England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/06/2009

The Hon. Mr. Justice Burnett:

1. This appeal raises a short point of statutory construction. Does section 13(1)(a) of the Housing Act 1988 have the effect of enabling a landlord to seek to increase the rent payable under a statutory periodic tenancy beyond the levels contemplated in a rent review clause in the assured tenancy that preceded it, even though that clause purports to govern the position during the currency of both the assured tenancy and any subsequent statutory periodic tenancy? It comes before this court an appeal under section 11(1) of the Tribunals and Inquiries Act 1992 from the London Rent Assessment Panel ["the Panel"]. On 19 December 2008 the Panel decided that it had no jurisdiction to determine the application then before it in respect of a flat at 8 Connaught Mansions, Prince of Wales Drive, London SW11.

Background

2. Mr and Mrs Goolamy live at 8 Connaught Mansions. They originally occupied under a lease granted to Mr Goolamy in 1998 but a new lease was granted to both of them by the second and third appellants (and one other) on 14 June 2001. The first appellant is the managing agent of the landlords and the fourth defendant a successor of that other lessor. The term of the lease was 3 years and the rent agreed was £7,148 per annum payable monthly in advance. The tenancy was an assured tenancy for the purposes of Part I of the Housing Act 1988 ["the 1988 Act"]. It contained a rent review clause in the following terms:

"6. It is hereby mutually agreed that with effect from each anniversary of the commencement of the term hereby created (whether during the said term or during the currency of any subsequent statutory periodic tenancy) the yearly rent payable hereunder (and accordingly the periodic payments of rent) shall increase by five per cent."

3. It would appear that the landlords did not take advantage of the ability to raise the rent 5% year on year but, as Mr Goolamy told me, made suggestions for very modest increases in rent most years, with which he and his wife were happy. Following the expiry of the term of the lease, Mr and Mrs Goolamy continued in occupation and became statutory periodic tenants.
4. On 25^th September 2008 the first appellant served a notice under section 13(2) of the 1988 Act proposing a new rent of £1,400 per month (£16,800 per annum). Mr and Mrs Goolamy referred the proposed increase to the Panel for determination. The reasons for the decision of the panel are contained in 3 short paragraphs attached to a letter of 19 December 2008:

"The Law

Section 13 of the Housing Act 1988 (as amended) refers at (b) to any periodic tenancy other than one in relation to which there is a provision, for the time being binding on the tenant, under which the rent for a particular period of the tenancy will or may be greater than the rent for an earlier period.

Facts Found

The tenants hold under a lease dated 14 June 2001 for a term of 3 years commencing on 1 June 2001. One of the tenants previously held under a lease dated 18 December 1998 for a term of 3 years from 1 January 1999. Both tenancies were assured tenancies and the tenant is presently holding over as a statutory periodic tenant. Clause 6 of the 2001 lease provides for the rent to increase 'with effect from each anniversary of the commencement of the term hereby created (whether during the said term or during the currency of any subsequent statutory periodic tenancy). The yearly rent payable hereunder (and accordingly the periodic payments of rent) shall increase by 5%.'

Reasons for Decision

The terms of the lease are paramount"

5. Mr. Buttimore, who appeared for the appellants, submits that the Panel fell into error when it suggested that this review was governed by section 13(1)(b) of the 1988 Act. It was governed by section 13(1)(a) with the result that any rent review clause in the original assured tenancy was not incorporated into the subsequent statutory periodic tenancy. That would be so whether the review clause was favourable to the tenant (as it may be here) or to the landlord. Either way, the statutory mechanism supersedes the contractual one in these circumstances. Mr Buttimore has been unable to locate any authority on the point.

The Statutory Provisions

6. The factual conclusions of the Panel that the underlying tenancy was an assured tenancy and that it was followed by a statutory periodic tenancy were uncontroversial and followed from the terms of the 1988 Act. Section 1 of the 1988 Act provides the definition of as assured tenancy Section 5 is concerned with security of tenure and describes the circumstances in which a statutory periodic tenancy arises. Subsections (2) and (3) are in these terms:

"(2) if an assured tenancy which is a fixed term tenancy comes to an end otherwise that by virtue of –

(a) an order of the court' or

(b) a surrender or other action on the part of the tenant,

Then, subject to section 7 and Chapter II below, the tenant shall be entitled to remain in possession of the dwelling-house let under the tenancy and, subject to subsection (4) below, his right to possession shall depend upon a periodic tenancy arising by virtue of this section.

(3) the periodic tenancy referred to in subsection (2) above is one-

(a) taking effect in possession immediately on the coming to an end of the fixed term tenancy;

(b) deemed to have been granted by the person who was the landlord under the fixed term tenancy immediately before it came to an end to the person who was then the tenant under the tenancy;

(c) under which the premises which are let are the same dwelling-house as was let under the fixed term tenancy;

(d) under which the periods of the tenancy are the same as those for which rent was last payable under the fixed term tenancy; and

(e) under which, subject to the following provisions of this Part of this Act, the other terms are the same as those of the fixed term tenancy immediately before it came to an end, except that any term that makes provision for determination by the landlord or the tenant shall not have effect while the tenancy remains an assured tenancy;"

7. Section 6 of the 1988 Act enables both landlord and tenant within a year to propose terms of the tenancy different from those implied under section 5. That provision covers all terms of the tenancy, including rent, and provides for resolution of disputes by a panel. Neither party to the statutory periodic tenancy took advantage of this provision. Sections 6A to 12 of the 1988 Act are not in play in this case. It is section 13 which concerns increase of rent under assured periodic tenancy.
8. Section 13 as material is in the following terms:

"13(1) This section applies to-

(a) a statutory periodic tenancy other than one which, by virtue of paragraph 11 or paragraph 12 in Part I of Schedule I to this Act, cannot for the time being be an assured tenancy; and

(b) any other periodic tenancy which is an assured tenancy, other than one in which there is a provision, for the time being binding on the tenant, under which the rent for a particular period of the tenancy will or may be greater that the rent for an earlier period

(2) For the purpose of securing an increase in the rent under a tenancy to which this section applies, the landlord may serve on the tenant a notice in the prescribed form proposing a new rent to take effect at the beginning of a new period of the tenancy specified in the notice, being a period beginning not earlier than –

(a) …

(b) …

(c) …"

The section goes on to provide that the proposed increase will take effect unless the tenant makes an application to the Rent Assessment Committee (section 13(4)). Section 14 governs the determination by the Committee of such an application.

Discussion

9. There is no doubt, as the panel concluded, that on the expiry of the assured tenancy a statutory periodic tenancy came into being by virtue of section 5(2) of the 1988 Act. The statutory periodic tenancy has the same terms as the anterior assured tenancy 'subject to the following provisions of this Part of this Act' (section 5(3)(e)). Section 13 in within the same part of the 1988 Act and provides a statutory scheme governing the increase of rent under assured periodic tenancies. Section 13(1) draws a clear distinction between two different categories of assured periodic tenancy. Section 13(1)(a) is concerned with statutory periodic tenancies, other than those which cannot be an assured tenancy by virtue of paragraphs 11 and 12 of Schedule 1. Those are Crown tenancies and Local Authority tenancies. Section 13(1)(b) is concerned with any other periodic tenancy, which is an assured tenancy. That category is thus concerned with contractual assured periodic tenancies. In respect of this category, the statutory scheme expressly does not apply where there is a contractual rent review clause binding on the tenant. The natural reading of section 13, given the contrast between subsections (1)(a) and (b), is that a rent review clause in the original assured tenancy does not oust the mechanism for increasing rent found in section 13 once that assured tenancy has been superseded by a statutory periodic tenancy. If that were the limit of how the statute operated in connection with statutory periodic tenancies, it would leave the possibility of a rent review clause being preserved by section 5(3) but giving the landlord the option of using section 13 instead. As the author of Megarry on Assured Tenancies, 11^th Edition observes at paragraph 17-06 'Although the operation of a statutory system is not necessarily incompatible with the presence of a rent increase clause, there would be many difficulties…'
10. The solution is found in section 5(3) of the 1988 Act. Section 5(3) preserves the pre-existing terms subject to, inter alia, section 13. It follows, in my judgment, that a rent review clause in the original assured tenancy purporting to govern the position once it has been superseded by a statutory periodic tenancy is of no effect. The 'subject to' proviso excludes any rent review clause from the statutory periodic tenancy. In its place, the statutory scheme kicks in. Therefore, absent agreement regarding an increase in rent of a statutory periodic tenancy (see section 13(5)) the landlord must use the notice provisions on section 13(2) which then enable the tenant to seek an assessment if he wishes. As Megarry puts it:

"In short, for other periodic tenancies the rent increase clause prevails, while for statutory periodic tenancies the statutory system prevails."

11. With respect to the panel, having found that the tenancy was a statutory periodic tenancy, it fell into error in considering that section 13(1)(b) was in play rather than section 13(1)(a). For these reasons, this appeal is allowed and the case will be remitted to the Panel to determine the rent.