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
		20 November 2009

Judge Anthony Thornton QC:

Introduction

1. This is a statutory appeal against two decisions of a panel of the London Rent Assessment Committee ("LRAC") that determined a new registered fair rent for two flats at 18 Ladbroke Crescent, London, W11. The effective date for both decisions was 12 November 2008. Glissen Properties Limited, the second appellant, is the present freehold owner of this property and is now the landlord of both Mr and Mrs Rivera, the tenants of the third floor flat, and Ms Creed, the tenant of the ground floor flat. The two appeals in this case raise the same short issue of statutory construction of The Rent Acts (Maximum Fair Rent) Order 1999 ("the 1999 Order"), made under section 31 of The Landlord and Tenant Act 1985. Both references to the LRAC were decided by the same panel on the same day in an identical manner and the landlord's appeals from both decisions were heard and argued together.
2. When the two references were before the LRAC, the freehold owner of the property was registered in the Land Registry in the name of Compatriot Holdings Ltd, the first appellant, but the freehold ownership of the property was re-registered in the name of the second appellant in December 2008. For that reason, the Administrative Court ordered, on 1 October 2009, that the second appellant should be added as a party to both appeals. The tenants are parties to these conjoined appeals since their interests are directly affected by them. They have been served with the notice of appeal relating to the appeal concerning their particular flat in accordance with the provisions of CPR 52.4(3) but they have neither been represented at, nor have taken any part in, the hearing of the appeals. The CPR require the panel of the LRAC to be served with a copy of both notices of appeal and to effect that service by service on the chairwoman of the panel (paragraph 17.5(1) of the Practice Direction to CPR 52). In consequence, the panel chairwoman was also named as a party to both appeals in accordance with the provisions of section 151 of the Supreme Court Act 1981 and, having been named as a party, was in consequence added as a named respondent to the appeals as provided for in R (on the application of Elvin Mullinger and Bettine Mullinger) v Chairman West Sussex Valuation Tribunal^[1]. It follows that the tribunal parties to these appeals are the three panel members who sat on and determined the two references to the LRAC.
3. The chairwoman of the LRAC instructed the Treasury Solicitor to act for the LRAC and, in a letter dated 20 February 2009, the Treasury Solicitor notified the Administrative Court that that tribunal did not intend to apply under CPR 52.12A(1)(b) to file a respondent's notice or to attend the hearing of the appeal. Following that notification, the LRAC neither appeared nor was represented at the hearing but it did file a witness statement from the Vice-President of the Residential Property Tribunal Service relating to the critical issue arising in the appeals, namely the rebasing of the Retail Price Index ("RPI") and as to how the RPI is to be used when the 1999 Order requires that use and when a relevant index has been rebased. Permission to file this witness statement was sought in a letter to the Administrative Court from the Treasury Solicitor dated 22 October 2009 as required by CPR 52.12A(1)(a) but, as no objection was raised by the appellants to this evidence being adduced at the hearing, no formal order was made by the Administrative Court. The witness statement was added to the appeal bundle and its contents were considered at the hearing.
4. The tenants of both flats are Rent Act protected tenants of long standing. Unfurnished tenancies protected by the Rent Acts that have been created since 1965 and furnished tenancies similarly protected that have been created since 1974 have been subject to regulation. The maximum rent that may be charged is fixed and registered as a fair rent by the rent officer in accordance with the statutory regime for these tenancies that is now set out in the Rent Act 1977. The registered fair rents of these tenants were settled and last registered some years ago and any variation in their registered fair rent may only occur following further determinations by the rent officer. An application to determine a new registered fair rent may be made to the rent officer by either the landlord or the tenants at intervals of no less than two years following a previous determination and any new fair rent must be registered following such a determination.
5. Since 1999, any increase in the registered fair rent, or previously payable rent where no fair rent has ever been registered, has been subject to a statutory cap that is calculated in accordance with the formula set out in Article 2(1) of the 1999 Order. This cap precludes a registered fair rent increase in excess of that resulting from the operation of the statutory capping formula so that, if the proposed increased fair rent exceeds the prescribed statutory cap, the lower capped figure, known as the maximum fair rent, must be registered and is the recoverable rent. The maximum fair rent is calculated by uplifting the previously registered fair rent by an amount ascertained from the application of the formula. This formula is based on the relative movement in the Resale Price Index ("RPI") in the intervening period between the date on which the previously fixed or agreed rent took effect and the effective date of the new fair rent. The 1999 Order exempts from the cap any fair rent increase of at least 15% that is attributable to repairs and improvements carried out by the landlords.

The Subject-matter of the Appeals

6. In the first appeal, the registered fair rent for the third floor flat was previously registered with effect from 21 May 1985 at £38 per week. With effect from 25 July 2008, the rent officer registered a new maximum fair rent of £88 per week. Following objection by the first appellant, the issue of the new maximum fair rent was referred to the LRAC who, with effect from 12 November 2008, directed that the rent officer's determination should be varied and reduced to £30.82 per week. Both the rent officer and the LRAC determined the new rent by first determining the fair rent. The LRAC increased the rent officer's determination of a fair rent from £135 per week to £179.17 per week inclusive of a charge for services of £8.82. However, the LRAC then applied the capping formula of the 1999 Order in a different manner to the manner that it had been applied by the Rent Officer and, in doing so, fixed the maximum fair rent at £30.82 per week including £8.82 for services. This resulted in a significantly reduced figure for the maximum fair rent compared to the maximum fair rent fixed by the Rent Officer.
7. In the second appeal for the ground floor flat, precisely the same sequence of events occurred but the figures were marginally different. For the ground floor flat, the corresponding figures were: the registered fair that had been previously registered with effect from 21 May 1985 was £38.50 per week; with effect from 25 July 2008, the rent officer registered a maximum fair rent of £89 per week including £8.82 for services; and the LRAC determined the fair rent to be £179.17 inclusive of £8.82 for services and then fixed the maximum fair rent at £31.32 per week following its application of the capping formula.

The 1999 Order

8. The intention and purposes of the 1999 Order are clearly and succinctly explained in the speech of Lord Bingham in R v Environment Secretary, ex parte Spath Holme Ltd^[2]. Very briefly, the background to the 1999 Order was the provision for the first time, by the Housing Act 1988, of assured and assured shorthold tenancies with their regime of negotiated rent levels (subject to a limited safeguard for some tenants) and the abolition, for the future, of newly created Rent Act tenancies. This new statutory regime was followed by the subsequent decisions of the Court of Appeal in Spath Holme Ltd v Chairman of the Greater Manchester and Lancashire Rent Assessment Committee^[3] and Curtis v London Rent Assessment Committee^[4]. These decisions significantly affected the previous fair rent regime by directing that, when fixing registered fair rents for existing Rent Act tenancies, rent officers had to take account of rents being charged for comparable assured tenancies which, inevitably, were significantly higher than comparable registered fair rents that were then current. This had the consequence that new registered fair rents for many Rent Act tenancies, particularly in London and the North East, were very significantly increased from the previously registered rent. This unintended consequence of the Housing Act 1988 led to the introduction of the 1999 Order that provided a statutory capping mechanism that restricted the level of any permitted increase for registered fair rents. The permitted maximum increase must be calculated using the formula introduced by the 1999 Order. The permitted increase is linked to movement in the retail price index in the period between the date that the fair rent was previously fixed and the current date from which the new rent is to take effect. This relative movement in the retail price index is built into the capping formula provided for by the 1999 Order.
9. The effect of the formula is clearly summarised by Lord Bingham in these words:

"On the first application for registration after the Order had come into effect, the permitted increase in a registered fair rent would be five per cent, if the retail price index had increased by five per cent over the two year period since the last registration, plus 7.5 per cent. Thereafter any subsequent increase over a two-year period would be five per cent plus the difference in the retail price index. The Order would only apply where there was an existing registered rent when the Order came into effect, and it would not apply where, because of repairs or improvements carried out by the landlord, the fair rent exceeded by at least fifteen per cent the previous registered rent. Article 3 of the Order and the Schedule provided that The Rent Act 1977 should be modified by inserting a new paragraph into Schedule 11 of the 1977 Act. That is the Schedule which governs applications for the assessment and registration of fair rents by rent officers and rent assessment committees. The new paragraph provides:

"(a) the rent officer, in considering what rent ought to be registered, shall consider whether that article [article 2] applies; and

(b) where a matter is referred to them, the committee shall consider whether that article applies and, where it does apply, they shall not, subject to paragraph (5) of that article, confirm or determine a rent for the dwelling-house that exceeds the maximum fair rent calculated in accordance with that article."

10. In these two appeals, the rent levels were last registered in 1985, some twenty four years previously, so that there has been a very significant increase in the RPI since these previous registrations. The capping formula is set out in Article 2(2) as follows:

"(2) The formula is-

MFR = LR(1 + ((x-y)/y + P)

Where:

MFR is the maximum fair rent;

LR is the amount of the existing registered rent for the dwelling-house;

x is the published index in the month immediately preceding the month in which the determination of a fair rent is made under part IV;

y is the published index for the month in which the rent was last registered under part IV before the date of the application of registration of a new rent; and

P is 0.0075 for the first application for rent registration of the dwelling-house after this Order comes into force and 0.005 for every subsequent application.

…

(8) For the purposes of this article:

…

(c) "index" means the monthly United Kingdom Index of Retail Prices (for all items) published by the Office for National Statistics."

The Formula Explained

11. Each month, the Office for National Statistics issues the monthly United Kingdom Index of Retail Prices (all items) which is usually known as the RPI. The index is published as a table containing all previously published monthly indices with the current month's index added to it. The RPI is used as a general purpose method of measuring the movement of retail prices over any period of time between June 1947 and the present time. This movement can be measured over any period of whole months since the index is published monthly. Each index is built up using the prices of a fixed basket of retail goods representing average monthly expenditure patterns of a standard household and inflationary (or occasionally deflationary) movement is obtained by ascertaining the movement of the index over the relevant period. Each monthly index is expressed as a percentage representing the percentage increase in the relevant basket of prices making up the index since the relative movements in the index are ascertained by comparing the indices of the month at the start and at the end of the period in question. The relative percentage movement between any two months can be ascertained by subtracting the index figure of the earlier month from that for the later month.
12. The starting base date for the RPI was the level of prices in June 1947 and all increases in retail prices have been measured month by month from that month. Thus, the June 1947 base date index figure was fixed as 100. However, the monthly percentage increases in the index rose rapidly and, no doubt for presentational reasons, the RPI index figure was rebased back to 100 from time to time. Since 1947, this rebasing has occurred on five separate occasions: in January 1952, January 1956, January 1962, January 1974 and January 1987. Each time the RPI was rebased, two index figures were provided in the published table for the first month following that rebasing. The last rebasing occurred in January 1987. For that month, the RPI table included the un-rebased index figure of 394.5 and the rebased index figure of 100. All that is involved in a rebasing is that the index figure for the relevant month is changed from the figure that would have followed from the previous month had there been no rebasing to the rebased figure of 100.00. The effect of this was that the RPI indices since January 1987 have identified the RPI percentage movement from the January 1987 rebased figure of 100.00 instead of the percentage movement from the month of the previous rebasing that occurred in January 1974. However, if earlier indices are further rebased appropriately, the percentage movement may be ascertained from June 1947.
13. It can be seen, therefore, that the RPI, following a rebasing exercise, remained the same index in the sense that it provided the same relative percentage movement month on month as would have been provided but for the rebasing. However, if the percentage movement that occurred between a month in the period between January 1974 and December 1986 and a month after December 1986 is to be ascertained, the earlier index figure must take account of the rebasing that occurred in January 1987 which changed the index figure for that month from 394.5 to 100. This rebasing is achieved by using the multiplier 100/394.5 or 0.2534854 on the earlier index so that both indices are similarly based. This is necessary to enable a like for like comparison of the two index figures. If the relevant pre-1987 figure is for a month which is prior to the fourth rebasing that occurred in January 1974, two numerical rebasings are needed before the earlier figure can be compared with a post-January 1987 figure and so on, if necessary, for each of the three further rebasing exercises that have taken place since 1947.
14. This arithmetical adjustment is necessary since the index is a numerical scale showing relative changes in the cost of living with reference to a predetermined base level. If that base level is rebased, any relative change from a date earlier than the rebasing can only be ascertained if the earlier index is rebased so that both indices are identically based. This adjustment is inherent in the use of a price index as can be seen by the definition of an index such the RPI that is found in Webster's Dictionary^[5]:

"A numerical scale showing the relative changes in the cost of living, wages, etc, with reference to some predetermined base level."

Evidence

15. The Office of National Statistics publishes each month the new RPI monthly index figure in a table containing every published RPI monthly index figure since June 1947. These figures are set out in five bands reflecting the five rebasing exercises that have occurred since June 1947. However, the figures within each band are based to the first month in the relevant band and, save for the first monthly index in each band, no additional figure is given rebasing that index to any index in any preceding band. However, when it is necessary to rebase the index figures in, say, band four (the months between January 1974 and December 1986), the rebasing can be undertaken by using the two figures that are provided for January 1987, the month following the fifth rebasing. These are the January 1987 figure as it would have been had there been no rebasing (394.5) and the rebased figure (100). Similar figures are provided for the first month following each of the preceding four rebasing exercises.
16. The Department of the Environment, which sponsored the 1999 Order, advised all Rent Assessment Committees to use a table of monthly percentage figures between January 1965 (when rent registration first started) and November 1998, the month of the advice. These figures were the published monthly RPI index figures rebased to take account of the rebasings that had occurred in January 1974 and January 1987. Unfortunately, this table was never updated with the passage of time. However, the effect of that advice was that Rent Assessment Committees should rebase an RPI index figure if such a figure from before January 1987 has to be inserted into the formula contained in the 1999 Order.
17. According to the evidence of Mr Angus Andrew, some Rent Assessment Committees have taken the rebasings into account in their determination of fair rents to be registered under the 1999 Order by referring to an adjusted index published privately by Wolfbane Cybernetic Limited. However, according to Mr Andrew, notwithstanding the advice of the Department of the Environment published in November 1998 which was sent to all Rent Assessment Committees that they should take the two relevant rebasings of the index that have occurred into account as necessary, some Rent Assessment Committees do not take these rebasings into account and use the un-rebased index figure when a pre-January 1987 index figure is required.

LRAC's Decision

18. The LRAC, unlike the rent officer, did not take the January 1987 rebasing into account and did not rebase the May 1985 index figure by making the appropriate arithmetical adjustment to it. Instead, the LRAC compared the "raw" or un-rebased figure for May 1985 of 375.6 with the September 2008 figure of 218.4. Had the May 1985 figure been multiplied by 0.2534854, a like for like comparison would have been achieved. The LRAC felt unable to undertake this exercise because, as its decision records:

" … When considering how we should approach the application of the order, we were of the opinion that we had two options. The first option was to use the data published and therefore adopt the figure of 375.6 for May 1985. The second alternative was to interpolate the data to calculate a figure that could be adopted into the formula.

Having carefully considered the wording of the Order, it clearly states that the figure to be used in the y part of the formula should be "the published index for the month in which the rent was last registered under Part IV before the date of the application for registration of a new rent". We consider that the Order makes no provision for us to interpolate a figure and sets out clearly that figure to be inserted into the formula is the published index, in this case 375.6. Whilst we have reservations with this approach due to the capped rent that is thereby produced, we feel this approach follows the strict interpretation of the Order."

19. In applying the formula in this way, the LRAC produced a capped rent figure which was less than the previously registered fair rent that had been registered twenty four years previously. In doing so, the LRAC overlooked Article 2 (4) of the 1999 Order which provides that:

"if

((x – y)/y) + P

is less than zero, the maximum fair rent shall be the existing fair rent."

Since the LRAC used an un-rebased figure for y and a rebased figure for x, the resulting figure derived by an application of this formula for the third floor flat is -0.34. Self-evidently, that element of the decision is an error even if the LRAC was correct in not rebasing the May 1985 index. The revised registered rent should have been registered as at the existing rent level of £38 per week and not the reduced figure of £30.82, an error that resulted from the LRAC overlooking the provisions of Article 2(4) of the 1999 Order.

Discussion

20. Mr Gavaghan, counsel for the landlord appellants, in a clear and succinct submission, forcefully contended that the LRAC had erred in its use of the formula. The LRAC had, he submitted, used an unduly formalistic and literal approach in concluding that the requirement of the 1999 Order was that the "y" figure in the statutory formula should be the figure provided as the published index figure for the month in question, being May 1985 in both cases. The LRAC erroneously concluded that that figure should be taken even though it was based differently from the "x" figure that also had to be used. That led the LRAC into the error of using the figure that appeared in the published index rather than subjecting that figure to an adjustment to take account of the subsequent rebasing of the index. This error is identified by the passage of the LRAC's decisions which stated that the wording of the 1999 Order did not permit them to "interpolate" this un-rebased figure.
21. In my judgment, Mr Gavaghan is undoubtedly correct for these reasons:

(1) Literal construction. The 1999 Order requires the use of the "index published" in two particular months, being the index published in the month immediately preceding the new fair rent determination and the index published in the month of the previous registration. The earlier index is subtracted from the later index so as to identify the relative movement in the indices over that particular period. It is clear from the published table of indices that, in these two cases, the later "x" index has been rebased and is taken from a different base from the earlier "y" index. Since the effect of the statutory instruction is to obtain the relative movement between these two indices, it must follow that the phrase "published index" is a reference to the two indices expressed numerically so that they have a common base. The words "index published" when used in conjunction with another "index published" in the formula in the 1999 Order, are referring to the relative percentage change between two indices that have both been measured from a common base. The RPI monthly index is published in such a way that enables a published index figure readily to be rebased if it is to be used in conjunction with another index figure which is expressed by reference to a different base. In context, therefore, "index published" means the index figure rebased if necessary to enable it to be compared with the other index figure to be used. Any rebasing should be undertaken using the figures published in the table of indices. In practice, of course, a Rent Assessment Committee will ordinarily use for convenience one of the privately prepared table of indices, such as that prepared by Wolfbane Cybernetic Limited, that are all based from the same base and which have been prepared using the figures in the monthly published RPI.

(2) Purposive construction. It is obviously both permissible and necessary to interpret the 1999 Order in its context, with its purpose in mind and so as not to obtain a nonsensical result unless that is unavoidable and within the legislative intent of the 1999 Order. A moment's reflection on the background and purpose of the 1999 Order shows that the approach taken by the LSAC was erroneous and is one that achieves a nonsensical result since the two indices that are being compared are differently based and cannot be used together to obtain the required relative movement in the index. The approach taken by the rent officer, involving the simple arithmetical exercise of rebasing the earlier index, must therefore clearly be the correct approach to adopt when using the statutory formula prescribed by the 1999 Order.

22. The error of the LSAC can be seen from its use of the words "interpolate", "data", "calculate" and "adopted into" in this critical passage in both of its decisions when describing the approach to the statutory formula that it adopted:

"The second alternative was to interpolate the data to calculate a figure that could be adopted into the formula" (emphasis added).

The word "interpolate" is defined in Chambers Dictionary^[6] as follows:

"… to fill in as an intermediate term of a series (maths)".

The LRAC therefore considered that, if it was to take account of the January 1987 rebasing, it would not be using the prescribed RPI indices but would, instead, be filling up a gap in those indices by itself calculating, adopting and filling in a new intermediate term for May 1985 which it would have to derive itself from the relevant raw data, presumably the household prices for May 1985. This language shows that the LRAC misunderstood what had happened when the RPI was rebased in January 1987. All that was required to give effect to that rebasing was a simple arithmetical adjustment to the May 1985 figure of the kind suggested both by the published indices and by the Department of the Environment when advising all Rent Assessment Committees in November 1998 how to give effect to the 1999 Order and its prescribed rent capping formula. This arithmetical adjustment was not to interpolate the data but, instead, was to use the RPI indices and the data contained in the RPI tables in the manner provided by those tables and in a manner provided for by the capping formula contained in the 1999 Order

23. The LRAC should have appreciated that its proposed method of applying the rent capping formula was nonsensical and incorrect since the formula would never be capable of yielding a capped revised figure where the two indices that are to be used are placed in different bands in the table of indices. This is because the (x-y) figure will invariably be a negative figure, if an un-rebased y figure is taken, and that figure is too large a negative figure to be capable of being turned into a figure greater than zero by the formula prescribed in Article 2(4) (see paragraph 18 above). Unfortunately, the LRAC appears to have overlooked Article 2(4). In consequence, its attention was not drawn to this clear indication of its proposed erroneous application of the statutory capping formula.

Effective Date for the Registration of a Registered Fair Rent

24. The landlord has succeeded in these appeals in reinstating the maximum fair rent that is similar to that fixed by the rent officer. This success has occurred because the LRAC's erroneous use of the rent capping formula has been set aside and has been replaced by the correct use of that formula which is also the one adopted by the rent officer. In those circumstances, the maximum fair rents which will now be registered following these appeals, which are very close to the capped rents fixed by the rent officer, should have taken effect from 12 November 2008 when the LRAC's decision took effect. It is therefore appropriate that, having succeeded in these appeals, the landlord should have the benefit of the maximum fair rents from the date those new maximum fair rents would and should have taken effect had the LRAC not fallen into error.

Conclusion

25. For these reasons, the appeal in each of these two cases will be allowed. There is no need to return the decisions to the LRAC since the maximum fair rent figures for registration, calculated using rebased index figures for the starting month of May 1985 (the "y" figures), are available. I therefore direct that the maximum fair rents for the ground floor and third floor flats at 18 Ladbroke Crescent, W11, ascertained by using the 1999 Order formula in the manner set out in this judgment, should be registered as maximum fair rents with effect from 12 November 2008, the effective date of the order of the LRAC.

Costs

26. The parties have agreed that the first respondent should pay the appellants' costs of the appeal in the agreed sum of £20,000.

Judge Anthony Thornton QC

Note 1    [1997] EWHC Admin 32 (20 January 1997), Latham J (Bailli website: England and Wales High Court (Administrative Court) Decisions (January 1997)).    [Back]

Note 2    [2001] 2AC 349, HL(E), pages 378 – 381.    [Back]

Note 3    (1995) 28 KLR 107, CA.    [Back]

Note 4    [1999] QB 92, CA.    [Back]

Note 5    Ninth Edition, 2003.    [Back]

Note 6    ibid.    [Back]