Rakhit v Carty

Rent Act 1977, section 67(3) — Old registered rent for flat let unfurnished — Subsequent furnished letting of flat at much higher rent — Possession proceedings under Case 9 in Schedule 15 to the 1977 Act — Counterclaim by tenant for rent overpaid having regard to registered rent — Kent v Millmead Properties Ltd, long suspected of being unsound, now authoritatively condemned — Cheniston Investments Ltd v Waddock likewise proscribed — Cheniston followed Kent, which was a decision per incuriam — Neither decision now to be followed — The exceptions to the stare decisis rule in relation to Court of Appeal decisions, discussed in Young v Bristol Aeroplane Co Ltd, Morelle Ltd v Wakeling and Williams v Fawcett, restated — Tenant’s appeal allowed in relation to rent; counterclaim for overpaid rent successful The facts were that the tenant, the present appellant, took a furnished tenancy for a term of 364 days of the subject flat at a rent of £450 per month — She remained in occupation after the expiry of the 364 days as a statutory tenant and secured a reduction of the rent to be a registered rent of £380 per month — Unknown to the parties at that time there had been a much earlier registration of a fair rent of £550 pa, the flat at that date being unfurnished — The proceedings which gave rise to the important pronouncements mentioned above began as an action by the landlord, the present respondent, seeking possession of the premises by virtue of Case 9 in Schedule 15 to the 1977 Act on the ground that he reasonably required the flat as a residence for himself — The county court judge made a possession order in favour of the landlord, together with an order for payment of arrears of rent and mesne profits, and dismissed the tenant’s counterclaim in respect of overpaid rent — The judge regarded himself as bound by Kent v Millmead Properties Ltd and Cheniston Investments Ltd v Waddock — The tenant appealed On appeal the court saw no basis for interference with the judge’s order for possession and the tenant’s appeal was in this respect dismissed — The argument was mainly concerned with the tenant’s counterclaim for overpaid rent and, in particular, with the appellant’s attack on Kent v Millmead Properties Ltd as having been decided per incuriam — The basis of the attack was that the judgments contained no reference to section 67(3), which contained specific provisions covering a change of circumstances; the decision was inconsistent with the scheme of the Act as exemplified in this subsection — Russell LJ, who gave the leading judgment, summarised the scheme as follows: Once a fair rent is registered, it remains the recoverable rent for the dwelling-house in respect of which the rent is payable until either the demised premises undergo such a change in their structure as to render them no longer the dwelling-house referred to in section 44, or there is a cancellation of the registration under section 73, or there is a new registration consequent upon a fresh application pursuant to section 67(3). The Court of Appeal were satisfied that their predecessors had erred in Kent v Millmead Properties Ltd — Neither this case nor Cheniston Investments Ltd v Waddock should be followed — The court referred to the exceptional cases where it can refuse to follow one of its own previous decisions, as stated in the classic passage in the words of Lord Greene MR in Young v Bristol Aeroplane Co Ltd and restated in Morelle Ltd v Wakeling and (by the present Master of the Rolls) in Williams v Fawcett — This category has never deliberately, been defined with complete exactitude, but it is emphasised that it will be of the ‘rarest occurrence’ The result was that the tenant’s appeal against the possession order was dismissed, but her counterclaim to recover overpaid rent was upheld — As this amount was greater than the landlord’s claim for arrears of rent and mesne profits, the latter claim was dismissed The following cases are referred to in this report. Cheniston Investments Ltd v Waddock [1988] 2 EGLR 136; [1988] 46 EG 88, CA Kent v Millmead Properties Ltd (1982) 44 P&CR 353, [1983] EGD 471; 266 EG 899, [1983] 1 EGLR 109, CA Rickards v Rickards [1989] 3 WLR 748; [1989] 3 All ER 193, CA Young v Bristol Aeroplane Co Ltd [1944] KB 718 This was an appeal by the tenant, Mrs C Carty, from the decision of Judge Rowntree, at Willesden County Court, in favour of the claim by the landlord, Sunil Kumar Rakhit, to possession of a third-floor flat at 24 Burnham Court, Brent Street, London NW4, and payment of alleged arrears of rent and mesne profits. The appellant counterclaimed for rent alleged to have been paid in excess of the registered rent of the flat. Miss Erica Foggin (instructed by Allen Kandler & Co) appeared on behalf of the appellant; Nicholas Yell (instructed by Steven Fisher & Co) represented the respondent (plaintiff below). Giving the first judgment at the invitation of Lord Donaldson MR, RUSSELL LJ said: 24 Burnham Court, Brent Street, London NW4, is a third-floor flat. On September 30 1986 Mr Sunil Rakhit granted a lease of the flat to four tenants for a period of one year at a rent of £433.33 per calendar month. At the time of the letting the flat had been substantially furnished by Mr Rakhit. On December 10 1986 the appellant, Mrs Carty, joined the tenants in occupation of the flat and on October 1 1987 she entered into a tenancy agreement with Mr Rakhit for a term of 364 days from October 1 1987 at a rent of £450 per month. Unknown to any of the parties to these tenancy agreements a rent officer had, much earlier, determined a fair rent for the flat effective from November 19 1973 of £550 per annum, that rent being registered in the rent register for the London Borough of Barnet on March 12 1974. At that date the flat was unfurnished and was so recorded in the rent register. Mr Rakhit had no interest in the premises at that time. Mrs Carty’s tenancy came to an end by effluxion of time, but she remained in occupation as a statutory tenant entitled to the protection of the Rent Act 1977. However, within a matter of days, on October 9 1988, Mr Rakhit commenced proceedings in the Willesden County Court, seeking possession of the flat upon, inter alia, the ground that he reasonably required possession of the demised premises as a residence for himself under Case 9 of Schedule 15 to the Rent Act 1977. The claim was resisted by the tenant, Mrs Carty, on the grounds that it was not reasonable to make the order96 and that, pursuant to Part III of Schedule 15, greater hardship would be caused to the tenant by granting the order than would be caused to the landlord by refusing to grant it. On June 12 1989 at the Willesden County Court His Honour Judge Rowntree made an order for possession of the flat in favour of Mr Rakhit, and Mrs Carty appeals against that order. In a careful judgment the judge reviewed, as he was required to do by Part III of Schedule 15, all the circumstances of the case. On the evidence he was satisfied that Mr Rakhit genuinely desired to live in the flat. Mr Rakhit had nowhere else to live, the accommodation in which he had been living being no longer available to him. The judge was satisfied that Mr Rakhit could not afford to purchase another property. As for the tenant, the judge said: Although of modest income she was able to spend some six months in Thailand last year and one month this year. Although hardship is present for whichever side must live elsewhere in the circumstances that I have touched upon, on balance I conclude that this is not a case where greater hardship would be caused to the tenant by granting an order for possession. Indeed . . . greater hardship would undoubtedly be in my view upon the plaintiff. In those circumstances I am prepared therefore to make an order for possession and I have in mind an order for possession in six weeks. Miss Foggin, whose skilful presentation of this appeal upon all the issues that are to follow in this judgment was of great assistance to the court, submits that the learned judge should not have made the order because, when dealing with the plaintiffs’ financial position, he expressed grave reservations about the plaintiff’s veracity. Nevertheless, the judge did find that Mr Rakhit could not afford alternative accommodation and, in my judgment, that factual finding is unassailable. Alternatively, counsel directed our attention to the provisions of section 98 of the Rent Act 1977, which prohibits an order for possession of a dwelling-house subject to a statutory tenancy ‘unless the court considers it reasonable to make such an order’. The judge did not specifically indicate in his judgment that he had applied his mind to the issue of reasonableness under section 98, but in my view it is inherent in the judge’s findings that it was reasonable to make the order. Accordingly, I see no basis for interfering with the judge’s conclusion upon this part of the case and would dismiss the appeal against the order for possession. I turn to those submissions of counsel that occupied the court for most of this hearing. The plaintiff claimed arrears of rent and the judge awarded him £2,710.58 together with mesne profits of £380 per month until possession. The arrears were based upon the rent payable under the tenancy agreement of October 1 1987 up to December 8 1988 when, upon an application lodged by Mrs Carty, the rent officer had determined and registered a fair rent of £380 per month. The entry in the register on December 9 1988 recorded the flat as furnished. The submission made to the judge and repeated before this court can be shortly stated. Miss Foggin contends that the rent registration on March 12 1974 limited the rent payable by the tenant under the agreement dated October 1 1987 and that, far from there being arrears of rent, the tenant had overpaid £3,069.82 from October 1 1987 to the date of the hearing. There was a counterclaim in respect of overpaid rent. The judge rejected this submission, regarding himself as bound by Kent v Millmead Properties Ltd (1982) 44 P&CR 353* and Cheniston Investments Ltd v Waddock [1988] 2 EGLR 136. The landlord’s claim for arrears and mesne profits was therefore upheld and the tenant’s counterclaim dismissed. *Editor’s note: Also reported at (1982) 266 EG 899, [1983] 1 EGLR 109. It is now convenient to look at the relevant statutory provisions which bear on this appeal. The starting point is section 44(1) of the Rent Act 1977, which provides: Where a rent for a dwelling-house is registered under Part IV of this Act, the rent recoverable for any contractual period of a regulated tenancy of the dwelling-house shall be limited to the rent so registered. Part IV of the Act contains detailed provisions relating to the registration of rents under regulated tenancies. Section 67 deals with the machinery for making an application for the registration of a rent. Section 70 is concerned with the circumstances to which regard must be paid by the rent officer in fixing a fair rent under a regulated tenancy. Both the application for registration and the assessment must deal with details of any furniture provided for use under the tenancy. Section 66(1) provides: (1)  The rent officer for any area shall prepare and keep up to date a register for the purposes of this Part of this Act and shall make the register available for inspection in such place or places and in such manner as may be provided by the scheme made for the area under section 63 of this Act. (2)  The register shall contain, in addition to the rent payable under a regulated tenancy of a dwelling-house — (a)  the prescribed particulars with regard to the tenancy; and (b)  a specification of the dwelling-house. Section 72 is concerned with the effect of a registration of rent. Subsection (1) reads: The registration of a rent for a dwelling-house takes effect — (a)    if the rent is determined by the rent officer, from the date when it is registered. Subsection (5) provides: As from the date on which the registration of a rent takes effect any previous registration of a rent for the dwelling-house ceases to have effect. Section 73 makes provision for the cancellation of the registration of a fair rent by the landlord and tenant jointly. However, in the context of this appeal, section 67(3) is of greater importance. It provides: Subject to subsection (4) below, where a rent for a dwelling-house has been registered under this Part of this Act, no application by the tenant alone or by the landlord alone for the registration of a different rent for that dwelling-house shall be entertained before the expiry of 3* years from the relevant date (as defined in subsection (5) below) except on the ground that, since that date, there has been such a change in — (a)    the condition of the dwelling-house (including the making of any improvement therein), (b)   the terms of the tenancy, (c)    the quantity, quality or condition of any furniture provided for use under the tenancy (deterioration by fair wear and tear excluded), or (d)   any other circumstances taken into consideration when the rent was registered or confirmed, as to make the registered rent no longer a fair rent. *Editor’s note: 2 years was substituted for 3 years by the Housing Act 1980, section 60(1) with effect from November 28 1980 (SI 1980 no 1706). Subsection (4) enables a landlord alone to make an application within the last three months of the period referred to in subsection (3), and subsection (5), for the purposes of this appeal, defines the relevant date as the date when the registration took effect, ie when entered in the register. In my judgment, the scheme of Parts III and IV of the 1977 Act is plain. Once a fair rent is registered, it remains the recoverable rent for the dwelling-house in respect of which the rent is payable until either the demised premises undergo such a change in their structure as to render them no longer the dwelling-house referred to in section 44 or there is a cancellation of the registration under section 73, or there is a new registration consequent upon a fresh application pursuant to section 67(3) or section 68(4).†   This last subsection is in identical terms to section 67(3) and deals with applications by a local authority. † Editor’s note: Applications under section 68(4) ceased to be possible on and after January 15 1989: Housing Act 1988, section 140 and Sched 17, repealing section 68 to that extent. Section 67(3) deals specifically with a change in the terms of the tenancy or in the quantity of any furniture provided as preconditions without which no application for registration of a different rent ‘for that dwelling-house shall be entertained’. In other words, provided the dwelling-house remains as the same demised property, the provision of furniture as a term of the tenancy does not affect the recoverable rent until the registered rent is increased and that rent is registered. So much, to my mind, is clear from the terms of section 44(1), which does not refer to any change in the terms of the tenancy of the dwelling-house but expressly provides that the rent recoverable ‘for any contractual period of a regulated tenancy of the dwelling-house shall be limited to the rent so registered’. The authority which led the judge to the conclusion at which he arrived in relation to rent and mesne profits was, as earlier indicated, Kent v Millmead Properties Ltd. I take the facts from the headnote. In all material respects they cannot be distinguished from the facts in the instant case. In 1974 a registration of a fair rent of a flat was determined at £5 per week. The register kept under the Rent Act showed that the tenancy was a weekly tenancy and that it was an unfurnished tenancy. In May 1977 the flat became vacant and was fully furnished, extensively redecorated and improved by the defendant landlords. It was let in August 1978 to the plaintiff tenants at a weekly rent of £28.50. In June 1980 a fair rent of £17.50 per week for the premises and £5 for furniture was registered. The tenants discovered that there was a registered rent of £5 per week for the97 premises. They withheld the excess rent. They brought proceedings in the county court claiming the excess rent paid by them. The landlords counterclaimed for arrears of rent on the ground that, as in March 1974, before the commencement of the Rent Act 1974, the premises were unfurnished, the rent then registered did not apply to the premises relet furnished and improved. The county court judge gave judgment for the landlords. The tenants appealed. Giving the leading judgment, Ormrod LJ said at p 357: One should start from this position that, anybody looking at the rent register in order to discover what the registered rent of these premises was, would see immediately that the registered rent of some £260.00 per annum was the rent registered in respect of an unfurnished tenancy, and so it could not possibly be said that anyone inspecting the register, who was intending to take a furnished tenancy of this flat, would be misled in any way. Going back to the 1977 Act which, as I have said, is the operative Act for our purposes, I think section 44(1) must be read in the light of section 66(2) and that the reference to a ‘rent for a dwelling-house registered under Part IV of this Act’ means the rent for a dwelling-house registered under Part IV of this Act as set out in the register, that is for the premises, and for the type of tenancy described in the register for which the rent was fixed and not otherwise; so that, if there is a material change either in the specification of the dwelling-house by either adding or subtracting a room or rooms, or a material change in the particulars with regard to the tenancy, then the rent registered in respect of a different tenancy, different in the sense of different in character and incidence, is not the registered rent for the purposes of section 44(1) and so does not operate to enable the tenants in this case to enjoy for the price of £5 per week the tenancy of a furnished flat for which, in 1980, the fair rent was considered to be £22.50. Kent v Millmead Properties Ltd was followed in Cheniston Investments Ltd v Waddock with obvious reluctance (see in particular the judgments of Lloyd and Ralph Gibson LJJ). However, it was not argued in Cheniston that the Kent decision was per incuriam. Miss Foggin has now submitted to this court that the Kent decision was indeed per incuriam in that she submits that the judgment of Ormrod LJ, with which Dunn LJ and Sir Sebag Shaw agreed, made no reference to section 67(3), that, if the Court of Appeal had been referred to that subsection and had had regard to its terms, the decision would plainly have been different and that consequently this court should not follow Kent’s case. I have already expressed my own views as to the proper construction of section 44(1) and the impact of section 67(3). In Rickards v Rickards [1989] 3 WLR 748 Lord Donaldson of Lymington MR said at p 755: The importance of the rule of stare decisis in relation to the Court of Appeal’s own decisions can hardly be overstated. We now sometimes sit in eight divisions and, in the absence of such a rule, the law would quickly become wholly uncertain. However the rule is not without exceptions, albeit very limited. These exceptions were considered in Young v Bristol Aeroplane Co Ltd [1944] KB 718; Morelle Ltd v Wakeling [1955] 2 QB 379 and, more recently, in Williams v Fawcett [1986] QB 604, relevant extracts from the two earlier decisions being set out at pp 615-616 of the report. These decisions show that this court is justified in refusing to follow one of its own previous decisions not only where that decision is given in ignorance or forgetfulness of some inconsistent statutory provision or some authority binding upon it, but also, in rare and exceptional cases, if it is satisfied that the decision involved a manifest slip or error. In previous cases the judges of this court have always refrained from defining this exceptional category and I have no intention of departing from that approach save to echo the words of Lord Greene MR in Young’s case, p 729, and Sir Raymond Evershed MR in Morelle’s case, p 406, and to say that they will be of the rarest occurrence. In my judgment, the effect of allowing this appeal will produce no injustice to Mr Rakhit, for the 1977 Rent Act provided him and his advisers with ample opportunity to protect his interests by the simple process of inspecting the public register of rents before letting the flat to Mrs Carty. A fresh application for registration of a fair rent could then have been made enabling that fair rent to be recoverable from the commencement of Mrs Carty’s tenancy. For my part, I am satisfied that this court erred in Kent v Millmead Properties Ltd and that, following the observations of Lord Donaldson of Lymington MR in Rickards’ case, this court is justified in declining to follow Kent v Millmead Properties Ltd. Accordingly, I would allow the tenant’s appeal and hold that the landlord’s monetary claim should be dismissed and that judgment should be entered in favour of Mrs Carty on her counterclaim. Agreeing, SIR ROUALEYN CUMMING-BRUCE said: I have had the advantage of reading in draft the judgments of the Master of the Rolls and Russell LJ. The appeal involves the application of the principles of binding precedent as enunciated by Lord Greene MR in Young’s* case [1944] KB 718, to the situation in which this court in Cheniston Investments Ltd v Waddock (1988) 46 EG 136 followed the decision of this court in Kent v Millmead Properties Ltd (1982) 49 P&CR 353. *Editor’s note: Young v Bristol Aeroplane Co Ltd [1944] KB 718. For the reasons stated today by Russell LJ, the decision in Kent (supra) was given per incuriam and this court is not bound to follow it. It falls within the third exception to the rule stated by Lord Greene in Young’s case (supra) as explained by Lord Donaldson of Lymington in Rickards v Rickards [1989] 3 WLR 748. In Cheniston’s case (supra) this court only decided as it did because it considered that it was bound to follow Kent. But it was not then argued that the decision in Kent was given per incuriam, and this court in Cheniston was in error in thinking that it was bound to follow Kent. The error is now exposed. This court is entitled to refuse to follow either Kent or Cheniston and should so refuse. Agreeing, LORD DONALDSON OF LYMINGTON MR said: This appeal should be allowed to the extent indicated in the judgment of Russell LJ and for the reasons which he gives. The decision in Kent v Millmead Properties Ltd was indeed given per incuriam, since it was given in ignorance or forgetfulness of inconsistent statutory provisions, namely, section 67(3) of the Rent Act 1977. However, the same cannot be said of Cheniston Investments Ltd v Waddock. If, therefore, that court, having all the relevant authorities before it, had concluded that Kent’s case was rightly decided, I would have felt bound to follow it, leaving it to the House of Lords to rectify the error. However, I do not think that this court is bound in all cases to follow a previous decision which is based solely upon the authority of an earlier decision which was itself given per incuriam. In this case we have been concerned not only with the rights of the immediate parties but, indirectly, with those of thousands of landlords and tenants throughout the country. In these exceptional circumstances, I think that we are entitled to, and should, decline to follow Cheniston. The appeal was allowed. Defendant to have 50% of the costs of the appeal. Costs order below to be varied so that the plaintiff has the costs of the claim and the defendant has the costs of the counterclaim, the two sets of costs to be set off one against the other. The money is to remain in joint names with interest accruing until such time as the costs liabilities have been worked out, and then any balance to be paid out accordingly.