Crown Estate Commissioners v Connor and another

Rent Act 1977, section 70 — Fair rent — Appeal from decision of rent assessment committee — Questions as to scarcity and as to effect on fair rent of tenant’s entitlement to charge a premium on assignment of his leasehold interest — House within Crown Estate in Regent’s Park managed by Crown Estate Commissioners and premium lawful as a result of provisions in Housing Act 1980 — Term of 9 1/2 years from July 5 1980 at a rack rent — Rent officer determined rent of £9,750 per annum exclusive of rates — On appeal to rent assessment committee landlords sought a rent of £18,250 and tenant a rent of £7,200 — Committee fixed rent at £11,000 — Landlords appealed to High Court alleging errors of law by committee — It was complained that the committee were not justified in concluding that there was an element of scarcity affecting the premises, and that they had failed to allow an opportunity for the presentation of evidence and submissions on this subject — It was also complained that the committee had erred in their treatment of the tenant’s rights to require a premium on the assignment of his interest — The landlords’ argument on the premium point was that if (as had happened) the tenant had benefited by a deduction for scarcity, he should not also benefit by the disregard of his right to charge a premium on assignment — The argument (in effect equating the premium with key money) was that the tenant benefited twice from the finding of scarcity, once by attracting the application of section 70(2) of the 1977 Act and again by receiving a windfall which was itself due to the presence of scarcity — The committee’s decision under this head was (1) that in the circumstances postulated by section 70(2) the right to assign at a premium would have no effect on the level of fair rent to be determined by the committee; but (2) that in any case the payment of the premium was a ‘personal circumstance’, within the reasoning of Lord Reid in Mason v Skilling, to which regard should not be had — Held by McCowan J, after considering Lord Widgery CJ’s judgments in Palmer v Peabody Trust and Metropolitan Property Holdings v Finegold, that the committee were entitled to come to their conclusion as to the presence of scarcity and that there was nothing in the landlords’ complaint as to an alleged lack of opportunity to provide evidence on this matter — Held also, however, that the committee were in error in deciding that the right to charge a premium was a personal circumstance — The Housing Act 1980 had introduced a crucial difference in the position of lessees of Crown properties managed by the Crown Estate Commissioners, in exempting them from the prohibition of premiums until the end of 1990 — It was not unreasonable to assume that the intention of Parliament was that this right should be taken into account in fixing a fair rent — Committee’s decision quashed and case remitted to them for further consideration in the light of the judgment The following cases are referred to in this report. Mason v Skilling [1974] 1 WLR 1437; [1974] 3 All ER 977; (1973) 29 P&CR 88; [1974] EGD 230; 230 EG 1271, HL Metropolitan Property Holdings Ltd v Finegold [1975] 1 WLR 349; [1975] 1 All ER 389; (1974) 29 P&CR 161; 233 EG 843, [1975] 1 EGLR 75, DC Palmer v Peabody Trust [1975] QB 604; [1974] 3 WLR 575; [1974] 3 All ER 355; (1974) 28 P&CR 391; 232 EG 83, DC This was an appeal by the Crown Estate Commissioners from a decision of a rent assessment committee of the London Rent Assessment Panel determining a fair rent of premises at 11 Chester Place, London NW1, part of the Crown’s Regent’s Park Estate. The present tenant was Mr J G Connor. Jonathan Brock (instructed by Radcliffes) appeared on behalf of the appellants; the tenant was not represented and took no part in the proceedings; Duncan Ouseley (instructed by the Treasury Solicitor) appeared as amicus curiae. Giving judgment, MCCOWAN J said: In this matter, the applicants, the Crown Estate Commissioners, seek an order that the decision of the London Rent Assessment Panel be quashed and the question of the rent payable pursuant to section 70 of the Rent Act 1977 be remitted to another committee of the London Rent Assessment Panel for determination or alternatively be remitted to the panel for further consideration. The premises in question are 11 Chester Place, London NW1. The London Rent Assessment Panel, by a decision with reasons dated April 25 1985, determined a rent in relation to those premises of £11,000 per annum exclusive of rates by way of appeal from a decision of the rent officer for the appropriate registration area pursuant to section 12 of the Tribunals and Enquiries Act 1971 and section 10A of the Rent Assessment Committees (England and Wales) Regulations 1971, the rent officer’s figure having been one of £9,750 per annum exclusive of rates. The applicants are the lessors under a lease of premises to one Berrill for a term of 9 1/2 years from July 5 1980 at a rack-rent. The grounds relied on in the notice are these: first, it is said that in so determining the rent, the committee erred in law in disregarding for valuation purposes the potential premium chargeable by the tenant upon assignment of the leasehold interest in question as a personal circumstance within the meaning of section 70(1) of the Rent Act 1977. Further, it is said that the committee erred in finding in para 8 of their reasons that they were unconvinced that no scarcity of accommodation existed in relation to the subject premises and that ‘no evidence had been called in this respect’. The committee gave no indication at the hearing of the appeal, by questioning of the appellant’s surveyor or by any other means, of their views, as expressed in their reasons, as to the question of scarcity, and accordingly gave the appellant no opportunity of addressing evidence or submissions in relation to the question of scarcity. Further, it is said that the committee erred in law in para 11 of the reasons in assuming ‘no excess of demand over supply’ when section 70(2) of the Rent Act 1977 requires the committee for the purposes of the determination of fair rents to assume 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. By assuming no excess of demand over supply, the committee misdirected itself and determined that the tenant’s leasehold interest had no premium value. Finally, it is said that the committee gave no indication at the hearing of the appeal of its view that the premium value of the tenant’s leasehold interest was nil, for the reasons given, or for any other reason, and accordingly gave the appellant’s surveyor no opportunity to give evidence in relation to comparable transactions to rebut the committee’s assumptions and views. I should straight away read section 70(1) and (2) of the Rent Act 1977, since so much turns upon the wording of those subsections. Subsection (1) reads as follows: 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, regard shall be had to all the circumstances (other than personal circumstances) and in particular to — (a) the age, character, locality and state of repair of the dwelling-house, and (b) if any furniture is provided for use under the tenancy, the quantity, quality and condition of the furniture. Subsection (2) reads: 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. The background to the matter is as follows. The Crown Estate Commissioners are the landlords of a very substantial estate|page:98| comprising the whole of Regent’s Park and a number of terraces and other buildings surrounding it. Until 1980, the Rent Act 1977 and its statutory predecessors did not impinge upon the estate at all. However, by virtue of section 73(2) of the Housing Act 1980, which came into force on October 3 1980, the security of tenure provisions of the Rent Act 1977 were brought to bear in relation to the Crown Estate. In fact, 11 Chester Place is the subject of the first application by the commissioners to register a rent of a complete house on the estate and, accordingly, is of vital importance to setting the tone for comparable evidence as to the estate as a whole. It is for this reason that this registration is obviously of fundamental importance to the commissioners and, indeed, to all tenants on the estate. Although the security of tenure provisions of the Rent Act 1977 were brought into effect in relation to the estate, as I have said, by section 73 of the Housing Act 1980, the prohibition on premiums provided by Part IX of the Rent Act 1977 does not, by virtue of section 73 of and Schedule 8 to the Housing Act 1980, apply to lessees of the Crown Estate Commissioners before the end of the year 1990. Accordingly, tenants of the commissioners remain uniquely able to charge premiums on the equity of their leasehold interest upon assignment or subletting, with the result that any lessee of the commissioners on the Regent’s Park Estate who is not contractually debarred from alienation is entitled, as a matter of law, to charge a premium on assignment or subletting. The matter was heard before the committee on January 14 and 30 1985. They gave their reasons on April 25 1985. There appeared before them for the Crown Estate Commissioners, Mr D H Adamson, a Fellow of the Royal Institution of Chartered Surveyors, and for the tenant, who by then was a Mr Connor, a solicitor, Mr Marley. It was fairly, and as it appears to me appropriately, accepted by Mr Brock who appeared before me for the applicants, the Crown Estate Commissioners, that the committee went into the matter with very great care. The chairman took an excellent note and the reasons given are detailed and clearly set out. These commence on p 44 of the bundle put before the court. I shall read so much of them as appears necessary for my decision. I begin reading at para 4: Mr Adamson’s valuation of a fair rent of £18,250 per annum, besides consideration of the subject house’s superior location, the amount and quality of its accommodation, but allowing for the onerous repairing covenants in the lease, had two main bases: (a) By clause 3(17) of the lease the tenant could assign the Lease with the consent of the landlord, such consent not to be unreasonably withheld. Mr Adamson maintained that since by virtue of section 73 and Schedule 8, para 4(2), of the Housing Act 1980, a lessee of a Crown Estate Commissioners’ property was exempt from the prohibition of premiums on assignments of protected tenancies contained in Part IX of the Rent Act 1977, the tenant had not only the benefit of Rent Act legislation, but was permitted to obtain an open market premium for an assignable lease until the end of 1990; and that this was a substantial benefit which should be reflected in the rent. (b) Mr Adamson agreed with the rent officer that there was no immediate comparability pattern for the subject house. He was of the opinion that the value attached to the character of the property and the desirable location should be taken into consideration in assessing the fair rent as they did not form part of scarcity. As the demand for a Nash terraced house in Regent’s Park was not substantially greater than the supply, the conditions laid down in the Act of 1977 were met and there should be no deduction for scarcity. Thus, the best evidence available for arriving at a fair rental value was the open market letting of 4 Chester Place. This was a larger house than no 11 and had a higher rateable value. On October 19 1984, a lease for two years was granted at a rent of £24,000 per annum exclusive, the landlords being responsible for exterior repair and decoration and the tenant not being permitted to assign. After making adjustments for the less onerous tenant’s covenants of repair and decoration, the larger size and the fact that carpets, curtains and central heating were included, he considered that it supported an open market rent of £18,250 for the subject house, which in his view should also be the fair rent. I interpolate that a detailed comparison of the two properties is to be found on p 38 of the bundle. Paras 5 to 8 read as follows: 5 Mr Marley argued that in assessing the fair rent there should be disregarded the fact that a premium could legally be received on an assignment of the lease. He sought a rent of £7,200 per annum and advocated the use of comparables. He pointed out that in the Regent’s Park area, no houses had as yet been the subject of a fair rent registration; and he maintained that if there were no comparable properties in the immediate vicinity, a rent assessment committee could choose their comparable properties from whichever locality they thought constructive and helpful: Palmer v Peabody Trust [1975] QB 604. Regent’s Park must not be considered as a sealed area and the committee should look at registrations in Westminster and Camden and further, and should not disregard flats if they had high amenity value. To this end he supplied the committee with rent register entries concerning houses, maisonettes and flats over a wide area. 6 Mr Marley could not accept that there was no scarcity value attaching to the subject house. Scarcity existed which must be disregarded, and the locality referred to in section 70(2) of the Act of 1977 did not mean the immediate vicinity: ‘the sort of scarcity we are concerned with is broad, overall, general scarcity affecting a really substantial area’ (per Lord Widgery CJ in Metropolitan Property Holdings v Finegold [1975] 1 WLR 349 at 353). In Mr Marley’s opinion there was scarcity in the whole London area. 7 In answer to a question from the chair, both Mr Adamson and Mr Marley expressed the view that the right to assign at a premium was not a personal circumstance within the meaning of section 70 of the Rent Act 1977. 8 As regards the opposing arguments on the subject of scarcity value, the committee noted Mr Adamson’s argument that at the Chester Place level of quality housing, there was no scarcity; but in the absence of any statistical evidence they were unconvinced that no scarcity existed and no evidence had been called in this respect. In their view such elegant and prestigious houses would be sought after by a greater number of tenants than there were houses to let. Scarcity in any part of a market having a continuous range of values must reflect to some extent on the part of the market having the highest values. No 4 Chester Place was let for a term of only two years as against the nine and a half of the subject house, and it seemed probable that the rental level for such a short term would be greater, to cover expected voids and greater management costs, than for a term of nine and a half years. Allowing for this factor and adjusting for scarcity would suggest a fair rent in the region of £10,000 to £12,000 for no 11. Turning to paras 9 and 10, I need not read the whole of these. It will suffice if I read a part of each. In para 9 the following is said: The Committee accepted his view that is Mr Marley’s view that in the absence of suitable comparables in the vicinity, properties of quality over a wider area but still convenient to the West End and City should be considered. However, the properties to which their attention had been drawn were so different in size and type from the subject house, and mostly so inferior in locality as to be of no real assistance. In para 10 reference is made to the 1984 multiple decision on houses in Trevor Street and Trevor Square, Knightsbridge. The committee went on to say that it had ‘spent a long time inspecting all the houses the subjects of the decision from the street, and concluded that 11 Chester Place should have a higher rental level by virtue of its position in a Nash terrace in more gracious surroundings.’ I shall read the whole of paras 11 and 12 as follows: 11 Finally the committee considered the question of whether the fact that Mr Connor can, until the end of 1990, assign his lease at a premium affects the determination of the fair rent of the subject house. A premium paid as consideration for the grant of a lease is of the nature of commuted rent in consequence of which the annual rent is generally diminished by an amount approximating to the annual equivalent of the capital sum paid. A premium may also be paid on the assignment of a lease where the rent is less than the full market rent. The premium is a constituent part of the tenant’s total rental outgoings, that is to say of his ‘virtual’ or ‘sitting’ rent. Section 70(2) of the Rent Act 1977 requires the committee in effect to estimate the rent which would arise in the hypothetical circumstances postulated by the subsection. With frequent (two yearly) rent reviews in those circumstances (with no excess of demand over supply) the true value of a lease upon assignment would be nil and the premium to be expected therefore nil. It follows, therefore, that in the circumstances postulated by section 70(2), the right to assign at a premium would have no effect on the level of the hypothetical rent (which is the level of fair rent to be determined by the committee). However, in the context of fair rents, whilst a premium is part of the circumstances referred to in section 70 of the Rent Act 1977, the further question arises as to whether it is a ‘personal’ circumstance and thus to be disregarded in the determination of the fair rent. In Mason v Skilling [1974] 3 All ER 977, the House of Lords decided, inter alia, that a tenant’s right to remain in possession was a personal circumstance. This Scottish case appears to be the only judicial pronouncement on the point. In the present case, Mr Connor’s right to assign the remainder of his lease at a premium depends on section 73 and Schedule 8, paragraph 4(2), of the Housing Act 1980, coupled with the clause in his lease allowing assignment with the landlord’s consent. The circumstances are far more ‘personal’ than those considered in Mason v Skilling. Consequently, the committee concluded that the payment of the premium was a ‘personal circumstance’ and thus to be disregarded in the determination of fair rent in the present case. 12 Having regard to all the evidence placed before them, to their inspection, to their knowledge and experience and to the provisions of section 70 of the Rent Act 1977, the committee determined a rent of £11,000 per annum exclusive of rates. I turn to consider the grounds relied on by the applicant. To understand the first point which I consider, it is necessary to look at certain parts of Mr Adamson’s affidavit sworn in support of the application, beginning at the last sentence of para 6 at p 9 of the bundle. There he says the following: |page:99| I would have contended, had I been given the opportunity so to do, that there was no excess of demand over supply by reference to the marketing of no 4 Chester Place, my open market comparable. 7 That property was put on the market on or about February 8 1984 by us at an asking rent of £32,000 per annum for a two year lease. There were no takers. The asking rent was dropped to £26,000 per annum on June 12 1984 and we had two applicants at an agreed rent of £24,000 per annum. One applicant eventually dropped out because of the lack of garden and we were eventually left with one applicant who eventually took the premises on the terms set out in Schedule ‘DHA3’ to my proof. Accordingly, the market did not show an excess of demand over supply, indeed, rather the contrary. In my professional opinion, this is because these very valuable houses on very substantial rents make their own market and find their own levels. The level which I regard as comparable and which I put before the committee in the absence of any helpful evidence in the vicinity shows that the market rent freely negotiated without excess of demand over supply was £24,000 per annum. If the committee had given me the opportunity of giving this evidence in relation to scarcity, it is my respectful contention that the committee would not reasonably have been able to come to the conclusion that there was any scarcity on the Estate. Turning to para 8 of his affidavit, I need only in this context read one sentence. He says: I therefore contend that I should have been given an opportunity and should now be given an opportunity of rebutting the committee’s unsupported contention that there is scarcity as expressed in para 8 of their reasons. In the light of that contention, I look to the relevant parts of the notes of the evidence before the committee which begin on p 64 of the bundle. At p 65, Mr Adamson, when being questioned by Mr Marley, is recorded as saying: Paragraph 41.4 Chester Place let to Brazilian Ambassador on January 27 1983. Crown accepted surrender in November 1984, lease on offer, empty beforehand for about six months. Now let to Mr Am Apal, Englishman, for two years. At the top of p 66 Mr Adamson, when answering questions from a member of the committee, is recorded as saying: Re scarcity, scarcity element applies to whole London area but disappears in Regent’s Park because the locality situation bites into scarcity. If scarcity occurs in one sector, it flows to the sector above, ie distortion is reflected at the top. On p 67, answering questions put by Mr Adamson, Mr Marley is recorded as saying: ‘There is significant scarcity value in Regent’s Park, greater in Chester Place.’ Finally, on the same page, Mr Adamson appears to have said in reply, the following: 4 Chester Place was on the market at £30,000 for a two year let, no taker. Put on market at £24,000 per annum for two year lease and the right to a further two years. In November, we let it to an individual. From the notes of evidence which, as I have indicated, are not attacked by Mr Brock as inaccurate, it is plain that Mr Adamson did in fact give evidence about the difficulty in letting 4 Chester Place. It was up to him to provide any further detail about this to the committee which he thought would assist his case. There is, in my judgment, nothing in this complaint. It is further complained that the committee erred in finding, in para 8 of their reasonns, the following: As regards the opposing arguments on the subject of scarcity value, the committee noted Mr Adamson’s argument that at the Chester Place level of quality housing there was no scarcity; but in the absence of any statistical evidence, they were unconvinced that no scarcity existed and no evidence had been called in this respect. In their view such elegant and prestigious houses would be sought after by a greater number of tenants than there were houses to let. In my judgment, there was evidence before the committee upon which they were entitled to form those views, having moreover given every opportunity to Mr Adamson to address evidence and submissions to them on the question of scarcity. At first sight, the next sentence in para 8 is puzzling. It reads: ‘Scarcity in any part of a market having a continuous range of values must reflect to some extent on the part of the market having the highest values.’ I am satisfied that it is to be explained by looking at what Mr Adamson is recorded in the notes of evidence as agreeing in the sentence beginning six lines down on p 66 of the bundle. ‘If scarcity occurs in one sector, it flows to the sector above, ie distortion is reflected at the top.’ Mr Brock says that it is odd that he should admit this, having said what he had in the previous sentence, namely: ‘Re scarcity, scarcity element applies to whole London area but disappears in Regent’s Park because the locality situation bites into scarcity.’ However, Mr Brock is handicapped in that criticism, having accepted that the notes are excellent. What has plainly happened here, in my belief, is that Mr Adamson has made the point in the first sentence, but then, on further pressing from the committee member who was doing the questioning, he has made the concession in the second sentence. What he was there conceding, it seems to me, was that if it were right to look at an area wider than Regent’s Park, scarcity in that wider area would have a knock-on effect on Regent’s Park. That it was right for the committee to look at a wider area than Regent’s Park on the question of scarcity is plain, in my judgment, from the judgment of Lord Widgery CJ in Metropolitan Property Holdings v Finegold [1975] 1 WLR 349. In that case, the court was considering section 46(2) of the Rent Act 1968, which reads as follows: 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. At p 353, letter E, Lord Widgery said: Again emphasis is laid on the effect of the school in its immediate locality. For the reasons I have already given, I do not think that Parliament was concerned with this kind of local scarcity when section 46 of the Act of 1968 was passed. If one is looking for the unearned, unmeritorious increase in rent which might accrue to landlords if section 46(2) had never been passed, one must, I think, take a very much wider sweep than the sort of area to which the committee seems to have applied its mind in this case. Of course, if you look at half a dozen streets around the American school, you may well find a scarcity. As you go out to a greater radius round the school, then the effect of the school is less and less. But, as I emphasised, we are not looking at the effect of the school as such; we are looking for a scarcity in the locality which results from an excess of demand over supply. It seems to me, with all deference to the committee, that they have somewhat lost sight of the fact that the sort of scarcity we are concerned with is a broad, overall, general scarcity affecting a really substantial area, and they wrongly focused their attention on the extremely limited area which would not, I think, qualify as a ‘locality’ for the purposes of section 46(2) of the Act of 1968. What should be done? What can we add which may be of some assistance in the future? I think that committees will find their consideration of section 46 of the Act of 1968 somewhat easier if they start with the propositions clearly in mind that amenity advantages which can increase the fair rent under section 46(1) do not result in a set off under section 46(2) merely because the amenity advantages of a particular house or district attract more people than can live there. The test on scarcity is to be taken over the locality as a whole, and that, as I emphasised, is a broad area. What area? We have been referred to Palmer v Peabody Trust [1974] 3 WLR 575 where, dealing with the word ‘locality’ in section 46(1), I said, at p 581, that the exact extent of the locality was something which was primarily for the committee to fix. I would repeat that with regard to the fixing of the locality under section 46(2), but, at the risk of repetition, I do emphasise that when the committee fix their locality for the purpose of deciding whether there is an overall scarcity or not they must pick a really large area, an area that really gives them a fair appreciation of the trends of scarcity and their consequences. It may be, although I would not for a moment attempt to define the limits of the area precisely, that when operating section 46(2) committees will be well advised to draw their inspiration from the area with which they are familiar in their work. Of course different parts of the country require different considerations, but there will be many instances in practice where the most reliable area for the committee to choose on which they are likely to achieve the most accurate result is the area from which their work regularly and normally comes. The other members of the court agreed with him. I turn to consider the rest of the committee’s words in para 8. They read as follows: No 4 Chester Place was let for a term of only two years as against the nine and a half of the subject house, and it seemed probable that the rental level for such a short term would be greater, to cover expected voids and greater management costs, than for a term of nine and a half years. Allowing for this factor and adjusting for scarcity would suggest a fair rent in the region of £10,000 to £12,000 for no 11. What they have done is to take Mr Adamson’s comparable of 4 Chester Place and the fair rent figure of £18,250 which he put upon it, and have deducted from it a figure of about £7,000 or 38% in respect of two further factors; the void factor and the scarcity factor. In considering 4 Chester Place as a comparable, they were, in my judgment, right to ignore so much of the rent of no 4 as they judged to reflect scarcity. In so doing, they were not acting in contravention of section 70(2) of the Act. I am comforted in that view by the words of Lord Widgery CJ in the Finegold case at p 352 at letter C. They read as follows: |page:100| I think that before one begins to consider the difficulties, and before one begins to consider the section in detail, one must have clearly in mind what Parliament’s obvious intention was in including this provision in the Act. It seems to me that what Parliament is saying is this. If the house has inherent amenities and advantages, by all means let them be reflected in the rent under subsection (1); but if the market rent would be influenced simply by the fact that in the locality there is a shortage, and in the locality rents are being forced up beyond the market figure, then that element of market rent must not be included when the fair rent is being considered. Parliament, I am sure, is not seeking to deprive the landlord of a proper return on the inherent value and quality of his investment in the house, but Parliament is undoubtedly seeking to deprive a landlord of a wholly unmeritorious increase in rent which has come about simply because there is scarcity of houses in the district and thus an excess of demand over supply. For these reasons, I conclude that the committee were entitled to come to the conclusion that they did in para 8 of their reasons, subject to the question of a premium, about which a good deal more needs to be said. The criticism focuses next on para 11 of the reasons. It is succinctly expressed by Mr Adamson in his affidavit at para 6 on p 8 of the bundle. He says: The committee’s reasons are inconsistent in that at para 8 of their reasons they state that ‘in the absence of any statistical evidence they were unconvinced that no scarcity existed and no evidence had been called in this respect’ whereas at para 11 they described the premises as follows: ‘With frequent (two yearly) rent reviews in those circumstances (with no excess of demand over supply) the true value of a lease upon assignment would be nil and the premium to be expected therefore nil.’ However, Mr Ouseley, who appeared as the amicus curiae, submits that in para 11 the committee are no longer looking at the real world as they were doing, appropriately, in para 8. They are now, in para 11, he says, making the assumption that Parliament has required them to make by section 70(2) of the 1977 Act. It is necessary, however, for me to consider the further passage in para 11 where the committee say: In the context of fair rents, whilst a premium is part of the circumstances referred to in section 70 of the Rent Act 1977, the further question arises as to whether it is a ‘personal’ circumstance and thus to be disregarded in the determination of the fair rent. The committee go on to consider the case of Mason v Skilling [1974] 1 WLR 1437. The legislative provision there under scrutiny was section 42(1) of the Rent (Scotland) Act 1971, which reads as follows: In determining . . . what rent is or would be a fair rent under a regulated tenancy of a dwelling-house, regard shall be had, . . . 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. The House of Lords held that on the true construction of section 42(1) of the Act, the tenants’ right to possession was a personal circumstance to which regard should not be had, and that the capital value of the premises should be arrived at on the basis of vacant possession. In the speech of Lord Reid at p 1440, letter B, he said: It is notorious that in existing circumstances the price which a house will fetch in the market is much higher if the buyer can get possession immediately, than if there is a sitting tenant with a statutory right to remain in possession. Admittedly the committee had regard to the capital value with vacant possession but the respondent argues that the only relevant capital value is the price which the appellants could get for the house today: as the respondent is a sitting tenant that would be much lower than if the appellants could give vacant possession. Their argument was accepted by the Second Division. Lord Milligan said, 1973 SLT 139, 142: ‘Counsel for the tenant founded on section 42 of the Act, in which it was provided that regard should, subject to certain exceptions, be had to ‘all the circumstances.’ One of the ‘circumstances’ in the present case was that there was a sitting tenant. This was not one of the circumstances which were excluded from the consideration of the committee and it must accordingly be taken into consideration.’ It is quite true that the fact that there is a sitting tenant is a ‘circumstance’ but, in my opinion, it is excluded by the Act. Section 42(1) directs that regard shall be had to ‘all the circumstances (other than personal circumstances.)’ In my view the tenant’s right to remain in possession is a personal circumstance. A right to possess a house (or anything else) appears to me to pertain to the person who has the right, whether the right is statutory or contractual. The house itself remains the same whoever is entitled to possess it. Moreover, under the Act the tenant’s right to possess lasts so long, but only so long, as he complies with certain obligations. I am confirmed in this view by the fact that all the circumstances specified at the end of the subsection relate entirely to the house itself. If this were not so it would lead to strange results. Suppose two identical adjacent houses, one of which is vacant and the other occupied by a tenant with a regulated tenancy. If the respondent’s argument is right then the fair rents would be different. No reasons have been suggested why two such houses should have different fair rents. Moreover the Act appears to aim at uniformity, but if the respondent is right there would be no uniformity and it would be difficult to find comparable cases. Of two similar houses one might be occupied by a tenant in the prime of life who has a wife and family who could succeed him in the event of his death. Then the selling price of the house would be low; it would be improbable that the purchaser could obtain vacant possession for a very long time to come. But the other house might be occupied by an aged infirm tenant with no wife or family, or a tenant who was likely soon to leave. Then the selling price would be higher because the purchaser was likely to be able to get vacant possession quite soon. I find it impossible to believe that the statute contemplates different fair rents in these two cases. Section 41 entitles a landlord intending to let on a regulated tenancy to have a fair rent fixed. There, in so far as the committee relied on capital value, they would have to take selling price with vacant possession. Then when under section 40 the rent had to be reviewed there would be a sitting tenant. Is the fair rent, then to be diminished because the capital value is diminished by reason of the tenant’s statutory right to retain possession? And there is another difficulty if the respondent is right and the committee must take the capital value subject to the rights of the sitting tenant. How can that capital value be ascertained until one knows what rent the tenant is going to pay in future? It would be quite wrong to take the price which could have been obtained if there were no provision in the Act to alter the old rent. So you could not fix the capital value until you knew the fair rent and you could not fix the fair rent until you knew the capital value. All these difficulties reinforce my opinion that the respondent’s contention is wrong, and that the proper construction of section 42(1) is that the circumstance that a sitting tenant has a right to possess the house is a personal circumstance to which regard must not be had. In his speech at p 1444, letter G, Lord Kilbrandon said: In any event, however, I think that the criticism of the committee as having erred in law must fail in view of the words ‘other than personal circumstances.’ My noble and learned friend has already pointed out that the tenants’ irremovability is a personal circumstance, and that the actual amount of the difference between the value with vacant possession and without must often itself depend on the personal circumstances of tenants. I agree with these observations . . . Having considered that case, the committee say: In the present case, Mr Connor’s right to assign the remainder of his lease at a premium depends on section 73 and Schedule 8, para 4(2) of the Housing Act 1980, coupled with the clause in his lease allowing assignment with the landlord’s consent. These circumstances are far more ‘personal’ than those considered in Mason v Skilling. Consequently, the committee concluded that the payment of the premium was a ‘personal circumstance’ and thus to be disregarded in the determination of fair rent in the present case. Mr Brock argues that the present case is entirely different. He says that the right to a statutory tenancy is a status of irremovability which is entirely personal to the tenant himself, encompassing all his personal characteristics such as his age, his health, his wife, and his children, etc. That, he submits, is to be contrasted with the position in the present case where any lessee of the commissioners who is not debarred from alienation is entitled to charge a premium on assignment or subletting irrespective of his personal characteristics. I say immediately that I cannot agree with the committee that these circumstances are far more personal than those considered in Mason v Skilling. The only question to my mind is whether they can be considered to be personal at all. It is to be noted that before the committee, Mr Marley for the tenant agreed with Mr Adamson that the right to assign at a premium was not a personal circumstance within the meaning of section 70. Mr Ouseley has suggested a personal element. He says that the question of whether there is a premium potential depends on the wishes, plans and length of life of the tenant because the right to assign at a premium runs out at the end of 1990. But, as Mr Brock points out, that is no different in principle from any other wasting asset such as a long lease, say in Knightsbridge, running out at the end of 1990. I agree with him. In my judgment, the right to assign at a premium is not a personal circumstance. Would it have made any difference to the figure arrived at by the committee in para 12 of their reasons, namely £11,000, had they concluded, as I have held they should have done, that the right to assign at a premium was not a personal circumstance? Mr Ouseley suggests it might not have done since in para 8 they had already arrived at a figure in the region of £10,000 to £12,000 before they came to consider the question of whether a premium was a personal circumstance. None the less, the question remains of whether they should, in this case, have been taking account of premium potential|page:101| before they ever arrived at a fair rent in the region of £10,000 to £12,000. Mr Adamson’s contention, as put in his affidavit beginning at the bottom of p 8 of the bundle, is as follows: The tenant is being given the best of both worlds. The committee have assumed scarcity in para 8 and have made a very substantial deduction from the passing rent in my open market comparable transaction at Schedule ‘DHA3’ to my proof of approximately £7,000 or about 38 per cent, my comparable being the letting of 4 Chester Place on the open market. At the same time the committee appear to have taken the view that the properties on the estate could have no premium value as there would be no excess of demand over supply notionally. Again, he uses these words on this subject, to be found at p 10 of the bundle: . . . it seems to me that the committee cannot then give the tenant the advantage, having made a very substantial deduction for scarcity, of also collecting a substantial equity premium on assignment by virtue of the deduction for scarcity, thereby allowing the tenant to take advantage of the exemption from the prohibitions on premiums set up in Part IX of the Rent Act 1977. If there is no scarcity there will be no premium and there therefore need not be any deduction for scarcity. If there is scarcity then the tenant should not be entitled to take the benefit of the premiums and the rent should not be discounted. Mr Brock, for his part, put it attractively in these words: ‘If scarcity is discounted and, at the same time, the tenant can get a premium, the tenant is getting a windfall which the legislature cannot have intended.’ He submits that it would be strange if under the legislation a tenant could charge a premium and at the same time get the benefit of a discounted rent. He says that if the decision here is allowed to stand, the tenant will have got a rent from which a deduction, not specified but obviously substantial, has been made for scarcity. In addition, he would be entitled in law up to the end of 1990 to charge a premium. That such premiums are in fact charged, he says, can be ascertained from the Schedule DHA4 which was before the committee and which is to be found at p 39 of the bundle. He accepts that the rents being paid at the time the premiums were charged were very low; for example, in the case of Mr Connor at 11 Chester Place, he paid £40,000 in February 1982 to obtain a lease with a rent of only £1,020 per annum. But Mr Brock points out that all the rents there set out were subject to registration at the times the premiums were charged. To these arguments, Mr Ouseley has very properly drawn to the attention of the court a number of possible answers. First of all he says that if premium potential is to be taken into account, so must the premium paid. The £40,000 paid by Mr Connor has not, he points out, been taken into account by the committee. Mr Brock accepts that if the matter is remitted to the committee, it must consider both the actual and the potential premiums. This, it seems to me, must follow in the event of a remission. Next, Mr Ouseley says that the question of premium played no discernible part in the method by which Mr Adamson arrived at his figure of £18,250. In 4 Chester Place, there was neither a premium paid nor premium potential, for the very simple reason that the lease forbade assignment. Hence the rental figure for that property of £24,000 per annum was devoid of the effect of either an actual or a potential premium. When Mr Adamson made his adjustments down to £18,250 for no 11, again neither actual nor potential premium played a part. It follows therefore, says Mr Ouseley, that the lessor was not allowing premium potential to influence the figure which he suggested would represent a fair rent for no 11. In the same way, he submits, the committee rightly ignored the actual and potential premium in arriving at their figure of £11,000. However, in my judgment that argument will not do as an answer to Mr Brock’s points, because in arriving at their £11,000 figure the committee have made some unspecified — but it can reasonably be assumed — substantial deduction for scarcity which Mr Adamson did not do in arriving at his £18,250 figure. As Mr Adamson put it in his affidavit (and here I repeat some words of his already quoted): If there is no scarcity there will be no premium, and there therefore need not be any deduction for scarcity. If there is scarcity, then the tenant should not be entitled to take the benefit of the premiums and the rent should not be discounted. Next, Mr Ouseley points out the danger that two closely comparable properties, one owned by the Crown Estate Commissioners and one not, would attract different rents. This is akin, he submits, to the point made by Lord Reid at p 1440, letters G and H, in the case of Mason v Skilling. I appreciate that this might happen and that it might be in some respects unfortunate. But the truth is that the two properties would not be entirely comparable because of the crucial difference under the legislation that, unlike other lessees, a lessee of a property owned by the Crown Estate Commissioners is exempt from the prohibition on premiums. Next, Mr Ouseley drew to the attention of the court the following argument. He said that if one wishes to determine the rent taking account of premium potential, one must reach a judgment as to what the premium potential is. But to know that, one must know what the rent is. Thus, he says, the circle continues. He compares this to Lord Reid’s circularity argument at p 1441, letter B, of Mason v Skilling. I see the problem, but in my judgment if premium potential is something which the committee has to take into account, they will have to do their best in a commonsense way. This would be to arrive at their figure of, say, £11,000 per annum for the rent, having made an appropriate deduction for the void and scarcity factors, and then to take into account that by reason of this low rent, the lessee would have a benefit that he could sell and add on to the first figure, arriving at a figure which would properly reflect the premium potential at that first figure. These would, of course, be matters for argument and evidence. But, Mr Ouseley submits, in the final argument that he put before the court, it is a statutory requirement contained in section 70(2) of the Act that scarcity value be ignored. The applicant’s argument involves that scarcity would be brought back in by the side-wind of premium. If a premium potential arises from scarcity, the lessor would be getting an advantage from scarcity although the Act says scarcity must be ignored. In my judgment, however, if one considers the purpose of the relevant legislation, it is that the tenant in the normal situation should get a low rent but have no right to charge a premium. Here we have an abnormal situation created by the 1980 Act where the tenants do get such a right. On a purposive construction, it seems to me not at all unreasonable to assume that the intention of Parliament was that that right should be taken into account in fixing a fair rent. Is there anything in section 70(1) to contradict that construction? It says that: ‘Regard shall be had to all the circumstances (other than personal circumstances).’ I have held that the right to charge a premium is not a personal circumstance. I conclude that it is a circumstance properly to be taken into account in the determination of a fair rent. Because the committee took a different view, they did not take it into account. Accordingly, I rule that their decision must be quashed and remitted to them for further consideration in the light of my judgment. There was no order for costs.