UPPER TRIBUNAL (LANDS CHAMBER)

 

UT Neutral citation number: [2014] UKUT 402 (LC)

UTLC Case Number:  RAP/19/2013

 

 

                         TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

                                                                             

FAIR RENT – operation of capping provisions where landlord no longer provides services previously included within the rent but not constituting “variable sums” -  section 70 Rent Act 1977 - Rent Act (Maximum Fair Rent) Order 1999

                                                                             

 

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL

 

                                                                                                                                                      

 

                                                                           BY

 

 

                                                              MR J W FISHER                                           Appellant

 

 

                                                  Re: 30 Park Crescent Mews West

                                                         London W1G 7ER

 

 

                                            Before:  His Honour Judge Nigel Gerald

 

                                  Sitting at:  45 Bedford Square, London,WC1B 3AS

                                                            On 4 September 2014

 

The Appellant appeared in person

The Respondent did not appear and was not represented

 

The following cases are referred to in this decision:

Wiseman v Borneman 1971 AC 2 97

Fairmount Investments v Secretary of State for the Environment 1976

R v Tower Hamlets Borough Council ex-parte Chetnik Developments Limited 1988 

Crown v Secretary of State for the Home Office Home Department ex-parte Pearson 1998

 

DECISION

Introduction

1.             The appellant is and has since about 1982 been a tenant of the First Floor Flat situated at 30 Park Crescent Mews West, London W1G 7ER.  The respondent is the landlord. 

2.             On 18 May 2011 the rent officer determined the fair rent of the subject premises at £5,212.50 p.a. pursuant to section 70 of the Rent Act 1977 as amended which was duly entered in the Rent Register.  The Rent Register also recorded the amount of fuel charges at £852.50 which sums were attributable to services namely the provision of heating and hot water.  The Register also recorded for information purposes only that the uncapped rent was assessed at £10,670.

3.             On 18 February 2013 the respondent applied to the rent officer for registration of a fair rent in the amount of £19,500 p.a., one of the reasons no doubt being that it was stated that major works of improvements had been carried out since the previous registration of the fair rent.  The application referred to the previously registered fair rent and also recorded correctly that no services by way of heating or hot water were provided by the landlord for reasons which will be explained in a moment.

4.             On 17 April 2013 the rent officer registered the fair rent as being £5,748 p.a. with the effect from 18 May 2013.  No sum was recorded for services, because there were none.  It was noted on the Register that the uncapped rent would have been £12,922 p.a.

5.             On 7 May 2013 the appellant objected to that rent and referred the matter to the First-tier Tribunal Property Chamber (Residential Property) (“the Tribunal”) which upheld the decision of the rent officer save that the new fair rent was registered at £5,801.50 with effect from 11 July 2013.  The relatively minor difference between the two rents of £5,748 and £5,801.50 was accounted for by adjustments to inflation which are not material for these purposes. 

6.             On the 14 April 2014 the Deputy President of the Upper Tribunal (Lands Chamber) granted permission to the appellant to appeal the decision of the Tribunal.  The material aspect of the decision of the Tribunal which the appellant appeals relates to the operation of the capping provisions of the Rent Act (Maximum Fair Rent) Order 1999 (“the 1999 Order”) which is given statutory force by section 31 of the Landlord and Tenant Act 1985.  The 1999 Order provides a statutory formula imposing a ceiling to the amount registered rents can be increased by reference to the United Kingdom Index of Retail Prices.  Article 2(6) of the 1999 Order provides that

“…this article applies where an application for the registration of a new rent in respect of a dwelling-house is made after this Order comes into force and, on the date of that application, there is an existing registered rent under Part IV in respect of that dwelling-house .”

7.             Article 2(1) provides that where the article applies

“the amount to be registered as the rent of the dwelling-house under Part VI shall not, subject to paragraph 5, exceed the maximum fair rent calculated in accordance with the formula set out in paragraph (2).”   

Paragraph (2) of article 2 then sets out the formula by which the maximum fair rent is to be calculated which in broad terms to increasing what is defined as “LR” by the United Kingdom Index of Retail Prices.  The important definition for these purposes is “LR”, which

“is the amount of the existing registered rent called the dwelling house.” 

8.             There is no dispute that the “existing registered rent” was £5,212.50 p.a. Neither is there any dispute that that included fuel charges amounting to £852.50.  Neither is there any dispute that since the registration of the fair rent on 18 May 2011 and before the February 2013 application for registration of a new fair rent there was a material change in the circumstances of the demised premises. Whereas hot water and heating had been provided by the landlord from in effect adjoining premises and paid for by the landlord that ceased to be the case upon provision of a self-contained central heating and hot water system comprised within the subject premises consequent upon which the appellant has had to pay those costs. 

9.             The central point of the appellant’s various different grounds of appeal is that the fuel costs should have been deducted from the “existing registered rent” of £5,212.50 p.a. producing a figure of £4,350 p.a. and it is that figure to which should have been applied the retail price index uplift which would have capped the new fair rent at £4,801.50 p.a.  Had that been done the maximum fair rent which could have been recovered would have been £4,841.50 rather than the £5,801.50 p.a. which was decided by the Tribunal.  Put in very simple practical terms the appellant points out, and there is no real dispute about this, that on one analysis  he is now paying as part of his capped rent for a service (heating and hot water) which is no longer provided by the respondent but is now paid for by him following the installation of the self-contained heating system to his flat. 

10.         Whether or not this argument is correct depends principally upon the application of article 2 paragraph 5 which provides that:

“In applying this article no account should be taken of any variable sum to be included in the registered rent in accordance with section 71(4) of the 1977 Act.”

11.         Section 71(4) of the 1977 Act provides as follows:

“Where, under a regulated tenancy, the sums payable by the tenant to the landlord include any sums varying according to the cost from time to time of-

(a)                any services provided by the landlord or a superior landlord, or

(b)               any works of maintenance or repair carried out by the landlord or a superior landlord

the amount to be registered under this Part of this Act as rent may, if the rent officer is satisfied or, as the case may be, the rent assessment committee are satisfied, that the terms of the variation are reasonable, be entered as an amount variable in accordance with those terms.”

12.         The Tribunal considered this in paragraph 26 of their decision where they stated as follows:

“… The final point to consider what is the figure to be used as the “LR” factor in the capping calculation.  In the opinion of the Tribunal the correct approach is to make a literal interpretation of the 1999 Order and as such the definition of LR does not provide any scope for the figure to be reduced as in the circumstances of this case.  Paragraph 5 does consider the position where service charges may be variable but that is not relevant in the current case.  In coming to this decision the Tribunal is mindful that the formula produces an artificial figure to be registered and is not reflective of the actual rental value.  This is demonstrated by the large deferential between the uncapped rent of £12,800 and the capped rent of £5,801.50.  Accordingly, the figure to be adopted in the formula for the previous registered rent (LR) is the sum of £5,212.50.”

13.         The two principle arguments of the appellant are that the services provided were “variable” as demonstrated by the fact that the provision of hot water and heating was “varied” in the sense that the landlord discontinued them by replacing the pre-existing system with a self-contained system of hot water and heating. The costs are plainly “variable” as demonstrated by the Tribunal’s own decision increasing the amount of the fuel costs of £862.50 by the amount of inflation as encompassed within the new cap of £5,801.50.  The Tribunal was also criticised for describing the £862.50 as being a “fixed” cost included within the rent rather than a “variable” cost, the word “fixed” not appearing anywhere within the 1999 Order or elsewhere.

14.         In my judgment these arguments are based upon a misunderstanding of section 71(4) of the Rent Act 1977.  In order for that section to apply and for the “variable” costs of “services” provided by the landlord to be excluded from the maximum fair rent calculation pursuant to article 2(5) of the 1999 Order, it is the “sums payable by the tenant to the landlord” (emphasis supplied) which must vary according to “the cost from time to time of … any services provided by the landlord” (emphasis supplied) rather than the actual provision of services themselves.  The fact that the services have been discontinued is not, for these purposes, material.

15.         What this provision refers to is the not uncommon situation of where a lease requires the tenant to pay sums in addition to rent by way of service charge which vary each year according to the actual cost or provision of those services.  Where those terms are regarded as being reasonable by the rent office that may be registered as a separate element of the registered rent and it is that which is to be disregarded when applying the inflation-linked capping provisions of the 1999 Order under article 2(5). There is good reason for distinguishing between the rent in its normal sense and the rent in the service or variable charge sense.  By definition the variable service charge will change according to cost (and usage) and therefore does not need to be uplifted to take into account the vagaries of inflation, whereas rent which is not variable but fixed (whether or not it includes the provision of services) will not be so varied but can only be increased by application for registration of a new fair rent which is when the capping provisions are engaged. 

16.         Here, the rental charge merely includes the provision of hot water and heating without those costs being separately identified and recoverable and variable within any service charge provision or the terms of the lease or tenancy (which in point of fact was not in evidence, if a written one ever existed). The fact that no variable sums were comprised within the registered rent (LR) is demonstrated by the fact that they were not part of the rent register itself, as distinct from it merely being recorded that the landlord provided services, which the Tribunal correctly described as being “fixed” because they were merely encompassed within the rent with no separate liability or ability of the landlord to recover or vary them under the provisions of the tenancy itself.  As I understand it, the reason why such “fixed” costs are separately recorded, is to do with housing or similar benefits which are in certain circumstances only to cover the costs of renting the premises rather than heating it and the hot water.

17.         It therefore follows that no variable sums were payable within the meaning of article 2(5).  There were none to be disregarded so that the “existing registered rent” did not fall to be reduced notwithstanding that the previously registered fair rent encompassed the cost of providing heating and hot water which were no longer provided by the respondent landlord but paid for by the appellant tenant.

18.         The appellant said that the Tribunal was wrong to accept the respondent’s counsel’s statement that the charges for the hot water and heating services were “fixed” without seeking any verification on the point.  This argument was a little difficult to follow because it was not the appellant’s case before this Tribunal that the landlord was entitled under the terms of his tenancy to claim the actual costs from time to time of the provision of hot water and heating or that the landlord was entitled to vary them under the terms of his tenancy under any service charge or similar provisions.  Rather those costs are all part and parcel of the rent which he paid under his tenancy as I have already said. 

19.         The fact that no variable sums were separately registered as part of the registered fair rent was no doubt one of the reasons why counsel confirmed and then the Tribunal reached its perfectly proper finding that there were no sums payable by the tenant to the landlord which varied according to the costs from time to time.  It is therefore only where variable sums separately registered as part of the registered fair rent are to be disregarded as part of the calculation of the cap provided by the 1999 Order.  There is no provision for filtering out of the existing registered rent an element which comprises the (fixed) costs of services which are not separately charged for or variable under the provisions of the lease or tenancy. 

20.         The appellant was also concerned and criticised the Tribunal for stating that it was “mindful” that the statutory formula “produces an artificial figure to be registered and is not reflective of the actual rental value.”  This line of argument was that the Tribunal appeared to think that there was some sort of latitude for determining a fair rent, that it was not necessary to arrive as an exact figure. 

21.         In my judgment that is a mis-reading of the relevant part of the decision of the Tribunal which I have cited above.  What the Tribunal was saying was that the statutory cap might at first blush appear to produce an oddity where the cost of provision of a service which had previously been encompassed within the fair rent was no longer provided yet formed the multiplicand forming the basis of the cap for any subsequent application for a new fair rent.  The Tribunal was merely pointing out that there was a certain amount of artificiality about the statutory process of assessing rents which by definition, and the minute statute is involved, is no longer reflective of the market rent.  That however did not form the substance of the decision of the Tribunal namely that the statute and statutory instrument should be strictly construed and that there was no reason to suggest otherwise, and with that decision I respectfully agree.

22.         The final line of appeal was that it was unfair and unjust for the capped rent to be set by reference to hot water and heating which was services which were no longer provided.  The principle authorities which the appellant relied upon were those concerning the principles of natural justice and references to minimum standards of fairness, not only in relation to procedural but also to substantive law.  The appellant referred to Wiseman v Borneman [1971] AC 2 97. Fairmount Investments v Secretary of State for the Environment [1976]; R v Tower Hamlets Borough Council ex-parte Chetnik Developments Limited [1988]; Crown v Secretary of State for the Home Office Home Department ex-parte Pearson [1998] and various other authorities. 

23.         In my judgment none of those are on point.  What is important to bear in mind and focus upon is that the purpose of the capping provision is not to set the rent but is to limit the amount by which the rent can be increased.  This of course only applies where there is evidence that market rents should be or be increased over and above that of the existing registered fair rent.  In other words, where, if the market prevails, the rents would be higher than the existing registered rent, Parliament has intervened to restrict the amount by which the rent should increase. 

24.         That by any assessment is an intervention in the market which protects the tenants by limiting the amount by which the rent would otherwise be and can be increased but self-evidently disbenefits the landlord who cannot charge the market rent.  There is nothing inherently unfair or unjust in imposing a cap or limit on the amount by which rent can increase even if that cap, on one analysis, does not reflect the fact that the situation has altered since the rent was last assessed and registered and no doubt capped, namely the removal of the provision of hot water and heating by the landlord. Putting it another way, the fact that a cap might operate in, on one analysis, an anomalous way does not make it unfair or unjust. It makes it, arguably, anomalous. But sight should not be lost of the fact that the capped rent, whether or not it indeed operates anomalously on the facts of this case, is grossly under the market value and will remain so for the duration of the appellant’s tenancy.  The fact that a cap which so benefits a tenant acts arguably anomalously in certain circumstances can not in my judgment be said to be unfair or unjust.

25.         For those reasons I dismiss this appeal. For completeness, the appellant did note that the new fair rent should not be registered from the date of the decision of the Tribunal but should be from an earlier date. That is incorrect as section 72(1)(a) and (2)(b) of the Rent Act 1977 provides that the decision of the rent assessment committee – the Tribunal – takes effect from the date of its decision whether or not it is itself determining the rent or confirmation the assessment of the rent officer. 

26.         There is however one final point to note. Where a landlord has been providing services which are included in the rent paid it is not usually permissible for the landlord to withdraw those services without some sort of arrangement or accommodation or agreement being made with the tenant.  There is no evidence before me or so far as I am aware was there any before the Tribunal as to whether any financial arrangement or accommodation or agreement to reflect the fact that what had hitherto been included in the rent no longer was.  It is not material to this appeal, or the interpretation of the statutory provisions. I merely observe that that would have been the time for the underlying issues which relate to this appeal to have been addresses. 

 

 

 

 

                                                                                                Dated: 10 September 2014

 

 

 

 

                                                                                                His Honour Judge Nigel Gerald