Aristocrat Property Investments v Harounoff

Rent Act 1977 — Appeal from possession order made by county court judge — History of rent arrears — Absolute possession order made on ground of arrears — Statutory tenant — Rent not registered under Act of 1977 — Landlords’ claim for increased rent (apart from an increase conceded to be impermissible) related to increases in rates alleged to be due from the tenant under a provision in the tenancy agreement — No notices of increase on account of rates served by landlords in accordance with section 46(2) of the Act of 1977 — Letters demanding increases had, however, been sent by landlords to tenant, with which the tenant had in part complied — Possession order challenged on the ground that it was based on arrears not recoverable as proper notices had not been served — Landlords’ submission that tenant by making some payments in response to the letters had waived any defect or was estopped from claiming that the letters were invalid as notices of increase — Held that by section 46(2) increases could not take effect except in pursuance of a statutory notice of increase in the proper form, that the tenant could not waive the defects and that, consequently, the possession order was founded on an error — Tenant’s appeal allowed This was an appeal by the tenant, R Harounoff, from a possession order made in favour of the landlords, Aristocrat Property Investments by Judge Hammerton QC at Bloomsbury and Marylebone County Court. The premises in question consisted of a flat, Flat D at 404-406 Edgware Road, London W2, of which the tenant was a statutory tenant. No rent for the flat had been registered under Part IV of the Rent Act 1977. Jonathan Ferris (instructed by Carlson & Co) appeared on behalf of the appellant; P H Morgan (instructed by Sylvester, Amiel & Co) represented the respondents. Giving the first judgment at the invitation of Ormrod LJ, OLIVER LJ said: This is an appeal from an order of His Honour Judge Hammerton QC, made in the Bloomsbury and Marylebone County Court on October 9 1981, by which he ordered that the plaintiff landlords recover from the defendant, who is the present appellant, possession of premises consisting of a flat in the Edgware Road known as Flat D, 404-406 Edgware Road, London W2, and also that the defendant should pay to the plaintiffs arrears of rent and rates amounting to £300. It is common ground that that figure is wrong and that the true amount of the arrears, on the footing that the learned judge’s judgment stands, is some £203. The facts can be shortly summarised. The defendant was at all material times the tenant of the flat concerned, and the rateable value of that flat is such that it falls within the protection of the Rent Act 1977. His tenancy came to an end by the effluxion of time. He was at the time when the arrears claimed arose a statutory tenant. The rent in respect of the premises is payable monthly in advance and it is not in dispute that if the full amount of the rent claimed by the landlords is recoverable, which is the issue between the parties, there have been arrears for some considerable time. A possession order was made on July 1 1975 in respect of arrears of £691, which was suspended on payment of current rent and instalments in respect of arrears. Subsequent possession warrants were again suspended on terms and the defendant was warned that there would be no further extension if he defaulted. He did default in making the required payments and, on September 21 1981, the plaintiffs again applied for possession, and that is how the matter came before His Honour Judge Hammerton. The history of arrears was such that the learned judge took the view that an absolute possession order should be made and there is no appeal against the exercise of his discretion in that regard if, in fact, which the defendant disputes, there were any arrears of rent. That is really the bone of contention. The defendant’s possession of the flat relates back originally to a tenancy agreement, which is, at first sight, not altogether an easy document to construe, though its meaning is, I think, tolerably clear. That was granted on October 17 1973. It was made directly between the plaintiffs and the defendant. It was for a term of 13 months from September 1 1973 and it was at a rent of £1,200 per annum clear of all deductions, which was payable in advance by equal instalments on the first day of the commencement of the term and there was a provision that the tenant will pay by way of further or additional rent a sum equal to any increase in general rates and water rates over and above the present general and water rates payable in respect of the property. There were some common form printed provisions attached to the agreement and clause 4 of those terms provides as follows: 4. The Landlord agrees with the Tenant as follows: (1)  To pay and keep the Tenant indemnified against payment of all rates taxes water rate assessments impositions and outgoings payable in respect of the Property during the tenancy. . . . In that common form the word ‘rates’ has been struck out, but I think it is clear from the term which relates to the payment by the tenant of the increased rates, that this was a tenancy agreement which was to an extent inclusive of rates; that is to say that the rates, as they stood at the time of the tenancy agreement, were payable by the landlord. I should mention that at the material date in 1973 the total general rates and water rates of the premises amounted to just under £124; the total general rates were £118 and the water rates were £5.93. It is common ground that the correct construction of this lease is that the rent originally reserved, that is £1,200, was inclusive of this sum of £123.93. What happened was that the landlords, after the expiry of the original term, demanded (and it is conceded wrongly demanded) the full general and water rates, so that to the extent of £123.93 per annum it is agreed that there was an over-demand and that the contest between the parties, both before the learned judge and in this court, is entirely as to the exigibility of that portion of the general and water rates which exceeds this sum, and the amount of arrears, as found by the judge, represents the arrears after giving credit for the agreed over-demand. 84 On June 24 1977 the landlords made a demand for an increase in rates. They wrote to the tenant as follows: Dear Mr Harounoff, As anticipated we have now received the Rate Demand for Flat D . . . in the sum of £226.98. Your portion for the half-year until October next is £54.19. Would you please let us have this sum as quickly as possible so that we can settle this account which, as you know, is rather late. That demand was in fact complied with by the tenant, and it will be noticed that at that stage all that was being demanded was the appropriate proportion of the excess of the new rate of £226.98 over the sum of £124 odd to which I have referred. On November 17 1977 the landlords made a further demand, which was in these terms: We would remind you that rent for the month of November is due. We would appreciate payment at your earliest convenience. We are also writing to advise you that as from the 25th December quarter, your rent will be increased to come into line with the other flats in that you will be required to pay £1,300 per annum exclusive of rates and insurance. I also wish to discuss certain matters regarding your tenancy and to arrange an inspection of the flat. From there on the rent was treated as being in that figure. The next step occurred on March 30 1981, when the landlords wrote again: re: Flat D 404/406 Edgware Road, W2 As recommended by the Rent Officer, we write to advise you that as from 25th March 1981 the rent for the above premises is increased to £1,400 p.a. exclusive. Your monthly payments will, therefore, be increased to £116.66. Whilst writing we have to advise you that the General rate demand for Flat D has now been received by this company and we would ask you to please let us have your remittance for £184.87, being the rate for the half year until 1st October 1981. We are also awaiting receipt of your insurance . . . . The matter was argued before the learned judge on the footing that there had been a number of defaults which had resulted in substantial arrears of rent, and the substantial arrears of rent which were being claimed at that stage were arrears of rent which arose from the demands to which I have referred; the arrears including part of the general rate which had not been paid and which the landlords had sought to throw entirely upon the tenant and the increased rent from the £1,200 originally payable under the tenancy agreement to the £1,400 now sought. It is not contested — and was not contested before the learned judge — that the increase to £1,400 from £1,200 was a wholly impermissible increase. The learned judge also found that the attempt to throw the whole of the rate on to the tenant was also impermissible because, as regards the increased rent, it was not recoverable under the provisions of section 45 of the Rent Act, to which I shall refer in a moment; and as regards the burden of rates, the change of the tenancy agreement by the inclusion of the whole of the rates was equally ineffective under that section. As regards the increased rates over and above the original sum included in the rent, no proper notice of increase pursuant to the Act had been given, but the learned judge held that the defect in the demands had been waived and that, accordingly, those rates were recoverable, they were in arrears, and it was on that footing that he ordered the defendant to give up possession. The learned judge’s decision in this regard has been challenged in this court by Mr Ferris, and I now refer to the provisions of the Rent Act 1977. The first provision to which reference should be made is section 45, which provides as follows: 45(1) Except as otherwise provided by this Part of this Act, where the rent payable for any statutory period of a regulated tenancy of a dwelling-house would exceed the rent recoverable for the last contractual period thereof, the amount of the excess shall, notwithstanding anything in any agreement, be irrecoverable from the tenant. That effectively precludes the recovery of the additional rent which was demanded by the letter of March 31 1981 and also for the element of rates which were included in the original rent. Section 45(4) provides as follows: 45(4) Where no rent for the dwelling-house is registered under Part IV of this Act, sections 46 to 48 of this Act shall have effect with respect to the rent recoverable for any statutory period under a regulated tenancy of the dwelling-house. This is a dwelling-house where no rent has been registered, so section 46 applies. Section 46(1) is in these terms: 46(1)  Where — (a)    section 45(4) of this Act applies, and (b)    any rates in respect of the dwelling-house are, or were during the last contractual period, borne by the landlord or a superior landlord, then, for any statutory period for which the amount of the rates (ascertained in accordance with Schedule 5 to this Act) differs from the amount, so ascertained, of the rates for the last contractual period, the recoverable rent shall be increased or decreased by the amount of the difference. To summarise that provision, where a tenancy exists under which the landlord is paying the rates, or a portion of the rates, and those rates increase, then the recoverable rate is increased by the amount of the increase in rates, but it is subject to an important qualification contained in subsection (2): 46(2) Where the amount of the recoverable rent is increased by virtue of this section, the increase shall not take effect except in pursuance of a notice of increase served by the landlord on the tenant and specifying the increase and the date from which it is to take effect. On the face of it, it might be thought that any notice which indicates that there is going to be an increase and states the date from which it is going to take effect would be adequate, but that is not so, because this matter of notices of increase is dealt with in section 49, which provides as follows: 49(1) Any reference in this section to a notice of increase is a reference to a notice of increase under section 45(2), 46(2) or 48(3) of this Act. Subsection (2) provides in terms: (2)  A notice of increase must be in the prescribed form. Subsection (4) provides: (4)  Where a notice of increase is served during a contractual period and the protected tenancy could, by a notice to quit served by the landlord at the same time, be brought to an end before the date specified in the notice of increase, the notice of increase shall operate to convert the protected tenancy into a statutory tenancy as from that date. I read that subsection because it may have some relevance in connection with two authorities to which we have been referred by Mr Morgan. Finally, section 60 specifies the form of notice. It provides that ‘The Secretary of State may make regulations (a) prescribing the form of any notice . . .’. We have not been referred to the actual form but we understand it is almost precisely the same as the form which was applicable under the previous Acts, that is, the form which was prescribed by the Rent Regulation (Forms Etc) (Consolidation) Regulations 1973, which have now been replaced by a later statutory instrument which is now statutory instrument 495 of 1978. Regulation 3 of the 1973 Regulations, provides that ‘the forms contained in Schedule 1 . . . , or forms substantially to the same effect, shall be the forms to be used for the purposes of notices of increase of rent under Part III of the Act in cases to which those forms are applicable.’ The form is addressed to the tenant. It is headed ‘Rent Act’ and provides: 1. The rates on the above-mentioned premises have been increased as follows: There are then set out the previous rates, the new rates and the date of the new rates. Paragraph (2) reads: I hereby give you notice that your rent will be increased accordingly as follows: Present rent per . . . Increase in rent per . . . New rent per . . . Date of new rent. 3. There will be due from you on the day after the service of this notice the sum of £ . . ., being arrears of the above increase. That has to be signed by the landlord or his authorised agent. 85 It cannot be contended, nor has Mr Morgan so claimed, that the letters to which I have referred, which are the only possible documents which could be described as notices of increased rent, either comply with those regulations or, indeed, are in substantially the same form, so we are presented here with a case in which no valid notices of increase have been given, authorising the increase in rates which have been demanded and which make up the amount of the arrears. If, indeed, those increased rates are not, on the true construction of the Act and in the events which have happened, recoverable from the tenant, then there were no recoverable arrears when the matter came before the learned judge, and if there were no arrears, then quite evidently an order for possession ought not to have been made. That is Mr Ferris’ case. He simply refers to the statutory provisions and he has drawn our attention to a case of Fredco Estates Ltd v Bryant [1961] 1 WLR 1976, but I do not think that helps us in the present context, because quite clearly here the notices of increase were not, as they were held there to be, substantially to the same effect as the statutory form. Mr Ferris presented his case, as he is entitled, entirely on the words of the statute, which seem, on the face of them, to be tolerably clear. What then, is the ground for saying that the increased rates which were demanded by the letters to which I have referred, were in fact recoverable from the tenant? Mr Morgan, for the respondents, has put before us the argument which was addressed to the learned judge and which found favour with him, that the tenant, by agreeing to pay the additional rates, because the letters, to which I have referred, were not quarrelled with and certain payments were made pursuant to those letters (albeit they fell into arrears) has effectively waived any defect; alternatively, he is estopped from raising the invalidity of the letters as proper notices of increase. The two issues are therefore, first, in relation to the rent recoverable under a tenancy of this sort, can there be a waiver which effectively enables the landlord to claim as part of a positive case that he is entitled to recover the rent, and, secondly, was there, on the facts of this case, such a waiver? The way in which Mr Morgan has expressed his argument is this. First of all he accepts that, under section 45, no increase in rent as such, even if it is agreed, can be recovered because section 45 says that ‘except as otherwise provided by this Part of this Act . . . the amount of the excess shall, notwithstanding anything in any agreement, be irrecoverable from the tenant’. But, he says, when one comes to section 46 we find there is no reference there to the question of agreement. He draws our attention to section 51 of the Act, which deals with increases of rent under a protected tenancy which is a regulated tenancy. Section 51(1) provides as follows: 51(1) In this Part of this Act a ‘rent agreement with a tenant having security of tenure’ means — (a)    an agreement increasing the rent payable under a protected tenancy which is a regulated tenancy, or (b)    the grant to the tenant under a regulated tenancy, or to any person who might succeed him as a statutory tenant, of another regulated tenancy of the dwelling-house at a rent exceeding the rent under the previous tenancy. Subsection (2) deals with the question of rates: (2)  Where any rates in respect of the dwelling-house are borne by the landlord or a superior landlord, any increase of rent shall be disregarded for the purposes of the definition in subsection (1) above if the increase is no more than one corresponding to an increase in the rates borne by the landlord or a superior landlord in respect of the dwelling-house. Those subsections show that in the case of a protected and regulated tenancy, an informal agreement for an increase of rent representing no more than the rate increase, is permissible. Mr Morgan argues that it would be logical to apply this equally to a statutory tenancy, but, on the face of it, there is a contra-indication in section 46. But the way Mr Morgan puts it is that the contra-provision in section 46(2) is merely a procedural provision which is inserted for the protection of the tenant and, since it is something inserted for the tenant’s protection, the tenant is entitled to waive it if he does not want to be protected. He relies primarily upon two authorities, both of which were cited to the learned judge, in which there is an indication that in the case of a notice of increase (admittedly not under this Act but under previous Acts) a defect can be waived. The first case to which we were referred is Edwards v Edwards, reported in [1952] EGD 328, a decision of this court. In that case a notice of increase had been given. It was in fact an invalid notice, for reasons which do not matter for the present purposes; there was a defect in relation to the amount of rent. The question was not whether the increased rent was recoverable but whether the notice had had the effect of converting the contractual tenancy into a statutory tenancy in as much as it, if varied, would have operated as a notice to quit. What had happened was that the notice had been accepted and acted upon, and the court there held that the notice, which was in the statutory form but had other defects, was effective because the defects had been waived. The increased rent had been paid. There was no question there of the landlord having to rely upon the notice for the purpose of recovering the rent. The case is somewhat ill-reported. It is merely summarised, but, at p 329 Sir Raymond Evershed MR (as he then was) is reported (in oratio obliqua) as saying: No doubt the notice must be in accordance with the requirements of the Act, but it was not vitiated altogether. Common sense must be allowed to apply and he could not regard the document as failing altogether in having the effect contended for. That is not a satisfactory authority because it is so briefly reported, but there was an earlier case upon which Mr Morgan relies, the case of Re Swanson’s Agreement, Hill v Swanson [1946] 2 All ER 628, which again was a decision of Evershed J (as he then was) in the Chancery Division. Again, the question in that case was whether a notice of increase which had been given had the effect of converting the contractual tenancy into a statutory tenancy so as to prevent the tenant from assigning the tenancy as he had sought to do. That was a case in which there had been correspondence between the landlord and the tenant in which the landlord had given notice in these terms: Please take notice that the rent of the above premises will as from April 1 next be £115 per annum exclusive, which is the standard rent. The tenant replied, pointing out that the date was the wrong date and that the tenancy terminated on May 31 1944, on receipt of which the landlord had replied: Dear Madam, I have your letter of February 28. I regret my error. Please regard my letter of 22nd as an intimation of an increase in rent as from June 1st next. The increased rent was paid and some two years later the tenant sought to assign, and the question which the learned judge had to decide, among other questions (the first question was whether the consent to assignment had been unreasonably withheld), was whether the notice of increase, which had been accepted and acted upon, had the effect of terminating the contractual tenancy. He concluded that it did have the effect of creating a statutory tenancy because (I take the decision from the headnote): Although the landlord’s letter of March 7 was not a valid notice, it not having been given three months before May 31, the tenant was estopped from asserting its invalidity by her failure to dispute its validity at the time, and by the subsequent payment of the increased rent. The letter of March 7 operated as a notice to put an end to the contractual tenancy of May 31 so that after that date the tenant was a statutory tenant . . . . These are cases, says Mr Morgan, which establish that an invalid notice can operate by way of estoppel, and he also referred us to the speech of Lord Diplock in the case of Kammins Ballrooms Ltd v Zenith Investments, Torquay Ltd [1971] AC 850 and also to the speech of Lord Pearson in that case, as indicating that a procedural provision which is inserted for the benefit of a party can be waived by the party for whose benefit it is introduced. Mr Morgan has also referred us to a further decision of this court in waiver, in the case of Bristol Cars Ltd v RKH (Hotels) Ltd (1979) 251 EG 1279, [1979] 2 EGLR 56. That, as in Kammins case, was a case where there had been a defect in relation to the tenant’s proceedings under the Landlord and Tenant Act 1954. I do not find those cases helpful in the present context because it seems to me that one is driven here to the words of the statute. While86 it may be that, in the absence of some statutory prohibition, it is possible to treat an invalid notice of increase which is acted upon as terminating a contractual tenancy and creating in its place a statutory tenancy, since it is inconsistent with the continuation of the original contract, where one is dealing with the question of the recovery of rent, and where the landlord has to establish that, as a matter of the provisions of the statute, the rent which he claims is recoverable, there is no room for the consensual variation of the statutory terms which is implicit in the submissions which Mr Morgan is making. What Mr Morgan has to say is that, if one can estop oneself from disputing the validity of a notice of increase, one must equally be able to agree on the validity of a defective notice of increase. But, to my mind, the statute makes it abundantly clear that that is not the case. I go back again to the section: Where the amount of the recoverable rent is increased by virtue of this section, the increase shall not take effect except in pursuance of a notice of increase served by the landlord on the tenant and specifying the increase and the date from which it is to take effect. And section 49: A notice of increase must be in the prescribed form. Those are conditions precedent to the operation of the increase of the recoverable rent. The increase shall not take effect unless those conditions are satisfied. It is not open to the tenant to waive that and, by agreement, render himself liable to that which the statute says shall not be recoverable. I quite accept that it may well be the case that if the landlord is sued by the tenant for the recovery of sums which the tenant has overpaid, there may well be cases where the tenant’s conduct is such that the court might say that he is estopped from demanding back that which he has paid. Whether that is so or not is a matter which will require to be determined when the question arises. But here, in order to succeed, the landlord has not only to ignore the substantive terms of the statute but he has, in fact, to make an estoppel (because this, as it seems to me, is an estoppel or nothing) the foundation of the positive case for the recovery of rent which he seeks to make. In my judgment, having regard to the history of this case, I think that the learned judge came to the wrong conclusion and that, in holding that there were arrears of rent which, on the figures which we have been given, consisted entirely of what were irrecoverable increases of rents, he was in error. For that reason I would allow this appeal. WOOD J: I agree. ORMROD LJ: I agree and do not wish to add anything. The appeal was allowed with costs.