Housing Act 1957, section 9(1)(A)–Houses ‘fit’ but in need of repair–Notices by local authority to bring up to reasonable standard–Claim by owners that repairs would cost more than value of houses after repairs completed–Owners’ ‘device’ to secure possession–Inquiries which local authority should make–Matters which judge should consider on appeal in section 9(1)(A) cases–‘Value’ of house–Whether with vacant possession or subject to protected tenancy or something between–Receipt of an improvement grant not a precondition of action under section 9(1)(A)–Notices should have been upheld–Appeal from county court judge allowed
These were two
appeals by the London Borough of Hackney against decisions of Judge Willis at
Shoreditch County Court, who quashed notices served respectively on each of the
property companies under section 9(1)(A) of the Housing Act 1957 as amended by
the Housing Act 1969. The notices required the houses to be brought up to a
reasonable standard having regard to their age, character and locality. The
houses in question were 68 Glyn Road, E5, owned by Hillbank Properties Ltd, and
48 Coopersale Road, E9, owned by Talisman Properties Ltd. The appeals turned
primarily on the matters to which the judge was entitled to have regard on an
appeal from such a notice, including whether the ‘value’ to which he should
have regard was the value with a sitting tenant or with vacant possession.
A Scrivener QC
and W Birtles (instructed by R A Benge, Borough Solicitor) appeared for the
local authority (appellants); J Colyer QC and R Fawls (instructed by Stafford
Clark & Co) represented the companies (respondents).
LORD DENNING
MR, giving judgment, said that the houses, built nearly 100 years earlier, had
been inspected by the local authority’s surveyor, who found them to be fit for
human habitation but in need of repair. Notices, requiring the houses to be
repaired and brought up to a reasonable standard, were served on the owners,
who objected, saying the repairs would cost much more than the houses were
worth. The cases were in the nature of test cases, in that, if the owners did
not do the repairs, the houses would in due course become so dilapidated as to
be unfit for human habitation. The owners would then be in a position to evict
the tenants by giving an undertaking to the council that the houses would not
be used for human habitation, so that the tenants would then no longer be protected
by the Rent Acts (see section 16(5) of the Housing Act 1957). The owners could
then repair the houses and sell them with vacant possession. His Lordship would
have thought that this was socially most undesirable.
One other
thing must be remarked: the emergence of the one-house company, comparable with
the one-ship company in the shipping world. It could be used with great
advantage by people who formed private companies, sometimes Irish or other
overseas companies. Such a company would buy a house on mortgage, and then, if
liabilities accrued to outside creditors, the company could be wound up. The
mortgagees could sweep up the only asset, and other creditors would go away
empty-handed. Often enough, the promoters would themselves be the mortgagees,
and would then operate so as to take all possible benefit to themselves and
inflict all possible loss on others.
In the present
case, the two landlord companies had the same address, and the properties were
managed by the same property managers, who gave evidence that neither company
had any money with which to pay for repairs. The cost of repairs was in each
case more than the house was worth, on the basis of it being occupied by a
sitting tenant, but not on the basis of it being vacant. The figures were:
|
|
£ |
|
68 Glyn Road |
|
|
Value unrepaired with sitting |
1,700 |
|
Cost of repairs |
2,750 |
|
4,450 |
|
|
Value, after repairs, with |
2,300 |
|
Value, after repairs, with |
7,500 |
|
|
£ |
|
48 Coopersale Road |
|
|
Value unrepaired with sitting |
1,700 |
|
Cost of repairs |
2,900 |
|
4,600 |
|
|
Value, after repairs, with |
2,500 |
|
Value, after repairs, with |
7,500 |
If the houses had been bought cheaply because of the sitting tenants
there, the profit on a sale with vacant possession would be greatly increased.
One should
bear in mind that the houses were considered fit for human habitation–no
doubt in need of repair, but worth repairing. Had they been unfit, because the
cost of repairs was more than the house was worth, the local authority would
have had to condemn them, and serve a notice preliminary to a demolition order
under the procedures contained in sections 9 to 39 of the Housing Act 1957 as
explained in Bacon v Grimsby Corporation [1950] 1 KB 272. As the
houses were fit for habitation, section 9(1)(A) of the 1957 Act (introduced by
section 72 of the Housing Act 1969) was used. This provided that a local
authority might serve a notice requiring the owner to do repairs when they were
needed to bring a house up to a reasonable standard ‘having regard to its age,
character and locality.’ His Lordship
regarded such a notice as a preliminary notification by a local authority,
designed to ensure that its stock of houses was kept in good repair and not
allowed to fall into decay. So long as the local authority had regard to the
matters stated in section 9(1)(A) they were not bound to look further. They
need give the owner no prior warning, nor hear him, nor make inquiries of him,
nor inquire into the cost of the works or the value of the property. So long as
they were satisfied that substantial repairs were required to bring the house
up to a reasonable standard having regard to its age, character and locality,
that was sufficient to justify the notice. The owner’s remedy was his right of
appeal to a county court judge, who could quash or vary the order (see section
11(1)(a)(3) of the 1957 Act, and Victoria Square Property Co Ltd v Southwark
Borough Council [1978] 1 WLR 463).
But to what
matters was the judge to have regard?
The judge in the instant case had held that he was entitled to take into
account individual facts including ‘the value of the property, the capital cost
of the works and the financial position of the owners.’
Section 39(1)
of the 1957 Act provided that, in determining whether an unfit house could be
rendered fit for human habitation at reasonable expense, regard should be had
to the cost of the works necessary to render it so fit, and the value which it
was estimated that the house would have when the works were completed. But what
was the meaning of ‘value’? Was it the
value with vacant possession, or with a sitting protected tenant, or something
in between? There was a sentence in Bacon
v Grimsby Corporation (supra) which looked as if it might be the value
with a sitting tenant, but the matter was not discussed in that case, and his
Lordship did not think it should be regarded in any way as binding. To his
Lordship’s mind, the value was primarily the value with vacant possession. When
the 1957 Act was passed, most of the houses in the country had been
decontrolled by the Rent Act 1957, so that the owners could obtain vacant
possession by giving notice to quit to the tenants. Many of the remaining
houses were let furnished, and were equally not protected by the Rent Acts.
There were some houses of low rateable value in which the tenant was still
protected if he had been living there for many years, but these were so few as
not to affect the principle. Parliament could never have intended that the
question whether the house should be condemned or not should depend on whether
or not the tenant was protected by the Rent Acts. It should depend on whether
the house was so dilapidated that it was not worth the cost of repairing it,
irrespective of the quality of the tenancy.
This view was
confirmed by the fact that, if the house was so dilapidated as to be condemned,
the tenant was no longer protected by the Rent Acts. In his Lordship’s opinion,
therefore, the ‘value’ of the house was primarily the value it would have if
sold with vacant possession when the works were completed. In 1965 control was
brought back. Many tenants became protected tenants; but that did not alter the
meaning of the word in the 1957 Act.
In the present
case, the value of the houses with vacant possession, when repaired, was so
great that the local authority could not possibly have condemned them under
sections 16 to 18. If they had considered them unfit for human
habitation their duty would have been to compel the owner to do the repairs by
serving a notice under section 9(1) and enforcing it by the measures stated in
section 10. But the local authority considered the houses to be fit for
habitation, so they could not take either of the two above measures, or invoke
the provisions of the Public Health Act to secure the doing of the repairs (see
Salford City Council v McNally [1976] AC 379 at 389 per Lord
Wilberforce, and NCB v Thorne [1976] 1 WLR 543). Their only
recourse, therefore, to secure the execution of the repairs, was section
9(1)(A).
As to the
matters to which the judge should have regard under section 9(1)(A):
(i) Their Lordships were told that the local
authority never served notices under this section on owner-occupiers: no doubt
a wise policy, but not to be regarded as inflexible. Where, by some oversight
or misunderstanding, such a notice was served on an owner-occupier, the judge
would be entitled, if he thought it right, to set it aside on appeal.
(ii) As to whether the judge should consider the
financial position of the owner, his Lordship could envisage a poor widow who
had only one house which she let out to bring in some rent. If she could not
afford to do the repairs, his Lordship thought the judge could quash the
notice, or reduce the requirements so as to bring the cost within her means.
So, in the instant case, the judge could consider the financial position of the
two companies. But the county court judge had too little evidence to form an
opinion about them or their means. He should have torn aside the corporate
veil; his Lordship would expect to find a strong property-owning company behind
them.
(iii) Next, the judge could consider the cost of
the works as compared with the ‘value’ of the house; but ‘value’ here could in
many cases be taken as the value with vacant possession, and not the value with
a sitting protected tenant. It would be very mischievous to take the latter
‘value,’ since it would enable an owner to get the notice quashed and then, by
good strategy, deprive the tenant of Rent Act protection and sell with vacant
possession. Even if, in this case, the judge had taken a ‘midway’ value, the
house was of sufficient value to justify the cost of the repairs.
(iv) Finally, the judge said that service of a
section 9(1)(A) notice would be proper if public money had been expended by way
of improvement grants for the property, but that otherwise the owner should not
be put to the expense of repairs. His Lordship did not think that an owner who
had received no such grant should be exempt from such a notice.
It would be
deplorable if there were no means of compelling owners of old houses to keep
them in proper repair. If a house was so bad as to warrant being condemned,
then let it be demolished, closed or purchased, whoever be the occupier. If it
was worth repairing, it should be repaired, whether its tenant be protected or
unprotected.
His Lordship
would allow the appeal, and uphold the notices.
GEOFFREY LANE
LJ, agreeing, said that it might seem paradoxical that there were great
advantages to a landlord in having his house declared unfit for human
habitation, one reason being that he could obtain possession, repair it and
sell it, at great profit. Meanwhile, the local authority would be obliged to
house the dispossessed tenant.
The landlords
called two witnesses before the county court judge. Mr Toms, property manager
employed by a firm of estate agents who managed the houses for the two landlord
companies, said that Talisman had a substantial overdraft, and Hillbank had a
small credit balance. The second witness, Mr Eburn, the environmental health
officer who originally inspected the houses, said that in his view there was no
method available for putting these houses in order other than a section 9(1)(A)
notice.
The first
matter for consideration was the extent of the inquiries which a local
authority ought to make before serving such a notice. The learned judge had
held that it was incumbent on them at least to find out about the owner of the
house, the cost of the works and the value of the property, and that since they
had not done so they had failed to exercise any discretion at all. His Lordship
did not think it was incumbent upon them to make such inquiries. All they were
required to do was to satisfy themselves in accordance with section 9(1)(A).
That error did not necessarily affect the outcome of the appeal, because (as
the judge had rightly gone on to point out) he had (unlike the local authority)
heard evidence from both sides, and any discretion which had to be exercised in
the matter could be exercised by him. The fact that the local authority had not
made inquiries merely made their conclusions less weighty–see per Lord Goddard
CJ in Stepney Borough Council v Joffe [1949] 1 KB 599,602.
Was the county
court judge entitled to consider matters not mentioned in section 9(1)(A)? The local authority agreed that the powers
given to the judge were wide, but argued that that was not to say that the
proper ambit of his inquiries could be wide and contrasted section 9(1)
with section 9(1)(A).
Section 10
provided for various methods of enforcement whereby the local authority could
carry out repairs and recover the cost. All these methods were subject to
review by the county court judge under section 11, and it was at that stage,
and not before, it was argued, that any hardship or lack of funds or
unreasonable expense should be considered. It might be that by a strict
application of the canons of construction this result could be reached but
injustice might result from such a conclusion. Though their Lordships were told
that this authority would never serve a section 9(1)(A) notice on an
owner-occupier, there was nothing in the Act to prohibit this. In the case of
an elderly and impecunious owner-occupier, would a local authority not be
permitted to take such matters into account if they knew of them? If they could, so could the judge. Again,
were they not permitted to take into account the fact that the cost of repairs
far exceeded the value of the house?
There was in
his Lordship’s judgment no fetter (apart from admissibility and relevance) on
the matters which the local authority or judge could take into account. The
estimated cost of the required repairs compared with the value of the premises
was obviously an important consideration (see Victoria Square Property Co
Ltd v Southwark Borough Council [1978] 1 WLR 463 at 474H, per Bridge
LJ). But it was at that point that one ran into difficulties, because there
were in the present case, and usually would be, two different house values for
comparison–the ‘sitting tenant’ value and the ‘vacant possession’ value, and
the reasonableness or otherwise of the local authority’s notice to repair might
largely depend upon which of those two values one selected for purposes of
comparison. There might be evidence that the tenancy was unlikely to come to an
end in the foreseeable future, in which case the landlords should adduce it; or
evidence to the contrary, in which case the local authority should do the same.
If, as here, there was no evidence either way, what should the judge do? It seemed it was wrong to take either the
tenanted value or the vacant possession value without qualification as the
standard of comparison. In those circumstances any disparity between the cost
of repairs and the value of the property would have much less weight, because
one of the figures was necessarily imponderable. It might be that the judge
would come to the conclusion that the true value of the house was too uncertain
to enable him to base any conclusion upon it at all. It might be that he would
take the mean figure between the two extremes, which in this case would have
been about £5,750. His Lordship felt the judge here was in error. Although he
properly set out the various values ascribed to the houses, he did not seem to
have considered the possibility that the landlords might in the near future
make a handsome profit by getting vacant possession.
Owner-occupation
would in most cases be a powerful argument against allowing a notice to repair.
The financial means of the landlord where premises were tenanted was of
marginal significance, if any. Such evidence as there was of these landlords’
means came, not from an officer of the property companies themselves, but from
an employee of their estate agents. That was probably hearsay, and certainly
valueless. If the landlord was not prepared to adduce proper evidence as to
means through a witness who was in a position to meet questions asked in
cross-examination, then the wealth or indigence of the landlord should be
disregarded.
As to the
judge’s point about improvement grants, there was nothing in the 1957 or 1969
Act which in any way made improvement grants relevant to section 9(1)(A), and
the fact that no improvement grant had been made was not something which the
local authority or judge had to take into account. On the other hand, the fact
that there had been such a grant might well be material.
EVELEIGH LJ,
also agreeing, said he did not think the local authority was bound to consider
all the matters which were relevant to the decision of the county court judge.
The judge, however, should consider all the matters which were relevant and
given in evidence. In this case, however, the judge wrongly took the view that
there must be an improvement grant before notice could be given under section
9(1)(A), and also gave considerable weight to the alleged impecuniosity of the
landlords when there was no proper evidence of this.
The appeals
were allowed, and the notices restored, with costs in the Court of Appeal and
below.
Leave to
appeal to the House of Lords was refused.
