Landlord and tenant –– Long lease –– Notice to terminate –– Part I of Landlord and Tenant Act 1954 –– Whether notice terminating tenancy addressed to ex-tenant valid notice –– Whether tenant
In 1962 the landlord, one of the interested parties in the proceedings, granted a headlease of a flat to D for a term expiring on 29 September 1995. D then granted an underlease to B for a term expiring on 19 September 1995. In 1979 and 1987 the underlease and then the headlease were respectively assigned to F. In 1990 the claimant went into occupation of the flat. On 21 April 1995 the landlord sent a notice (the 1995 notice) to B, under Part I of the Landlord and Tenant Act 1954, proposing a statutory tenancy of the flat upon the expiration of its term. The claimant then acquired the underlease from F and, in June 1995, wrote to the landlord informing it that he had acquired the underlease and that it should serve a Part I notice upon him. In June 1999 the landlord served a notice (the 1999 notice) upon the claimant, terminating the long tenancy and proposing an assured tenancy at a rent of £3,900 per month. The claimant served a counternotice proposing £2,000 per month. The defendant rent assessment committee determined a rent of £2,708 per month. The claimant challenged the following decisions of the committee: (1) the 1995 notice was not a valid notice; (2) the 1999 notice, which determined the long tenancy and proposed an assured tenancy, was valid notwithstanding that it specified a rent in excess of £25,000 pa; and (3) it could assess a market rent of the flat without reference to the £25,000 limit. The claimant contended that the 1995 notice was validly served on F and that he was accordingly entitled to security of tenure and a fair-rent limit. Alternatively, he was entitled to an assured tenancy with a maximum rent of £25,000 pa.
Held: The application was dismissed.
(1) The 1995 notice was not a valid notice; it was not addressed to the then tenant, F. (2) and (3) the decision in R v London Rent Assessment Panel, ex parte Cadogan Estates Ltd [1997] 2 EGLR 134 could not be distinguished. The claimant’s tenancy became a “long residential tenancy” and was therefore subject to Schedule 10 to the Local Government and Housing Act 1989. In accordance with para 4 of that Schedule, the 1999 notice proposed “an assured monthly periodic tenancy” and a rent for that tenancy (that was not a “low rent”). Para 10(5) of Schedule 10 provides that the rent assessment committee shall determine any dispute relating to the rent. Its words are identical to the statutory provision construed in Cadogan Estates. The defendant committee was therefore not limited to setting a rent no higher than £25,000 pa. The words of paras 4(5)(a), 9(1) and 11(5) of Schedule 10 should not be interpreted so as to require, on the termination of a long residential tenancy by a notice under para 4, that the tenancy must be an assured tenancy subject to a maximum rent of £25,000 pa.
The following cases are referred to in this report.
John Lyon’s Free Grammar School v Secchi (2000) 79 P&CR D10; [1999] 3 EGLR 49; [1999] 49 EG 100; (2000) 32 HLR 820
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; [1997] 2 WLR 945; [1997] 3 All ER 352; [1997] 1 EGLR 57; [1997] 24 EG 122; [1997] 25 EG 138, HL
R v London Rent Assessment Panel, ex parte Cadogan Estates Ltd [1998] QB 398; [1997] 3 WLR 833; (1998) 76 P&CR 410; [1997] 2 EGLR 134; [1997] 34 EG 88; (1998) 30 HLR 487
R v Secretary of State for the Environment, Transport and the Regions, ex parte Spath Holme Ltd [2001] 2 WLR 15; [2001] 1 All ER 195; [2001] 1 EGLR 129; (2001) 33 HLR 31, HL; [2000] 3 WLR 141; [2000] 1 All ER 884; [2000] 1 EGLR 167; (2000) 32 HLR 495, CA
York v Casey [1998] 2 EGLR 25; [1998] 30 EG 110, CA
This was an application by the claimant, David Morris, for judicial review and the quashing of three decisions by the defendant, the London Rent Assessment Committee, to which the Earl Cadogan and Cadogan Estates Ltd were interested parties.
Jonathan Small (instructed by Dewar Hogan) appeared for the applicant; Anthony Radevsky (instructed by the Treasury Solicitor) appeared for the defendant; Kenneth Munro (instructed by Pemberton Greenish) represented the interested landlord.
Giving judgment, HOOPER J said:
Introduction
1. The claimant is a tenant of a second-, third- and fourth-floor flat in Cadogan Place, London SW1. The defendant is the London Rent Assessment Committee (LRAC) and the interested party is the landlord of the flat, Earl Cadogan and Cadogan Estates Ltd. The claimant seeks an order quashing the defendant’s decision that a notice proposing a statutory tenancy under Part 1 of the Landlord and Tenant Act 1954, served on 21 April 1995 and addressed to a Mr HG Barnby (Barnby), was not a valid notice. I shall refer to that decision as the first decision. If the claimant is unsuccessful in his application to quash that decision, he seeks an order quashing a further decision of the defendant that the landlord’s notice to the claimant, terminating his long-term residency and proposing an assured tenancy, was a valid notice notwithstanding that it specified a rent in excess of £25,000. The claimant also challenges a decision linked to that decision, namely that the LRAC in assessing the market rent for the claimant’s flat could do so without reference to the £25,000 limit. I shall refer to those decisions as the second and third decisions. Subsequently the committee met and determined that the rent for the property was £2,708 per calendar month or, in other words, £32,496 pa. The landlord in the notice had proposed a rent of £3,900 per month.
Statutory regime
2. Mr Jonathan Small, who appears for the claimant, prepared a written overview of the statutory regime which was, in very large measure, the subject of agreement. The following draws heavily on that overview, for which I am grateful.
3. The relevant statutory regimes relevant to this case divide between the regime that pertained prior to 15 January 1989, and that which pertained after that date.
4. Prior to 15 January 1989, private residential tenancies were governed by the Rent Act 1977, and Part I of the Landlord and Tenant Act 1954. The Rent Act applied to all tenancies with certain exceptions. Tenancies at a low rent were an exception, as were tenancies of premises with a high rateable value.
5. If a tenancy was protected by the Rent Act, then, during the contractual term, there would be two important consequences: first, the rent could be capped at a “fair rent”; and second, the landlord could only obtain possession in very limited circumstances. In simple terms a “fair rent” is determined by ignoring the factor of scarcity in so far as it affects market rent. With the expiry of the contractual tenancy the tenant continued as a statutory tenant, providing that he resided in the premises as his home. A statutory tenancy affords the tenant a personal right to remain in the premises. A statutory tenant only has to pay a fair rent and can only be made to give up possession on limited grounds. Further, if an original tenant under the Rent Act dies, providing certain residence requirements are fulfilled, members of his family may succeed to the statutory tenancy.
6. If a tenancy fell outside the Rent Act because one of the various exceptions applied, then it would be subject to the ordinary common law rules (some of which have been abrogated) for determining the level of rent payable and how the tenancy might be determined.
7. Although tenancies at a low rent were not protected by the Rent Act, if the tenancy at a low rent exceeded 21 years then, upon the expiry of the contractual term, it would be protected by Part I of the Landlord and Tenant Act 1954. By section 3(1) of the 1954 Act, providing the tenant continued to reside in the premises, a tenancy to which that Act applied would simply continue on the same terms as before. However the landlord could elect to serve a notice in the prescribed form, under section 4, terminating the tenancy and proposing a statutory tenancy under the Rent Act. If a landlord proposed a statutory tenancy and the
8. On 15 January 1989, Chapter I of the Housing Act 1988 came into force. From that date, with limited exceptions, it was not possible to create a protected tenancy under the Rent Act and all new tenancies were assured tenancies. Existing Rent Act tenancies remain protected by the Rent Act. Assured tenants enjoy security of tenure in as much as their tenancies cannot be brought to an end by the usual common law methods (section 5). If a landlord requires possession he must apply to the court but the grounds, particularly in the case of non-payment of rent, are more generous to the landlords than was previously the case under the Rent Act. When an original assured tenant dies, members of his family who fulfil certain qualifications have rights of succession.
9. The parties to an assured tenancy were free to strike whatever bargain they pleased as to the amount of rent payable under the tenancy. But after the end of the contractual term of the tenancy and, in the case of most periodic tenancies, landlords could propose an increase of rent (section 13) and, if the tenant so desires, the level of rent payable is the “market rent” as determined by a Rent Assessment Committee. By virtue of section 14 of the 1988 Act:
the committee shall determine the rent at which… the committee consider that the dwelling-house concerned might reasonably be expected to be let in the open market by a willing landlord under an assured tenancy…
10. The Housing Act contains exceptions. There is a low rent exception. As originally drafted, there was also a high rateable value exception. Upon the abolition of general rates, the Secretary of State was given the power to substitute for a reference to general rates, a reference to another factor. One of the authorised methods of replacing the high rateable value exception was to express the factor by reference to rent. That was the solution chosen by the Secretary of State. The effect of choosing that solution was considered by Kay J in R v London Rent Assessment Panel, ex parte Cadogan Estates Ltd [1998] QB 398*. I shall consider both the changes introduced by the Secretary of State, and that case, later in this judgment.
* Ediotr’s note: Also reported at [1997] 2 EGLR 134
11. Since it was not possible, after 15 January 1989, to create new tenancies under the Rent Act, the continued conversion of tenancies, under the 1954 Act, to statutory tenancies was anomalous. However, parliament did not simultaneously provide for a conversion to assured tenancies. To do so may have operated unfairly upon persons who, before 1989, had acquired “tailends” of long leases at premiums that reflected the expectation that they would be able to remain in the premises as statutory tenants after the term date. Accordingly, parliament decided to delay the conversion of existing long tenancies at low rents to assured tenancies for 10 years. This was achieved in section 186(3) of the Local Government and Housing Act 1989. The long transitional period also gave an opportunity to those considering whether to buy “tailends” to discover the consequences of so doing.
Policy of the 1988-1989 changes
12. In R v Secretary of State for the Environment, Transport and the Regions, ex parte Spath Holme Ltd [2001] 2 WLR 15 (HL)*, Lord Bingham gave a brief account of the statutory history at pp18-19:
During the last century England and Wales suffered from a persistent shortage of housing. The demand, in particular for private rented accommodation, was greater than the supply. This enabled some private landlords to exploit the scarcity of what they had to let by exacting exorbitant rents and letting on terms disadvantageous to the tenant. A series of statutes, beginning in 1915, sought to address this problem, by controlling the rents which could be charged and affording security of tenure to tenants. This control, beneficial though it was in many ways, tended by its very effectiveness to exacerbate the problem: the financial return to the landlord was at times so modest that there was very little incentive to let accommodation to private tenants, with the result that the supply of accommodation available for private letting tended to shrink. Thus statutes were passed with the object of giving landlords a return sufficient to induce them to make accommodation available.
The Rent Act 1965 was intended to revitalise the market in privately rented accommodation by introducing a new regime of what were called fair rents. These provisions were consolidated in the Rent Act 1968, extended in the Rent Act 1974 and consolidated in the Rent Act 1977, which remains in force. Section 70 of that Act governs the assessment of fair rents, which are to be open market rents adjusted to discount for scarcity and to disregard certain matters specified in section 70(3)…
In giving effect to this statutory regime, rent officers and rent assessment committees faced the practical difficulty that there was no open market in unregulated privately-rented property with which comparison could be made. The years following 1965 were also years of very high inflation. The result was that rents set by rent officers and rent assessment committees did not keep up with inflation, to the benefit of tenants but to the obvious disadvantage of landlords. So the problem which Parliament had sought to address in 1965 once more became acute, and the market in privately-rented accommodation declined. By the Housing Act 1988 it was again sought to stimulate a free market in such accommodation by providing for assured and assured shorthold tenancies, which (subject to a limited safeguard for some tenants) provided for rents to be negotiated and agreed between landlord and tenant. Regulated tenancies under the Rent Act 1977 continued to exist, but no new regulated tenancies were to come into existence.
The 1988 Act had its desired effect of tempting private landlords back into the market…
* Editor’s note: Also reported at [2001] 1 EGLR 129
Issues in outline
13. It is common ground in this case that the claimant’s underlease, dated 17 July 1962, was one to which the 1954 Act applied. The contractual term date of that lease was 19 September 1995. If the 21 April 1995 notice addressed to Barnby, proposing a statutory tenancy, was a valid notice, then the claimant continues to enjoy the protection of Part 1 of the 1954 Act, including security of tenure and the obligation to pay only a fair rent.
14. If the 21 April 1995 notice was invalid, then, from 15 January 1999, the tenancy would have become subject to Schedule 10 to the Local Government and Housing Act 1989.
15. Section 186(3) of the Local Government and Housing Act 1989 provides:
(3) If a tenancy ––
(b) does not fall within sub-section 2 above, and
(c) immediately before that date was or was deemed to be a long tenancy at a low rent for the purposes of Part 1 of the Landlord and Tenant Act 1954
then, on or after that date… section 1 of that Act shall cease to apply to it and schedule 10 to this Act shall apply to it unless, before that date, the landlord has served the notice under section 4 of that Act specifying a date of termination which is earlier than that date.
16. By virtue of Schedule 10, the claimant’s tenancy, if the notice was invalid, would have become a long residential tenancy. A tenant of a long residential tenancy continuing after the term date enjoys the same rent and the same terms as before the term date.
17. However, para 4 of Schedule 10 enables the landlord, by notice, to terminate the long residential tenancy and propose an assured tenancy. This is what the landlord has purported to do and the validity of that notice and the consequent decision to set the rent at a figure higher than £25,000 form the subject matter of the second and third decisions.
First decision
18. In 1962 the landlord granted a headlease of the flat to Dean Investments Ltd. That lease was to expire on 29 September 1995. The terms of that lease were not put before the LRAC and have not been exhibited. I was told that there were provisions in the lease dealing with assignments and subletting. On 17 July 1962 Dean Investments Ltd granted an underlease to Barnby. That lease contains the usual covenant not to assign, underlet, etc without the previous consent in writing of the lessor, such consent not to be unreasonably withheld.
19. The fact that there had been an underlease to Barnby came to the attention of the landlord. On 13 July 1979 that underlease was assigned
20. On 21 April 1995 the landlord served a notice under the 1954 Act proposing a statutory tenancy. That notice is the document with which the first challenged decision is concerned. The notice is addressed to “H. G. Barnby, Tenant of premises known as 2nd, 3rd and 4th Floor Flat”, being the flat occupied by the claimant since 1990. Para 4 reads as follows: “The following are the names and addresses of other persons known or believed by us to have an interest superior to your tenancy …”. There then followed the name Charles Anthony Fry, of flat no 1, of another address in Cadogan Place. It seems that the landlord was unaware of the assignment of the underlease, by Barnby, to Fry.
21. There was no response to that notice until 12 June 1995. In the meantime, Fry assigned the underlease to the claimant. Although in August 1995 the validity of that assignment was questioned, the landlord now accepts it to be valid.
22. Having now obtained the assignment, the claimant wrote a letter, on 12 June 1995, to the landlord. The letter reads as follows:
I have received from you a notice dated 21st April 1995 addressed to Mr HG Barnby who is obviously a previous holder of the sublease on the above property.
a) Would you please note that I am the current holder of this sublease which has recently been assigned to me by the headlease holder, Charles Anthony Fry.
b) I have lived in the above flat continuously since April 17th 1990.
c) Perhaps you would be good enough to re-address your notice under the Landlord and Tenant Act 1954 directly to me so that I can reply accordingly.
d) If the terms of the notice addressed to me are the same as those which you previously addressed to Mr Barnby, I think it is highly likely that I would accept your terms although, prior to doing so, I would like to check the position with the rent officer as far as the rent you are proposing is concerned.
23. On 7 August solicitors for the landlord acknowledged the letter and made the now abandoned point that the assignment, by Fry, to the claimant, was not valid. On 22 August 1995 the landlord commenced an action against Barnby in West London County Court for settlement of the terms of the statutory tenancy. The originating application rehearsed the lease between Dean Investments Ltd and the respondent to those proceedings, Barnby. It said that the rent reserved by the long lease was £275 pa and that the rateable value of the premises on 22 March 1973 was £1,305. Having set out that no terms of the statutory tenancy had been agreed between Barnby and the landlord, it set out proposals for the terms of the statutory tenancy. It appears that nothing further has been done in respect of those proceedings. The claimant never applied to be substituted as the respondent in place of Barnby. In this respect, the claimant was adopting an approach consistent with the terms of his letter of 12 June 1995. Although the claimant was to tell the committee that he had taken proceedings in the county court, he had not done so (see paras 5 and 6 of the defendant’s decision, dated 21 September 2000, setting the rent for the flat). No doubt, as Mr Radevsky points out, the proceedings would have been automatically stayed under CPR Part 51.
24. There is no dispute that the relevant time for determining the validity of the landlord’s notice proposing a statutory tenancy, is the date of service. The date on the document is 21 April 1995, and one can sensibly presume service was made on that day or on the following day. The relevant provisions regarding service of notices is to be found in section 23 of the Landlord and Tenant Act 1927. There is no evidence as to what precisely happened to the notice. It clearly came into the hands of the claimant because he was able, in June, to write the letter to the landlord to which I have already referred. There is no evidence, one way or the other, as to whether it came into the hands of Fry. If it did so, he took no steps vis-‡-vis the landlord. Neither in his witness statement nor during the hearings before the committee has the claimant described what actually happened to the notice.
25. The claimant, not being the tenant of the premises at the date of service of the notice, can only succeed if he shows that the notice served upon Fry was valid. If it was valid then, and this is not disputed, he could obtain the benefits accruing to the tenant under the notice upon the assignment by Fry to him of the underlease.
26. The defendant and the landlord submit that the notice being addressed to Barnby cannot be a valid notice served upon Fry. They submit that it cannot be assumed that the landlord would necessarily have been prepared to serve the notice upon Fry. The landlord might wish to test the validity of any assignment to Fry. Fry might be a person to whom the landlord would not wish to propose a statutory tenancy. He might have already demonstrated himself not to be a good tenant. Mr Anthony Radevsky, in his skeleton argument, submits that serving a notice upon Fry might have involved a waiver of the right to forfeit the lease for a breach of covenant. The defendant and the landlord submit that this is not a case of the misspelling of a name. The notice is addressed to Barnby and to no one else. Barnby was not a tenant at the time and therefore the notice has no effect. Fry cannot take the place of Barnby merely because he was the tenant at the time. They also point to the letter of 12 June in which the claimant requested a new notice, and point to his failure to take a step in the proceedings in the county court. It was submitted, on behalf of the landlord, that if the notice was valid, the claimant had repudiated the notice by taking these steps.
27. The defendant and the landlord rely upon the wording of section 4 of the 1954 Act under which the notice was given. It provides:
(1) The landlord may terminate a tenancy to which section 1 of this Act applies by notice given to the tenant in the prescribed form specifying the date on which the tenancy is to come to an end … being either the term date of the tenancy or a later date.
28. The prescribed form is to be found in the Landlord and Tenant (Notices) Regulations 1957 as Form 1. It is headed “Landlords Notice Proposing a Statutory Tenancy”. The form starts: “To [blank], tenant of premises known as [blank]”. The landlord in this case used the prescribed form. It is submitted, on behalf of the defendant and the landlord, that section 4 makes it clear that the notice must be given to the tenant. That is why, in the form, the person to whom the notice is addressed is described as “the tenant”.
29. I turn to the arguments submitted by Mr Small, on behalf of the claimant, to the effect that the notice was valid. He pointed out that, at the time of the notice, the landlord had, realistically, two choices. With the lease expiring on 19 September 1995 he could convert the tenancy into a statutory tenancy with the proposed rent of £12,700 a year. This is what the landlord sought to do by addressing the notice, on 21 April, to Barnby. Alternatively he could wait and take action under the new regime. At any time on or after 15 January 1999, the landlord (having served the appropriate notices) could exercise his rights under Part 4 of Schedule 10 to the Local Government and Housing Act 1989, and propose a conversion to an assured tenancy. He submits that the landlord must have chosen the former of those two routes. By choosing the former route he would obtain a fair rent in 1995, rather than wait for a market rent in 1999. He submits that the identity of the tenant was irrelevant. This, he said, was reflected in section 4 of the Landlord and Tenant Act 1954 and the prescribed form. The notice has to be addressed to the tenant and the fact that the landlord believes that Barnby is the tenant, whereas it is, in fact, Fry, can be ignored. He did accept the argument that the landlord may be interested in the identity of the tenant who is to become his statutory tenant. He cites Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749* and York v Casey [1998] 2 EGLR 25. He submits that: “the tenant who received the notice can be taken to know that Mr Barnby was not the tenant and that he was”. When it was pointed out that there was no evidence that the tenant received the notice, he invited me to assume that Mr Fry received the notice and submitted that the question to be asked was: “Would he reasonably have taken the notice as a notice meant for him?” Fry would know that he was the tenant and that Barnby
* Editor’s note: Also reported at [1997] 1 EGLR 57
30. Mr Radevsky and Mr Kenneth Munro submitted that the principles laid down by the House of Lords in Mannai were not relevant to this situation. It was not necessary to ask how a reasonable tenant would have viewed the notice upon its receipt. They point out that the claimant himself did not treat it as a valid notice. They submit that this is not a case of getting the name wrong. Mr Munro relied on York v Casey at p26 and John Lyon’s Free Grammar School v Secchi [1999] 3 EGLR 49 at p51.
31. The rent assessment committee summarised the competing arguments (paras 8, 9 and 10, at p66) and concluded (para 11) that the landlord had “made out a strong prima facie case that the 1954 Act notice was invalid”.
32. In my judgment the defendant reached the right conclusion. The notice was not addressed to the then tenant. It was addressed to a different person who the landlord wrongly believed to be the tenant. This is not a case of a mere spelling or typographical error. We do not know whether the landlord would have sent the notice to Fry, had the landlord known that Fry was the tenant. It would be wrong to speculate about how Fry might have viewed the letter had he seen it, and there was no evidence before the committee that he had.
Second and third decisions
33. I now turn to the defendant’s second and third decisions. On 11 June 1999 the landlord served a notice upon the claimant, in the prescribed form, terminating the long residential tenancy and proposing an assured tenancy. In para 10, the landlord proposed that the claimant should have an assured monthly periodic tenancy of the flat at a rent of £3,900 a month. A copy of the proposed statement of terms of the tenancy was attached. It is common ground that the landlord and the claimant were able to reach agreement on everything other than the rent. On 5 August 1999 solicitors acting on behalf of Mr Morris served a counternotice under para 10(1) of Schedule 10 to the 1989 Act, proposing a rent of £2,000 per month for the assured tenancy. His solicitors also contended that the 11 June 1999 notice was invalid because the rent being proposed exceeded the upper limit for assured tenancies of £25,000. The landlord had anticipated the problem being raised by the claimant’s solicitors. In its letter of 11 June 1999, accompanying the notices served upon the claimant, there appears the following paragraph:
The Notices are in the form prescribed by the Local Government and Housing Act 1989. However, we consider that the level of rent payable under the periodic tenancy is such that the tenancy will not in fact be an assured tenancy, and the Notices are served without prejudice to that fact.
On 11 June a second notice was served proposing an interim rent of £3,900 per month.
34. Section 1(2) of the Housing Act 1988 provides (subject to an exception) “if and so long as a tenancy falls within any para of Part 1 of Schedule 1 to the Act, it cannot be an assured tenancy”. Schedule 1 is headed “Tenancies which cannot be Assured Tenancies” and, as originally enacted, Part 1 stated :
Tenancies of dwelling-houses with high rateable values
2. A tenancy under which the dwelling-house has for the time being a rateable value which,
(a) if it is in Greater London, exceeds £1,500; and
(b) if it is elsewhere, exceeds £750.
Tenancies at a low rent
3 (1) A tenancy under which either no rent is payable or the rent payable is less than two-thirds of the rateable value of the dwelling-house for the time being.
(2)…
35. Part II of Schedule 1 set out how rateable values were to be ascertained.
36. The Local Government Finance Act 1988 radically changed the method of financing local government. It introduced the community charge, popularly known as the poll tax. The provisions of paras 2 and 3 of Part I of Schedule 1 to the Act of 1988 therefore needed amendment. Section 119 gave the Secretary of State the power to make any necessary amendments to a provision referring to rateable value by providing that the reference should instead be to some other factor. Section 119 was itself superseded by section 149 of the Local Government and Housing Act 1989, which empowered the Secretary of State to make regulations substituting for a reference in any provision to a rateable value, a reference to some other factor. Unlike section 119, section 149 specifically enabled the Secretary of State to choose a factor “expressed by reference to… rent” (section 149(2)(b)).
37. The necessary amendments were made by the Reference to Rating (Housing) Regulations 1990 (SI 1990 No 434) (the regulations), which came into force on 1 April 1990. For tenancies entered into after 1 April 1990, para 29 amended para 2 of Part 1 of the Schedule. A tenancy “cannot be an assured tenancy” if “the rent payable for the time being is payable at a rate exceeding £25,000 a year…”. “Rent” was defined to exclude various payments. Amendments were also made to para 3 of Part 1, substituting for the references to rateable value.
38. I turn to the decision of Kay J in Cadogan Estates. I take the facts from the headnote. The landlord served a notice of increase in rent under section 13(2) of the Housing Act 1988. Pursuant to section 13(4) the tenant referred the notice to a rent assessment panel, which decided that the notice was invalid and that it had no jurisdiction under section 14(1) of the 1988 Act to entertain the reference, since the amount of proposed rent was above the maximum permissible for the subsistence of an assured tenancy. Kay J traced the history of the matter and, having referred to para 29 of the regulations said, at pp402-403:
This provision causes no difficulty in determining whether a tenancy is an assured tenancy at any particular time, which clearly is its purpose, but problems arise when the relationship between this paragraph as amended and section 14(1) of the Act of 1988 are examined. Mr Radevsky on behalf of the applicant submits, and I fear that he is right, that the draftsman failed to appreciate the relationship between these two provisions. Section 14(1) requires a rent assessment committee to assess the rent “that the dwelling-house concerned might reasonably be expected to be let… under an assured tenancy.” It is the interpretation of these words that is now at the heart of the dispute in this case.
39. Having set out the competing arguments, Kay J concluded:
I find it quite impossible to accept [the] argument that the wording of section 14(1) is simple and straightforward and as such must be interpreted in the way suggested on behalf of the panel. The section requires that the panel shall determine the rent at which it considers “that the dwelling-house concerned might reasonably be expected to be let under an assured tenancy.” If the annual market rent is in excess of £25,000 no landlord could reasonably be expected to let the premises at less than the market rent when the only advantage of an assured tenancy would be to the tenant. He would be required to give up a part of the rent that he could reasonably expect to receive for no benefit to himself.
In such circumstances, there would be no rent at which he could reasonably be expected to let the premises under an assured tenancy if the literal meaning suggested is to be accepted. £25,000 would be the annual rent at which he could least unreasonably be expected to let the premises but it cannot be said that such an expectation was in any way reasonable since in practice it would never happen. The higher the market rent was above £25,000 the less reasonable the expectation would become. If, as the applicant’s evidence suggests in this case, the annual market rent is £40,000, it would require a landlord to act wholly unreasonably to let the premises with all the benefits of an assured tenancy at an annual rent £15,000 below the going market rent with the knowledge that any future increase in rent could only come about if the Secretary of State exercised the power given to him to increase the £25,000 limit.
It seems to me in those circumstances that the provision cannot be taken to have the meaning suggested by the panel or the whole scheme breaks down since it is impossible for the panel to arrive at the determination required of it. I, therefore, consider that, in order to make the provisions have effect, it is necessary as counsel for the applicant suggests giving these words a wider
“The tenancy to be assumed is an assured periodic tenancy, with the security of tenure that such tenancies have. This is a benefit that tends to increase the rent that a tenant would pay, and it must be taken into account accordingly.”
Thus it seems clear that the provision was one that was originally included for the benefit of the landlord and it would be a remarkable situation if, simply because of the abolition of rates, it was to be turned on its head and have consequences of a very dire kind for some landlords. Mr Radevsky contends, and I agree, that the panel’s interpretation would have the effect that landlords would stop granting assured tenancies at annual rents less than £25,000 where there was a danger of subsequent increases hitting the £25,000 ceiling.
If the applicant’s contentions are right then clearly the closer a rental on a letting was to £25,000 pa, the less would be the benefit of an assured tenancy to a tenant since he would be on risk that a subsequent rent reference might take the tenancy out of the assured scheme. A rental of, for example, £24,500 per annum would bring little security of tenure because even a small movement in market rents would take it outside the scheme (subject to any variation of the limit –– there having been none since the limit was introduced). Thus there would be little practical difference between a letting just below the £25,000 limit and one just above and therefore little would need to be added to the rental to allow for it being an assured tenancy if it was just below the limit. There would thus be a natural progression in rental levels. If the panel’s argument is correct the whole picture would become wholly distorted since not only would the tenant gain the intended benefit of security of tenure but also he would gain the considerable benefit of a rent cap. It is difficult to see a landlord ever agreeing to let a property to an individual or individuals for occupation as a dwelling-house at a rental anywhere approaching the £25,000 limit. This as counsel for the applicant points out would be quite contrary to the whole purpose of the legislation which was to increase the available supply of privately owned property available for rent as dwelling-houses by individuals.
I am reinforced in my view that the panel’s interpretation cannot be right by consideration of the way in which the legislation came to be enacted. Parliament authorised the Secretary of State to make provisions by Regulations to replace with some other yardstick references to rates, which would become meaningless. I do not believe that it was the intention of Parliament that the Secretary of State should thereby be empowered to make a fundamental change to the characteristics of assured tenancies by the introduction of a rent cap. If the panel’s interpretation was correct then I consider that real issues would arise as to whether the Regulations of 1990 in so far as they introduced a rate cap were ultra vires. Section 119 of the Local Government Finance Act 1988 gave the Secretary of State power to make Regulations providing that the reference to rateable value in any legislation should instead be to some factor other than one connected with rating. That section did not empower him to make a radical change of any other kind to any legislation. The effect of the Regulations of 1990 if the panel’s contentions are correct would have been to change quite dramatically the whole effect of the legislation relating to assured tenancies and as such would, it seems to me, have been ultra vires. However, no such question would arise if the correct interpretation of section 14(1) is that contended for by the applicant.
40. Having considered further arguments, Kay J came to the conclusion that the panel had been in error and quashed the conclusion.
41. Although the claimant sought in argument to challenge this decision, I see no reason to depart from it or the reasoning. It follows that, even if the claimant is right, the landlord, under section 13, could, at the end of the first year, seek a rent in excess of £25,000 and the committee could set such a rent with the consequence that the tenancy would cease to be an assured tenancy.
42. It also follows that the claimant must show some reason to distinguish the situation being considered in that case from the situation being considered in this case.
43. By virtue of section 186(3) of the Local Government and Housing Act 1989, which came into force on 1 April 1990 at the same time as the regulations, the claimant’s tenancy became subject to Schedule 10 to that Act. Section 186(1) provides that Schedule 10 has effect, in place of Part 1 of the 1954 Act:
to confer security of tenure on certain tenants under long tenancies and, in particular, to establish assured periodic tenancies when such long tenancies come to an end.
44. Para 1 of Schedule 10 makes the schedule applicable to “a long tenancy of a dwelling house at a low rent”, which meets certain qualifying conditions “such that, if the tenancy were not a low rent, it would at that time be an assured tenancy within the meaning of Part 1 of the Housing Act, 1988”. As originally enacted, a tenancy was “at a low rent” “if either no rent is payable or [as in this case] the maximum rent payable at any time is less that two-thirds of the rateable value for the time being” (paras 2(4)). As far as this tenancy is concerned that definition was changed by the regulations to refer to the rateable value as at 31 March 1990.
45. By virtue of Schedule 1 to the Housing Act 1988, as originally enacted, a tenancy could not have been an assured tenancy if the rateable value, for the time being, exceeded £1,500 in Greater London or £750 elsewhere. As a result of the amendments made by the regulations, the relevant time for determining the rateable value was 31 March 1990 for the claimant’s tenancy.
46. It is common ground that this tenancy became subject to Schedule 10 to the Local Government and Housing Act on 15 January 1989. Such a tenancy is called a “long residential tenancy” (para 1(5)).
47. Para 4 provides for the termination by notice of a long residential tenancy. Para 4(5) provides that the notice shall not have effect unless, among other things, it proposes “an assured monthly periodic tenancy and a rent for that tenancy (such that it would not be a tenancy at a low rent)”. The landlord’s notice proposed such a tenancy and the proposed rent was not “a low rent”.
48. Para 9(1) provides that where a long residential tenancy is terminated by a notice “the tenant shall be entitled to remain in possession of the dwelling house and his right to possession shall depend upon an assured periodic tenancy arising by virtue of this paragraph”. I should say, in parenthesis, that Mr Munro put forward an argument based upon the last five words. It did not help me to decide the issues that I now have to resolve.
49. Para 9(2) provides that “the assured periodic tenancy referred to in sub-paragraph 1” is one that, amongst other things, the periods of the tenancy and the intervals at which rent is paid are monthly and under which the rent is determined in accordance with paras 10 to 12. If there is a dispute as to the rent “the committee shall determine the monthly rent at which”, subject to certain modifications, “the committee consider that the dwelling-house might reasonably be expected to be let in the open market by a willing landlord under an assured tenancy” (para 10 (5)). These words are almost identical to the words in section 14(1) set out in the passage from the judgment of Kay J (para 38 above). It follows, given my decision not to depart from his judgment, that this subparagraph must not be read as limiting a committee’s power to set a rent no higher than £25,000, absent any contrary indication.
50. By proposing a rent in excess of £25,000, the landlord was proposing a tenancy that could not be an “assured tenancy”. This follows from the definition of an assured tenancy in the Housing Act 1988, which requires, among other things, that the “rent payable for the time being is payable at a rate exceeding £25,000 a year” (para 2 of Schedule 1 as amended by the regulations). Likewise, the determining of a rent in excess of £25,000 prevented the tenancy from being an assured tenancy.
51. It seems to me that, in 1989, the draftsman of the Local Government and Housing Act did not anticipate that a long residential tenancy would not, upon termination, be an assured tenancy if the rent was more than £25,000. If this consequence had been anticipated, the wording of paras 4(5)(a), 9(1) and 11(5) could have been modified to allow for this contingency. The reference in 4(5)(a) to “an assured monthly periodic tenancy”, in 9(1) to “his right to possession shall depend upon an assured periodic tenancy” and in 11(5) to the rent at which “the committee consider that the dwelling-house might reasonably be expected to be let… under an assured tenancy” could all have been modified.
52. At the time the Act was passed, in November 1989, no such modification was necessary because the reference to rateable value in Schedule 1 to the Housing Act 1988, had not been replaced. A tenancy of a dwelling-house with a high rateable value (above £1,500 for
53. When the Secretary of State chose the factor of rent, as he was entitled to do by virtue of section 149 of the Act (if not also by virtue of the earlier section 119 of the 1988 Act), there was then, and for the first time, the possibility that the act of terminating the tenancy could lead to a situation where the tenant lost not only the advantages which he had enjoyed under the long residential tenancy protected by the 1954 Act, but also the advantages enjoyed by an assured periodic tenant.
54. Kay J decided that in order “to make the provisions have effect” the words in section 14(1), almost identical to the words in para 11(5), should be “disregarded” when assessing the market rent. The defendant and the landlord submit that there is no basis for distinguishing this case from that one. Mr Small submits that the wording applicable in this case requires a different result.
55. It seems to me that the wording in paras 4(5)(a), 9(1) as well as 11(5) should also not be interpreted so as to require, upon the termination of a long residential tenancy by a notice under para 4 of Schedule 10 to the 1989 Act, that the tenancy must become an assured tenancy (even for only one year) subject to a maximum rent of £25,000 or less. Such a conclusion would be inconsistent with the policy of the 1988 Act, that tenancies of dwelling-houses at the high value end of the market do not need protection. A purposive interpretation of the provisions produces the correct result.
56. For these reasons this application fails.
Application dismissed.
