Mann v Cornella

Rent Acts–Appeal from decision of county court judge–Tenancy granted on January 24 1974, ie before Rent Act 1974 came into operation on August 14 1974–Flat let at a rent which included payment for some furniture–Whether tenancy was now a restricted contract within section 19 of Rent Act 1977–Answer depended on whether the amount fairly attributable to the use of furniture in the letting of January 24 1974, having regard to the value of the use to the tenant, formed a substantial part of the whole rent–Evidence of tenant’s valuer accepted by county court judge–Depreciation over a period of 12 years with interest at 14 per cent–Resulting rental value of furniture about 9 per cent of whole rent–Not a ‘substantial part’–The tenancy was not therefore a pre-1974 Act furnished letting and was not now a restricted contract–Tenancy protected–Appeal from judge’s decision in favour of tenant dismissed–Woodward v Docherty discussed This was an appeal by the landlord, Anthony Gerald Mann, from a decision of Deputy Judge Battenbury at Westminster County Court in favour of the tenant, Luigi Cornella. The landlord had applied as plaintiff for a declaration that a tenancy agreement in respect of a flat at 2 Lupus Street, Westminster, London SW1, occupied by the tenant, constituted a restricted contract within the meaning of section 19 of the Rent Act 1977. Miss J M Livesey (instructed by Geoffrey B Gush & Co) appeared on behalf of the appellant; R St Barbe Methuen (instructed by Hextall, Erskine & Co) represented the respondent. Giving the first judgment at the invitation of Orr LJ, ORMROD LJ said: This is an appeal from a judgment of Deputy Judge Battenbury given on November 9 last year sitting at the Westminster County Court. He had before him in form an originating application by the landlord as plaintiff, Mr Anthony Gerald Mann, for a declaration that a tenancy agreement dated January 24 1974 in respect of the premises situated and known as the first-floor flat, 2 Lupus Street, Westminster, London SW1, is a restricted contract within the74 meaning of section 19 of the 1977 Rent Act. In substance the question that he was asked to decide and did decide was whether or not the letting was a furnished letting within the meaning of the Rent Act. So far as it is relevant the brief history of the matter is this. This particular flat was originally let by the landlord and his two brothers, who are joint owners of the property, to the tenant, Mr Cornella, in 1968 on a monthly tenancy originally for a rent of £45.50 a month. It was afterwards increased to £60.67 a month and it was a letting which included a substantial quantity of furniture. For some reason or other, on January 24 1974 the parties entered into a new tenancy agreement which was before the court and which is the relevant tenancy agreement for the purposes of this case. It provided briefly for the letting of a suite of rooms consisting of three rooms on the first floor of 2 Lupus Street with use of common parts; and, secondly, for the use of the fixtures, furniture and effects now in and upon the property and, ‘more particularly, specified in the inventory thereto signed by the parties.’  It was let for a term of one year from January 31 1974 at a rent of £75.84 per month clear of all deductions. Unfortunately, there was in fact no inventory signed by the parties pursuant to that agreement and so there was a certain amount of doubt as to what furniture had been included in that letting. By November 1979 the rent had risen to £101.50 a month. By a notice to quit dated February 7 1978 the landlord terminated the tenancy, subject to the Rent Act, by August 31 1978. There were then two applications to the rent tribunal to defer the operation of the notice to quit: on one occasion a deferment was granted, but on the second application it was adjourned pending a declaration that the contract was a restricted contract within the meaning of section 19 of the Rent Act 1977. The question for the learned judge was, in my judgment, whether the letting on January 24 1974 was a furnished letting within the definition of the Rent Act. I may as well now deal with one point in this appeal raised by Miss Livesey, who sought to argue that the court ought ‘to have regard,’ to use her own phrase, to the position under the original tenancy in 1968. I am unable to accept that submission. It seems to me that, whatever the position was in 1968, it is wholly irrelevant to the question the judge had to determine or that we in this court have to determine. The agreement which is the subject-matter of the litigation is the agreement of January 1974, and so the judge had to look at the situation at the time when that agreement was entered into to decide whether the value of the furniture in the property at the time could be said to represent a substantial part of the rent. He held that it did not represent a substantial part of the rent. Looking at the photographs and the inventory of furniture it is not difficult to have some considerable sympathy for the landlord, because my impression from the photographs and the list of furniture is that the premises were substantially furnished: that is, the main furniture required for living in that flat was provided by the landlord. There were tables and chairs and beds and cupboards, and I doubt whether anybody looking at it would form the impression that it was otherwise than a furnished letting. But, unfortunately, that is not the test because, under the 1968 Rent Act, which, I think, re-enacted an earlier section, it was provided as follows: 2(3): . . . a dwelling-house shall not be taken to be bona fide let at a rent which includes payments in respect of attendance or the use of furniture unless the amount of rent which is fairly attributable to attendance or use of furniture, having regard to the value of the attendance or the use to the tenant, forms a substantial part of the whole rent. What has happened in fact is that rents of any kind of privately rented property have risen owing to inflation and the shortage of accommodation, but such rise has not been followed by any equivalent rise in the value of second-hand furniture, which probably, if anything, has depreciated; so that, as the market rises so far as rents are concerned, it becomes progressively more and more difficult to show that the payments for the use of the furniture amount to a substantial part of the whole rent. In fact, when this court decided Woodward v Docherty [1974] 1 WLR 966 and decided in terms that the right approach was to look closely at the value of the furniture, it was apparent to most people that it was going to be exceedingly difficult to establish that any letting was a furnished letting within the meaning of section 2 of the Rent Act 1968 and the present one. Thus, the situation confronting Miss Livesey in this court is that she has to show, following Woodward v Docherty, that the value of this furniture and the payments made in respect of it represent a substantial part of the rent. The learned judge conducted a most careful and detailed investigation into this furniture. When one looks at it in the photographs it looks quite reasonable furniture, but it turns out that its monetary value, as one might perhaps expect, is not at all high. The learned judge, first of all, had to determine what furniture there was on the premises in January 1974 when the agreement was made. For this purpose the only evidence he had before him was an inventory which had been prepared by Miss Barnes, a secretary of the landlord, originally for the 1968 letting. She had, some time in 1975, gone over the flat and checked the inventory to see what was there then in 1975 and, by making ticks and crosses against each item in her original inventory–the ticks and crosses in question being on the right-hand side of the page–she provided the judge with a list of the articles on the premises at the relevant time. There then had to be a valuation of this furniture and the evidence as to values was clearly more than a little confused. The learned judge in fact determined which of the items in the inventory were present and which were not in 1974 as best he could. He had evidence on behalf of the landlord from a Mr Dalrymple, who was a qualified valuer working as the manager of Harrods Valuation Department. He had originally prepared a valuation for the purposes of insurance in September 1979, which of course is much later than the relevant date. The figure in 1979 pounds was £1,412. That obviously was very much too high for the figure for this furniture in 1974, but he ultimately adapted his figures and produced a valuation of £403, which he said was the nearest he could get to auction prices. He said that, if one were to try to find the corresponding cost of buying this furniture in second-hand shops, he thought that it would probably be marked up by 100 per cent, making £806 altogether. The tenant called a Mr Ray, who was not a qualified valuer, but who was the sole principal of a firm of auctioneers operating in the Pimlico area. He put an entirely different value on it and he thought the value, allowing for the markup, was £371. His auction value was £310 and he increased it by 20 per cent, I think, but at any rate arrived at the figure of £371 as the value of this furniture. The learned judge accepted Mr Ray’s evidence; and, in spite of Miss Livesey’s criticism that these were the sort of prices Mr Ray said Pimlico landladies, if any still exist, would have paid for this furniture–and Miss Livesey suggested that was a false basis of valuation–which it seems to me impossible for this court to give effect to, the learned judge accepted the figure of £371. Then he had to decide the question of depreciation and there was evidence that wood furniture would last 20 years, possibly longer, and other evidence was given about the mattresses and carpets and so on. The judge decided to take a mean figure for the life of these various sorts of furniture and he took it at 12 years; so, converting the value of £371 into an annual value, he came to the figure of £31. Then he took a figure for the interest on the capital investment in this furniture. He was prepared to take a figure of 14 per cent–which Mr Methuen says may well be high, having regard to interest rates in 1974–and the interest figure worked out at £52; so his calculations showed that the value of the furniture to the tenant was £83 a year, which gave a percentage of the rent of 9.12 per cent. He took the rent at £910 and he held, trying to carry out the exercise as indicated in Woodward v Docherty, that a percentage of 9 per cent was not a substantial proportion of the total rent and that, therefore, the property was not a furnished letting within the meaning of the Rent Act. It seems to me, with respect to Miss Livesey’s argument, that it is almost impossible for her to challenge the findings of the judge, who heard the witnesses, heard the valuers and who made a clear choice between them and came down in favour of the tenant’s valuer and, therefore, the tenant’s valuation. It is not seriously contested in this court that 9 per cent is enough to amount to a substantial proportion of the rent. In fact, the figure in Woodward v Docherty, which this court operated on, works out, if my arithmetic is right, at about 8 per cent, which this court held was not a substantial proportion of the rent. In my judgment, it is not possible for this court to interfere with this finding, and I repeat what I said at the outset: the way in which the market has moved has made it virtually impossible to establish that any property falls now within the definition of a furnished letting. In fact, soon after Woodward v Docherty was decided, Parliament abolished the protection given to furnished lettings and brought them within the protection of the Rent Acts to a very large extent. I think I need add only one thing to explain the nature of the proceedings. It was the landlord’s intention in this case to seek possession of this flat, relying upon section 12 of the Rent Act 1977, which means that he has to show various things, the relevant ones being: (a)  The dwelling-house forms part only of a building and that building is not a purpose-built block of flats; and (b) the tenancy was granted by a person who, at the time that he granted it, occupied as his residence another dwelling-house which also forms part of that building. He also has to show, if he is to take advantage of section 12, that at the time when the tenancy was granted to the tenant he was not a protected tenant. In order to satisfy that condition the landlord has to show in this case that the letting was a furnished letting. Having failed to do that he does not qualify and cannot qualify to take advantage of section 12, and that is really all there is to it. I find it quite impossible to say on the material before us, giving full weight to Miss Livesey’s argument, that there would be any possible justification for this court interfering with the learned judge’s conclusion. I would dismiss the appeal. THE VICE-CHANCELLOR and ORR LJ agreed. The appeal was dismissed with costs.