Metropolitan Properties Co (FGC) Ltd v Good and others

Rent Act 1977 — Adequacy of reasons given by a rent assessment committee for their decision — Appeal by landlords — Appellants’ complaint related to that part of committee’s decision which concerned the amount within the fair rent which was attributable to services supplied to the tenants — Figures allocated by the committee in respect of the provision of heating to the tenants’ flats substantially less than the undisputed costs — Sums attributed in respect of all services likewise substantially less — Observation by committee that ‘by no means all of the items on the list should be regarded as services provided exclusively for the benefit of the tenants’ — Judge’s view that the reasons given by the committee for their conclusions in regard to the amounts attributable to services were so inadequate as to suggest a misdirection — Case remitted to committee to reconsider in the light of judgment — Committee asked to make it clear, when they come to make a further decision, how they have arrived at it and to explain, if appropriate, why they have departed from evidence put before them This was an appeal by landlords, Metropolitan Properties Co (FGC) Ltd, from a decision of a rent assessment committee of the East Midland Rent Assessment Panel in respect of three flats, 36 and 53 Harvard House, Riversmead, Wilford Lane, Nottingham, and 116 Yale House, also at Riversmead. The respondents were Mr G J Good (flat 53), Mr W R Seymour (flat 36) and Mr P Knight (flat 116). Mota Singh QC and P Wulwik (instructed by Browne, Jacobson & Roose, of Nottingham) appeared on behalf of the appellants; the respondents did not appear and were not represented. Giving judgment, WOOLF J said: This is an appeal against the decision of a rent assessment committee for the East Midlands sitting at Nottingham, dated September 17 1980. It is an appeal by the Metropolitan Properties Co Ltd, whose name has appeared in a number of the reported decisions in relation to matters concerning the fixing of rents by rent assessment committees. The respondents are three tenants of properties owned by the appellants, namely flats 36 and 53, Harvard House and flat 116, Yale House, West Bridgford in the Midlands. The appeal comes before this court under section 13 of the Tribunals and Inquiries Act 1971. Under that Act this court can only interfere on the basis of there being established that there has been a mistake of law by the rent assessment committee. The background to the decision of the rent assessment committee is somewhat unusual in the sense that before the rent officer a lower rent was contended for than was contended for before the rent assessment committee. Indeed before the rent assessment committee the landlords were contending that the appropriate rent should be higher than that proposed in the landlords’ application to the rent officer. The task of a rent assessment committee, when a matter is referred to it, is set out in Schedule 11 to the Rent Act 1977, paragraph 9(1), in these terms: The committee shall make such inquiry, if any, as they think fit and consider any information supplied or representations made to them in pursuance of paragraph 7 or paragraph 8 above and (a) if it appears to them that the rent registered or confirmed by the rent officer is a fair rent, they shall confirm that rent; (b) if it does not appear to them that that rent is a fair rent, they shall determine a fair rent for the dwelling-house. In respect of each of the flats, the rent assessment committee in fact increased the rents determined by the rent officer. In respect of flat 53, Harvard House, whereas the rent determined by the rent officer was £878 per annum including £206 by way of services, the rent determined by the rent assessment committee was £1,025 including £250 by way of services. In respect of flat 36, whereas the rent officer determined a rent of £1,018 per annum including £222 per annum for services, the rent assessment committee assessed a rent of £1,200 including £260 for services. In respect of flat 116, Yale House, the rent determined by the rent officer was £955 per annum including £206 per annum for services, whereas the rent assessment committee chose figures of £1,075 per annum including £250 per annum for services. No complaint is made by the landlords in respect of the rent assessed by the assessment committee other than of that part which was allocated to services. At one time it was not necessary for rent assessment committees to make a distinction between the sum fixed as a whole and that part attributable to services. However, there has to be a distinction made now because of the phasing provisions contained in the Rent Act 1977. It is important that rent assessment committees should when they fix a figure for services give the parties a clear indication of the basis on which they have arrived at the figure which they have reached. Very clear guidance was given to rent assessment committees on this matter as long ago as 1968 in the case of Metropolitan Properties Co (FGC) Ltd v Lannon [1968] 1 All ER 354 at p 364 D, where Widgery J said: Another matter to which I ought to refer before I turn to the four points on which this appeal depends is the provision in the Act of 1965 dealing with services. This is material because much of the argument in this case turned on the portion of rent attributable to services rendered by the landlord. Section 28(1) reads: ‘The amount to be registered as the rent of any dwelling-house shall include any sums payable by the tenant to the landlord for the use of furniture or for services, whether or not those sums are separate from the sums payable for the occupation of the dwelling-house or are payable under separate agreements.’  Subsection (3) contains a provision for the variation of service charges in the event of a fluctuation in the cost of providing services. I do not find the meaning of section 28(1) particularly clear. It is, however, I think beyond doubt that, when a rent is determined and registered, it must be a single figure in respect of the premises affected, not condescending to apportionment between that part attributable to occupation of the premises and that part attributable to services. Indeed, I can find no obligation in the Act itself on the rent assessment committee to make any specific assessment of the part of the rent attributable to services, but we are told that in practice this is done, and I would not seek to discourage what seems to be a desirable practice. Further, I think that it is worth while at this stage in the development of the Act to point out to rent assessment committees that an undue insistence on the strict letter of the law on this point may be unwise, because they are, independently of the Act, required to give reasons for their decision, and, unless such reasons are given coherently, the right of appeal to this court on a point of law may become ineffectual, or at least the proceedings may become extremely lengthy, complicated and difficult. Accordingly, I would put it as a very strong recommendation to rent assessment committees, if no higher, that, when the rent is concerned with the provision of services, they89 should endeavour always to give in brief form a statement of the principle on which they have acted. If the landlord, as he usually does, calls evidence of the cost of providing the services, the committee need not adopt that approach, but they must listen to the evidence, and if they choose not to adopt that approach, it is of the greatest possible value in considering the correctness of their decision if they say why they have not adopted that approach and what approach they have in fact chosen. They should, in my view, always endeavour to show in a few lines and without condescending to detailed calculations how they have approached the question of services; have they used costs and, if so, how have they used costs, and if they have not used costs, what is their approach, and why have they adopted it?  In saying that, I would not wish for a moment to restrict rent assessment committees in the wide discretion which Parliament has given them, but I think it desirable that they should act in this way if only to achieve the other intention of Parliament that their decisions shall be capable of effective review on matters of law by this court. There is no definition contained in the Act as to what is meant by ‘services’, but I have no doubt myself that it has the ordinary meaning that would be attributable to that phrase in the field of landlord and tenant. The statutory reference to services appears in section 71(1), which provides: The amount to be registered as the rent of any dwelling-house shall include any sums payable by the tenant to the landlord for . . . services, whether or not those sums are separate from the sums payable for the occupation of the dwelling-house or are payable under separate agreements. Guidance as to the proper meaning to be attached to the word ‘services’ is to be obtained from a passage in Megarry’s Rent Acts, 10th ed, at para 3 on p 325, where it says: Under the Act of 1957, the term ‘services’ in relation to a block of flats includes central heating; constant hot water; passenger and service lifts (including the maintenance thereof); lighting, heating, carpeting and cleaning the hall, passages, staircases and other common parts; porterage, removal of refuse; and pest control; and also the provision and maintenance of gas cookers and refrigerators, and the use of the garden and grounds. Guidance is also to be found in the same judgment to which I have already made reference, namely the judgment of Widgery J in the case of Metropolitan Properties Co (FGC) Ltd v Lannon, starting at p 367 H: The third complaint is that the committee failed to have regard to a material consideration, namely, the likely cost of those services over the whole period during which the registration was to have effect. This raises a point which concerns the provisions of the Schedule to the Rent Act 1965, for reconsideration and reassessment of registered rents. Under para 3 of Schedule 3, there is a provision which in broad terms prevents any review of a registered rent for a period of three years, and in para 13 of the same Schedule there is a provision that the registration of any rent when entered shall take effect as from the date of the application for the registration. Applied to this case, that means that the rent when registered would be deemed to have been so registered ever since the date of the initial application, which was February 1966. Accordingly, the question arises what is the date on which an assessment in regard to the cost of services should be made, if that is the course chosen by the committee for calculating the service element in the rent. For my part, I think that the principle is clear, namely, that the assessment should be made as at the date on which it is to take effect and that, therefore, it is proper to make one’s calculations on the footing that what is sought to be achieved is a fair rent as at the date of the application on which registration will be effected. Nevertheless, I fully accede to counsel for the landlords’ argument that, when the assessment is necessarily made at a later date, and when at that later date trends of inflation, or whatever there may be, are apparent, it is right and proper for the committee to take advantage of that information, because, even when assessing at the date of application, they should try and forecast future trends, and, if in fact they have direct information as to what those trends may be it is proper to take those into account. However, in this case, I find it quite impossible to determine precisely on what basis these calculations were made. Mr Mendelsohn’s evidence gave the committee all the material which they required for an assessment on what I have described as the correct basis, and I can find nothing in any of the material before us to suggest that they made their assessment on anything other than that basis. Accordingly, I would reject the third point. Finally, it is said that they failed to take into account a material consideration, namely, management charges. To understand this point, one must again go back to Mr Weaver’s original schedule of the cost of services, which included among other items ‘ten per cent for management of services, and administration £4,627’. It will be remembered that the committee, when dealing with this point, had dismissed management charges in a somewhat summary way, including them with such things as fire extinguisher rental and saying: ‘. . . we do not accept that any of these are services supplied to or for the benefit of the tenants . . .’  If that meant that the committee were saying to themselves — ‘We direct ourselves as a matter of law that management charges are an inadmissible factor when assessing the cost of services,’ — I would have thought that they were clearly wrong, because there is plenty of authority for the proposition that management costs, and indeed in appropriate circumstances management profit, may properly be admitted. The question here is whether the committee did make that mistake, or whether the decision is justified in another way. Counsel for the tenant Zenker, who had the advantage of having been before the committee, has indicated to us what I think is the real explanation, and it is to be found in brief in the committee’s decision. This is a reference by the committee to Mr Weaver’s evidence in these terms: ‘He gave evidence with regard to the estate office and the ten per cent management charge. He thought this amount was reasonable for if the resident engineer and supervisor who carried the brunt of the work were not there, the landlords might well have to engage additional office staff.’  That phrase, under the guidance of counsel for the tenant Zenker, means that the work of management, the brunt of the effort, as the committee put it, was undertaken by a gentleman called the resident engineer and supervisor, who was at the premises and whose wages were already included in the general item for wages to which I have already referred. Accordingly, I think that the committee were not saying that the admission of a management charge was something which they could not accept as a matter of law, but rather that in this case any management costs had already been reflected in another part of the schedule. If that simple explanation be adopted, as I think that it ought to be in this case, that is an end of the landlords’ complaint on their final point, and for those reasons I would dismiss this appeal. Before the rent assessment committee, evidence was given by two experts: one a Mr Harlow, who gave evidence on behalf of the appellants (a chartered surveyor and senior partner of a firm of surveyors in Nottingham), and the other a surveyor, instructed on behalf of two of the tenants concerned. Mr Harlow has sworn an affidavit, which is in evidence before me, as to the material which was before the rent assessment committee. As Mr Harlow’s affidavit relates to that matter, it is properly put before me although normally on appeals of this nature one is confined in one’s examination of the decision to the decision itself and cannot look at collateral evidence. He exhibits to his affidavit a proof of his evidence and a schedule relating to the service charges. He says in para 14 of his affidavit that before the rent assessment committee there was no dispute as to the cost of the services provided: ‘No observations were made or questions asked on the figures appearing in the schedule of services.’ In giving its decision, the rent assessment committee gave reasons which set out the fact that the two experts had both adopted different recognised basic approaches in coming to their conclusions as to what was their fair rent. The committee then go on to say: After taking our own knowledge and experience into account we think that the views of Mr Winfield that is the tenants’ expert more closely equate with what should be regarded as fair rents in this case. We think however that in relation to what we regard as the general level of fair rents the landlords were a little too modest in the figures for which they applied initially and in consequence we find that the figures fixed by the rent officer should be moderately increased. We are fortified in that view by the fact that the landlords did not propose any increase for the provision of services although the cost of providing them must have increased substantially over the previous 3 years. We have examined the figures in the schedule of services placed before us on behalf of the landlords which we see includes such items as expense of providing living accommodation for supervisory staff, depreciation charges on equipment and items for readministration and profit. By no means all of the items on the list should be regarded as services provided exclusively for the benefit of the tenants. We do not think that it is possible to reach a scientific figure but doing the best we can we consider that a service charge of £250 per annum for flats 53 and 116 and £260 per annum for flat 36 is appropriate. It is necessary for us to indicate what part of the service charge represents the heating service provided by the landlords. We assess £125 per annum for each of the 3 flats as the cost of the heating supplied. The first matter that has to be dealt with with regard to that reasoning is the sentence, ‘We are fortified in that view by the fact that the landlords did not propose any increase for the provision of90 services although the cost of providing them must have increased substantially over the previous 3 years.’  If that sentence meant that the landlords were not proposing any increase before the rent assessment committee, clearly it would be wrong, because the evidence makes it absolutely clear that before the rent assessment committee there was a proposal for an increase, though before the rent officer that position was different. Indeed the rent officer had fixed the same service charges as had been applicable for the previous 3 years. However, in my view, when it is properly read in context that sentence is referring to the fact that before the rent officer the landlords had not proposed any increase, whereas they had of course done so before the rent assessment committee. I see nothing wrong in that sentence in itself. The next matter to which I must draw attention is the assessment of the three flats as to the cost of heating. That was £125 per annum for each. Before the rent assessment committee the evidence, which was not disputed, was that the heating charge per flat was £216 — a substantially greater sum than the £125 to which I have made reference. That was arrived at by taking the total cost of heating per flat, dividing it by the number of flats heated by the landlord, which was 66, and then adding to it a 10 per cent management and a 5 per cent profit charge. It may well be that there were proper reasons on which the rent assessment committee could have reduced the figure of £216 to £125. I do not know. However, if there were reasons for doing that, they certainly are reasons which should at least have been hinted at in the decision which was given. It would be preferable if they were set out clearly. They could, for example, have said that ‘We don’t agree that the proper approach was to adopt the method of calculation adopted by the landlords. On our inspection of the flats, we saw, for example, that the flats were of different sizes and the three flats we are concerned with had too substantial amounts attributed to them’; or, for some reason or other, ‘We don’t think an item for management or profit should be allowed.’  But the situation is that apart from the fact that they have indicated that it is not possible to adopt a scientific figure for the service charge as a whole, there is not indicated in the decision any justifiable reason upon which the reduction was made. Certainly it would be difficult to see how on the evidence before the committee they could have taken the view that this was a service which was not provided exclusively for the benefit of the tenants. I have no doubt at all that in respect of the heating matter, the assessment committee have wholly failed to follow the guidance given by Widgery J in the Lannon case to which I have already referred. I am left in the state of mind where, in the absence of any specific reasons being given, I am forced to the conclusion that in some way the rent assessment committee must have misdirected themselves in law in coming to the conclusion which they did. If they had given reasons for their departure, one could say that with certainty. All that I can say is that on the material that is before me that is the inference that I draw. The next matter submitted is that when one looks at the total figure put forward by the landlords for the whole of the service charge and looks at the award which was made as a total, the difference is so substantial, that again there must have been some principle upon which the rent assessment committee departed from the proposals. Bearing in mind that there was no comment made and no attack on the landlords’ figures by the surveyor appointed by the tenants, one is left to ask: could there be any basis upon which the committee could reasonably have come to the conclusion to which they did?  The explanation may be in the sentence: ‘By no means all of the items on the list should be regarded as services provided exclusively for the benefit of the tenants.’  That sentence may refer back to the immediately previous sentence which concludes with a reference to the expense of providing ‘living accommodation for supervisory staff, depreciation charges on equipment and items for readministration and profit.’ I do not know. Such items can properly be taken into account in reaching a conclusion as to what is the proper service charge, as is shown by the case to which I have already made reference and also by the further cases of Metropolitan Properties Co Ltd v Noble [1968] 2 All ER 313 and Regis Property Co Ltd v Dudley [1958] 1 QB 346; the passage which is relevant being at p 359. Again I can only say with regard to the figure for service charges as a whole that having considered the material which is before me, I am driven to the conclusion that not only is the reasoning wholly inadequate, but once more there must have been some error of approach adopted by the rent assessment committee. Accordingly, it is my view that this is a case which should be remitted to the rent assessment committee for reconsideration by them in the manner they consider appropriate having regard to the judgment which I have just given. In remitting the matter, I do express the hope in particular that they should, when they come to give a further decision, make it clear exactly how they have come to the decision and why they have departed from the evidence which is put before them by the parties in so far as they accept that evidence. The case was remitted to the rent assessment committee for a rehearing and determination in the light of the judgment. No order was made for costs.