Further decision on the extent of a rent assessment committee’s duty to give reasons — General views as expressed in Guppy’s Properties Ltd v Knott (No 3) confirmed — Although a committee should deal with the substantial points raised, they are not bound to say which was their principal yardstick or even whether there was a principal yardstick — Unlike Scottish committees, English committees are not required to regard valuation as an exact science — ‘At the end of the day they are entitled to put everything in the pot and stir it all together, and what comes out as the cooked dish is the fair rent as they find it’ — Two other points of some importance decided — Phasing of rent under section 55 of the Rent Act 1977 should not be taken into account as a relevant circumstance in determining the fair rent — Committee acted correctly in this respect — Committee, however, in error in treating the appreciation of the capital value of the landlord’s investment in the subject property as a circumstance to which they should have regard in determining the fair rent — To determine a lower fair rent on this account would be to make an incorrect assessment — Cases remitted to committee for further consideration on this point
These were
statutory appeals under section 13 of the Tribunals and Inquiries Act 1971 in
two cases decided by a rent assessment committee of the Southern Rent
Assessment Panel. The appeals, relating to properties in Southampton, made the
same complaint that the committee failed to give adequate reasons or
explanation in respect of their decisions.
G Nurse
(instructed by Lovell, Son & Pitfield, agents for Paris, Smith &
Randall, of Southampton) appeared on behalf of the appellants; John Laws
(instructed by the Treasury Solicitor) appeared as amicus curiae; the
respondents did not appear and were not represented.
Giving
judgment, SIR DOUGLAS FRANK QC said: These are in effect two test cases brought
to question the decisions by a rent assessment committee sitting at
Southampton. The second-named applicants are the owners of some 400 properties
in the Southampton area managed by Mr J G U Clark, who is also the managing
agent of the properties owned by the first-named applicants. These are but two
of 242 properties dealt with by the rent assessment committee between October
23 1979 and February 13 1980. They concern two bungalows and the decision of
the committee is attacked upon a number of grounds.
Before I turn
to those grounds I should like to make some general observations on the
interpretation of section 70 of the Rent Act 1977. This is really the crucial
section and what it does, in so far as there is a formula, is that it
prescribes a formula for assessing fair rent, without in fact defining fair
rent.
Rent is
generally understood to be that which a property is worth
Traditionally, in assessing rent or its equivalent the courts have been
accustomed to look for that which would be paid in an open market, whether one
is looking for capital value or income value. Examples of that are in the
fields of compulsory purchase, war damage, compensation for planning and, as to
rent of course, with rating assessments. The difference between an assessment
under the Rating Acts and that under the Rent Acts is that the one is dealing
with a hypothetical tenant and the other with an actual tenant but a
hypothetical market. So I make this observation, that, subject to the other
provisions of the section, rent in section 70 means the amount which a tenant
would pay in the open market but circumscribed by the other provisions which
follow, and in particular that relating to scarcity.
I now turn to
the grounds upon which these rent decisions are attacked, and I would observe
that it is not sufficient to look merely at the one decision because the
decision under appeal itself relates back to the decision of December 7 1979
which in turn also relates to the one of October 23 1979, so in effect, as Mr
Nurse says, the three decisions have to be read as one, and they are all wrong
decisions — wrong in the sense that the reasons given are faulty.
Ground 1, as
promulgated by Mr Nurse, is that the committee were wrong in holding that the
effect of phasing was a circumstance to be disregarded. Now, under section 55
of the 1977 Act, the payments of rent increases are required to be phased over
three years: one-third of the increase payable in the first year; one-third in
the second year; and in the third year the full amount. Mr Nurse says that in
assessing a fair rent this is something which should be taken into account.
When I pressed him, he said that it should in fact be added back by adding 50
per cent of the amount of increase to the fair rent, because, he says,
otherwise the rent is an unfair one because it is going to be reducing. That it
seems to me, with respect, is not sustainable because it flies in the face of
the statute and its effect would be entirely to defeat the very provision of
section 55 of the 1977 Act, and it would not be compatible with that section.
It also seems to me that it was not compatible with the definition which I have
given of rent, because it is adding something other than the worth of the
property, namely a penalty, if such it be, which is an incumbrance which has
been put upon the landlord in respect of the amount of rent which he can
collect.
In my view it
is no more liable to be taken into account than would be the fact that the
landlord may or may not be having to pay income tax on the rent which he
receives. I should add, for completeness, that Mr Laws further submitted that
phasing should not be regarded as constituting unfairness within the meaning of
the statute; moreover, it applies only to certain tenancies and therefore the
committee would have to say whether it would be applied to a particular tenancy
under consideration, and that would be looking at the particular circumstances.
I accept the submission and would add that the result would be that with
identical properties you might have a different fair rent, and that is
sufficient to dispose of that submission.
The second
submission was that the committee were wrong in having regard to any increase
in capital value as part of the return to the landlord. It is apparent that
they did so in one of the decisions where it was said that capital value has at
least three aspects: the cost of the investment to the landlord and the
controls placed upon its earnings since 1939; the full market value of
dwelling-houses currently tenanted; and the vacant possession value which can
be regarded as the investor’s ultimate hedge against inflation. These words
follow:
The return is
not only the income return but also the return on ultimate realisation either
now or later. We have had regard to it.
and then
further down they said, commenting on one of the tenant’s representations:
It
that is vacant
possession
is realisable
when vacant possession obtained but regard must be had to it.
and they said
We agree it
is a circumstance to which we must have regard but it is difficult to quantify.
And so I must
assume that it may be difficult to quantify, but they had regard to it.
I am grateful
to Mr Laws for putting forward such submissions as he was able to in this
respect, but I have come to the conclusion that Mr Nurse’s submission is right.
I repeat that what we are looking for here is what would be the fair rent
payable, and I should have mentioned before that my definition has some
assistance from the words of Lord Widgery CJ in Metropolitan Property
Holdings Ltd v Finegold and Others [1975] 1 WLR 349 at p 351, when
he said:
. . . one
must have regard to the sort of factors which tend to push rents up or down on
the market.
If that is the
right approach, and it is wholly consistent with what I have said earlier, then
the ultimate capital appreciation of a property is not to be taken into
account; it does not push rents up or down in the market. It would in fact
amount to a deduction from the fair rent resulting in something less than the
fair rent. It is not an assessment of rent, it is an assessment of some future
capital appreciation, and therefore a deduction from the fair rent. On that
ground alone the case will have to go back to the committee, but I will shortly
deal with the other points which have been made.
The third is —
again I quote Mr Nurse — that the committee failed to have any regard to the
landlord’s evidence that fair rents assessed by the rent officer were not fair
rents for the purposes of comparison. One thing that appears to me from these
documents is that Mr Clark was a vigorous advocate, at least vigorous on paper,
and there can be no doubt that the committee were well aware what the
submissions were and further, as I read the documents, there can be no doubt
that they had regard to each and every submission made. I do not intend to go
through the decisions spelling out those parts which show that this submission
is ill-founded — Mr Laws has already done so. It is quite clear to me that the
committee paid full regard to every submission made by Mr Clark, whatever
weight, if any, they may have attached to them.
Finally, the
fourth ground is that the committee failed adequately to apply the rules stated
in Guppy’s Properties Ltd v Knott (1979) 124 SJ 81,* and
particularly failed (a) adequately to identify the principal yardstick on which
it relied and (b) to identify the comparables on which it relied.
*The judge is
referring here to Guppy’s Properties Ltd v Knott (No 2), more
fully reported at (1980) 253 EG 907, [1980] 1 EGLR 67. The same judge in Guppy’s
Properties Ltd v Knott (No 3) (1981) 258 EG 1083 further developed
his views on reasons.
I suspect that
Mr Nurse may have read more into my judgment in the Guppy case than I
intended to convey. In setting out what I hoped would be helpful rules in this
matter I did not intend to convey that it is incumbent on the committee to say
even which is the principal yardstick they relied upon, or indeed to say what
matter weighed with them. I said that although they do not have to deal with
every point raised, they must deal with the substantial points, showing what matters
were taken into consideration and what view was reached on them. Looking at
these decisions it seems to me that the committee fully complied with that
rule. I do not think that the committee are bound, at the end of the day, to
say what was their principal yardstick or even whether there was a principal
yardstick. I think they are quite entitled to say ‘These various points were
raised; this is what we thought about them, or these were the comments on
them’. Then at the end of the day they are entitled to put everything in the
pot and stir it all together, and what comes out as the cooked dish is the fair
rent as they find it.
I will stress
again that unlike the Scottish committees, the English committees are not
required to regard valuation as an exact science, as a mathematical
calculation, which it is not. I think that this committee are to be
congratulated on the careful way in which they have approached this matter.
They have set out fairly and properly the matters which they must take into account
and they have shown that they have taken them into account. It so happens that
they erred in one respect in taking something into account which they ought not
to have taken into account. In all other respects I would
reasons which have been given.
There is one
other point which arises from the one matter in respect of which the case has
to go back to the committee, namely, the increase in capital value. Mr Nurse
asserts that one consequence of that is that the comparables on which the
committee rely must have been arrived at on a false basis. I am not prepared to
say that, but what I do say, of course, is that when the matter goes back to
the committee, though they will have to consider the effect of my judgment, one
of the matters which they have to consider is whether the comparables are in
any way invalidated as a result of that. But I am not prepared to hold that it
necessarily follows. It is up to the committee to decide that question.
Accordingly
the appeals are allowed to that extent.
The cases were
remitted to the rent assessment committee for further consideration in the
light of the judgment. There was no order as to costs. The judge expressed the
view that, where one side (in this case the tenants) were not represented and
the committee were not a party to the proceedings, it was extremely helpful to
the court to have the assistance of an amicus curiae. His appearance had been
invaluable in Guppy’s Properties Ltd v Knott (No 3) and it had
been most useful in the present case.
