Metropolitan Property Holdings Ltd v Finegold and others

Fair rents–Scarcity element–Allowance to be made under this head must reflect ‘broad, overall general scarcity affecting a really substantial area,’ not merely a local scarcity such as might be produced by the foundation of an American school in St John’s Wood, London This was an appeal by Metropolitan Property Holdings Ltd, of Prince Consort Road, London SW7, against a decision of a committee of the London Rent Assessment Panel dated July 23 1973 fixing fair rents for a large number of flats in a block known as South Lodge, Grove End Road, St John’s Wood. The respondents were Mr W Finegold and other tenants living in the property. Mr R H Bernstein QC and Mr M Singh (instructed by D J Freeman & Co and Grangewood Allen & Co) appeared for the appellants. The respondents did not appear and were not represented. Mr H Woolf (instructed by the Treasury Solicitor) appeared as amicus curiae. Giving judgment, LORD WIDGERY referred briefly to the nature of the appeal and continued: The appellants complain that in reaching its conclusions as to the fair rents of each of these several flats the committee misdirected itself in its application of section 46 of the Rent Act 1968. Before I deal with the merits of the matter, it is convenient to take up a point made by Mr Woolf on behalf of rent assessment committees in general, that there ought to be some recognised practice as to the type of documents put before the court in cases of this kind. It is the fact, and I do not say this in any critical sense, that the paper produced and put before us in this case has greatly exceeded that which was necessary; and it may be necessary in the future to issue a practice direction to put the matter on a formal basis. Meanwhile, I accept and confirm Mr Woolf’s submission that one ought in general in these cases to be able to deal with the point of law raised by having before the court the notice of motion, the reasons for the decision of the committee and such features of the evidence put before the committee as are necessary to develop the point of law. If that approach had been made in the present case, it would, I feel sure, have resulted in a considerable saving in time, money and typing. But to return to the issue, the flats in question, as I have said, are in St John’s Wood, and there was recently built in St John’s Wood a substantial school, restricted in its entry to the children of American families in London. The fact that that school was built has undoubtedly rendered this part of St John’s Wood far more attractive to American families than it might otherwise have been, because of the facility of the education of their children which this school provides. Although there is no specific finding to this effect on the part of the committee, it is a reasonable inference, I think, from the material which has been put before us that the presence of this school has almost certainly put up the market rental values of flats and houses in the neighbourhood. And it may be, although again there is no specific finding to this effect, that this has produced locally an element of scarcity in the sense that more Americans want to come and live in St John’s Wood and have the facility of having their children educated at that school than the accommodation vacant and to let in St John’s Wood would permit. I think it only right to approach the problem on the footing that both those assumptions are good, namely, that the school in its own immediate surroundings has produced an increase in the number of Americans, and secondly, it may well have produced an element of scarcity, or accentuated an element of scarcity which previously existed. The bone of contention between the parties is this, that applying its mind to section 46, the rent assessment committee has reached the conclusion that the presence of the school has produced an element of scarcity of the kind mentioned in section 46 (2), and has thought it right, in fixing the fair rents of these flats, to make a deduction, and one can go no further than that, on account of that scarcity. To see why that contention is put forward and what the answer to it might be, one has to look at the section itself. It is quite short. Section 46 (1) provides: ‘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, subject to the following provisions of this section, 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.’ I would observe on that, straight away, that that seems to be saying in Parliamentary language that one must have regard to the sort of factors which tend to push rents up or down on the market. One must have regard to the age of the premises, and that may have an effect up or down according to whether the premises are old or modern. One must have regard to their character and their locality. Their locality is important because a house situate in pleasant surroundings, and with the advantage of local amenities, may very well command a higher rent than an identical house in a less attractive setting. Looking for a moment at the American school to which I have referred, if the committee took the view that the presence of that school made the houses in the surrounding area, and in particular these flats, more attractive, and thus likely to command more rent, then so far as subsection (1) of section 46 is concerned the fair rent ought to reflect that factor. In other words, looking for the moment only at subsection (1), any amenity (as the word has been used frequently in this argument), any advantage which the premises inherently have, either in their construction, their nature, their scale, their situation, their proximity to a school, a zoo or a theatre, whatever it may be, all those factors which would tend in the market to increase the rental, are factors to be taken into account by the committee in fixing the fair rent. To what extent they are taken into76 account is, of course, the duty of the committee to decide, but that these are matters which are eligible for consideration is beyond doubt. At this point, as I have already said, the presence of the American school would, on the face of it, tend to put up the fair rent because it would be an amenity making the premises more attractive. Then one comes to subsection (2): ‘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.’ 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, 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. Bearing that in mind, one turns to the point in the committee’s decision which is under attack in this appeal, and indeed the point upon which Mr Woolf has usefully made submissions on its behalf. The committee has come to the conclusion, and expressed it in more than one way, that the presence of the American school has created a local scarcity of premises. When I say ‘local,’ I deliberately do not attempt at this stage to define it further. But what was in the committee’s mind undoubtedly was that the attraction of the school has produced a local scarcity of houses, and that there are consequently in the premises now under review all the elements contained in section 46 (2) of a scarcity which ought to be eliminated when the fair rent is assessed. I find the committee’s views on this somewhat difficult to follow, I must confess, and indeed to get them fully one has to go back to what was said in an earlier case in which the same issue was raised. In the ordinary way one would not think it right to consider an earlier case when deciding a later, but it is useful here because, as has been shown, some light is thrown upon the working of the committee’s mind upon this point. In a letter of January 5 1973, giving an explanation of the committee’s views in the earlier case, one finds this passage: ‘The committee accepted that there is a substantial amenity value in the St John’s Wood area, but it is satisfied that there is a considerable degree of ‘scarcity’ within section 46 (2) of the Rent Act 1968. In the committee’s opinion the matters relied on by Mr Bernstein as constituting evidence of ‘scarcity’ do not constrain it to limiting the difference between market rents and fair rents merely to the extent reflected in the valuations made by Mr Derisley. The committee considers, in the light of its own general knowledge and experience, and having regard to the evidence and its inspection of the property, that the rents determined by it properly reflect both ‘amenity’ and ‘scarcity’.’ I pause there to say, so far so good, but the next paragraph is illuminating: ‘The American school is undoubtedly an amenity for those wishing their children to attend it, but the committee considers that the presence of the school tends to limit accommodation in the area available to tenants in general and thus to create an element of ‘scarcity’.’ It is because I have read that paragraph in the course of the argument that I venture to say that the committee seems to be acting on a supposedly very local scarcity created by the presence of the American school. In its decision in the instant case, one gets a clear touch of the same reasoning in this paragraph: ‘The committee does not accept Mr Bernstein’s contention that the committee in 1972 was wrong in attributing an element of scarcity to the presence of the American school. The committee accepts that ‘locality’ for the purposes of section 46 (2) is very substantially wider than the St John’s Wood area. It is of the opinion that, within this wider area, the American school must to some extent reduce available accommodation similar to that in South Lodge.’ 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 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 round 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 scarcity in the locality which results from an excess of demand over supply. It seems to me, with all deference to the committee, that it has 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 that it wrongly focused its attention on an extremely limited area which would not, I think, qualify as a ‘locality’ for the purposes of section 46 (2). 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 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 All ER 355, where, dealing with the word ‘locality’ in section 46 (1), I said that the exact extent of the locality was something which was primarily for the committee to fix. I would repeat that in regard to the fixing of the locality under section 46 (2), but at the risk of repetition, I do emphasise that when the committees 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 committees to choose, and the one upon which they are likely to achieve the most accurate result, is the area from which their work regularly and normally comes. However, to return to this case, it seems to me that the committee has erred in, I say at once, the one relatively small respect which I have tried to describe, and I think that77 the matter must be reconsidered in the light of that error. The question arises as to whether this matter should go back to the committee in order that it might reconsider the point for itself, or whether it should go to an entirely new committee. While I hear and respect Mr Bernstein’s submissions that from the litigant’s point of view it is always somewhat unsatisfactory to go back to the original tribunal, it is the fact that we constantly do that in this court, particularly in regard to magistrates’ courts, when some relatively small error has been made, and all that is necessary is for the court to look again at the point upon which they were in error. I think that when one has regard to all the work which has been done in this case, the inspections by the committee and all the other matters, the proper thing to do here would be to allow the appeal and send the case back to the committee to review its approach to section 46 (2) in the light of the judgments of this court. MAIS J: I agree. CROOM-JOHNSON J: I agree.