect upon the value of the block to anyone whose status means that Mr Loveridge would continue to be a secure tenant.
26. Finally, it is nothing to the point that, at the moment of valuation, the landlord in default has not yet sold the building, and may have not the remotest intention of doing so. Section 28(3) requires an assumption that the landlord in default's interest is to be valued upon the basis of an open market sale. This means no more than that, whether or not it wishes or intends to sell, the interest is to be valued in that way.
27. This is a perfectly familiar concept both to property lawyers and to valuers. A property owner may wish to obtain a valuation, for example for the purposes of equity release by mortgage, fully intending to occupy the relevant property until he dies. But the valuation will nonetheless be conducted upon the basis of a hypothetical open market sale, with all the consequences with which such a sale would bring about in relation to existing adverse interests or encumbrances.
28. In my judgment the judge's error was to conclude that a valuation which took full account of the conversion of Mr Loveridge's rights on any sale from those of a secure tenant to those of an assured tenant was such as "to ignore the nature of the right to occupy the premises immediately before the eviction took place." Mr Loveridge's rights of occupation had, from the very grant of his secure tenancy, been vulnerable to being downgraded upon a sale by his local authority landlord to a private landlord. It was a vulnerability inherent in the nature of his rights. Similarly, nothing in the dictum relied upon by the judge from Osei-Bonsu that the valuation "postulates the landlord's continuing ownership in fact" detracts from that analysis. The landlord in default is indeed the owner of the relevant interest to be valued at the date prescribed by s.28(1). It is nonetheless an interest to be valued by reference to the valuer's assessment of the best price which it could reasonably be expected to obtain in the open market, on the specific assumptions set out in s.28.
29. The result is that, on the issue of construction of s.28, I would allow this appeal. It follows that the second issue, concerning mitigation, does not arise since the statutory damages are nil. A further consequence is that there is to be substituted the agreed common law damages for unlawful eviction in the sum of £7,400 for the statutory damages awarded by the judge, leaving the damages for interference with Mr Loveridge's possessions undisturbed.

Lord Justice Stanley Burnton

30. I agree.

Lady Justice Arden

31. I agree.