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Cite as: 2004 SCLR 819, [2004] ScotCS 77
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Western Heritable Investment Company v. Hunter [2004] ScotCS 77 (23 March 2004)
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord President Lord Marnoch Lord Hamilton
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XA12/02 OPINION OF THE LORD PRESIDENT in APPEAL TO THE COURT OF SESSION under section 11 of the Tribunals and Inquiries Act 1992 by WESTERN HERITABLE INVESTMENT COMPANY LIMITED Pursuer and Appellant; against OLIVIA HUNTER Defender and Respondent: _______ |
Act: J.J. Mitchell, Q.C., D O'Carroll; Masons (Appellants)
Alt: O'Brien, Q.C., Collins; Anderson Strathern (Respondent)
23 March 2004
[1] I am grateful to Lord Hamilton for his account of the circumstances in which the present appeal arises, and the competing submissions of the parties. [2] The main submission of counsel for the appellant was that, on a proper interpretation, Section 48 of the Rent (Scotland) Act 1984 required that a "fair rent" had to be determined by taking as the "starting point" the market rent of the dwelling-house in question, and then adjusting that rent by reference to the requirements of subsections (2) and (3), so far as appropriate. Counsel also submitted that, for the purpose of the starting point, where there were market rents of comparable dwelling-houses, it was incorrect, again as a matter of construction of section 48, to have regard to registered rents. [3] Section 48 contains a number of directions which a rent officer, or, as the case may be, a rent assessment committee, is to follow in determining the amount of a "fair rent". It is important, in my view, to keep clearly in view what the section directs and what it does not. [4] First, the section states that the rent is to be "fair", but without expressly defining what is meant by that expression. However, it is clear that it means fair as between the hypothetical tenant and the hypothetical landlord, so that it is to be assumed that neither is at an unfair disadvantage. [5] Secondly, subsections (1) and (3) give specific directions as to certain matters relating to the dwelling-house which are to be taken into account, or, as the case may be, disregarded. Thus under subsection (1) it is necessary to have regard to the age, character and locality of the dwelling house and to its state of repair and, if any furniture is provided for use under the tenancy, to the quantity, quality and condition of the furniture. Subsection (3) contains a list of what is to be disregarded. [6] Thirdly, subsection (2) requires it to 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".
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord President Lord Marnoch Lord Hamilton
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XA12/02 OPINION OF LORD MARNOCH in APPEAL TO THE COURT OF SESSION under section 11 of the Tribunals and Inquiries Act 1992 by WESTERN HERITABLE INVESTMENT COMPANY LIMITED Pursuer and Appellant; against OLIVIA HUNTER Defender and Respondent: _______ |
Act: J.J. Mitchell, Q.C., D O'Carroll; Masons (Appellants)
Alt: O'Brien, Q.C., Collins; Anderson Strathern (Respondent)
23 March 2004
[13] For the reasons given by Lord Hamilton I agree that the decision of the Rent Assessment Committee should be quashed and the case remitted for a hearing, of new, before a differently constituted Committee. [14] In so far, however, as concerns the wider issues which were canvassed in the course of the hearing, I do not, with respect, share Lord Hamilton's difficulty in seeing "market rent" as the natural or logical "starting point" in the assessment of a "fair rent" for purposes of Part V of the Rent (Scotland) Act 1984. I also have sympathy with the observations of Auld L.J. in Curtis v. London Rent Assessment Committee 1999 Q.B. 92 at p. 116 that an unquestioning recourse to registered rentals:"would freeze the fair rents by reference to precedent rather than achieve what is intended by the legislation, an exercise of 'valuation', an assessment of current fair rents by knowledgeable and experienced committees responsive to the particular characteristics of the subject property and to changing market levels ... ".
In short, to echo a phrase which appears a little later in the judgment, such recourse seems to me to constitute a "short-cut" to assessment rather than represent a method of valuation or assessment, as such.
[15] All that said, I agree with Lord Hamilton that, at least for Scotland, it is important not to be over-prescriptive as to the manner in which fair rents should be assessed and I readily agree that in certain circumstances such an assessment will involve what Lord Hamilton describes as the "composite task" of drawing on varying sources of material, including registered rentals, whereas, in other circumstances, such rentals may provide the principal or even sole basis of assessment. [16] Where registered rentals of property are relied on I do not consider that they need always be re-worked in the manner set out by Keene J. in Northumberland and Durham Property Trust Limited v. London Rent Assessment Committee and Borkowski 1999 31 H.L.R. 109 at p. 116. Indeed, such an approach was expressly disavowed in Curtis (at pps. 100 and 116). All, I think, that can usefully be said is that in judging of their "current validity and applicability as comparables" the extent to which reliance can properly be placed on such rentals will necessarily depend, not only on their comparability and proximity in date, but on how, in general, they have been arrived at (e.g. by the Rent Assessment Officer or by the Rent Assessment Committee), on what, if anything, is known of the methodology employed in their assessment and on how they compare with whatever direct market rental evidence is available.
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord President Lord Marnoch Lord Hamilton
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XA12/02 OPINION OF LORD HAMILTON in APPEAL TO THE COURT OF SESSION under section 11 of the Tribunals and Inquiries Act 1992 by WESTERN HERITABLE INVESTMENT COMPANY LIMITED Pursuer and Appellant; against OLIVIA HUNTER Defender and Respondent: _______ |
Act: J.J. Mitchell, Q.C., D O'Carroll; Masons (Appellants)
Alt: O'Brien, Q.C., Collins; Anderson Strathern (Respondent)
23 March 2004
The background
[17] The appellant is the landlord of a substantial number of dwelling-houses situated in various southern districts of Glasgow. Among these are 246 "cottage flats", the subject-matter of these proceedings. All were built in about 1930. Each flat forms part of a two storey block of four flats, two on the ground and two on the upper storey, with adjacent garden ground allocated to each flat in a broadly similar way. The flats are internally of a standard design, providing modest accommodation. They are "unimproved". [18] Each of the 246 flats is let to an individual tenant on a regulated tenancy (within the meaning of the Rent (Scotland) Act 1984). The tenants are all long-term tenants, usually elderly and often very elderly, some having been born in the houses. Rent of £2,500 per annum was, in respect of each of the flats, registered under the Act on 18 February 1998. [19] Thereafter the appellant applied to have the rent for each flat increased to £3,840 per annum. On 14 February 2001 the rent officer determined in each case a fair rent in the sum of £2,800 per annum. The appellant objected to these determinations and the matter was referred to a rent assessment committee. Although the amount of rent in respect of each of the flats was in issue, the proceedings were treated by the committee and by the parties before it as a single reference. The landlord was represented before the committee by Mr. Thomas Rowlands, C.A., its Secretary and Glasgow Office Manager. Most of the tenants were represented by their local councillors; about 21 of them were represented by Mr. Angus McIntosh, a solicitor familiar with housing issues. At the councillors' request Mr. McIntosh spoke also for those whom they represented. Prior to the hearing the committee had made an inspection of certain of the flats. Its clerk had also made available to parties in advance a list of five recently registered fair rent decisions made by the committee. [20] Documentary and oral evidence was placed before the committee by the landlord and by the tenants and submissions made. The substance of the appellant's contention was that the fair rent was the market rent less disregards, that there was no scarcity in the market and that, accordingly, the fair rent was equivalent to the market rent for similar unimproved houses in the area. Material pointing to a current rental figure of £3,840 for statutory assured tenancies for similar unimproved houses was relied on. The appellant also produced material about flats which, having become vacant, had been refurbished by it prior to reletting; for the purposes of comparison with unimproved flats, calculations were provided showing the general costs of refurbishment and a rentalisation of those costs. The tenants led evidence on, among other matters, the issue of scarcity. It was submitted by Mr. McIntosh on their behalf that there was scarcity affecting rental levels for similar houses. He also submitted that the primary method of determining a fair rent had been by reference to registered fair rent comparables and, evidence having been led in relation to such comparables, he urged the committee, using its knowledge and experience, to rely on such fair rent comparables and to make its determination accordingly. He urged it to reject the method of using market rents. He submitted that the fair rent for each of the flats should be determined in the sum of £2,750 per annum. [21] In a Statement of Reasons, dated 25 November 2001 and incorporating its decision, the committee stated that it had "looked at the landlords' method of arriving at their statutory assured rent of £3,840 and accepted it was a reasonable method". It found that a list produced by the appellant confirmed that the average rent being paid by statutory assured tenants for wholly unimproved and unfurnished flats, to all intents and purposes identical to the houses under appeal, was £3,840. It found that figure confirmed by a decision made on 1 May 2001 by a rent assessment committee determining the rent in respect of an assured tenancy for a similar flat at £3,900. It had some reservations as to whether the statutory assured tenancy rents were "wholly and freely negotiated, but notwithstanding, the Committee agreed the figure of £3,840 was reasonable for a statutory assured rent". It then considered the evidence in relation to refurbished flats and, having adjusted the appellant's calculations to some extent, concluded that, on deduction from the basic rent level for such flats of a rentalised figure for refurbishment, a rental figure of £3,884 was arrived at. The committee concluded this chapter of its reasoning with the statement:"This calculation shows that the open market rent less refurbishment valuations approximates with the statutory assured rental figure".
"Based on all the evidence presented, the Committee concluded that there is evidence of scarcity in the market".
" ... Mr. McIntosh urged the Committee, notwithstanding the evidence which he had led on the matter of scarcity, to use as its primary method of calculating the fair rent of the houses, registered fair rent comparables".
It noted that Mr. McIntosh had specifically referred to five recently registered rents for similar houses and that three of these five houses had appeared in the list furnished by the clerk "in accordance with the established practice of regulated rent appeals". The committee recorded that it had looked in addition at the registered rents of 26 houses (particulars of which were contained in the appellant's submissions) and continued:
"The Committee therefore has a substantial number of registered fair rent comparables to use as the primary method of calculating the fair rent of the houses as advocated by Mr. McIntosh. The Committee considers the methods followed by Rent Assessment Committees are well-established in Scotland for determining a fair rent in terms of section 48 of the Rent (Scotland) Act 1984, and in August 1995 the Court of Session in Western Heritable Investment Co. Ltd. v. Johnston 1997 S.L.T. 74 acknowledge the variety of options open to a Committee in Scotland.
The Committee has come to the conclusion that there is still a substantial
level of scarcity but found difficulty in quantifying the level of scarcity. Accordingly, having carefully weighed the evidence, the Committee has rejected the approach of the landlords and in the exercise of its discretion and relying on its skill and judgment, the Committee prefers the method of reaching a fair rent by comparison with comparable regulated tenancies, a method which has been judicially recognised and widely practised".
"erred in law in concluding that the method to be adopted for assessing a fair rent for the properties was to use the 'comparable registered rent' method rather than by applying the 'comparable market rent' method".
That ground was further particularised in the manner later described.
[27] It appears that the tenants encountered difficulties in obtaining legal aid to resist the appeal. In the event a legal aid certificate was ultimately issued in favour of Olivia Hunter ("the respondent"), the tenant of one of the 246 flats. Counsel appeared before us to resist the appeal on her behalf.The submissions of parties
[28] Mr. O'Carroll, junior counsel for the appellant, submitted that the committee had erred in law in its determination of a fair rent in respect that it (1) had used the wrong method, (2) had failed adequately to explain why it was unable to quantify an appropriate reduction for the scarcity element it had found to exist and (3) had failed, in using comparable registered rent figures, to reassess and appropriately adjust such figures to reflect any differences in scarcity. The current Scottish legislation on regulated tenancies was contained in the Rent (Scotland) Act 1984. That had been preceded by the Rent (Scotland) Act 1971 and it in turn by the Rent Act 1965, the latter being a British statute. Although an amendment made to section 42 of the 1971 Act by section 47 of the Tenants' Rights etc. (Scotland) Act 1980 had resulted in the Scottish wording on the determination of fair rent (now contained in section 48 of the 1984 Act) being different from the parallel enactment in England and Wales, that change of wording had been designed, following the decision of the Court of Session in Albyn Properties Ltd. v. Knox 1977 S.C. 108, simply to bring Scottish practice back into line with that in England. The legal code for the determination of fair rent in Scotland (section 48) was the same as that for England (currently section 70 (as amended) of the Rent Act 1977). While from 1965 until the beginning of 1989 most tenancies in the private and in the housing association sectors had been regulated tenancies, on the coming into force, in Scotland, of the Housing (Scotland) Act 1988 and, in England, of the Housing Act 1988, new forms of tenancy had been introduced, namely assured tenancies both in Scotland and in England, including short assured tenancies in Scotland and assured shorthold tenancies in England. To these new forms of tenancies the "fair rent" provisions did not apply. They applied only to tenancies created prior to the beginning of 1989. The result was that from 1989 there was an increasing number of market rents in the form of rents agreed directly between landlord and tenant or determined by rent assessment committees under new statutory procedures (Housing (Scotland) Act 1988, sections 25 and 34). The proper interpretation of section 48 of the 1984 Act was that, in circumstances where close market comparables were available, these constituted the starting point for the determination of a fair rent. In such circumstances it was unnecessary to go to registered rents and wrong to do so. In the context of the legislative history market rents now provided the best evidence from which to start the process of determining a fair rent. On a sound construction of section 48, a fair rent was the market rent under deduction of the statutory disregards and of any element for scarcity. Section 48(1), although not expressly referring to a market rent, provided the indicia for determination of such a rent. Under the equivalent English legislation the significance in modern circumstances of market rent in determining fair rent had been recognised. Reference was made to Spath Holme Ltd. v. Greater Manchester and Lancashire RAC, especially per Morritt L.J. at pp. 115-124; Curtis v. London RAC especially per Auld L.J. at pp. 114-117; Northumberland and Durham Property Trust Ltd. v. London RAC and Another [1998] 31 H.L.R. 109, especially per Keene J. at pp. 116-7; R. v. Environment Secretary, ex p Spath Holme Ltd. [2001] 2 AC 349, especially per Lord Bingham of Cornhill at pp. 378-9. The ratio of the decision in Western Heritable Investment Co. Ltd. v. Johnston, where the court had found that the committee was entitled to hold that the particular market rent evidence available was unsatisfactory, was not inconsistent with that line of authority; certain obiter observations by Lords Sutherland and Prosser had to be read in the context of that case. Where close market rents were available, the committee was not free at will to chose between using that material and using registered rents. The use of the latter would tend to perpetuate prior errors. While the quantification of scarcity might involve the exercise of a discretion, it was necessary that a committee, which had accepted that there were comparable market rents and had held that there was scarcity, should assess the extent of that scarcity and give some reasoning for its assessed deduction. Reference was made to Howard de Walden Estates v. London RAC [2003] EWHC 1455 (Admin), especially per Elias J. at paras. 17 and 23. The present committee had simply aborted the exercise of the quantification of scarcity; it was not entitled to do so. It had erroneously adopted the tenants' solicitor's description of use of registered rents as the "primary" method of determination and had adopted that method in circumstances in which it was not entitled to do so. Moreover, it had used the figures for registered rents without making any reassessment of these figures. The appeal should be allowed. [29] Mr. Collins, junior counsel for the respondent, submitted that the appeal should be refused. He made the preliminary observation that the appellant had recently initiated a fresh procedure for determination of fair rents for these properties as from February 2004 and that, if the appeal was successful and the case remitted to the committee, its determination of fair rent (which would not under the legislation be backdated) would inevitably be after February 2004. In these circumstances there would appear to be no practical consequence in the event of the appeal being successful. The appellant was, by pursuing the appeal, effectively seeking directions for use in future cases. It was inappropriate that the court should do this. In any event, the right of appeal, under section 11 of the Tribunals and Inquiries Act, was confined to questions of law. In the present case it could not be said that the committee had misconstrued the statute. In effect, the appellant could only succeed in this case if it demonstrated that no reasonable committee could have reached the decision challenged. The true issues here were not questions of law but questions of valuation and of the assessment of evidence. These issues had been carefully addressed by the committee. The comparable registered rents upon which it had relied had come from a variety of sources - (1) from the clerk to the committee (in accordance with the usual practice), (2) from the tenants' representative and (3) from the appellant itself, including rents assessed by the rent officer which the appellant had not appealed against. The appellant had not before the committee challenged the correctness of any of these rents. In the absence of challenge or of some manifest and gross disparity the committee was entitled to proceed on the basis that these registered rents had been themselves correctly and properly determined. The question of whether they were truly comparable with the subjects under appeal was a matter for the committee, which had found that they were. Reference was made to Western Heritable Investment Co. Ltd. v. Johnston, especially per Lord Prosser at p. 80C-G. Here there could be no marked disparity. The committee had found that there was a substantial level of scarcity. It would require a reduction for scarcity of only 22% from the market rental figure to arrive at the fair rent determined by the committee. The appellant's contentions could be summarised in the following propositions - (1) that as a matter of law "fair rent" meant market rent less scarcity and disregards, (2) because fair rent was so defined, it followed that the starting point must always be market rent, (3) that because it was the starting point, the comparable market rent (if available), would always be the "best" (in the sense of the most cogent) evidence, (4) when comparable market rents were available, it was not, as a matter of law, open to a committee to have regard to registered rents for comparable subjects and (5) even where, there being no market rent comparables available, the committee was, as a matter of law, entitled to have regard to registered rent comparables, it could only do so if it first did a reassessment of the validity of the determinations which had led to their registration. All of these propositions were disputed by the respondent. Although these propositions might reflect the law of England, they were not valid as a matter of Scots law. The statutory provisions were different; there was no equivalent in Scotland to the English order challenged in R. v. Environment Secretary, ex p. Spath Holme Ltd.; the approach of the Scottish courts was different; the methods of valuation commonly employed might well be different; and it could not safely be supposed that market conditions in Scotland and in England were the same. The appellant's contentions were inconsistent with a sound construction of section 48 and of the interpretation and application of it (and its statutory predecessor) in Skilling v. Arcari's Exs. 1974 S.C. (H.L.) 42, Western Heritable Investment Co. Ltd. v. Husband 1983 S.C. (H.L.) 60, Western Heritable Investment Co. Ltd. v. Johnston and Western Heritable Investment Co. Limited, appellants (25 June 1992, an unreported decision of an Extra Division of the Court of Session). In light of the direction in section 48 to have regard to all the circumstances, it must be open to a committee to have regard to unchallenged decisions in respect of comparable registered rents where these decisions were not obviously wrong. Section 48 made plain that the decision-makers were to use their knowledge and experience of current rents of comparable property in the area; that must include registered rents of such property. It was open to the committee, as a matter of valuation, to chose the method to be adopted of ascertaining a fair rent, provided the method chosen was not unlawful or unreasonable; the use of comparable registered rents was plainly contemplated (Skilling v. Arcari's Exs.). Rigidity of approach was to be avoided (Western Heritable Investment Co. Ltd. v. Husband, especially per Lord Keith of Kinkel at p. 75). The principles identified by the House of Lords in these cases had been followed and applied in Western Heritable Investment Co. Ltd. v. Johnston (see in particular Lord Sutherland at pp. 75 and 79-80 and Lord Prosser at p. 80), a case decided after the changes in the market had occurred resulting from the enactment of the Housing (Scotland) Act 1988. There was no obligation to use market rent level as the sole and exclusive means of determining fair rent. There might be practical difficulties in making adjustments from market rents; in principle it was difficult to see why a committee should be compelled, as a matter of law, to do so where it had available to it properly comparable registered rents. If the figures in the register were apparently sound and the committee was not persuaded that there was a change in scarcity, it remained permissible to fix a fair rent on the basis of the register. In fact the committee had here taken market rents as its starting point, even though it had not, for the reasons given by it, carried that exercise through to an adjusted rent. It had carefully evaluated the registered rent material and had arrived on that basis at a figure which was only some 22% less than the unadjusted market rent figure. Given that it had found that there was substantial scarcity, 22% could not be regarded as an unreasonable discount. There was no substantial disparity between the figure based on market rents (as theoretically adjusted) and that based on registered rents. The appeal should be refused. [30] Mr. Mitchell, senior counsel for the appellant, submitted that, although the current Scottish and English sections were expressed in different language, there was in practical effect no difference between them. The significance of market rents for the purposes of determination of a fair rent had been recognised as early as Learmonth Property Investment Co. Ltd. v. Aitken 1970 S.C. 223; it had also been recognised in Western Heritable Investment Co. Ltd. v. Husband, especially per Lord Fraser of Tullybelton at p. 71, Lord Keith at pp. 73-4 and Lord Brightman at p. 77. As a fair rent was in effect the market rent less any scarcity, the most cogent evidence with which to embark on determination of a fair rent was, if it was available, the comparable market rent. It was clear that, since the coming into force of the Housing (Scotland) Act 1988, there was an increasing body of market rent material to allow for ascertainment of a comparable market rent. The committee in the present case had found no difficulty in reaching a view as to open market rent; the factual situation in Western Heritable Investment Co. Ltd. v. Johnston was quite different. In these circumstances there was no reason why the approach adopted in the English authorities should not be followed. The committee, having identified a comparable market rent, had abdicated its judicial function by then, on the basis of some unexplained difficulty in the evaluation of scarcity, abandoning the exercise embarked on and using rents derived from the register. What had to be determined was what was the appropriate rent for the property in question. Coherence or lack of coherence with rents on the register was not of itself important; there was no requirement for a "tone of the roll". The material in the register was in many circumstances likely to be unhelpful. Determinations by rent officers were not reasoned; while rent assessment committees gave their reasons, these reasons might not always be available and the quality of the evidence upon which they had proceeded would vary. While the use of fair rent comparables at an early stage in a committee's reasoning might be legitimate, to rely solely on such material in circumstances where good market material was available was illegitimate. Mr. Collins had in effect correctly summarised the appellant's contentions in the seven propositions identified by him; to these propositions the appellant adhered. The use of registered rent figures created a real risk of circularity. The observations in Skilling v. Arcari's Exs. about the use of registered rents had to be read in the historical context of that case. Western Heritable Investment Co. Ltd. v. Johnston required also to be read in the context of the limited market rent material before the committee in that case; certain of the obiter dicta in Johnston, however, on one view went too far. [31] Miss O'Brien, senior counsel for the respondent, submitted that a significant feature of the current Scottish legislation was the requirement in section 48(1) that the rent officer and the committee apply, to the task of determination of a fair rent, their knowledge and experience of "current rents of comparable property in the area". "Current rents" must include registered rents passing in respect of such property. The English legislation had no equivalent provision. The meaning of legislation could not change with a change in the market. It was impossible to say that the committee erred in law by having regard to the registered rents. Any contention that it did so was inconsistent with Lord Reid's observations in Skilling v. Arcari's Exs. The method of valuation appropriate in a particular case was left by the statute to the skill and judgment of those (who included a skilled person) entrusted with the determination. There was nothing in the language of the statute which required a sequential exercise commencing with market rents. Only in an extreme case (which the present was not) could a committee in Scotland properly be faulted for proceeding on the basis of registered rents. There were a large number of reasons why market rents might, in particular circumstances, be less useful than registered rents. Here the committee had determined the disputed rents having first carefully considered 26 registered rent comparables put before it from various sources. There had been no challenge to the correctness of the registered figures. While the committee had, for reasons it had given, not proceeded to quantify and apply the scarcity element, it was implicit from its decision taken as a whole that it had found it to be in the range of 20-30%, an unremarkable percentage.The statutory provisions
[32] Section 8 of the Rent (Scotland) Act 1984 defines a "regulated tenancy" for the purposes of the Act as "a protected or statutory tenancy", both these latter forms of tenancy being themselves defined by earlier provisions. Part V of the Act provides for the registration of rents under regulated tenancies. Within that Part provision is made for the appointment of rent officers (section 43), for the constitution of rent assessment committees (section 44 and Schedule 4) and for the preparation and keeping up to date of a register for the purposes of that Part (section 45). Under section 46(1) an application for the registration of a rent for a dwelling-house may be made to the rent officer by the landlord or the tenant, or jointly by the landlord and the tenant, under a regulated tenancy of the dwelling-house; later subsections of that section place restrictions on the frequency with which subsequent applications may be made for registration of a different rent for that dwelling-house. Section 46(8) and Part I of Schedule 5 make provision with respect to the procedure to be followed on applications for the registration of rents. Paragraph 6 of Part I of Schedule 5 provides that the rent officer, after certain procedures have been followed, shall " ... (a) determine a fair rent and register it as the rent for the dwelling-house ... ". Provision is made for the making, by a dissatisfied party, of an objection to the rent officer's determination; in that event the matter is to be referred to a rent assessment committee. Section 47 makes provision for a prospective landlord obtaining from the rent officer (or on appeal from the rent assessment committee) a certificate of what would be a fair rent under a regulated tenancy of prospective subjects of let. [33] Neither in Schedule 5 nor elsewhere in the Act is "fair rent" defined. However, section 48 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, it shall be the duty of the rent officer or, as the case may be, of the rent assessment committee, subject to the provisions of this section, to have regard to all the circumstances (other than personal circumstances), and in particular to apply their knowledge and experience of current rents of comparable property in the area, as well as having regard to the age, character and locality of the dwelling-house in question and to its state of repair and, if any furniture is provided for use under the tenancy, to the quantity, quality and condition of the furniture.
(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.
(3) There shall be disregarded -
(a) any disrepair or other defect attributable to a failure by the tenant under
the regulated tenancy or any predecessor in title of his to comply with any terms thereof, and
(b) any improvement (including any improvement to the furniture
provided for use under the tenancy), or the replacement of any fixture or fitting carried out, otherwise than in pursuance of the terms of the tenancy, by the tenant under the regulated tenancy or any predecessor in title of his, and
(c) if any furniture is provided for use under the regulated tenancy, any
deterioration in the condition of the furniture due to any ill-treatment by the tenant, any person residing or lodging with him, or any sub-tenant of his.
... ".
Subsequent provisions of Part V are not relevant for present purposes.
[34] The Rent (Scotland) Act 1984 is a consolidating statute. Part V has it origin in Part II of the Rent Act 1965 (a British statute). Separate provision for England and Wales was subsequently made by the Rent Act 1968 and for Scotland by the Rent (Scotland) Act 1971, Part IV of the latter statute being concerned with the registration of rents under regulated tenancies. Following certain judicial observations in Albyn Properties Ltd. v. Knox, section 42 of the Rent (Scotland) Act 1971 was amended by section 47 of the Tenants' Rights etc. (Scotland) Act 1980. Section 42 (as amended) was in the form now having effect as section 48 of the Rent (Scotland) Act 1984. [35] In January 1989 the Housing (Scotland) Act 1988 came into force. It introduced to Scotland a new form of tenancy (an "assured tenancy"), an equivalent form having earlier been introduced into England and Wales but fresh provision being made there by the Housing Act 1988 (which also came into force in January 1989). Part II of the Housing (Scotland) Act 1988 made provision for assured tenancies, including a species thereof known as "short assured tenancies". The terms of an assured tenancy (including the rent) are initially settled on a contractual basis but in some circumstances certain statutory provisions may impinge on the level of rent exigible. In particular, where a landlord seeks an increase in the rent payable, section 24 prescribes inter alia the procedure which he must follow. A tenant may (section 24(3)(a)) refer to a rent assessment committee the landlord's proposal for an increase in rent. On such a reference the committee"shall determine the rent at which [subject to certain other provisions] the committee consider that the house might reasonably be expected to be let in the open market by a willing landlord under an assured tenancy ..." (section 25(1)).
These provisions apply where the contractual arrangement as to rent has come to an end but the tenant or his successor has retained possession of the dwelling-house and enjoys security of tenure (a statutory assured tenancy). A tenant under a short assured tenancy may also make an application to a rent assessment committee for determination of the rent (section 34). Although under the 1988 Act there is no provision for a register of rents, section 49 requires that there be kept and made publicly available certain information with respect to rents under assured tenancies which have been the subject of, or taken into account on, references or applications to, or determinations by, rent assessment committees.
Discussion
[36] In the forefront of the appellant's submissions was a contention that, as a matter of statutory interpretation, "fair rent" within the meaning of section 48 of the Rent (Scotland) Act 1984 means (or, again as a matter of statutory interpretation, in effect is) "market rent less scarcity and disregards". Because fair rent was so defined, it followed, so the argument ran, that the starting point for the determination of fair rent must always be market rent if available. [37] The statute does not define "fair rent". It has been observed judicially that a fair rent is one which is "fair for the landlord to demand and for the tenant to pay" (Learmonth Property Investment Co. Ltd. v. Aitken, per Lord Cameron at p. 231), "fair for the tenant to pay and fair for the landlord to receive" (Skilling v. Arcari's Exs., per Lord Morris of Borth-y-Gest at p. 52) and "fair to the landlord and fair to the tenant" (Western Heritable Investment Co. Ltd. v. Husband, per Lord Brightman at p. 77). These observations, while perhaps not advancing substantially resolution of the issue of statutory interpretation raised in this case, do appear to reinforce the concept, inherent in the adjective "fair", of an equitable balance between the legitimate interests of the landlord and of the tenant respectively of the dwelling-house, the rent for which is in dispute. That balance requires to be struck by a third party (the rent officer or the rent assessment committee) charged under Schedule 5 with the responsibility of determining a fair rent for that dwelling-house. Section 48 in effect gives directions to that third party as to how that responsibility is to be discharged. He (or it) must have regard to all the circumstances (other than personal circumstances) with particular reference being made to certain matters (subsection (1)) but, for the purposes of the determination, an assumption must be made in respect of the impact of any local scarcity (subsection (2)) and certain matters, if they exist, must be disregarded (subsection (3)). The exclusion of personal circumstances imports that circumstances personal to the landlord or the tenant are to be left out of account in the determination of a fair rent; but the direction is that otherwise regard is to be had to all the circumstances. All the circumstances no doubt must be understood as all the relevant circumstances; but, in a determination of a fair rent for a dwelling-house, the rent actually passing for other dwelling-houses of a comparable nature appears to me plainly to be a relevant circumstance. The fact that a rent for a dwelling-house of that nature has, following a statutory application, been registered under the Rent (Scotland) Act 1984 cannot, in my view, of itself render it an irrelevant circumstance. If that be so, the matters to which regard are to be had under section 48(1) cannot be restricted to "market" rents (if that term is to exclude registered rents) and thus "fair" rent cannot, as a matter of statutory construction, mean (or be) "market" rent, in that (restricted) sense, less scarcity and disregards. Miss O'Brien pointed out that the express reference in section 48(1) to "current rents of comparable property in the area" must include registered rents of such property. I agree; I should, untrammelled by authority, have come to the same conclusion on an interpretation of section 42(1) of the Rent (Scotland) Act 1971 prior to its amendment in 1980 (and indeed of section 27 of the Rent Act 1965). [38] This approach to the interpretation of section 48 and its statutory predecessors is, in my view, consistent with judicial discussions of them, at least in the Scottish authorities. Skilling v. Arcari's Exs. was decided under section 42 of the Rent (Scotland) Act 1971 prior to its amendment. Before the rent assessment committee the landlords' agent submitted evidence based on capital values and comparable rents earlier fixed by the committee i.e. registered rents. The tenants also submitted computations evidence and comparable rents. The comparable rents were not greatly at variance with the rent which had been fixed by the rent officer for the subjects of appeal. The committee affirmed the decision of the rent officer. The landlords' capital value computation (which apparently brought out a similar figure) had proceeded on the basis of the capital value of the subjects with vacant possession. On an appeal to the Court of Session the tenants contended that, for the purposes of that computation, the capital value taken should have been on the basis of there being a sitting tenant. The Court of Session upheld that contention but its decision was reversed on appeal to the House of Lords. In the event it was held that the committee's determination was valid. In the course of his speech Lord Reid, having quoted section 42, said at p. 50:"In my view, this section leaves it open to the rent officer or committee to adopt any method or methods of ascertaining a fair rent, provided that they do not use any method which is unlawful or unreasonable. The most obvious and direct method is to have regard to registered rents of comparable houses in the area. In the initial stages this method may not be available, but as the number of comparable registered rents increases, the more likely it will be that it will lead to a correct result. Of course it must be open to either party to show that those comparable rents have been determined on a wrong basis, but until that is shown, it must be assumed that rents already determined have been rightly ascertained".
Lord Morris at p. 52 said:
"Inasmuch as what is to be determined is a fair rent and not a fair capital value, it is probable that a committee will be much influenced by evidence as to other rents which they are satisfied are really comparable and really representative as fair rents. But the fact that the task is to decide what is the fair assessment of rent does not involve that they must pay no heed to any evidence as to capital value".
Lord Diplock agreed that the appeal should be allowed, as did Lord Cross of Chelsea, the latter associating himself in particular with the reasons given by Lord Reid. Lord Kilbrandon, who also agreed with Lord Reid, expressed the opinion that the appeal was primarily concerned with problems of valuation rather than with questions of law. He said at p. 54:
"The fixing of a fair rent calls for a skilled estimate of a hypothetical figure, namely, the rent which a landlord would demand and a tenant would be prepared to pay if the market were roughly in a state of equilibrium, without serious shortage or surplus of subjects available for letting".
At p. 55 he said:
"The statutory framework within which a rent assessment committee must work includes a direction that they must have regard 'to all the circumstances (other than personal circumstances) and in particular to the age, character and locality of the dwelling-house and to its state of repair'. Leaving aside for the moment the statutory exclusion from the committee's regard, 'all the circumstances' must mean all the relevant circumstances; what circumstances are relevant and what are not, when the art of valuation is being exercised, is surely one of the decisions which will call for the application by the valuator of his professional skill and experience".
He continued:
"The error which has been attributed to the committee in the present case is that they did not take all the circumstances into account. The committee began their task by making a comparison with the fair rents which had been fixed for other comparable houses. This is a classic method. They then carried out a check by taking the capital value of the house and, subject to certain deductions, considering what net return a landlord might reasonably expect to get, looking at the house as an investment. This also seemed reasonable, since the 'fair' rent has got to be fair to the landlord as well as to the tenant ... ".
"The first is to have regard to fair market rents for similar properties. The second is to compare registered rents for other similar protected tenancy properties. The third is to ascertain what would be a fair return to the landlord on the capital value of his house".
Although his Lordship went on to make certain observations about the unreliability of the third guideline, no such observation is made about the second (a comparison with registered rents). Having quoted a passage from Lord Morris's speech in Skilling v. Arcari's Exs., Lord Keith said at p. 75:
"This passage is of importance as illustrating the need, where the art of valuation is being exercised in the present context, to avoid rigidity of approach and to have regard to all relevant circumstances".
The committee in Husband had determined the fair rent by reference to eighty comparables (the "Kennedy comparables"), that is, the registered rents passing following a decision made a few months earlier by another committee under the chairmanship of a Mr. Kennedy. At p. 77 Lord Brightman, having observed that yield on invested capital is not an essential ingredient of a determination of fair rent, continued:
"If comparables are available which do not reflect, or are discounted so as not to reflect, scarcity value, such comparables are the best guide to a fair rent".
In the context of that case I do not read Lord Brightman as excluding comparable registered rents from the ambit of "all the circumstances". Nor do I so read a passage in the speech of Lord Fraser at p. 71 on which Mr. Mitchell placed particular reliance. Lord Fraser, in rejecting the construction of section 42(2) preferred by the majority in the Court of Session, said:
"If the effect of subsection 42(2) was to create such an irrebuttable assumption, I do not understand why the fair rent should be different from the market rent, or why the system of registration of rents, introduced by the Rent Act 1965, and now contained in Part IV of the 1971 Act, was necessary at all".
Although his Lordship there refers to market rent, I am unable to accept the appellant's submission that his Lordship and other members of the House were proceeding on the assumption that fair rent was, as a matter of statutory construction, market rent less scarcity and disregards.
[41] It is, however, a quite different question as to whether, in the particular circumstances of a case (including the general background as to the way in which rents for domestic premises are, for the time being, currently settled) market rents for truly comparable properties may not constitute not only relevant but highly persuasive evidence for the purposes of the determination of a fair rent. But that is, in my view, a matter of judgment, not of law. In making that judgment the rent officer or the committee, as the case may be, will, making the assumption described in subsection (2) and disregarding any existing factor of the kind described in subsection (3), require in a reasoned fashion to weigh and to come to conclusions upon any evidential material of a relevant kind available to him (or it) as to what is or would be a fair rent under a regulated tenancy of the dwelling-house in question. This is a composite task, though a committee will need to set out in an orderly fashion the process of reasoning by which it arrives at its ultimate conclusion. That process may be, but need not necessarily be, one of first taking market rents and then discounting for any scarcity element and making any appropriate disregards. Other processes, may, depending on the available evidence, be appropriate, either as the principal basis of determination or as a check. In some cases reliance on registered rents may be appropriate as a principal basis or as a check. No process (or method) is, as a matter of law, "primary". [42] A fair rent imports, in my view, that the legitimate interests of the landlord and of the tenant are equitably taken into account. It also presupposes that each party is concerned to secure that an appropriate result is achieved. So, market rents of closely comparable subjects actively negotiated at arm's length by or on behalf of the parties are likely if available, to be very compelling evidence of a fair rent for the subjects in question; that is because, in the consensual relationship of landlord and tenant, rents so negotiated can readily be described as fair. However, it will be legitimate, when considering evidence of rents actually passing in the market, to enquire whether these have been influenced by distorting factors, such as an imbalance of bargaining power, one way or the other, or by an absence of real interest by one or other of the parties to press his, her or their interests. Factors of those kinds were properly raised on behalf of the tenants before this committee and properly addressed by it. It will also be legitimate to take into account as evidence of market rent not only rents negotiated between the parties (or projections from such rents) but also rents determined for such parties by a third party. That will be so not only in the less likely situation of the rent being fixed by a third party mutually chosen by the landlord and tenant but also in the more likely situation of rents under statutory assured tenancies being determined by a rent assessment committee under section 25 of the Housing (Scotland) Act 1988. Rents of the latter kind were among those relied on by the appellant before this committee. As what is to be determined under section 48 of the 1984 Act is in effect the fair "going rate" for the subjects, evidence of what has been determined for comparable subjects by third parties may be as cogent as that which has been negotiated by landlords and tenants themselves. [43] While no method of determining fair rent is, in my view, "primary" as a matter of law, the evidence available may suggest, and suggest strongly, that a particular class of evidence is, as a matter of judgment, of primary importance. In the present case a substantial body of evidence based on market rents was laid before the committee. It was duly tested in cross-examination on behalf of the tenants. The committee found that the average rent paid by statutory assured tenants in unimproved and unfurnished dwelling-houses, which were to all intents and purposes identical to the subjects under appeal, was £3,840 per annum. That figure was supported by a recent determination of a rent assessment committee in respect of the rent for a house of the same kind situated in the same street as some of the subjects under appeal. A current market rent figure of that order was confirmed by a calculation from the rents agreed for properties let after refurbishment, the costs of refurbishment being rentalised and the appropriate deduction made. Although the committee does not say so in terms, it is a clear inference from its reasoning that it was satisfied that, in the absence of an assumption being made about scarcity (and leaving aside any disregards - which in the event did not arise in these cases), £3,840 per annum or thereby fairly reflected the rent which might be achieved on a negotiation between landlord and tenant freely and actively negotiating without an imbalance of bargaining power. That conclusion was a significant step in the process of determining a fair rent. [44] The committee thereafter addressed the issue of scarcity (or its absence). As narrated in paragraph [22] above, it considered various sources of evidence bearing on that issue and concluded "that there is evidence of scarcity in the market". It later expressed that conclusion as there being "still a substantial level of scarcity". However, having referred to a submission made on behalf of the tenants that the "primary" method of calculating a fair rent was by the use of registered fair rent comparables, it abandoned the use of the market rent material, apparently on the ground that it "found difficulty in quantifying the level of scarcity". The nature and degree of that difficulty is not explained. The committee then went on to consider registered fair rent comparables and, on the basis of that material alone, determined a fair rent in the sum of £3,000 per annum. [45] In proceeding in this way the committee, in my view, erred in law. In the first place, it appears to have accepted the tenants' submission that the use of registered fair rent comparables was the "primary" method for determination of a fair rent. In my view, that description is misconceived, if by it is meant that, as a generality, such a method is in current circumstances to be preferred - and, in particular, preferred to the use of available market rent comparables. In so far as anything stated in Western Heritable Investment Co. Ltd. v. Johnston (which must be read in context) might be taken to suggest that the use of registered rents is, as a matter of law or as a principle of valuation practice, the "primary" method of comparison, I would respectfully disagree. The use of registered rent comparables may appear more straightforward, since it involves a direct comparison between "net" figures; but its use as a primary method carries the risk of the decision-maker giving insufficient weight to evidence of rents actually and currently being struck in the market. This is particularly so in more recent times when there has, generally speaking, been an increasing availability of evidence of market rent. In the second place, the committee failed adequately to explain why it abandoned the exercise founded on the use of market rental comparables. It had before it material from various sources in relation to scarcity. That material was sufficient to allow it to conclude that there was a "substantial" level of scarcity. Yet, it does not explain how it arrived at that conclusion or why, having done so, the difficulty in quantification was such that the exercise based on the market rental figure, which it had already found established, could not be taken further. [46] Rent assessment committees in Scotland are required, if so requested, to state the reasons for their determination in writing (Tribunals and Inquiries Act 1992 section 10, as read with Schedule 1 paragraph 59; see also Regulation 7A of the Rent Assessment Committee (Scotland) Regulations 1980 (as amended)). In Albyn Properties Ltd. v. Knox Lord President Emslie, delivering the Opinion of the Court, said at p. 112:"The statutory obligation to give reasons is designed not merely to inform the parties of the result of the committee's deliberation but to make clear to them and to this Court the basis on which their decision was reached, and that they have reached their result in conformity with the requirements of the statutory provisions and the principles of natural justice. In order to make clear the basis of their decision a committee must state (i) what facts they found to be admitted or proved; (ii) whether and to what extent the submissions of parties were accepted as convincing or not; and (iii) by what method or methods of valuation applied to the facts found their determination was arrived at. In short they must explain how their figures of fair rent were fixed".
This part of the court's decision in that case has not been superseded by legislation and remains good law. Appended to the report of that case is a report of the case of Glasgow Heritable Trust Ltd. v. Donald (decided in 1971) in which Lord President Clyde, giving the Opinion of the Court, criticised the committee in various respects. At p. 115 he said:
"On the question of scarcity, specific evidence was led by the landlords on the proper allowance to be made, and general evidence of substantial scarcity was led on behalf of the tenants. The committee have given no indication of what scarcity allowance they considered reasonable, still less of what estimate they allowed for it and why".
"The Act of 1977 does not define 'a fair rent', but section 70 of it describes how it is to be determined. Its effect is to take as its starting point the market rent for the premises in their current state, assuming a hypothetical absence of scarcity of similar properties available for letting in the locality and disregarding the personal circumstances of the landlord and tenant and certain other matters, including disrepair or defects for which the tenant is responsible or improvements made by him".
In his conclusion as to the nature of a fair rent Auld L.J. said at pp. 114-5:
"In my judgment, a fair rent is a market rent adjusted for scarcity and disregards, as Morritt L.J. held as part of the ratio in the Spath Holme case ... and as Lord Widgery C.J. analysed it as long ago as 1975 in Metropolitan Property Holdings Ltd. v. Finegold [1975] 1 W.L.R. 349, 351-353 (see also B.T.E. Limited v. Merseyside and Cheshire Rent Assessment Committee (1991) 24 H.L.R. 514, 516-517, per Hutchison J. and Western Heritable Investment Co. Ltd. v. Husband [1983] 2 A.C. 849, 856C-F, 860C-E, per Lord Keith and Lord Brightman). The concept of 'fair' in such a context is elusive unless it is tied to particular criteria. Section 70 of the Act of 1977 contains those criteria. Its scheme is to set out, in section 70(1), a number of circumstances which together would identify a market rent and, in section 70(2) and (3), the required adjustments where appropriate. It hardly needs saying that the assumption of a hypothetical absence of scarcity required by section 70(2) presupposes that the starting point in section 70(1) is market rent. Although I agree with the judgment of Harrison J. endorsed by this court in the Spath Holme case, that, depending on the material available, there may be more than one route to determine a fair rent, every route must have that starting point. That is so, whether reliance is placed on market or fair rent comparables or on return on capital. In each of the former two methods there is a need to reassess their validity and applicability at the time of their use as comparables (as is implicit in the reasoning of Morritt L.J. in the Spath Holme case, 28 H.L.R. 107, 124). In the case of return on capital, which seems to be rarely used, the criteria in section 70(1) cannot be bypassed; the exercise must in some way identify a market rent en route to assessing a fair rent".
That conclusion and the reasoning in support of it substantially endorsed what had been said earlier by Morritt L.J. in Spath Holme, where the point appears to have proceeded on a concession.
[51] With respect I am unable to accept that conclusion - in particular that aspect of it which identifies market rent as "the starting point" for the determination of a fair rent. The statutory structure appears to me, as I have said earlier, to suggest a composite, not a sequential exercise; it does not prescribe, as a matter of law, a specific starting point. Proposition 1 advanced by counsel for the rent assessment committee in Curtis (see p. 113), though rejected by the Court of Appeal, is in my view persuasive. [52] While I accept that the concept of "fair" may be elusive, that less definite concept was, I believe, deliberately preferred in 1965 by the Government of the day to the more definite and familiar concept of (actual) market rent. I am not persuaded that "all the circumstances (other than personal circumstances)" in subsection (1) is to be read as "identifying" a market rent; or that the assumption required by subsection (2) presupposes that the starting point in subsection (1) is actual market rent, however arrived at. It follows that I do not accept that every route to a fair rent "must have [market rent as its] starting point". Other routes can, depending on the nature and quality of the material available, be adopted; and the "starting point" may, depending on that material, be other than market rent. I also doubt, at least for the purposes of Scottish cases, the appropriateness of laying down, apparently as a matter of law, certain approaches which, in various evidential situations, can or cannot be followed by rent assessment committees in the determination of a fair rent. [53] It may be significant that a practical difficulty which had arisen in England was that rent officers and rent assessment committees in some areas had, notwithstanding a ready availability from 1989 onwards of market rent evidence, been reluctant to use it in determining fair rents. This had had the result that in these areas registered fair rents (for apparently comparable subjects) were at a level of about half that of market rents (R. v. Environment Secretary, ex p. Spath Holme Limited, per Lord Bingham at p. 379). In such circumstances the courts may have judged it appropriate to be more prescriptive. There is no information before us to suggest that currently a difficulty of that kind exists in Scotland; nor, for the reasons given earlier, do I see any requirement of law to adopt the same approach. [54] There was some discussion before us of a suggested difficulty in using evidence of registered rent comparables without first reassessing the soundness of the determinations which led to these rents being registered. In my view there is no such difficulty. It is as unnecessary, in the absence of challenge, to reassess the soundness of such determinations as it is to reassess the soundness of market rent comparables based on determinations of rent assessment committees under section 25 of the Housing (Scotland) Act 1988. The determinations themselves are relevant evidence of rents passing. In each case, however, it will be appropriate for the decision-maker to reassess the current validity and applicability of such determinations as comparables for the subject premises. On this matter I agree with Auld L.J. in Curtis v. London RAC at p. 116. Accordingly, matters such as general changes in rental levels or in scarcity since the determinations were made will require to be taken into account.Disposal
[55] A question arises as to the appropriate form of disposal of this appeal. Mr. O'Carroll in opening invited the court, in the event of the appeal being allowed, to quash the committee's decision and to remit to a differently constituted rent assessment committee for a rehearing. Mr. Mitchell, certain questions having arisen in the course of the discussion as to the practical effect of the committee's decision being quashed, invited the court to issue its opinion on the appeal without immediately making any operative order, which failing, to make an operative order at this stage in respect only of Mrs. Hunter, the sole compearing respondent. [56] In my view, this appeal having been pressed by the appellant, it is appropriate that the court should determine it now by an operative order. Further, in this case the committee, apparently without objection from the parties, treated all the references to it as a single application; it issued a single decision, and a single appeal against that decision was brought to this court. In these circumstances it would, in my view, be inappropriate to seek to separate out from the generality of the affected subjects the particular property of which Mrs. Hunter is the tenant. It will be for the appellant to decide whether it wishes to press before the committee the references initiated by it. I accordingly move your Lordships to quash the committee's decision dated 25 November 2001 and to remit to a differently constituted rent assessment committee for a rehearing.