Rent Act 1977 — Case stated on questions of law by rent assessment committee in the course of proceedings before them — Rarely used procedure — Whether certain improvements fell to be disregarded by the committee in assessing a fair rent on the ground that they had been carried out ‘by the tenant under the regulated tenancy or any predecessor in title of his’ — Application of section 70(3)(b) of the Act of 1977 — Two questions of law arising — Whether the person who carried out the improvements was a ‘predecessor in title’ of the present tenant — Whether the fact that the improvements were carried out at a time when the premises were not subject to the Rent Acts was material — Premises in this case had subsequently been brought into regulation by the Counter-Inflation Act 1973 — Held, on the second point, that, if all other conditions were fulfilled, it was not essential that at the time when the improvements were completed the premises should have been within the Rent Acts limits — On the first point, however, the person who carried out the improvements was not the present tenant’s ‘predecessor in title’ — At the time when the improvements were carried out his old lease had ended but his new one had not yet begun — He was in occupation under an agreement by which he was to carry out specified improvements and, conditionally on their completion, he was to be granted a new lease for a further term — He did not qualify as an equitable lessee under the doctrine of Walsh v Lonsdale or otherwise — Consequently the improvements did not fall to be disregarded in determining a fair rent — Case remitted to committee to proceed in accordance with judgment
This was a
case stated by a rent assessment committee of the London Rent Assessment Panel
under the Tribunals and Inquiries Act 1971, section 13(2) and RSC Order 56,
rule 7, raising questions of law arising in the course of the committee’s
proceedings for the decision of the court. The parties had agreed that the
committee should be asked to state a case and the hearing before the committee
was adjourned pending the answers being received from the court on the
questions of law. The applicants were the Trustees of Henry Smith’s Charity,
the landlords of the subject property at 94 Onslow Gardens, London SW7, and the
respondent was David Hemmings, the tenant.
Paul de la
Piquerie (instructed by Warrens) appeared on behalf of the applicants; Paul
Hampton (instructed by Gasquet, Metcalfe & Walton) represented the
respondent.
Giving
judgment, McNEILL J said: In this matter I have to consider in the
circumstances obtaining the meaning and effect of section 70(3)(b) of the Rent
Act 1977. The matter comes before the court by way of special case stated by a
committee of the London Rent Assessment Panel signed by its chairman and dated
September 25 1980.
The question
of law for the opinion of this court is set out in the special case as follows:
Do the
aforesaid improvements on the agreed facts fall to be disregarded under section
70(3)(b) of the Rent Act 1977 as being ‘any improvement carried out, otherwise
than in pursuance of the terms of the tenancy, by the tenant under the
regulated tenancy or any predecessor in title of his’ on a determination of an
application for a fair rent under Part IV of the Rent Act 1977?
The relevant
section of the Rent Act 1977, section 70, reads as follows:
(1) In determining, for the purposes of this Part
of this Act, what rent is or would be a fair rent under a regulated tenancy of
a dwelling-house, regard shall be had to all the circumstances (other than
personal circumstances) and in particular to — (a) the age, character, locality
and state of repair of the dwelling-house, and (b) if any furniture is provided
for use under the tenancy, the quantity, quality and condition of the
furniture.
Subsection (2)
I need not read, for that is the exclusion of scarcity value.
Subsection (3)
provides:
There shall
be disregarded . . . (b) any improvement carried out, otherwise than in
pursuance of the terms of the tenancy, by the tenant under the regulated
tenancy or any predecessor in title of his.
The procedure
which led to the special case may be summarised as follows:
The respondent
is the assignee of a lease granted to a Mr Ludovici by the applicants on July
31 1972. It was assigned to him by assignees of Mr Ludovici on May 12 1976. The
lease related to a dwelling-house formerly known as 23 Ensor Mews and now known
as 94 Onslow Gardens, SW7. The lease was for a term of 11 3/4 years from March
25 1971 and provided for a review of the rent payable thereunder with effect
from March 25 1978.
In pursuance
of a request for review by the applicants a surveyor appointed pursuant to the
terms of the lease by the president of the Royal Institution of Chartered
Surveyors determined the then current yearly market value of the premises to be
£5,000 on May 9 1978.
On December 21
1978 the respondent, being in the events which had happened then the tenant
under a regulated tenancy of the premises, applied under Part IV of the Rent
Act 1977 to the rent officer for the Royal Borough of Kensington and Chelsea to
determine a fair rent of the premises. On April 9 1979 the rent officer
determined and registered a rent of £1,600 per annum. The applicants, as they
were entitled to do, objected in writing and the rent officer referred the matter
to the rent assessment committee, who now seek the opinion of this court on the
question raised by the special case.
The relevant
facts can be summarised from the special case. In November 1953 the applicants
demised the premises to a Mr and Mrs Watkins for a term of 18 1/4 years which
ended on June 24 1971. The premises then consisted of a garage for four cars on
the ground floor and residential premises on a single floor above. In 1955 the
applicants gave permission for conversion of part of the ground floor into a
bed-sitting room and kitchen.
On January 14
1971 (that is some five months before the end of the lease) Mr Ludovici took an
assignment of the residue of the lease. He had already obtained approval in
principle to certain alterations and repairs, and shortly afterwards, in
February of 1971, to certain further alterations shown on three drawings which
were supplied to the applicants’ surveyors. One of the alterations proposed and
approved was adding an additional floor to the premises.
Following
correspondence and negotiations a written agreement was entered into on June 17
1971. By that agreement Mr Ludovici agreed to put the premises into a state of
repair and condition to the satisfaction of the applicants’ surveyor according
to a specification which he, the latter, had approved. The applicants agreed
that, upon completion of those works, they would grant to Mr Ludovici a new
lease in the terms of a draft annexed for a term of 11 3/4 years from March 25
1971 to Christmas 1982, subject to the review clause to which I have referred.
The rent reserved by that lease was £780 and, as I shall mention later, the
agreement of June 1971 provided for the payment of a like sum pending
completion of the works and the execution of a lease. The final plans were
approved. Work was done and on May 24 1972 the applicants’ surveyor certified
substantial completion.
On July 31
1972 the applicants granted to Mr Ludovici a lease in the form of the draft
lease which had been annexed to the agreement of June 1971. The works, in
addition to the addition of a third storey to the building, included the
alteration of the position of the front door (and indeed the consequent change
of address), the repositioning of the staircase, further conversions on the
ground floor to provide at least one additional bedroom, alterations of layout
on the ground and first floors and alterations to bathrooms and kitchen.
The rateable
value of the premises has varied from time to time over the relevant period. In
1965 it was £536. On February 15 1973 it was increased to £576. On March 22
1973 Parliament passed the Counter-Inflation Act 1973 and as a result of that
the premises which had previously been incapable of being a regulated tenancy
became a regulated tenancy because that Act increased the rateable value limits
for regulation to £600. From that date (March 22 1973) the premises have been
regulated premises for the purpose of Part IV of the Rent Act 1977.
It is not
without interest that shortly after that the rateable value of the premises on,
I assume, a revaluation was increased to a sum a little over £2,000.
In the same
year, on September 3, Mr Ludovici assigned the new lease at a premium to a Mr
and Mrs Reeves, and on May 12 1976 — a date to which I have already referred —
Mr and Mrs Reeves assigned the lease to the respondent at a premium.
It is
therefore to be observed and it is common ground: (1) that the tenancy of the
premises did not become a regulated tenancy until March 22 1973; (2) that the
improvements, being the works referred to, had been substantially completed
prior to May 24 1972; and (3) that those improvements were therefore
substantially completed before the signing of the lease to Mr Ludovici on July
31 1972.
The
contentions of the parties on those facts appear from the special case. The
applicants contended that the rent officer, who reached his determination on
the basis that he was required to disregard the works, was wrong to do that
because at the time he carried out the works Mr Ludovici was not a tenant under
the current tenancy; and/or he was not at that time a tenant under a regulated
tenancy; and/or the works of alteration were carried out as a condition of the
grant of the current lease to Mr Ludovici, alternatively pursuant to an
agreement to grant a lease to him. Those contentions are substantially repeated
in the notice of motion under four paragraphs which I need not also recite.
The
respondent’s case was that the rent officer was right to disregard those works
and that the committee of reference should also do so because the alterations
were carried out by Mr Ludovici, who was a predecessor in title of the
respondent; that the respondent was the tenant under the regulated tenancy and
that the works were not carried out by Mr Ludovici ‘in pursuance of the terms
of the tenancy’.
As I see it,
the starting point for deciding the effect and meaning of this subsection is in
section 67(1) of the Act. This reads as follows:
An
application for the registration of a rent for a dwelling-house may be made to
the rent officer by the landlord or the tenant, or jointly by the landlord and
the tenant, under a regulated tenancy of the dwelling-house.
One starts
with a regulated tenancy, as this is, and with the proposition that the
landlord or the tenant under that tenancy may apply.
The phrase
‘under a tenancy’ is repeated for a number of other purposes in the Act
including, as I have already said, the phrase in section 70(1)(b) relating to
furniture for use under the tenancy. Any improvements made by the tenant himself,
who being the tenant under the tenancy is entitled to apply for registration of
the rent, are to be disregarded in determining the fair rent. This is
consistent with what I accept from Mr Hampton is the broad policy behind the
Act, that is to say to preclude the landlord from taking, in additional rent,
the benefit of works carried out by his tenant at his own, that is to say at
the tenant’s, expense. If this be right, then it follows in my view that it
matters not when the works were done so long as done by the tenant or by
someone who qualifies as his predecessor in title for the purposes of the
subsection.
Mr de la
Piquerie argued that the relevant period for the doing of the works is not the
currency of the lease (or, if different, the title) but the period since the
tenancy became regulated. He sought to reinforce his argument by reference to
Schedule 17, paragraph 6, and Schedule 14, paragraph 7, to the Act, which
relate respectively to tenancies which, inter alia, become regulated
either by conversion of certain transmitted statutory tenancies or by changes
in the law which converted tenancies granted by housing associations which had
previously been unregulated. These provisions would not have been necessary, he
said, if it were not a requirement of section 70(3)(b) that when the
improvements were carried out the tenant was tenant under a regulated tenancy.
I do not
accept this. As Mr Hampton submitted, I regard these provisions, which are to
be found in what can respectively be regarded as codes for ‘Converted Tenancies
— Modification of Act’ and ‘Conversion of Housing Association Tenancies into
Regulated Tenancies’, as being ‘for the avoidance of doubt’ only.
It would seem
to me inappropriate and contrary to the policy of the Act to regard what may,
as here, by a wholly adventitious intervention of legislation, unconnected in
prior purpose with the relationship of landlord and tenant, convert a tenancy
into a regulated tenancy as also extinguishing such rights as a tenant may have
for the benefit of himself and not, at least during the currency of the
tenancy, for the benefit of his landlord of improvements made by him. If
Parliament had intended that guillotine to fall, it should have said so in
plain words.
However, the
major hurdle to the respondent’s success, as Mr Hampton concedes, is that, if
the improvements were not done by Mr Ludovici when he was tenant under the July
1972 lease, the respondent cannot require them to be disregarded, for Mr
Ludovici would not then be his predecessor in title. This follows from the
decisions of the Court of Appeal in Corsini v Montague Burton Ltd and
Pasmore v Whitbread & Co Ltd [1953] 2 QB 126 and 226
respectively. Dealing with the Landlord and Tenant Act 1927, the Court of
Appeal in each of those cases decided that ‘predecessor in title’ for the
purposes of that Act meant a person who had the title to the premises to which
the tenant succeeded, per Lord Evershed MR at p 132 or ‘predecessors in title
to the interest of the tenant in the premises’, per Denning LJ (as he then was)
at p 229. I accept this principle, although under a different Act, an Act
regulating the relationship of landlord and tenant, as regulating also the
construction of the words ‘predecessor in title’ in the present case for the
purposes of the Rent Act 1977.
The
respondent’s title to and interest in the premises is the lease of July 31 1972
assigned to him on May 12 1976. Unless, therefore, Mr Ludovici carried out the
improvements while tenant under that lease, he was not and could not for the
purposes of section 70(3)(b) be the respondent’s predecessor in title.
Accordingly, said Mr Hampton, he had to show that the lease of July 31 1972 had
such an effect in the months preceding that date as to show a sufficient title
or interest in Mr Ludovici and to come within the definition referred to. He
accepted that the actual interest of a lessee commenced only on execution of
the deed and that the relationship of landlord and tenant arose only on grant,
but he contended that in the events which happened Mr Ludovici had such an
interest, if not as lessee under the lease, at least by contract or in equity,
as made him the respondent’s predecessor in title from the date of the written
agreement of June 17 1971, which preceded the carrying out of any of the
relevant works of improvement.
Mr de la
Piquerie was content, on the other hand, to show that whatever Mr Ludovici’s
standing was in relation to the premises prior to July 31 1972, he was not the
tenant under the lease of that date.
Mr Hampton
accepted that he could not rely on such an equity as was recognised in Walsh
v Lonsdale (1882) 21 Ch 9, since at best Mr Ludovici’s right to a
lease was conditional upon his completing the works and that of itself
prevented his tenure being an equitable tenure entitling him without more — or
certainly until completion of the works — to specific performance: see Cornish
v Brook Green Laundry Ltd [1959] 1 QB 394.
However, said
Mr Hampton, on a proper construction of the agreement of June 17 1971 and the
reference therein to a draft lease in terms which in the following year became
the lease gave him a sufficient title or interest to enable the respondent to
be successor in title.
The agreement
of June 17 1971 requires careful consideration and I confess to finding it a
document which in parts is obscure. The document is made between the applicants
and Mr Ludovici and provides as follows in the relevant passages:
THE Tenant
shall before the twenty-ninth day of September One thousand nine hundred and
seventy one and before the Lease hereinafter mentioned is granted put the
premises known as 23 Ensor Mews South Kensington in Greater London (hereinafter
called ‘the Premises’) into good substantial repair and condition to the entire
satisfaction of the Surveyor of the Landlords in accordance with a
specification previously approved by him.
2 THE Tenant shall prove title to and as on the
twenty-fifth day of March One thousand nine hundred and seventy one surrender
and the Trustees shall accept the surrender of the premises held upon a Lease
dated the third day of November One thousand nine hundred and fifty three . . .
That is the
original lease granted to Mr and Mrs Watkins. There was, as will be recalled
from what I said earlier, a residue only of months at the most remaining when
Mr Ludovici entered into the negotiations, and a week at the most by the date
of this agreement.
The agreement
continues:
3 UPON
completion of the said works and of the said Surrender the Trustees shall grant
and the tenant accept a Lease of the premises at the clear yearly rent of . . .
(£780) and in the WORDS OF THE WITHIN DRAFT Lease for a term commencing on the
twenty fifth day of March One thousand nine hundred and seventy one and
expiring on the twenty fifth day of December One thousand nine hundred and
eighty two.
4 As from the twenty fifth day of March One
thousand nine hundred and seventy one and until the Lease referred to in Clause
3 hereof shall have been granted or until this Agreement shall be rendered void
whichever event shall first happen the Tenant shall pay rent at the rate
mentioned in the said draft Lease and shall observe and perform the covenants
and conditions therein contained and the Landlords shall accept such payment
observance and performance in full discharge for the time being of the Tenant’s
obligations under the said Lease dated the third day of November One thousand
nine hundred and fifty three.
I do not think
it is necessary to read paragraphs 5 and 6 of that agreement.
While the
pattern of the agreement is clear, its effect in law is, as I have said, not
easy to understand. The lease of 1953 had only a week or thereabouts to run.
The proposed lease, which in the event was signed in July 1972, was to run from
a date three months before the date of this agreement. The agreement provided
for that lease to be in the terms of the draft lease attached to the agreement.
Mr Ludovici was to pay the rent reserved by the draft lease and, while paying
that rent from March 25 1971, was to be paying it in full discharge of his
obligations under the 1953 lease, which as I have said would have come to an
end in a week’s time.
Fortunately,
speaking for myself, it is, I think, unnecessary to decide what standing in
relation to the premises was conferred on Mr Ludovici by that document.
Undoubtedly it gave him rights of contract. It may well, and I think probably
would, on completion of the works have given him a Walsh v Lonsdale
equity. It may even be that it made him a tenant either from year to year or at
will or on sufferance. The one thing that, to my mind, it clearly does not do
is
and which was not executed until July 31 1972.
That being so,
the present respondent never became a successor in title or, in the words of
the statute, Mr Ludovici was never a predecessor in title in the terms in which
that phrase is defined in the cases in the Court of Appeal to which I have
already referred.
Reading that
agreement also, in my view, disposes of an alternative argument that was
advanced by Mr de la Piquerie in the fourth paragraph of his notice of motion
and at paragraph 4(c) of the special case where he sought to contend in the
alternative that, if Mr Ludovici was the respondent’s predecessor in title, he
executed the works pursuant to the terms of the tenancy referred to in the
agreement of June 1971.
Connected with
it undoubtedly those works were, but I am unable to find as a matter of
contract that the doing of those works was a term of the tenancy or, to put the
proposition in the form of the subsection, I am not satisfied that those
improvements were carried out in pursuance of the terms of the tenancy.
It follows
therefore that the question posted by the special case is answered in this way:
that the relevant improvements were not carried out by the tenant or his
predecessor in title and do not fall to be disregarded in determining the fair
rent of the dwelling-house. The order is that I send it back with that answer.
The
applicants were awarded costs. Leave was given, if necessary, to appeal to the
Court of Appeal.
