BTE Ltd v Merseyside and Cheshire Rent Assessment Committee and another

Landlord and tenant — Rent Act 1977 — Assessment of fair rent by rent assessment committee — Whether committee failed to take into account evidence of comparable lettings in arriving at fair rent The appellant, BTE Ltd, is the owner of 11 Cronton Road, Liverpool, a three-bedroomed terraced house with an upstairs bath and lavatory, no wash-basin, two living-rooms and a kitchen let under a regulated tenancy to the second respondent, Mrs K Jones — On appeal from the determination of the rent officer, who had fixed a rent of £13 per week, the respondent rent assessment committee determined the fair rent at £16.50 per week — The appellant contended for a rent of £30 a week putting in evidence lettings of properties supporting the rent contended for — The appellant appealed the decision of the committee pursuant to the Tribunals and Inquiries Act 1971 contending that the committee having first found there was not any scarcity of comparable properties for letting purposes and that such properties were being let at the market rent, it was wrong for the committee then to find that those lettings did not afford a guidance because they were not at a reasonable rent — The appellant further said the committee’s reasons for disregarding open market lettings and their decision that regard should be had to evidence of rents of property occupied by tenants with statutory tenancies, were wrong Held: The appeal was allowed — In a climate where there was no scarcity of comparable rented accommodation, the issue for a rent assessment committee is to determine the fair market rent — Having found a fair market rent it was not for the committee to decide that fair market rents do not represent reasonable rents — The committee were wrong in the light of section 70 of the 1977 Act to test the market by using properties occupied by tenants with statutory tenancies and not lettings with the benefit of vacant possession — Having accepted the evidence on behalf of the appellant of lettings in the open market, the committee should have taken account of those when arriving at the fair rent — It was not for the committee to arrive at a fair rent simply by applying their own notions of what was reasonable 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 This was an appeal pursuant to the Tribunals and Inquiries Act 1971 by the appellant, BTE Ltd, against a decision of the first respondent, the Merseyside and Cheshire Rent Assessment Committee determining a fair rent of 11 Cronton Road, Liverpool, let under a regulated tenancy to the second respondent, Mrs K Jones. Christopher Nugee (instructed by Gregson & Ashton, of Liverpool) appeared on behalf of the appellant; the first and second respondents did not appear and were not represented. Giving judgment, HUTCHISON J said: This appeal is brought pursuant to the provisions of the Tribunals and Inquiries Act 1971, which permits an appeal on a point of law from an assessment of a fair rent by a rent assessment committee acting within the scope of Part IV of the Rent Act 1977. It relates to property in Liverpool at 11 Cronton Road. In my judgment, it is possible to deal with the appeal quite shortly. I should say, by way of introduction, that Mr Nugee has appeared and has succinctly and attractively presented the case on behalf of the appellant, but neither the tenant nor the rent assessment committee have appeared on this appeal. It is, I am told, quite usual to find that no respondent appears. The position is this. Under the scheme embodied in that Part of the Act, it is possible to obtain registration of a fair rent on application to the rent officer and, if dissatisfaction is felt with his determination, there is provision for a reference to the rent assessment committee, who hear evidence and determine what should be the fair rent. In this case, the landlord was contending for a rent in the order of £30 a week. The rent officer had fixed a rent of some £13. Looking ahead to the conclusion at which the rent assessment committee arrived, they determined the fair rent at a slightly higher figure, £16.50 a week. It is unnecessary, because nothing turns on it, for me to refer to the statutory provisions which give rise to the right to have a fair rent registered and the right of review to which I have just referred. I go straight to the relevant provisions of the 1977 Act, so far as this case is concerned. They are to be found in section 70 of the Act (as amended) which, as material, provides as follows: (1)  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, and (c)    any premium, or sum in the nature of a premium, which has been or may be lawfully required or received on the grant, renewal, continuance or assignment of the tenancy. Subsection (2), which is the crucial provision so far as this case is concerned, provides: 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 effect of those two subsections is most conveniently summarised in a passage in the judgment of Lord Widgery CJ in Metropolitan Property Holdings Ltd v Finegold [1975] 1 WLR 349*. At p 352B Lord Widgery, having set out the provisions of a predecessor Act, which were in the same terms as those of section 70, said: This is the provision which is intended to eliminate what is popularly called ‘scarcity value’ from the fair rent fixed by the committee, and it is a provision which has given rise to a great deal of difficulty in practice. I think that before one begins to consider the difficulties — they were difficulties which arose in that case but do not arise in this case — 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 a scarcity of houses in the district and thus an excess of demand over supply. *Editor’s note: Also reported at (1974) 233 EG 843, [1975] 1 EGLR 75. That passage summarises the object of the two parts of the sections, and also, by implication, makes it clear that, subject to adjustment in appropriate cases to reflect the scarcity element, the fair rent is to be equated with the market rent. It is said in other authorities that a fair rent must be fair to the landlord as well as the tenant. That supports the view that, scarcity value apart, the fair and proper market rent is the criterion which ordinarily should guide the rent officer and the rent assessment committee. That is not to say that the only way of arriving at a fair rent is by considering comparable lettings, because there are other possible ways of going about it, but it seems to me it is clearly established that, in general and subject to the scarcity value qualification, the object must be to try to arrive at what is the fair market rent of the property. With those preliminary observations and with that citation of authority, I turn to the facts of the case and the decision appealed against. The property is a three-bedroomed terraced house with an upstairs bath and lavatory, though no wash-basin, two living-rooms and a kitchen below. The living-rooms are heated by two gas fires which had been installed by the tenants. There was evidence, the committee said, of considerable damp. They go on: The landlord submitted a schedule of market rents achieved on some of his properties, including two in the same road as the subject property. He contrasted these with a list of regulated rents determined by the Rent Officer on similar properties. Mr Bennett — that is the landlord — stated that his firm had carried out considerable work on 11 Cronton Road in 1986. This had included a new roof, replacing window frames in one of the bedrooms, new joists and replacing a wall between bedroom and bathroom because of an outbreak of dry-rot; part of the kitchen ceiling had also been replastered on. I omit a paragraph. The decision continues: The Rent Assessment Committee decided that the state of repair both externally and internally could more accurately be described as fair/good rather than the fair which the rent officer attributed to it. When questioned about the damp, Mr Bennett stated that this was difficult to eradicate and his firm could not afford to carry out such repairs. I then come to the crucial passage on which this appeal is based. It reads as follows: ‘Mr Bennett addressed the committee on the effects of recent legislation, adding that scarcity of accommodation no longer applied.’  I interpolate that that is not a submission that the law had been changed to eliminate the necessity to have regard to scarcity of accommodation. It is meant to encapsulate Mr Bennett’s submission that, in current conditions and given the liberalisation achieved by recent legislation, there was no longer a shortage of property of a comparable nature for letting. The decision letter continues: As a result, he contended that market rents should be the appropriate level. The rent assessment committee took careful note of Mr Bennett’s comments, but felt that despite more housing becoming available for rental, there was still a paucity of accommodation available at reasonable rents. The properties which Mr Bennett’s firm had recently let at market rents were likely to be those with the benefit of vacant possession, some, at least, of which would have been refurbished by the landlord prior to letting. This situation was clearly not the same as accommodation which in some cases was in need of repair and which was occupied by tenants on statutory tenancies. It seems to me it is a reasonable construction of those words that the committee were accepting the evidence they had from Mr Bennett, to the effect that there was an abundance of comparable properties for letting. They appear to have accepted that the lettings which he had achieved recently (of which he had given evidence) had been at market rent, because they used those words. But what they are saying is that they do not regard market rents as being appropriate because there is a paucity of accommodation available at what they regard as reasonable rents. As I ventured to suggest in the course of argument, that seems to be begging the question, since the issue which the committee had to address was, what was a fair rent?  The test of that, in a climate where there was no scarcity of comparable rented accommodation, was, what was the fair market rent?  It is nothing to the point, having made a finding about the level of fair market rents, to go on to say that fair market rents do not represent reasonable rents. Of course, tenants will always wish to have as low a rent as they can. From one point of view, if one applies absolute or arbitrary standards, it may be possible to say that the market rates do not represent a reasonable rent, but that is not the approach which, it seems to me, the statute enjoins. Second, the committee seem to be saying that it is illegitimate to use as the test of the comparable, as the means of determining the market, lettings with the benefit of vacant possession, and that regard should be had to a different type of property; that is to say, property occupied by tenants with statutory tenancies. That plainly, on the basis of the wording of subsection (1), is illegitimate. I refer to the case of Mason v Skilling [1974] 1 WLR 1437, to which Mr Nugee drew my attention. It is contrary to authority. The other thing they seem to be saying, and this is, it seems to me, a legitimate comment, is that there may be a distinction between the properties let by Mr Bennett (of which he gave evidence) which may have been in an apple-pie state of repair, and the instant property, the state of repair of which, though fair to good in their assessment, suffered from the problem of damp. That is, as Mr Nugee conceded,117 a legitimate distinction, if the evidence supported it, because, plainly, property in bad repair, on the wording of the section, should command a lower rent than comparable property in good repair. Allowing for that legitimate consideration, it does seem to me that in two important respects the committee have approached the matter in an incorrect manner. The way in which Mr Nugee put it was to submit, first of all, that having in effect found that there was not any scarcity of comparable properties for letting purposes and having found that such properties were being let at the market rate the committee found that those lettings did not afford a guidance because they were not at a reasonable rent. They took some arbitrary standards, the basis of which does not appear, as their measure of a reasonable rent. Second, Mr Nugee submits that the committee discounted the comparison which was put forward to show what the market rent was, and the reasons they gave, apart, possibly, from the point about the state of repair, were invalid reasons. Of course, a current letting is a letting with vacant possession. That is a statement of the obvious. The consideration of cases where there was a sitting statutory tenant was illegitimate for the reasons I have indicated. Accordingly, it seems to me that the decision of the committee discloses an error of law in the approach which they adopted. Assuming, as I think their finding indicates, that they accepted the evidence of Mr Bennett and they accepted that the lettings of which he gave evidence were of comparable value, they should have taken account of those when arriving at the fair rent. In so far as there was evidence on which they could find that the state of repair of those properties was better than the state of repair of the property they were considering, that is a factor which they could have reflected when fixing the fair rent. But they could not arrive at a fair rent simply by applying their own notions of what was reasonable or by the decision that the lettings adverted to by Mr Bennett were lettings with vacant possession and were to be contrasted with lettings to tenants on statutory tenancies. That is sufficient, in my judgment, to compel me to allow this appeal. I am asked by Mr Nugee to allow the appeal and to declare that the fair rent should be registered at £30. I am not prepared to do that. It would, in my judgment, not be proper for me to do that, on the basis of such information as I have. The appropriate course, in my judgment, is to allow the appeal, which will involve quashing the decision of the committee and to remit the matter to be reheard by a committee, applying these relevant criteria as laid down by section 70 of the 1977 Act to the determination of the fair rent. Mr Nugee tells me that there is more than one rent assessment committee in this area, and invites me to direct that the matter be reheard by a differently constituted committee. He is at pains to make it clear that in making that request he does not intend any reflection on the detachment or integrity of the committee whose decision is under appeal, but merely intends to reflect the recognition that it is often difficult for any tribunal, which has once determined the matter on an incorrect basis, to approach it again, following a successful appeal. It would be preferable that the matter should be dealt with by a differently constituted committee. Editor’s note: The fair rent was increased to £19.50 per week on February 13 1992. Decision of the Merseyside and Cheshire Rent Assessment Committee set aside.