UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 21 (LC)

UTLC Case Number: RAP/15/2013

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT –assured tenancy – rent determination by rent assessment committee – deduction for repairing liability – whether reasons given for deduction – appeal on error of law – requirement for valuation tribunals to give adequate reasons – appeal allowed – remitted to first-tier tribunal (property chamber) – s14 Housing Act 1988

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION

OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE

SOUTHERN RENT ASSESSMENT PANEL

 

 

BETWEEN THE JOHN JACKSON CHARITABLE TRUST Appellant

 

and

 

(1) MR AND MRS J HORNBLOWER Respondents

(2) MR AND MRS A DAVIES

 

 

Re: Nos. 4 and 6 Windmill Close,

Eastbourne,

East Sussex

BN21 1UA

 

 

 

Before: P D McCrea FRICS

Sitting at: 45 Bedford Square, London WC1B 3AS

on 

20 January 2014

 

 

Ian Rees Phillips, instructed by Heringtons LLP for the appellant.

Andrew Board of Cornfield Law LLP for the respondents. 

 

The following case was referred to in this decision;

 

Guppys Properties v Knott and another (No3) [1981] 1 EGLR 85

 

 

DECISION

Introduction

1.           This is an appeal against two decisions of a Rent Assessment Committee for the Southern Rent Assessment Panel (“the committee”) each dated 8 June 2013 in respect of No.4 Windmill Close, (tenants, Mr and Mrs J Hornblower) and No.6 Windmill Close, (tenants, Mr and Mrs A Davies), Eastbourne, East Sussex, BN21 1UA. The appeal is by the freehold landlord, the John Jackson Charitable Trust (the appellant). There is no differentiation between the cases taken by Mr & Mrs Hornblower and Mr & Mrs Davies and I refer to them jointly as the respondents.

2.           The respondents hold assured periodic tenancies of the respective properties.  The appellant served notices under s.13 of the Housing Act 1988 on the respondents on 5 November 2012 to increase the respondents’ rents from £1,560 per quarter to £3,000 per quarter.  The notices were referred to the committee on 12 March 2013.  The committee’s decisions were dated 8 June 2013, in which they found that the rent of each property, having made deductions from the market rent of £3,000 per quarter for tenants’ improvements, the provision of white goods, and tenants’ internal decorating liability, was £1,750 per quarter with effect from 25 March 2013.  The appellant sought permission to appeal the decision, first from the committee and upon permission being refused by the committee, from the Tribunal.

3.           Permission to appeal the committee’s decision was granted by the Deputy President on 16 October 2013, confined to one single issue by way of review – that of the committee’s deduction for internal decorating liability.

4.           The appeal was held under the Tribunal’s simplified procedure.  Mr Rees Phillips of counsel appeared for the appellant.  Mr Andrew Board of Cornfield Law LLP appeared for the respondents. No witnesses were called.

Facts

5.               The parties produced a statement of agreed facts and issues.  From this and the evidence I base my review of the committee’s decision on the following facts.

6.               No.4 Windmill Close is a detached two-storey house with three bedrooms and a combined bathroom/w.c. on the first floor and two reception rooms and kitchen on the ground floor.  There were good sized gardens to the front and rear.  The tenants had carried out many improvements during their occupation, including but not limited to the fitting of a new kitchen and bathroom, sun lounge, side extension to provide a utility room, the installation of gas fired central heating and extensive improvements to the gardens.

7.               No. 6 Windmill Close is a similar property with three bedrooms and a combined bathroom/w.c. on the first floor and two reception rooms and kitchen on the ground floor. Again, there were good sized gardens to the front and rear.  The tenants had carried out many improvements during their tenancy including but not limited to the fitting of a new kitchen and bathroom, sun lounge, side extension to provide a utility room and the installation of gas fired central heating.  They installed decking and a summer house in the garden.

8.               The subject properties are the only ones on Windmill Close within the appellant’s ownership that are let on periodic assured tenancies – the others being let on assured shorthold tenancies.

9.               Mr & Mrs Hornblow’s tenancy of 4 Windmill Close stems from a brief, handwritten tenancy agreement dated 4 October 1992, within which the landlord was “responsible for structural repairs – outside decoration - & plumbing”.  The tenants were “responsible for minor repairs - interior decoration - & to maintain and keep the garden tidy”.

10.            Mr & Mrs Davies’s tenancy of 6 Windmill Close stems from an equally brief handwritten tenancy agreement dated 13 July 1995, within which the landlord was “responsible for structural repairs and the immersion heater”.  The tenants were “responsible for minor repairs and for heating the house and for keeping the property in good decorative condition with the garden maintained and tidy”.  The appellant’s obligations are supplemented by statute (section 11, Landlord and Tenant Act 1985) but not in a material way.

11.            The parties agree that nothing turns on the slightly differing wording of the tenancies.

The Committee’s Decision

12.            The committee heard the respondent’s application and inspected the properties on 7 June 2013.  A notice of the committee’s decision for each property was dated 7 June 2013, with reasons subsequently issued dated 8 June 2013.  The decisions were identical with the exception of small differences in the descriptions of the two properties and the different wording of the tenancy agreements.  I therefore refer to both decisions as being “the decision”.

13.            The committee said that in coming to its decision it had had regard to the evidence supplied by the parties and the members’ own general knowledge of the market rent levels in the area of East Sussex.  It concluded that the appropriate market rent for each property would be £3,000 per quarter if they were in a good letting condition appropriate for the style and type of property in a similar setting.  The committee went on to say that the rent levels are similar, if not identical, irrespective of whether the tenancy is an assured tenancy or an assured shorthold tenancy.

 

14.            The committee then said;

“From the starting market rent, deduction should be made to reflect the improvements undertaken by the tenants, including the installation of central heating.”

15.            There is no mention there of a reduction for internal decorating liability.

16.            It then produced the following calculation:

Open Market Rent £3,000 per quarter

Less allowances for:

Tenants’ improvements £800

Tenants’ provision of white goods £250

Tenants’ internal decoration liability £200

  Total deductions £1,250

Net market rent £1,750 per quarter

 

(my emphasis)

17.            The committee therefore directed that the rent would be set at £1,750.00 per quarter with effect from 25 March 2013.

The statutory context

18.            Section 14 of the Housing Act 1988 sets down how the committee should come to their decision as to rent.  So far as relevant here, this provides;

“14(1) Where, under subsection (4)(a) of section 13 above, a tenant refers to the appropriate tribunal a notice under subsection (2) of that section, the appropriate tribunal shall determine the rent at which, subject to subsections (2) and (4) below, the appropriate tribunal consider that the dwelling-house concerned might reasonably be expected to be let in the open market by a willing landlord under an assured tenancy—

(a) which is a periodic tenancy having the same periods as those of the tenancy to which the notice relates;

(b) which begins at the beginning of the new period specified in the notice;

(c) the terms of which (other than relating to the amount of the rent) are the same as those of the tenancy to which the notice relates; and

(d) in respect of which the same notices, if any, have been given under any of Grounds 1 to 5 of Schedule 2 to this Act, as have been given (or have effect as if given) in relation to the tenancy to which the notice relates.

(2) In making a determination under this section, there shall be disregarded—

(a) any effect on the rent attributable to the granting of a tenancy to a sitting tenant;

(b) any increase in the value of the dwelling-house attributable to a relevant improvement carried out by a person who at the time it was carried out was the tenant….”

 

Submission by the appellant

19.        Mr Rees Phillips submitted on behalf of the appellant that the committee erred in law in determining that the respondent’s rent should be reduced by £200 per quarter to account for their liability to repair the interior of the properties.  The appellant appeals on the basis that:

(a)   there was no evidence before the committee that the other properties on Windmill Close, (that provided comparators to assess the market rent at £3,000 per quarter) were let on terms which did not require the tenants of those properties to decorate the interiors; and

(b)  further and in the alternative that the committee failed to provide reasons for this part of the decision, as there is no express justification, finding of fact or reasoning for this deduction in the decision, which amounted to an error of law.

20.        Mr Rees Phillips submitted that if the Tribunal was satisfied that there had been an error of law, the Tribunal was invited to find on review that there should be no deduction of rent for internal decorating liabilities.

21.        In respect of the lack of evidence, Mr Rees Phillips said that there was no evidence before the committee that the comparator properties in Windmill Close (that the committee utilised to assess the market rent for the respondent’s properties) were let on terms that the tenants were not required to keep the interiors of those properties decorated. The committee did not make a finding on this point.  Accordingly this part of the decision was not founded on any evidence or finding of fact so was an error of law.

22.        In respect of the lack of explanation of the decision, Mr Rees Phillips said that the only parts of the decision that provided findings to allow deductions to be made related to past improvements to the properties, not any liability to decorate.  He said that the committee did not make any finding in respect of whether or not the tenants of the comparable properties that provided the market rent assessment had any such obligation.  Accordingly the reduction of £200 per quarter for internal decorating liability was not explained or reasoned in any manner and so constituted an error of law.

23.        Mr Rees Phillips invited the Tribunal to make an authoritative finding in relation to rent as this would provide a comparator for future rent negotiations.

Case for the respondents

24.        Mr Board on behalf of the respondents submitted that the committee had inspected the properties, and had been able to evaluate the various improvements carried out by the tenants. He said that the decorative liability of each tenant was very high, both as to the quality of the work carried out and the extent to which it covered the improvements carried out.

25.        He submitted whilst no standard assured shorthold tenancy document was before the committee, the internal decorating liability was more onerous than that would apply to an assured shorthold tenancy in its usual form, as it was an unqualified liability.

26.        Mr Board accepted that there was no specific reason given in the decision for a deduction for internal decoration liability but said that it was implicit in the decision of the committee that in each case the liability to decorate the property, including the improvements to the property, was to the existing high standard as evidenced by the committee’s inspections of the subject properties.

27.        He said that whilst the decision of the committee was admirably succinct, it was intelligible, and he understood it.

28.        Mr Board requested that, if I found in the appellant’s favour, then I should ask the lower tribunal to revisit their decision.

Discussion

29.        At my invitation the parties considered the assured shorthold tenancy agreement that Mr Rees Phillips submitted in respect of No.1 Windmill Close (accepting that this had not been before the committee). The parties agreed that this was a factual document and represented a standard assured shorthold tenancy for the other Windmill Close properties.  Under Clause 5.2 of that document the tenant was to:

“keep the interior of the property and of the contents in at least as good and clean condition and repair as they were at the commencement of the tenancy, with fair wear and tear excepted, and to keep the property reasonably aired and warm.”

30.        Mr Board said that the presence of the fair wear and tear limit on decorative liability in respect of the assured shorthold document was in stark contrast to the unlimited decorative liability contained within the subject assured tenancies. 

31.        Mr Rees Phillips said that in essence there was no difference between the documents because the appellant landlord would accept a degree of fair wear and tear when dealing with the end of the subject tenancies whenever that may be, and a fair wear and tear exception ought to be implied within the document. Mr Board commented that the appellant’s conduct to date had been to apply the letter of the law and he was not confident of Mr Phillip’s assurances.

32.        It is common ground between the parties that the decision of the committee does not specifically explain why a deduction of £200 per quarter for internal decoration was made, although Mr Board does not consider that fatal to the validity of the decision.  Mr Rees Philips says that it was unexplained and therefore unlawful.  I agree with Mr Rees Philips that that is the case, and that the absence of reasons amounts to an error of law. 

33.        Having made that finding, the absence or otherwise of evidence in relation to the comparator properties is immaterial.

34.        I turn now to the general principles in respect of the need for clear and full reasons for assessments of rent in these circumstances.

35.        In Guppys Properties v Knott and another (No3) [1981] 1 EGLR 85, it was held that:

(1)  the reasons must be intelligible;

(2) although (the committee) do not have to deal with every point raised, they must deal with the substantial points, showing what matters were taken into consideration and what view was reached on them.

(3)  where the committee (having conformed with rule (2)) decide to rely on their own knowledge and experience they are not required to further explain how their figure is determined.

36.        One of the advantages of rent assessment committees being populated by local practitioners is that they can bring their own local market knowledge to bear when setting rents, but in doing so they must explain their view on the aspects that make up its determination. It is clear from paragraph 27 of the decisions that the committee used its local knowledge and experience, in addition to the evidence, to arrive at the “starting market rent” of £3,000.00 per quarter. 

37.        However, the deduction of £200.00 for internal decorating liability was made without any comment or previous explanation.  It may be that such a deduction was common practice, in comparison with a more limited repairing liability under an assured shorthold tenancy that generally would have a fair wear and tear allowance, but this does not absolve it from the need for explanation. The committee’s decisions should be stand-alone documents, without the reader having to be familiar with practice or other decisions of the committee in order to understand how the final figure has been arrived at. It is not sufficient for, as Mr Board contended, the reasons for arithmetical or valuation reductions to be implicit in the decision – they must be specifically explained. 

38.        Whilst in principle the committee was quite entitled to quantify a deduction based upon its own knowledge and experience, it should have provided reasons, or at the very least a commentary, as to why this deduction was made.  Had the committee considered that there was a difference in substance between the decorating liability of the subject tenancies and those of comparative properties from which they derived their starting market rent this should have been explained.  The suggestion that redecoration covenant imposes a substantively different obligation from another is not a matter of valuation knowledge or experience, it is a matter of law.  Before making any adjustment for such a difference the committee must explain what it is. 

39.        The deduction made by the committee amounted to a 6.7% allowance, which is not insignificant.  If the committee had experience of such an allowance being made in market transactions it should have said so, so that the reader would understand that a figure had not simply been picked out of the air.  If the committee had no experience of market transactions which provided evidence of such an allowance that would not prohibit it from making an allowance but it would require that it provide a clear explanation why it considered an allowance of that magnitude to be appropriate.  

40.        I therefore find that the appeal succeeds on the basis that the committee erred in law by failing to provide reasons for their decision to deduct £200.00 per quarter from each property for internal decorating liability.

Disposal

41.        Whilst it is open to me to alter the committee’s decision, it would be inappropriate to do so on this occasion.  The committee had inspected the subject properties, had local knowledge and expertise, which no doubt formed part of their decision.  I consider it appropriate to remit the two decisions.

42.        The rent assessment committee now forms part of the First-tier tribunal property chamber.  I therefore remit the Decisions of the Southern Rent Assessment Panel dated 8 June 2013 in respect of No.4 Windmill Close, Eastbourne, East Sussex (their reference: CHI/ 21UC/MNR/2013/0034 and in respect of 6 Windmill Close, Eastbourne, East Sussex, BN21 1UA (CHI/21UC/MNR/2013/0035) to the First-tier tribunal property chamber to be reconsidered having regard to my findings above.

43.        The hearing took place under the Tribunal’s simplified procedure, where costs are only awarded in exceptional circumstances.  Neither party suggested that there were any such circumstances and I therefore make no order as to costs.

Dated: 4 February 2014

P D McCrea FRICS