Khan v Birmingham City Council

Acquisition of dwelling-house in clearance area–Question of basis of calculation of owner-occupier’s supplement under Housing Act 1969, section 68 and Schedule 5–Appeal from decision of Lands Tribunal–At date of declaration of clearance area claimant occupied house with his family–Before entry into possession by acquiring authority claimant and family had moved to another house, claimant retaining one room in subject dwelling-house and having let remainder to tenants–Whether in assessing the ‘full compulsory purchase value’ for the purpose of the supplement account should be taken of tenancies subsisting at date of authority’s entry into possession or whether the premises should be valued as with vacant possession, the position at date of declaration–Held that supplement must be calculated at date of entry subject to subsisting tenancies–Hunter v Manchester City Council discussed and distinguished–Appeal dismissed This was an appeal by Ahmed Khan from a decision of the Lands Tribunal (E C Strathon FRICS) on a reference to determine the compensation payable by the present respondents, the Birmingham City Council, for the compulsory purchase of his freehold dwelling-house, 37 Claremont Road, Sparkbrook, Birmingham. It was agreed that the claimant was an owner-occupier who qualified for a supplement in accordance with the Housing Act 1969, section 68 and Schedule 5. The question raised in the reference to the Lands Tribunal and in the present appeal concerned the correct basis for the calculation of the supplement. The facts and issues are stated in the judgment of Megaw LJ. The Lands Tribunal decision was reported at (1979) 249 EG 68. Patrick Thomas (instructed by H E Wynscherk, John Basset & Co, of Birmingham) appeared on behalf of the appellant; Jeremy Sullivan (instructed by the solicitor to the Birmingham City Council) represented the respondents. Giving judgment, MEGAW LJ said: This is an appeal by way of a case stated from a decision of the Lands Tribunal of July 21 1978. In May 1961 Mr Ahmed Khan, to whom I shall refer as the appellant, bought as a residence for himself and his family a house, 37 Claremont Road, Sparkbrook, Birmingham. On January 22 1970, Birmingham City Council, in their capacity as housing authority, declared the area which included the appellant’s house to be a clearance area for the purposes of the Housing Acts. I shall refer to the Birmingham City Council as the respondents. On February 7 1970 the appellant and his family moved to another house. The appellant, however, retained a room in the house at 37 Claremont Road for his own personal use. After February 1970 he let the rest of that house to tenants. On October 23 1970 the respondents made a compulsory purchase order which applied to the clearance area, including therein the appellant’s Claremont Road house. That order was confirmed by the Secretary of State on March 3 1971. Notice to treat was served by the respondents on February 1 1972. On February 28 1972 they entered into possession of 37 Claremont Road. On February 28 1972 the house, apart from the one room retained by the appellant, was fully let on weekly tenancies. The total weekly rent, at that date, accruing from the six tenancies was £18.75. The appellant as an owner-occupier qualified for the supplement provided for by section 68 of and Schedule 5 to the Housing Act 1969. That supplement, as provided by Schedule 5, was an amount equal to the full compulsory purchase value less the site value. (He would also be entitled to the site value.)  It was accepted on behalf of the parties that, under the statutory provisions, ‘the relevant time for valuation of the full compulsory purchase value was February 28 1972, being the date of the respondents’ entry into possession.’  It was also agreed between the parties that, if account was properly to be taken of the tenancies subsisting on February 28 1972, the full compulsory purchase value was £1,250; but, if no account was properly to be taken of the tenancies then subsisting, the full compulsory purchase value was £3,000. The difference is attributable to the value in the open market between, on the one hand, this property with tenants in occupation and, on the other hand, this property with vacant possession. The issue before the Lands Tribunal and before this court is whether, as a matter of law, the tenancies are to be taken into account. The Lands Tribunal decided that they are to be taken into account. Accordingly, the full compulsory purchase value was £1,250. The appellant, on this case stated, contends that that decision is wrong as a matter of law; that the tenancies existing on February 28 1972 should not be taken into account; and that, accordingly, the full compulsory purchase value is £3,000. Counsel for the appellant puts forward two grounds in support of his appeal. The first ground is that the Lands Tribunal’s decision does not accord with the proper interpretation of Schedule 5 to the Housing Act 1969. The second ground is that the Lands Tribunal’s decision is contrary to the decision of this court in Hunter v Manchester City Council [1975] 1 QB 877. Necessarily, the two grounds are, in some degree, interrelated. I shall consider first, as did counsel for the appellant, the first ground, without reference for the time being to Hunter’s case and, as it were, without prejudice to any further considerations of interpretation of the schedule which may arise as a result of the judgments in Hunter’s case. Section 68(1) of the 1969 Act says: The provisions of Schedule 5 to this Act shall have effect with respect to certain payments to be made in respect of owner-occupied houses in certain circumstances; . . . Schedule 5 is headed: Payments to owner-occupiers and others in respect of unfit houses purchased or demolished. I need not read the complicated text of paragraph 1(1) of the schedule. There is no dispute that the appellant in the present case is an owner-occupier of an unfit house which has been purchased at site value in pursuance of a compulsory purchase order under Part II of the Housing Act 1957, and that he has satisfied the requirement in respect of its occupation as a private dwelling during the qualifying period of two years. That period was the two years ending on January 22 1970, being the date on which the area in which the house was situated was declared to be a clearance area. Accordingly, there is no dispute but that the appellant was entitled to a payment of an amount determined in accordance with paragraphs 2 and 3 of the schedule. Paragraph 2 of the schedule provides that the amount shall be ‘an amount equal to its full compulsory purchase value.’  (There is a provision for the deduction of the compensation referable to site value; but that is merely a provision to prevent the owner-occupier from receiving the site value twice over.)  I shall return to paragraph 3 later. The meaning of ‘full compulsory purchase value’ is given in paragraph 5(2) of the schedule. The relevant part of the definition reads: ‘full compulsory purchase value,’ in relation to any interest in a house, means the compensation which would be payable in respect of the compulsory purchase of that interest if that compensation fell to be assessed in accordance with subsections (1) and (4) of section 59 of the Act of 1957 (that is, the Housing Act 1957). Section 59(1) of the Housing Act 1957, as amended, provides that compensation shall be assessed in accordance with the Land Compensation Act 1961. Thus, Schedule 5, by its express terms, brings in the normal compulsory purchase code, except to the extent that it may be varied or affected by any of the express provisions of Schedule 5. The only relevant part of the 1961 Act for present purposes is section 5, rule (2), which provides that: the value of land shall . . . be taken to be the amount which the land if sold on the open market by a willing seller might be expected to realise. The date by reference to which the market value is to be assessed is authoritatively declared in a dictum of Lord Morris of Borth-y-Gest in his speech in Birmingham Corporation v West Midland Baptist (Trust) Association [1970] AC 874 at p 907G. While this statement, when made, may have been obiter dictum, it has become authoritative by its adoption thereafter in many cases binding on this court. In considering the date by reference to which the value of land should be assessed under rule (2) in section 5 of the Land Compensation Act 1961 Lord Morris said that it is: the date when the value is being agreed or is being assessed by the appropriate tribunal, or, if it is earlier, the date when possession was taken. Here, therefore, the relevant date was February 28 1972, the date when the respondents took possession of the house. As I have said earlier, that date was agreed between the parties as being ‘the relevant time for the valuation of the full compulsory purchase value.’  Hence, unless one is to ignore the fact that, at that date, there were tenants in occupation, the full compulsory purchase value in this case must be, as the Lands Tribunal has held, the figure of £1,250, agreed as the value on the basis that account has to be taken of the fact that vacant possession could not have been offered in an open market sale. How then does the appellant seek to escape from that conclusion by reference to the provisions of Schedule 5 ?  Counsel for the appellant submitted that, when those provisions are viewed as a whole as a ‘closed’ or ‘self-contained’ code, their true interpretation is that the appellant obtained what counsel called a ‘vested right’ to have his compensation as an owner-occupier computed by reference to the relevant facts and matters affecting the house and its occupancy at the date of the declaration of the clearance area: that is, on January 22 1970. In my judgment, that proposition cannot be right. The provisions of Schedule 5 are not a ‘closed’ or ‘self-contained’ code governing the compensation payable to an owner-occupier. Schedule 5 by its express terms brings in the normal compulsory purchase code. There is nothing, as I see it, in the wording of the provisions of Schedule 5 which justifies or supports the view that the compensation is to be assessed by reference to the facts as they were at the date of the clearance area being declared, disregarding anything which may have happened since then which would affect the value of the property in the open market at the date when the respondents took possession. It is, to my mind, inconceivable that if, for example, the house had been burned down, or had been damaged by fire, or had suffered some other deterioration between the date of the declaration of the clearance area and the date when the respondents entered into possession, the property would fall to be valued in the condition in which it was on the former date. Again, it appears to me inconceivable that a proper valuation of the full compulsory purchase value should, adversely to the owner-occupier, ignore any increase in open market value due to, for example, the progress of inflation between the date of the designation of the clearance area and the date of entry into possession. Counsel for the appellant, realising these difficulties, sought to limit the proposition by relating it solely to the factor of occupation of the house by tenants. He submitted that though, in all other respects, it may be right to make the valuation by reference to facts and matters as they were, and as they affected the house on February 28 1972, nevertheless, for the purpose of considering the effect on the value of the occupation by tenants, one ought to look at the facts as they were on January 20 1970, when the clearance area was designated. If, on that date, there had been tenants in occupation, then one could not take a vacant possession basis of valuation. But if, as in the present case, there had been no tenants in the house on January 20 1970, then, for a valuation on February 28 1972, a vacant possession basis would be appropriate, though inconsistent with the actual facts on that date. I fear that, again. I can find no justification in the words used in Schedule 5 for any such proposition. I think that the first ground put forward by the appellant in support of the appeal does not have a valid foundation. I turn then to the second ground, based on the decision in Hunter v Manchester City Council [1975] 1 QB 877. It appears clear to me that Hunter’s case does not govern the present case. Its ratio decidendi does not apply. If and in so far as it is relevant, it is by way of guidance from obiter dicta, and not by way of direct and binding authority. The actual decision in Hunter’s case is as to the correct interpretation of paragraph 3 of Schedule 5 to the Housing Act 1969. Paragraph 3 is not of direct relevance in the present case. When I referred earlier to the provisions of paragraph 1 of Schedule 5, I mentioned that the payment to an owner-occupier referred to therein was to be determined in accordance with paragraphs 2 and 3 of the Schedule. I have already set out the effect of paragraph 2, which brings in, by way of paragraph 5(2), the ‘full compulsory purchase value,’ which, in its turn, is to be assessed in accordance with, in the end, the Land Compensation Act 1961. Paragraph 3 of Schedule 5 makes provision for a reduction of the amount which would otherwise be payable under paragraph 1 (that is, a reduction of the full compulsory purchase value as initially assessed) ‘by such part, if any, of that amount as may reasonably be attributed to any part of the house occupied for any purposes other than those of a private dwelling at the date of the making of the compulsory purchase order . . .’ Mr Hunter owned a house. He and his family occupied it. He heard that the area was likely to be declared a clearance area. He bought another house. He and his family moved there. He retained one room in the old house. The rest he let to tenants. This happened before the area was declared to be a clearance area. On the date of the compulsory purchase order in May 1971 that was still the position. The facts set out in the report of the case do not disclose whether the tenants were still living in the house at the date when the Manchester City Council entered into possession: nor whether the ‘full compulsory purchase value’ of £1,800, as agreed between the parties, was agreed on the basis of the open market value of the house with vacant possession or the open market value with the tenants living in it. Manchester City Council contended successfully before the Lands Tribunal, but unsuccessfully in this court, that paragraph 3 of Schedule 5 entitled, and required, a very substantial reduction to be made from the agreed full compulsory purchase value. Their argument was that, because a substantial part of the house was occupied at the date of the compulsory purchase order by tenants who were paying rent to Mr Hunter, that part of the house was ‘occupied, at that date, for purposes other than those of a private dwelling.’  This court (Lord Denning MR, Orr LJ and Scarman LJ) rejected that submission. They held that, even though part of the house was occupied by tenants of the owner, that did not result in that part being occupied for any purposes other than those of a private dwelling. That decision is, of course, binding on this court. The ratio decidendi of the case is the construction of the words of paragraph 3 in the sense which I have stated: a construction with which I respectfully agree. There is no argument in the present case as to the applicability of paragraph 3. The respondents have not suggested that they are entitled to seek a reduction of the assessed or agreed full compulsory purchase value on any such ground. It appears to me to be highly probable that in Hunter’s case the full compulsory purchase value had been agreed by the parties on the basis of the market value of the house with vacant possession. If it had been otherwise, it is hardly conceivable that those who represented Mr Hunter in this court would not have brought to the notice of the court, or that the court would not itself have commented on, the fact that the reduction claimed by the city council under paragraph 3 would be a deduction from an initial ‘full compulsory purchase value’ which had itself already been affected by the fact that there were tenants in the house. But it is apparent from the report of Hunter’s case that the question as to the full compulsory purchase value, which has been raised in the present case, was not raised or argued or considered by the court in Hunter’s case. It may be that the Manchester City Council deliberately refrained from arguing it (if, indeed, the facts made it arguable), because they did not think that it would succeed, or because they saw better hope of success in their argument based on paragraph 3 of Schedule 5. However that may be–and it is all speculation–it cannot affect the right of the respondents to argue the point in this case, nor is it a factor affecting, one way or the other, the validity of that submission. The only way in which Hunter’s case can be said to have a bearing on the issue in the present case is that in two of the judgments certain observations were made as to the general purpose, or philosophy, of this legislation. It appears from the judgment of Lord Denning MR at p 883 of the report that the Manchester City Council sought to support their construction of paragraph 3 of the Schedule by asserting that ‘the overriding intent . . . was that an owner-occupier should only be compensated in respect of his own personal occupation of the house.’  Lord Denning MR said that it was an ‘attractive suggestion,’ but that it did not fit in with the words. ‘Nor’ he said ‘is there any such overriding intent.’  He referred to a passage in an official circular, which said that ‘the object of this paragraph is to mitigate hardship to those persons who have been driven by the extreme shortage of housing to buy unsound and sub-standard dwellings to live in themselves.’  Later, Lord Denning said that, once Mr Hunter had qualified by his residence in the house, ‘it is quite right for him to get compensation for his interest in the old premises even though he let part of it meanwhile to help other people in their housing needs.’ Scarman LJ expressed the same view at p 884. He said that, from the moment when the house was declared as being within a clearance area, ‘it appears to be reasonable that an owner-occupier . . . should be looking around for accommodation and should have a reasonable expectation that part of the capital needed for his alternative accommodation will come from the compensation for the loss of the house which sooner or later he is going to be compelled by law to vacate.’  Later, Scarman LJ said: ‘. . . but if he goes on allowing the house (and it is in the public interest that he should) to be occupied as a private dwelling until such time as it has to come down, then the paragraph contains nothing to deprive him of compensation upon the expectation of which he may well have made utterly admirable and reasonable family arrangements.’ For the appellant in the present case it is submitted that, in the light of those views as to the general policy of the statutory provisions, it would be odd if the appellant in this case were to have his compensation reduced because of the effect of the continuing tenancies on the open market value at the date of possession, when in Hunter’s case it was thought wrong that the owner-occupier should have the amount of the full compulsory purchase value (possibly agreed on the basis of vacant possession) reduced because of the presence of tenants at the date of the compulsory purchase order. I am, however, unable to persuade myself that, if the court in Hunter’s case had had occasion (as it did not) to direct its attention to the question of the initial assessment of the full compulsory purchase value under the provisions of paragraph 5(2) of Schedule 5, the court would have found any basis for holding that the tenancies existing at the date of the taking of possession should, or could, be ignored, in so far as they affected the open market value, which, by reason of the provisions of paragraph 5(2), is the criterion which has to be applied. I cannot find any justification in anything that was said in Hunter’s case, for looking to a different point of time (the date of the designation of the clearance area) for the purpose of one aspect of the valuation, namely, the presence or absence of tenancies: while, in all other respects, the calculation has to be made by reference to the factors existing at the date of the entry into possession. Moreover, if in the assessment of the full compulsory purchase value, it were right to ignore, in favour of the appellant, the fact that tenants were in occupation at the date of entry into possession by the respondents, would it be right to ignore also, again in favour of the appellant, the rents which he received from tenants over the period from February 1970 to February 1972?  Further, if the submissions of the appellant in the present case were right, then, on the hypothesis that this point had been arguable on the facts and had been argued in Hunter’s case, the court in that case would, despite its view of the policy of the Act which is said to be implied in the passages which I have quoted from the judgments, have been obliged to hold that the full compulsory purchase value fell to be computed with reference to the tenancies existing at the date of the council’s taking of possession. For the submission before us is that one ignores those tenancies existing at the date of possession if, but only if, there were no tenancies when the area was designated as a clearance area. Yet, in Hunter’s case, as is clear on the facts in the report, there were tenancies already before the area was declared to be a clearance area. The suggested policy of the Act would not have availed or benefited Mr Hunter. I do not think that the observations in Hunter’s case avail the appellant in the present case. If the appellant’s submission as to the effect of Schedule 5 were right, there would, indeed, be another curious anomaly. The owner-occupier of an unfit house would be entitled to draw rents from tenancies, after the designation of the clearance area up to the time when the housing authority took possession; and he could require that compensation under Schedule 5 should be calculated as though there were no tenancies, but vacant possession. But one who owned a house15 which was not unfit (and such a one could find himself subject to the same compulsory dispossession because his house was included with a clearance area) would not have that advantage; because Schedule 5 would not apply to him. Hence, if he allowed tenants to reside in the house after the designation of the clearance area, there would be no question of his compensation being assessed on the hypothesis of vacant possession. He, owning and occupying a house which was not unfit, would be treated worse in the matter of compensation than the owner-occupier of an unfit house. If there appeared to be some sound basis for the construction or effect of Schedule 5 for which the appellant contends, I should not regard the existence of that anomaly as being a powerful factor telling the other way. Yet it is, I think, not unhelpful as an indication that it is most unlikely that the intention or policy of the legislature would have been to enact provisions which would produce such a result. I would answer the question in the case stated in the negative. The decision of the member of the Lands Tribunal did not err in holding that it was not the interest which Ahmed Khan possessed during the qualifying period entitling him to an owner-occupier supplement which fell to be valued at the date of assessment on February 28 1972 but the value of the property encumbered by tenancies on that date. Agreeing, SHAW LJ said: In the course of his able argument Mr Thomas submitted on behalf of the appellant that the judgments in Hunter v Manchester City Council enunciated a policy or principle in the light of which the operation of Schedule 5 to the Housing Act 1969 fell to be considered. He contended further that the application of that principle to the present case produced the result that the appropriate date for defining the interest in the land which had to be valued was the date of the declaration of the clearance area. It appeared at the time that the proposition was an acceptable one. However, I have had the advantage of reading in draft the judgment which has just been delivered by my Lord and it is clear that Mr Thomas’s contention cannot survive the analysis contained in that judgment of the relevant statutory provisions and of what Hunter’s case really did decide. I, therefore, respectfully agree with it and accordingly I would answer in the negative the question posed by the case stated. DAME ELIZABETH LANE, whose judgment was read by Shaw LJ, also agreed. The appeal was dismissed with costs, the order for costs not to be enforced without leave of the court, and legal aid taxation ordered. Leave to appeal to the House of Lords was refused.