R v Secretary of State for the Environment, Transport and the Regions and Another, ex parte. Spath Holme Ltd

JurisdictionEngland & Wales
Judgment Date20 January 2000
Judgment citation (vLex)[2000] EWCA Civ J0120-13
Docket NumberCase No: FC3 1999/6950/C
CourtCourt of Appeal (Civil Division)
Date20 January 2000

[2000] EWCA Civ J0120-13

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before

Lord Justice Stuart-smith

Lord Justice Aldous and

Lord Justice Mance

Case No: FC3 1999/6950/C

Regina
and
(1) Secretary Of State For The Environment, Transport And The Regions
Respondent
(2) Secretary Of State For Wales
Ex Parte Spath Holme Limited
Applicants

James Bonney QC and Jonathan Gavaghan (instructed by Messrs Willan Bootland White of Manchester for the Applicants)

Philip Sales and John Male (instructed by the Treasury Solicitors Dept. for the Respondents)

Thursday, 20th January 2000

LORD JUSTICE STUART-SMITH

Introduction

1

This is the judgment of the Court. The Applicants, Spath Holme Ltd., seek an order for judicial review of the Rent Acts (Maximum Fair Rent) Order 1999 [SI 1999 No. 6] ('the Order') made on 11 January 1999, the decision of the Secretary of State for the Environment and the Secretary of State for Wales to make and lay the Order before Parliament and his refusal of the Applicants' request to withdraw it. They seek an order declaring that in making the Order and the decisions the Secretaries of State acted ultra vires the powers conferred upon them by the Landlord and Tenant Act 1985 ('the 1985 Act') and therefore unlawfully. They ask the Court to make an order of certiorari quashing the Order and decisions.

2

The application for leave to move for judicial review was refused by Latham J. at a hearing attended by both parties on 16 March 1999. But this Court granted permission to move on 30 July and directed that the hearing of the application be before this Court. We are therefore exercising an original jurisdiction, but as the Court of Appeal and not as a Divisional Court.

The background

3

The Applicants are the freehold owners of a purpose built block of flats in Manchester. The building was constructed in 1963. Twelve of the flats are still currently regulated by the Rent Act 1977. Before 1965 rents of dwellings were controlled by the Rent Acts dating back to the First World War. The system was a rigid one, being related to the gross rateable value of the property. This had resulted in artificially low rents compared with other costs and prices in the economy; and, coupled with security of tenure led to a serious decline in the private rented sector. Landlords were unable to obtain a reasonable return on investment and sometimes could not even cover the cost of repairs. When, therefore, such properties became vacant, they would often be sold with vacant possession rather than re-let.

4

In order to revitalise the private rented market in 1965 Parliament introduced the concept of fair rents for regulated tenancies, and the registration of these rents. The system was intended to introduce a new and flexible method of fixing rents which would avoid the rigidities and anomalies of the old control. The original provisions of the 1965 Act have remained largely unchanged; they were consolidated into the Rent Act 1968, extended in the Rent Act 1974 to furnished tenancies and again consolidated into the Rent Act 1977, which is the current statute.

5

Fair rents were intended to be based on a market rent, although this expression does not appear in the legislation, to be determined objectively in all the circumstances, but eliminating any increase attributable to housing shortage not derived from the amenity of the locality —the scarcity element —and disregarding tenant's disrepair and improvements. (See the Report on the Committee on the Rent Acts 1971 Cmnd 4609 and Mountview Court Properties v Devlin (1970) 21 P and CR 689, 691; Tormes Ltd v Landau [1971] 1 QB 261 at 267; Metropolitan Properties v Finegold [1975] 1 WLR 349, 352). In default of agreement between the parties, the fair rent is assessed by the rent officers, and, on appeal by rent assessment committees. Once assessed, it is registered. No more than the registered rent may be recovered and no further application for registration of a different rent may be made for two years.

6

The problem, however, was that there was no free market in private domestic dwellings, because all new tenancies were regulated. The years following the 1965 Rent Act were years of high inflation; but registered rents as set by rent officers and rent assessment committees did not keep pace with inflation. The result was that by 1988 the situation was similar to that which existed before 1965. The private rented sector was in serious decline. By the Housing Act 1988 Parliament reintroduced the free market into the private rented sector. Tenancies created after the coming into force of the Act could be assured and assured shorthold tenancies. Security of tenure depended on the agreement of the parties and not statute. And more importantly rents were also fixed by agreement between the parties, subject only to a right to refer the rent to the rent officer during the first six months of an assured shorthold tenancy. The Act did not affect existing regulated tenancies. But there were to be no new regulated tenancies. In the case of new tenancies the subsidy which had previously been provided by landlords for all tenants, was to be removed; those on low incomes were able to obtain assistance with payment of rent by means of housing benefit.

7

In the years following the Housing Act 1988 landlords sought to use the evidence of rents on assured shorthold tenancies of comparable properties to establish the market rents before rent officers and rent assessment committees, as being the first stage in assessing a fair rent. It appears that in some parts of the country this method was accepted; but in others, notably in London and the North West (Manchester and Merseyside) it was not. In those areas where this approach was rejected, rent officers and rent assessment committees continued to use existing registered rents, with an inflationary uplift, as comparables. Because open market rents rose substantially, no doubt in part reflecting the rapid increase in house prices, in those areas where assured shorthold tenancy comparables were not used there was an increasing divergence between market rents and registered rents, such that in many cases the latter were only about half the former, even where there was little or no scarcity. The Housing Act 1988 had the desired effect of reinvigorating the private rented sector which grew from 1.5 million dwellings in 1988 to 2.254 million in 1996.

The Spath Holme and Curtis decisions

8

In Spath Holme Ltd v Greater Manchester and Lancashire Rent Assessment Committee (1995) 28 HLR 107 the Court of Appeal reiterated that fair rents were based on market rents, less scarcity and other disregards, and were not reasonable rents in any other sense including their impact on tenants. The Court gave general guidance to rent assessment committees making it clear that they were expected to follow market rent comparables as the best evidence of the starting point for fair rents, to give clear reasons and to explain their determinations with arithmetic if necessary. Despite this many rent assessment committees did not follow the guidance of the Court and continued to use existing registered rents rather than assured shorthold rents as comparables. In Curtis v London Rent Assessment Committee [1999] QB 92 this Court again held that they were wrong to do so and confirmed and clarified the Spath Holme decision. An appeal to the House of Lords in the Curtis case was withdrawn on 1 June 1998.

The Government's reaction to the Spath Holme and Curtis decisions

9

In the meanwhile on 26 January 1998 the Minister for London and Construction, Mr Nick Raynsford, told the House of Commons that the Government were very concerned about the disproportionate increases which some regulated tenants had faced in recent years. He said that the Government was looking to see what could be done to help tenants who faced problems of anxiety and hardship, and felt that there was a strong case for intervention to moderate such increases. It was appreciated that the system of fair rent determinations by rent officers and rent assessment committees and the criteria for ascertaining a fair rent could not be altered without primary legislation. But it was thought that the increases could be capped by reference to the retail price index plus a modest percentage. It was envisaged that this might be achieved by secondary legislation.

10

On 21 May 1998 the first respondent issued a consultation paper entitled 'Limiting Fair Rent Increases' inviting responses by 24 July 1998. The paper expressed the Government's concern about disproportionate increases in fair rents in recent years since the Spath Holme and Curtis decisions, and stated that:

"Most of these tenants, and indeed their landlords, could never have anticipated increases of this magnitude under a fair rent system. Many regulated tenants were elderly and on fixed incomes. They have planned their affairs on the basis that they would be able to remain in their present homes. Landlords have generally acquired regulated tenancies in anticipation of substantial capital gains when the tenancies come to an end. These tenancies have always traded at a discount to vacant possession value: this is currently some 30% to 45% below vacant possession value. They have been bought in the knowledge that the rents were subject to fair rent controls and that rental yields would be lower than those obtainable from assured tenancies."

11

Three possible options were canvassed in the paper. First to do nothing and leave fair rents to equiparate with market rents less scarcity and other disregards. Secondly to phase the...

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