Landlord and tenant – Rent assessment – Tenants’ improvements – Respondents holding residential properties on assured periodic tenancies from appellant landlord – Rent assessment committee making deduction from market rent for those properties to reflect extent of respondents’ internal decorating liability under terms of tenancies – Whether giving sufficient reasons for deduction – Appeal allowed
The appellant was the landlord of two three-bedroom residential properties in Eastbourne that were let, respectively, to the first and second respondents and the third and fourth respondents on assured periodic tenancies. The respondents had carried out extensive improvements to each property during the course of their tenancies, including the fitting of a new kitchen and bathroom, sun lounge, side extension to provide a utility room, the installation of gas-fired central heating and improvements to the gardens.
In November 2012, the appellant served notices on the respondents, under section 13 of the Housing Act 1988, to increase their rents from £1,560 per quarter to £3,000 per quarter. In March 2013, the notices were referred to the rent assessment committee, which issued its decision in June 2013. The committee indicated that, in coming to its decision, it had had regard to the evidence supplied by the parties and the committee members’ own general knowledge of the market rent levels in the area. It determined that the market rent was £3,000 but that deductions should be made from it to reflect the works carried out by the tenants. After making deductions for tenants’ improvements, their provision of white goods and their internal decorating liability under the terms of the tenancies, the committee determined that the rent for each property should be £1,750 per quarter.
On appeal from that decision, the appellant challenged the committee’s deduction of £200 for the tenants’ internal decorating liability. It contended that there had been no evidence before the committee that comparable properties, which had been used as the basis of the market rent assessment of £3,000 per quarter, were let on terms that did not require the tenants of those properties to decorate the interiors; further or alternatively, the committee had erred in law by failing to provide reasons for the deduction since its decision contained no express justification, finding or fact or reasoning to support it.
Held: The appeal was allowed.
The failure of the committee to give a specific explanation in its decision as to why a deduction of £200 per quarter was made for internal decoration amounted to an error of law vitiating the validity of that decision. That being so, the absence or otherwise of evidence in relation to the comparator properties was immaterial.
The committee was obliged to give reasons for its decision that were intelligible and, while it did not have to deal with every point raised, it had to deal with the substantial points, showing what matters were taken into consideration and what view was reached on them. Where the committee relied on its own knowledge and experience, it was not required to further explain how its figure was determined; one of the advantages of rent assessment committees being populated by local practitioners was that they could bring their own local market knowledge to bear when setting rents. However, where they did so, they had to explain their view on the aspects that made up their determination.
In the instant case, the committee had clearly used its local knowledge and experience, in addition to the evidence, to arrive at the starting market rent of £3,000 per quarter. However, the deduction of £200 for internal decorating liability was made without any comment or previous explanation. Although the committee had in principle been entitled to quantify a deduction based on its own knowledge and experience, it should have provided reasons, or at the very least a commentary, as to why that deduction was made. While such a deduction might be common practice, in comparison with a more limited repairing liability under comparable properties let on a shorthold tenancy, which would generally have a “fair wear and tear” allowance, that did not absolve the committee from the need for explanation. The committee’s decisions should be stand-alone documents and the reader should not have to be familiar with practice or other decisions of the committee in order to understand how the final figure had been arrived at. It was not sufficient for the reasons for arithmetical or valuation reductions to be implicit in the decision; they had to be specifically explained.
If the committee considered that there was a difference in substance between the decorating liability of the subject tenancies and those of the comparable properties from which they derived their starting market rent, then that should have been explained. The suggestion that a redecoration covenant imposed a substantively different obligation from another covenant was not a matter of valuation knowledge or experience but was a matter of law. Before making any adjustment for such a difference, the committee had to explain what it was. The deduction made by the committee amounted to a 6.7% allowance, which was not insignificant. If the committee had experience of such an allowance being made in market transactions, it should have said so, to enable the reader to understand that a figure had not simply been picked out of the air. If the committee had no experience of market transactions that provided evidence of such an allowance, that would not have prohibited it from making an allowance, but it would have had to provide a clear explanation as to why it considered an allowance of that magnitude to be appropriate. The committee had therefore erred in law by failing to provide reasons for their decision to deduct £200 per quarter from each property for internal decorating liability: Guppys Properties Ltd v Knott (No3) [1981] 1 EGLR 85; (1981) 258 EG 1083 considered.
Ian Rees Phillips (instructed by Heringtons LLP, of Eastbourne) appeared for the appellant; Andrew Board, of Cornfield Law LLP, of Eastbourne, appeared for the respondents.
Sally Dobson, barrister
