Yeoman’s Row Management Limited v (1)The Chairman of the London Rent Assessment Committee [2002] EWHC 835 (Admin)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
[2002] EWHC 835 (Admin)Case No Case No: CO/3587/2001Venue Royal Courts of Justice, Strand,, London, WC2A 2LL
Between
Yeoman’s Row Management LimitedAppellant(1)The Chairman of the London Rent Assessment CommitteeRespondents
Before
Mr Justice OuseleyJonathan Gavaghan (instructed by Willan Bootland White) for the AppellantPaul Morgan QC (instructed by The Treasury Solicitor ) for the first RespondentGillian Carrington (instructed by Meyrick Mills) for the second RespondentDate 19 April 2002
[1]Mr Justice OUSELEY: INTRODUCTION On 7th June 2001 the London Rent Act Committee determined a fair rent for 44 Yeoman’s Row London SW3 and gave written reasons for its decision on 10th August 2001. Its earlier determination of October 2000 had been quashed in February 2001 and the decision in question was accordingly its redetermination. It determined that the rent to be registered as the fair rent under the Rent Act 1977 was £10,039.50. It provided on the register “for information only” that the market rent was assessed at £20,000, and that the uncapped fair rent was £14,000 after the application of a “scarcity” element of 30%. The maximum fair rent provisions in the Rent Acts (Maximum Fair Rent) Order 1999 S.I. 6 were applied so as to cap the fair rent at £10,039.50.[2]The landlord and appellant, Yeoman’s Row Management Ltd., seeks to challenge the lawfulness of that decision by a statutory appeal pursuant to section 11(1) and Schedule I paragraph 37 to the Tribunals and Inquiries Act 1992, alleging that it is “dissatisfied in point of law” with that decision.[3]The landlord’s grounds in summary were that LRAC had adopted an impermissible approach to the question of whether any “scarcity” deduction fell to be made and to its assessment of that deduction as 30%. It had erred in the way in which it dealt with the purpose of the deduction, the relevant area to be examined, and the ability of potential tenants to pay a market rent. The scale of the deduction was not warranted on the evidence and was based on internally contradictory reasoning. The landlord also submitted that the application of the Maximum Fair Rent Order was legally erroneous because it too depended on internally contradictory reasoning. In each instance the reasoning provided was legally inadequate. THE FACTS:[4]The LRAC described the property as a first floor flat in a three storey and basement block of flats, built about 1954. The block was situated in a narrow residential cul-de-sac with limited residents’ parking spaces, on the borders of Chelsea and Knightsbridge within the Royal Borough of Kensington and Chelsea. The flat in question comprised five rooms which could be used as either four bedrooms and one living room or three bedrooms and two living rooms, plus kitchen, bathroom/wc and basement store.[5]A rent had been registered in November 1997 at £8,700 and in January 2000 the landlord requested the registration of a rent at £21,000. The Rent Officer registered a rent of £12,000. To this the landlord had objected leading to the first, quashed, decision of the LRAC and then to its decision now under challenge. The landlord was represented at the LRAC hearing by its director, Ms Z. Mainwaring; she had also made extensive written representations. The tenant likewise had made extensive written representations but at the hearing she was represented by Mr Smith, a chartered surveyor. The LRAC also carried out an inspection of the flat and of the common parts and exterior of the block and saw the area within which it was situated. THE STATUTORY FRAMEWORK:[6]Section 70 of the Rent Act 1977 provides:
“(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, . . . (b) if any furniture is provided for use under the tenancy, the quantity, quality and condition of the furniture, and (c) any premium, or sum in the nature of a premium, which has been or may be lawfully required or received on the grant, renewal, continuance or assignment of the tenancy. (2) For the purposes of the determination it shall be assumed that the number of persons seeking to become tenants of similar dwelling-houses in the locality on the terms (other than those relating to rent) of the regulated tenancy is not substantially greater than the number of such dwelling-houses in the locality which are available for letting on such terms.”
Section 70 (3) also sets out a number of matters to be disregarded such as a tenant’s breach of his repairing covenant.[7]Section 70(1) deals with the open market rent for the premises. Section 70(2) requires the market rent to be adjusted before it is registered as the fair rent, where the circumstances specified in section 70 (2) apply. This is referred to as the “scarcity” component in a short hand which has the potential to distract attention from the statutory provision.[8]The effect of the Housing Act 1998, which introduced assured and assured shorthold tenancies at market rents, now a common form of tenancy, and which largely prevented the creation of new regulated tenancies, was to provide a new source of evidence as to market rents. In London and the North West, rent officers and Rent Act Committees were reluctant to take advantage of this new source of comparables in determining the open market rent and thus the fair rents, to the extent that large disparities emerged. This is described in R v Secretary of State for the Environment Transport and the Regions ex parte Spath Holme Ltd 2001 2 AC 349 especially at 379 B- E.[9]The new market rents at which assured shorthold tenancies were let, when applied in the assessment of fair rents, were leading to substantial and rapid increases in fair rental levels. In order to slow down this rate of increase the Rent Act (Maximum Fair Rent) Order 1999 provides in effect for an increase in rent, on the first application for the registration of the rent made after 1st February 1999, of no more than 7½% plus the increase in the Retail Prices Index. This cap is disapplied in the circumstances set out in Article 2 (7). “(7) This article does not apply in respect of a dwelling-house if because of a change in the condition of the dwelling-house or the common parts as a result of repairs or improvements (including the replacements of any fixture or fitting) carried out by the landlord or a superior landlord, the rent that is determined in response to an application for registration of a new rent under Part IV exceeds by at least 15% the previous rent registered or confirmed.”[10]The obligation on the LRAC to give reasons for its decision, in section 10(1) of the Tribunals and Inquiries Act 1992, requires it to give proper, intelligible and adequate reasons for its decision, dealing with the principal controversial issues. A decision letter is not to be construed as a statute or contract; the reasons must be read as a whole. The way in which a case has been presented to an RAC will affect the way in which its decision is reasoned and what issues are dealt with explicitly or in what detail.[11]I note at this stage what Woolf LJ said in Crake v Supplementary Benefits Commission 1982 1 All ER 498, 507-508, as adopted in relation to RAC’s in Curtis v LRAC 1999 QB92 at p121B, Court of Appeal. It related to the inadequacy of reasons as a legal error, important because of the jurisdiction created by section 11(1) of the Tribunals and Inquiries Act. Woolf LJ said:
“in practice I think that there will be few cases where it will not be possible, where the reasons are inadequate, to say one way or another whether the tribunal has gone wrong in law. In some cases the absence of any reasons would indicate that the tribunal had never properly considered the matter (and it must be part of the obligation in law to consider the matter properly) and that the proper thought processes have not been gone through.”
[12]I note what Woolf LJ said in that case, because Mr Morgan QC for the LRAC submitted that an inadequacy of reasons did not justify the quashing of the decision unless the inadequacy gave rise to the inference of an error of law. It is usually sufficient to enable that inference to be drawn, if the reasons which a tribunal is duty bound to give are sufficiently inadequate as to leave the Court in real as opposed to forensic doubt as to what conclusion the tribunal had reached on a principal controversial issue or as to whether it had ignored relevant considerations or relied on irrelevant considerations. If it be the case that judicial review in respect of that duty is required in order to provide a remedy rather than a statutory appeal, the relevant procedures could be emplaced rapidly so as to avoid any hiatus in the Court’s powers. THE DECISION[13]The LRAC summarised the parties’ contentions, described the flat and the block, referred to the comparable flats in the same block and then set out its conclusions.[14]The LRAC rejected various of the landlord’s arguments as to the approach which it should adopt to the open market rent, which do not give rise to any argument before me. The landlord, on the basis that those arguments would be rejected as they were, submitted that £20,000 was the appropriate figure to take as the unimproved market rent drawing on two different approaches. The LRAC rejected the tenant’s approach which led to an open market rental of £13,200 because that was based upon a fair rent approach and not a market rent approach. Indeed the LRAC also rejected the landlord’s approach. However applying its own approach, it came to a figure so close to £20,000 that it decided to adopt the landlord’s open market rental figure. Accordingly there was no dispute before me as to the lawfulness of the LRAC’s conclusion that the open market rent was £20,000.[15]The LRAC then turned to “scarcity”. The landlord had submitted that no deduction should be made for scarcity because Central London market rents had done no more than keep pace with the RPI since 1985. Ms Mainwaring referred to FPD Savills Quarterly Research Statistics Supplement for support. The LRAC concluded that the RPI was unreliable as a measure of scarcity; the figures could show “that both supply and demand has increased since 1985 but not that scarcity has disappeared”.[16]The landlord had complained about inconsistencies between rent officers and Rent Assessment Committees as to deductions made for scarcities. The LRAC commented:
“We note that the apparent inconsistency must be frustrating for parties, although we consider that there is more consistency than is generally believed. The extremely vague terms of section 70(2) and the lack of positive judicial guidance (apart, perhaps, from Finegold ) is presumably because the Act essentially requires a surveyor’s valuation based on current market information and the evidence available in each case, rather than a lawyer’s formula to be applied in all eventualities. This lack of precision leaves a Rent Assessment Committee to carry out a complex valuation exercise, being required to make a number of assumptions which are not capable of verification with tenancies in the real world. Given that valuation is an art rather than a science, and that even the most experienced surveyors often disagree on the details of a valuation, it is remarkable that there is any consistency at all in the final answers. This may not be a satisfactory result, but in our view it is the result imposed by statute.”
[17]Mr Gavaghan for the appellant landlord criticised the reference to the lack of positive judicial guidance as showing a lack of awareness by the LRAC of a number of authorities. Mr Morgan QC for the LRAC emphasised the difficult nature of the committee’s task as a discouragement to judicial intervention by way of finding legal error in the conclusions to which RAC’s come in this difficult area. As I explain later, I do not consider that that sort of comment is itself a legal error or an indicator of a legal error. It is justifiably directed to a lack of positive judicial guidance as to the application of the perhaps elusive concept in section 70(2) to the practical situations with which rent officers and RAC’s are faced daily.[18]The LRAC continued in paragraph 25 of its decision letter:
“Using our knowledge and experience we consider that there is substantial scarcity in all parts of London. This view is supported by publicly available official and influential non-government sources which consider that housing in the London area will remain in short supply for some years. For example the DETR Key Housing Statistics for September 2000 (the latest generally available at the date of this decision) show that 27,840 households were accepted as homeless in Greater London in 1999, an increase of 1,680 over the previous year. Thus we must apply a discount for scarcity for “similar dwelling houses”, that is the type of property under consideration, in accordance with the guidance set out in Metropolitan Properties v Finegold [1975] 1 WLR 349.”
[19]In paragraph 26, the LRAC rejected the landlord’s contention that the LRAC should examine only four bedroom properties and that there was no demand for such property amongst Council tenants. It said:
“We did not accept that the housing projections published in the Royal Borough of Kensington & Chelsea Housing Strategy 2003/03 showed evidence of lack of demand and certainly not in respect of the whole locality. In argument the tenant’s surveyor considered that the subject property was a very small example of a 4 bedroom flat, with only one bathroom and reception room. This argument has some force, particularly when the closest comparable property, No 48, has been altered for use as a 3 bedroom property by the landlord. We consider that the appropriate property type should be unmodernised family sized accommodation with 3 bedrooms or more. We agree with the landlord that the demand for such property is likely to be less than for smaller accommodation. ”
[20]It then reached its critical and contentious conclusion in paragraph 27:
“In our experience scarcity is not evenly spread across London locations, some being more popular than others. Given the almost universal practice of landlords in this locality of modernising and improving their properties in order to maximise rental returns such habitable but unimproved property is in increasingly short supply but still in great demand from potential tenants of more limited means. We quantified a discount of 30% as being appropriate for this type of (unmodernised) dwelling in this location which we have taken as comprising Kensington & Chelsea, and adjoining central London boroughs, a discount which appears consistent with recent decisions of other Rent Assessment Committees in this area.”
[21]The LRAC then turned to the Maximum Fair Rent Order. The landlord contended that the Order did not apply because there had been an increase in rental values in excess of 15% since the previous rent had been registered and that that rise was attributable to the works done by the landlord to the common parts of the block of flats. The LRAC set out the competing contentions:
“The works commenced soon after the purchase of the freehold by the present landlord from the Wellcome Foundation in 1998 and were carried out in several stages. Firstly the exterior was redecorated and the brickwork cleaned. This work was largely completed by September/October 1998, when the scaffolding came down. During 1999/2000 the internal common parts were redecorated. Then the rear yard area was hard landscaped and largely replanted. In 2001 the carpets in the common parts were replaced. At some point the main entrance doors had also been replaced with ones of better quality, the entryphone system was upgraded and certain other works were carried out which the landlord detailed in her submissions. The landlord relied on the index of residential rental values published by FPD Savills relating to prime central London flats (“the Flat Index”) which showed a small fall, suggesting that rental levels were stagnant during the period from March 1998 to March 2000 (when most of the works had been completed). Yet during this period the rental levels in Yeoman’s Row showed significant rental growth as evidenced by the lettings of e.g. Nos. 54 and 62 where no work had been done by the landlord to the flats themselves. The landlord produced a table of the changes in the rental values in the block for the period up to March 2001. The landlord submitted that this evidence clearly demonstrated an increase in rental value which could only be attributed to the improvements to the common parts, which made the block more attractive to tenants. The increase was significantly more than the 15% referred to in para. 2(7) of the Order and therefore capping did not apply. In further support of her contention the landlord produced photographs of the front and rear of the building before and after the works. Mr Smith thought that the improvements and redecorations to the common parts were unlikely to have had any sizeable impact upon the rent a tenant would be offering for very basic unimproved accommodation. He referred to the rental growth of flats 42, 48, 56 and 58 which showed much slower rental growth, although he acknowledged that the first stage of the works may well have been completed by the date of the earliest of these lettings (Nos. 42 and 58) in October 1998. Mr Smith submitted that if the FPD Savills rental index for central London SouthWest (“the South West Index”) was used it showed a different picture. That index covered the area in which Yeoman’s Row is situated, although it covered house as well as flat rentals. ”
[22]The LRAC considered the evidence relied on by the landlord. It dealt with flat No 54 and concluded that the rental evidence was unhelpful and that it would be unwise to give much weight to the passing rents. It was not really comparable in its letting terms or its condition.[23]The LRAC then summarised the landlord’s evidence for its other main comparable on this aspect, flat No 62:
“The landlord also relied upon letting evidence for No 62, let by the previous freeholder on 15th January 1998 for £16,640 per annum. This had risen to £21,840 p.a. by March 2000 when most of the common parts and garden works had been completed. There had been new tenants in January 1999 and again March 2000. The percentage increase was 31.25% as compared to a small fall in the Flat Index from March 1998 to March 2000. However if the December 1997 index figure is used an increase of 4.5% is shown over the period whilst the South West Index shows a 15% increase. ”
[24]The tenant’s main comparables were flats No 42, 58, 48 and 56 (not 46). The LRAC said:
“Mr Smith’s use of the rental increases on Flats, 42, 58, 48 and 56 had the defects noted above, i.e. even the earliest of the open market lettings came at the end of the first phase of the works. While we accepted that the evidence for Nos. 48 and 56 was particularly suspect for this purpose, we considered that it would be wrong to ignore the evidence provided by Nos 42 and 58 where the lettings were completed in October 1998 about the time the external decorations were being completed, and were some of the earliest lettings by the present freeholders. While it is difficult to quantify, the policies and attitudes of different freeholders have some effect on rental values. We note here that the block had recently passed from a large institutional charitable foundation to a personal landlord who lives on the premises and takes a keen interest in the block. The rent of No 42 rose from £20,280 per annum to £22,360 per annum in the two years from October 1998, a rise of 10.25% as against the Flats Index increase of 2%, and the South West Index increase of 21.5% (taking the September to September figures for the relevant two years). For No 58 over the period to March 2000 the rent moved from £20,280 per annum to £22,100 per annum, a rise of 9% as against the changes in the Flats Index of -3.6% and the South West Index of +10% between September 1998 and March 2000.”
[25]It reached its conclusion in paragraph 39 and following:
“The picture which emerges from all this rental evidence is not clear cut and largely depends upon which index is used. The Committee’s own knowledge and experience of the period in question is that late rents in the prime central London South West Area did rise, and that the South West Index is a more accurate reflection of the market in this location than the Flats Index covering the whole of prime central London. Thus we consider that with the exception of the lettings of No 62 rentals in this block do not appear to have out-performed the market. Even in the case of No 62 the “extra” increase cannot be wholly ascribed to the effect of the landlord’s repair and improvement works to the exterior of the block and the common parts. During this period the landlord had obtained possession of two flats which had been occupied by problem tenants. These flats had then been modernised and relet. The landlord described them as “slum flats”
. She had had to have removed and dumped over 5 tons of rubbish from one flat. The mere removal of such tenants from the block would have made it a more attractive place to live, with a consequent effect on rental values. The subsequent internal improvements of the flats would not have been noticeable to other tenants, and would not have had such an effect on rental values. Taking account of all the evidence on this point the Committee agrees with the landlord to the extent that the works would have had some effect, but does not agree that the increase in rental values due to those works is as great as the landlord suggests. We take the market rent today (£20,000) with the improvements to the common parts and discount for scarcity (£14,000). We then take the market rent today without the improvements (which in our opinion would be 5% less) (£19,000) and make the same discount for scarcity (£13,300). If the difference is greater than 15% then capping does not apply. Clearly here the increase in the fair rent determined as a result of repairs or improvements is £700 per annum. This is clearly less than 15% of the previous registered rent of £8,700 per annum. Para.2(7) therefore does not apply and the fair rent is subject to capping. ”[26]The LRAC then settled on the capped rent of £10,039.50. THE SCARCITY ASPECT[27]Mr Gavaghan for the appellant landlord raised a number of grounds which went to the LRAC’s approach to the application of section 70(2). He submitted that the LRAC had not directed itself properly to the purpose of the legislation, which was to deprive the landlord of a wholly unmeritorious increase in rent which had come about simply because there was a broad overall shortage of houses in the “locality”, and “locality” meant for these purposes a really large area.[28]The effect of that shortage had to be that tenants would take leases at rents which they would not otherwise contemplate. It was never the intention of Parliament to deprive a landlord of the rental advantages which accrued from the amenities of the premises and of the area in which they are located. The LRAC had not kept this distinction in mind.[29]The importance of drawing that distinction was highlighted in Metropolitan Property Holdings Ltd v Finegold 1975 1 WLR 349. In that case the rental values of a block of flats were increased because of the presence nearby of an American school; the case turned on the equivalent provisions in the Rent Act 1968 to section 70(1) in the 1977 Act.

Lord Widgery said:

“I would observe on that straightaway that it seems to be saying in parliamentary language that one must have regard to the sort of factors which tend to push rents up or down on the market. One must have regard to the age of the premises, and that may have an effect up or down according to whether the premises are old or modern. One must have regard to their character and their locality. Their locality is important because a house situate in pleasant surroundings, and with the advantage of local amenities, may very well command a higher rent than an identical house in a less attractive setting. Looking for a moment at the American school to which I have referred, if the committee took the view that the presence of that school made the houses in the surrounding area, and in particular these flats, more attractive, and thus likely to command more rent, then so far as section 46 (1) is concerned the fair rent ought to reflect that factor. In other words, looking for the moment only at subsection (1), any amenity (as the word has been used frequently in this argument), any advantage which the premises inherently have, in their construction, their nature, their scale, their situation, their proximity to a school, a zoo or a theatre, whatever it may be, all those factors which would tend in the market to increase the rental, are factors to be taken into account by the committee in fixing the fair rent. To what extent they are taken into account is, of course, the duty of the committee to decide, but that these are matters which are eligible for consideration is beyond doubt. At this point, as I have already said, the presence of the American school would, on the face of it, tend to put up the fair rent because it would be an amenity making the premises more attractive.”
[31]He then turned to the predecessor of section 70(2) and said:
“I think that before one begins to consider the difficulties, and before one begins to consider the section in detail, one must have clearly in mind what Parliament’s obvious intention was in including this provision in the Act. It seems to me that what Parliament is saying is this. If the house has inherent amenities and advantages, by all means let them be reflected in the rent under subsection (1); but if the market rent would be influenced simply by the fact that in the locality there is a shortage, and in the locality rents are being forced up beyond the market figure, then that element of market rent must not be included when the fair rent is being considered. Parliament, I am sure, is not seeking to deprive the landlord of a proper return on the inherent value and quality of his investment in the house, but Parliament is undoubtedly seeking to deprive a landlord of a wholly unmeritorious increase in rent which has come about simply because there is a scarcity of houses in the district and thus an excess of demand over supply.”
[32]It is apparent from that decision, when read with the judgment of Lord Widgery in Palmer v Peabody Trust 1975 1 QB 604 that the word “locality” in section 70(1) is narrower and more immediate in its geographical scope where it relates to the assessment of the market rent, than it is in section 70(2) where the question of “scarcity” arises.[33]Mr Gavaghan emphasised other related passages in Finegold when dealing with what he submitted was the erroneous approach of the LRAC to the area to which it had to look in assessing whether there was an imbalance between supply and demand.[34]Lord Widgery said at page 353e:
“For the reasons I have already given, I do not think that Parliament was concerned with this kind of local scarcity when section 46 of the Act of 1968 was passed. If one is looking for the unearned, unmeritorious increase in rent which might accrue to landlords if section 46 (2) had never been passed, one must, I think, take a very much wider sweep than the sort of area to which the committee seems to have applied its mind in this case. Of course, if you look at half a dozen streets round the American school, you may well find a scarcity. As you go out to a greater radius round the school, then the effect of the school is less and less. But, as I emphasised, we are not looking at the effect of the school as such; we are looking for scarcity in the locality which results from an excess of demand over supply. It seems to me, with all deference to the committee, that they have somewhat lost sight of the fact that the sort of scarcity we are concerned with is a broad, overall, general scarcity affecting a really substantial area, and they wrongly focused their attention on the extremely limited area which would not, I think qualify as a “locality” for the purposes of section 46 (2) of the Act of 1968.”
[35]Lord Widgery then offered guidance, which is the guidance to which the LRAC refer in paragraph 23 of the Decision Letter, as to how the concept within section 70(2) might be applied in practice:
“What should be done? What can we add which may be of some assistance in the future? I think that committees will find their consideration of section 46 of the Act of 1968 somewhat easier if they start with the propositions clearly in mind that amenity advantages which can increase the fair rent under section 46 (1) do not result in a set off under section 46 (2) merely because the amenity advantages of a particular house or district attract more people than can live there. The test on scarcity is to be taken over the locality as a whole, and that, as I emphasised, is a broad area. What area? We have been referred to Palmer v Peabody Trust [1974] 3 W.L.R. 575 where, dealing with the word “locality” in section 46 (1), I said, at p. 581, that the exact extent of the locality was something which was primarily for the committee to fix. I would repeat that with regard to the fixing of the locality under section 46 (2), but, at the risk of repetition, I do emphasise that when the committee fix their locality for the purpose of deciding whether there is an overall scarcity or not they must pick a really large area, an area that really gives them a fair appreciation of the trends of scarcity and their consequences. It may be although I would not for a moment attempt to define the limits of the area precisely, that when operating section 46 (2) committees will be well advised to draw their inspiration from the area with which they are familiar in their work. Of course different parts of the country require different considerations, but there will be many instances in practice where the most reliable area for the committee to choose on which they are likely to achieve the most accurate result is the area from which their work regularly and normally comes.”
[36]Mr Gavaghan also referred to the decision of Richards J in Queensway Housing Association and Others v The Chairman of the Chiltern , Thames and Eastern RAC 1999 31HLR 945, as offering guidance which a properly informed Committee should have found helpful. In particular Mr Gavaghan placed reliance on the fact that Richards J had cited and placed some weight on the 1971 Francis Committee Report on the Rent Acts in interpreting the Rent Act 1968, to which Lord Widgery in Palmer had also referred. Lord Widgery described that Committee’s approach to “locality” in section 46 (2) as very good and workable ie. “the area within which persons likely to occupy this class of accommodation having regard to their requirements and work would be able to dwell.”[37]Mr Morgan raised no objection to my looking at passages from that Report but I found no more illuminating references than those provided in the Queensway case. At page 961 Richards J cites extracts from Palmer, the Francis Report and from other authorities. (The citation below starts with part of the extract from Lord Widgery in Palmer) “It is reasonable to infer, however, that the work “locality” in subsection (2) is used in a much more extensive sense, because it can hardly be supposed that Parliament intended to regulate rents on the principle that would-be tenants of residential accommodation should always or even usually be able to find it within a constructed area. Immediately after the definition cited by Lord Widgery, the Report goes on:
“This interpretation seems to be absolutely right, but even so, difficulty must often remain of determining how much of the demand arises from ‘amenity’, and indeed of what is meant by ‘amenity’ in this context. For instance, there might be a large demand for workers employed in a factory for rented accommodation in streets near the factory. There might be ample rented accommodation available within reasonable ‘commuting’ distance, but naturally the availability of such accommodation in the immediate vicinity of the factory would necessarily be limited. It would appear that section 46(2) would not ‘bite’ in such circumstances. Similarly, if one takes the central areas of large cities, a large proportion of which is occupied by offices and shops, the supply of residential accommodation available for letting is strictly limited, and there could be, and there often is, a large demand for such accommodation from people who wish to live near their place of work and who dislike ‘commuting’, although in fact the great majority of the people working by day in these areas have perforce to ‘commute’ over considerable distances. If the work ‘locality’ in subsection (2) is construed as meaning an area within reasonable commuting distance then the source of the demand has to be judged in the context of the availability of similar accommodation for renting over the whole area, and, on that footing, the impact of section 46(2) will be very much less than it would otherwise be.”
[38]Richards J said that he was assisted by that and Mr Gavaghan placed reliance on the concept of “an area within reasonable commuting distance” as at least indicating the potential scale of the locality in section 70(2). Richards J continued “Reference should also be made to two more recent cases. In Northumberland & Durham (No 1), Latham J said this, in terms agreed by the parties:
“The Committee should identify the area it is considering. It should have regard to parties’ submission upon the question of the appropriate area, but should determine the area for itself. It should not select an area in which a shortage of similar dwelling houses within the meaning of section 70(2) is or is in part the consequence of purely local amenities. It should instead select an area, an area that really gives them a fair appreciation of the trends of the scarcity and their consequences as explained by Lord Widgery in the Finegold case” ([1998] 24 E.G. at 130). In Northumberland & Durham (No 3), Harrison J ruled: “In giving my conclusions on this first appeal, I start by dealing with the question of locality chosen by the Committee on the scarcity issue. I bear in mind that in accordance with the Finegold case, the locality should be really large so as not to be influenced by the type of local amenity referred to in that case. As Lord Widgery CJ said in that case, the exact extent of the locality to be taken for the purposes of scarcity is something primarily for the Committee to fix. In my view the court should be slow to interfere with a committee’s judgment on that issue, unless it can be shown to be manifestly wrong. I reject Mr Gavaghan’s suggestion of the reasonable commuter test because it would, in my view, lead to an inappropriately wide area. Lord Widgery CJ suggested in the Finegold case that committees may well be advised to draw their inspiration from the area with which they are familiar in their work. The Committee’s area in this case covers Greater London. It was a matter of judgment for them to decide whether to take the Central London area or whether to take a wider area than that. I am not persuaded that it was manifestly wrong to take the Central London area and I do not consider that this court should interfere with the Committee’s judgment on that issue. ”
[39]Richards J then reached his own conclusion in relation to section 70 (2) at pages 963-964 which I set out below and which if I may say so I found very helpful. “But it would in my view be wrong for the court to seek to define (or redefine) the expression or its content by prescribing particular geographical or similar tests, such as “an area within reasonable commuting distance” of the subject property, and the courts have indeed been astute to avoid that approach. As the court emphasised in Finegold and in Palmer v Peabody Trust, the choice of area is a matter for the committee, which should not be tied to any particular formula. What is important is that, in approaching their task, the committee should have clearly in mind, and should direct themselves by reference to, the purpose of section 70(2) and should choose an area which in their judgement is sufficiently large to give effect to that purpose. If they direct themselves correctly, then the court will intervene only if their choice is “manifestly wrong” (per Harrison J in Northumberland & Durham (No 3)) or, to express the same point in conventional Wednesbury terms, if it is one to which no reasonable committee could have come. In considering the purpose of section 70(2), the starting-point must be what the court said in Finegold. In principle, pursuant to section 70(1) the market rent is intended to reflect any enhancement in the value of a property which is attributable to the inherent amenities and advantages of the property itself or of the locality where it is situated. By section 70(2), Parliament is seeking to deprive a landlord only of any “wholly unmeritorious” element in the market rent which is attributable simply to a scarcity of properties and thus to an excess of demand over supply. Thus amenity advantages which increase the market rent under section 70(1) do not result in a set-off under section 70(2) merely because the amenity advantages attract more people to a particular property or locality than can live there. The local distortion created by the American School in Finegold is a straightforward illustration of how that principle operates. It is difficult, however, to judge how far the principle extends. For example, it is possible that an entire region, such as South-East England, may have a higher than average level of amenity which attracts people to live there and results in an excess of demand over supply. Yet that seems to me to be scarcity of a kind that Parliament must have intended to be taken into account by way of deduction under section 70(2), even though the scarcity is attributable in a broad sense to amenity. So the separation between amenity and scarcity is not clear-cut. Indeed, the dynamics of supply and demand are such that it must be rarely, if ever, possible to isolate different elements in so clear-cut a way. How, then, is one to draw the line between local amenity-based distortions that are not to be taken into account under section 70(2) and more wide-ranging scarcity that is to be taken into account? An approach which does in my view meet the legislative policy is to consider what reasonable alternatives are available to potential tenants of the subject property. If the property is situated in an area of relatively high amenity creating an excess of demand over supply, but there is no shortage in the wider area where potential tenants of the property could reasonably be expected to live instead, then no deduction falls to be made under section 70(2). But if there is a shortage of property throughout the area where potential tenants of the property could reasonably be expected to live, than a deduction falls to be made under section 70(2), even if the shortage results from a level of demand attributable to the relatively high amenity of the area. Such an approach accords with the definition cited with approval in Palmer v Peabody Trust from the Francis Committee’s Report, i.e. “the area within which persons likely to occupy this class of accommodation having regard to their requirements and work would be able to dwell”. It is similar to the “reasonable commuter” test also referred to in the Francis Committee’s Report. Its adoption as a general test would, however, introduce an additional and, I suspect, unnecessary element of complexity into the issue of scarcity. I am inclined to think that, although it may be a useful pointer to a committee in marginal cases, it should not be regarded as an essential analytical tool in formulating that choice in the ordinary run of cases. In general, much the same result is likely to be achieved simply by looking at a sufficiently broad area, without seeking to analyse the extent to which that or another area might represent a reasonable alternative to potential tenants of the subject property. If a broad-brush approach of that kind is to be adopted, however, then it seems to me that the area taken must indeed be a “really substantial area” or “a really large area”, as stated in Finegold ; and, although I acknowledge that the particular contrast in Finegold was with a few streets affected by the presence of the America School, I do not think that the expressions used by the court should be given a restricted meaning. “Really large” means really large. To my mind that is emphasised by the court’s suggestion that the committee should look at the area from which their work regularly and normally comes. Again, however, I stress that it is ultimately for the committee to judge how large an area needs to be taken for the purpose of assessing the issue of underlying scarcity under section 70(2), and that the court will not intervene unless it appears that the committee have misdirected themselves as to the purpose of the exercise or have chosen an area that is manifestly wrong. I would add that the very imprecision of the exercise makes it more rather than less important in my judgment that the committee should make clear how they have approached the matter and what broad area they have looked at. ”[40]Mr Morgan particularly emphasised that last passage.[41]Mr Gavaghan pointed to the conclusions of Richards J in relation to the particular decisions on the localities with which the cases before him were concerned. Richards J considered that Caversham was prima facie an inappropriate and insufficiently large area to choose for the purpose of assessing scarcity. He reached the same conclusion in relation to Wallingford. He thought that where another Committee appeared to have regarded the affluence of a locality as a useful defining feature, “The reference to the “affluence” of the chosen area suggests that they may have been unduly influenced by amenity-based scarcity. Further, there is nothing to show - though it may have been the case - that they considered possible indirect effects on demand for this type of accommodation. The fact that so high a figure as 25 per cent has been arrived at by way of eduction for scarcity makes it particularly important to spell out the reasoning in terms that enable one to see that the correct approach has been adopted”.[42]Mr Gavaghan submitted that the availability of all this guidance showed that for the LRAC to conclude that there was little guidance available, it must have ignored the relevant legal framework and its purpose in reaching its decision.[43]Mr Morgan submitted that this criticism was unjustified. The LRAC referred to Finegold; the guide to good practice was before it. There was no issue about the purpose of section 70(2) which its reasons had to address. The comment in paragraph 23 of its Decision Letter, that there was a “lack of positive judicial guidance (apart, perhaps, from Finegold )”, was a fair comment on the lack of guidance as to the practical application of the provision, as opposed to the identification of specific errors during the course of successful High Court appeals.[44]I agree with Mr Morgan. There was no issue before the LRAC as to the purpose of section 70(2); the purpose as set out in Finegold was undisputed. There were very live issues as to the application of that approach to the circumstances of this case as presented by the parties to the LRAC. As the case developed before me I rather agreed with the LRAC, whose comments are clearly directed not to the purpose of the Act but to the way in which the cases offer little practical guidance as to the way in which what is essentially a matter for surveyors should be approached. The complaint that section 70(2) is extremely vague is one which I can fully appreciate the LRAC making when it comes to apply it. “Locality” is neither defined nor is it scope expressed nor are criteria provided to assist in its application. The very concept of a market for a lease without regard to the terms as to rent is elusive. The interaction between the legitimate effect of scarce amenity found in a desirable location and the “scarcity” of “similar accommodation” (whatever that may be), if within one’s grasp in principle, may prove more difficult to pin down in practice. The Courts’ guidance has been little more than that these are interesting matters for surveyors to deal with, once the broad purpose of the legislation has been understood.[45]Mr Gavaghan submitted however that this failure on the part of the LRAC to understand and apply the correct approach to locality and scarcity was made manifest in a number of specific ways to which I now turn. The various criticisms which Mr Gavaghan makes cannot be considered in isolation from each other. The passages criticised form a whole; they have to be read in context and as a whole. They are closely inter-related. I have regrouped his submissions to avoid, so far as I can, isolated phrases being picked over out of their context in the Decision Letter and out of their context in the case presented to the LRAC.[46]The first specific criticism relates to the area selected as the relevant locality for the purposes of section 70(2). The second specific criticism relates to the way in which within that locality, scarcity has been examined: what is the relevance of the homeless households, or of people of “more limited means”? Should a distinction be drawn between modernised and unmodernised accommodation in examining the scarcity of similar accommodation, and should this four bedroom flat have been grouped for those purposes with three bedroom flats? Did the reference to “more popular areas” betray erroneous account being taken of amenity? The third set of criticisms relates to the quantification of the discount: why so large a discount? Why 30% and not 20%? Was there in effect double discounting of both market rent for lack of modernisation and for the scarcity of such desirable accommodation?[47]I turn to these in more detail. Mr Gavaghan submitted that the area which he said had been chosen by the LRAC as the “locality” for the purposes of section 70(2) was far too small to comply with the guidance in Finegold, at least without very specific reasoning being provided. The locality chosen by the LRAC was “Kensington and Chelsea and adjoining Central London Boroughs”. Mr Gavaghan relied upon data showing the considerable disparity between rents in Kensington and Chelsea, Lambeth, and Barking and Dagenham. He submitted that even Central London as a whole would be too small an area in the light of the comments Richards J in Queensway, though he recognised the difficulty of arguing for “a reasonable commuting area” or “London and the South East” as an appropriate locality in the light of that judgment. In the end, he submitted that London as a whole would represent an appropriate area.[48]Mr Gavaghan’s next important point on the LRAC approach to scarcity related to the reliance placed by the LRAC on DETR statistics for homeless households in Greater London in 1999. The LRAC referred to this in paragraph 25 of the Decision Letter. Those homeless households were relevant only insofar as they constituted genuine seekers of a large flat in Knightsbridge, and by so doing were increasing the market rent. That they could be so relevant, submitted Mr Gavaghan, was utterly fanciful.[49]In support of his proposition he referred to what Harrison J said in Castle Court Investment Company (Southampton) Ltd v Southern RAC 23 June 1994 unreported. At page 14 he said:
“I do not think it possible to say that homeless persons or those on the council’s housing waiting list are entirely irrelevant to the scarcity issue. There may well be some amongst them who are genuine seekers of the type of private rented accommodation in question or who would be such genuine seekers if the rent were to exclude the scarcity element. In my view, however, the committee should only take them into account insofar they come into that category. To do otherwise would be to take into account those whose housing considerations lay solely within the public sector rather than within the private sector.”
[50]Mr Gavaghan also submitted that Ms Mainwaring had not been given any chance to deal with those statistics; the LRAC had been procedurally unfair in relying on them.[51]Mr Gavaghan also contended that the reference to “limited means” meant that the LRAC was looking at the level of rent, contrary to the requirements of section 70(2). Demand could exceed supply because of very low rents but this would not equate to scarcity. Parliament was not concerned with those many who might wish to live in an attractive area, which put up the market rents, but who were not forced to live there and pay such rents. Parliament was tackling the exploitation of a general, widespread housing shortage where people had no choice but to pay those rents.[52]Mr Gavaghan submitted that the LRAC had erred in looking at scarcity in relation to “unmodernised” flats. The statutory concept of “similar accommodation” in section 70(2) required a more general approach than examining the quality of bathrooms or the level of furnishings. This problem was particularly acute here because the effect of treating the flat as a 3 bedroom flat was to put it into a smaller category than 4 bedroom flats, in which demand appeared to be several times higher (page 177 of the bundle).[53]In paragraph 19 of the Decision Letter the LRAC had treated the landlord as contending that unmodernised and modernised flats constituted separate markets but the LRAC had misunderstood the landlord’s point. This was instead that rents on modernised flats such as No. 48 should be checked to see if they were distorted by scarcity, which it had not been, before they could be used as comparables to which the LRAC’s discount for a lack of modernisation would then be applied.[54]Next he submitted that the reasoning of the LRAC in paragraph 26 was deficient when it, he said, had rejected the asserted significance of the Royal Borough of Kensington and Chelsea housing projections on the basis that the information related only to the Royal Borough of Kensington and Chelsea. The LRAC ought to have recognised that the information, because it showed no scarcity in the immediate locality, was highly relevant. If there were no scarcity in the immediate locality, it did not matter what the position might be further afield because it could not be affecting rents in the immediate locality.[55]The reference in paragraph 27 of the Decision Letter to some areas of London being “more popular than others” showed that the LRAC was impermissibly having regard to open market rent considerations of amenity. Mr Gavaghan said that where rents were high because of the popularity of an area, it had not been Parliament’s intention to deprive the landlord of that benefit. He also pointed out that material before the LRAC showed how variable rents were across London and that rents in Kensington and Chelsea, even if discounted by 30%, would still be higher than rents in some adjoining Boroughs and indeed the discount equalled or exceeded the actual rent levels in Brent and Barking and Dagenham respectively (bundle page 178).[56]Mr Gavaghan returned to this point in a different context. So large a discount as 30% cried out for adequate reasoning which the LRAC had failed to provide. He submitted that the LRAC gave no reasons, or no adequate or intelligible reasons for its rejection of Ms Mainwaring’s evidence for the landlord, that rents had merely kept pace with inflation and not even that in the Prime Central South West area, whilst at the same time, the return on capital had halved. This showed there to be no unmeritorious profit in the landlord’s suggested rent.[57]Mr Gavaghan submitted that there was double discounting or internal inconsistency in the LRAC’s differential in the market rent of £9,900 between flats 44 and 48, a differential arising from the former being unmodernised, and the latter modernised, and then in its application of a 30% discount to the former and a 20% discount to the latter, albeit from a higher rent and following a greater rental increase. The lower rent suggested a lower demand, a conclusion incompatible with so high a scarcity figure as 30%.[58]Mr Morgan contended that there had been no error in the LRAC’s treatment of the scarcity element. But he submitted that if the LRAC were found to have made no error in its conclusions on the Maximum Fair Rent Order, it would be irrelevant to the lawfulness of its determination that it might have made an error in its approach to the scarcity element or that its reasoning on scarcity might have been deficient. Even without the scarcity element, the maximum fair rent would be capped at £10,039.50.[59]Mr Gavaghan recognised that if the LRAC ‘s conclusions on the maximum fair rent were legally sound, the determination would stand at £10,039.50 regardless of any deficiency in the LRAC’s treatment of the scarcity issue except for any possible overlapping error. Nonetheless he submitted that the decision should still be quashed because it was important that the approach and reasoning of the LRAC in relation to the scarcity element should be reconsidered properly, according to law, because of the continuing effect which such reasoning could have when the fair rent was reviewed. It would be unfair on the landlord for the LRAC’s further errors to go uncorrected, because this was the second time upon which a determination of the rent for this property had been before the Courts. An application for a reviewed fair rent could now be made. It was always possible, though he recognised that there was no evidence that it was currently bruited, that the Maximum Fair Rent Order would be repealed.[60]He referred me to the judgment of Collins J in Spath Holme Ltd v North Western RAC 2001 EWHC Admin 541, 2001 46 EG 181 12.7.01 in which, having despatched a number of Mr Gavaghan’s other arguments for the landlord, Collins J considered a similar point. He said:
“I say: “if this case is returned”, since I did wonder, in the course of argument, whether, because of the cap, the error in reducing the amount as it did was material. However, Mr Rodger supported Mr Gavaghan in submitting that if I decided that the committee had erred in its approach to voids, I should quash the decision and send the case back for reconsideration. The reason for this is the importance of the figure for fair rent in case the cap is removed, having regard to the impossibility of any further application by the landlord for two years without the tenant’s agreement. Accordingly, I shall order that the decision is quashed, and that a differently constituted committee reconsider the whole matter. This means that the appellant will be able to put before the committee such evidence as it wishes to try to establish that it is entitled to avoid capping through Article 2(7) of the 1999 Order.”
[61]Mr Morgan said that there were obviously some very unusual factors at work not least of which was the apparent agreement of counsel for the RAC to that course of action.[62]I have heard full argument on the scarcity issue and I am in a position to deal with those arguments. I shall deal with them and make such observations as I consider appropriate for the benefit of the parties in the event that on a fresh application for the registration of a fair rent, the scarcity aspect becomes relevant either on its own or through its becoming enmeshed with the Maximum Fair Rent Order arguments. There is also some force in Mr Gavaghan’s point that this is the second time that this determination has been before the Court and it would undesirable for the issues not to be fully dealt with so that both parties should know where they stand. I also recognise that the LRAC itself did not ignore scarcity and did not proceed directly to the Maximum Fair Rent Order considerations and indeed I do not consider that they should have done. However I would not quash the decision on account of any errors in the approach to or reasoning related to scarcity, if that would have no effect on the determination because the lawfulness of the conclusion on the Maximum Fair Rent Order had been upheld.[63]Accordingly I turn to Mr Morgan’s submissions on scarcity. There were two general themes to these. First, the nature of the judgments being made by LRAC in relation to scarcity and the area to be examined for those purposes were not amenable to the same level of analysis as would be the assessment of the open market rent. The LRAC was entitled to rely on its own local knowledge and experience in both those matters as a specialist tribunal. The concepts were imprecise and their application to a given set of circumstances was not susceptible to detailed reasoning. Mr Morgan relied on Curtis v LRAC 1999 QB 92 CA in which Auld LJ, delivering a judgment with which the other two members of the Court agreed, said at page 122g - 123a:
“I do not consider that the committee were necessarily wrong in the circumstances in referring to the rent officer’s report in the way they did on the issue of scarcity. Such an issue, both as to the presence and degree of scarcity over a broad local area, is not amenable to the same precision of analysis as is the assessment of a market rent for the subject premises. It inevitably turns on an accumulation of knowledge and experience of the pattern and speed of lettings in an area, which is what the rent officer’s report in this respect amounted to. It is to be contrasted with the more mechanical exercise of assessing fair rent by reference first to market rent comparables, often in the immediate locality, and as to the valuation of individual differentials and the fixing on allowances for particular disregards.”
[64]He also pointed out at page 122d:
“This is an area in which a committee’s own knowledge and experience of the locality is of particular value, and I would be reluctant to introduce into the exercise any hard and fast rules of a forensic nature as to where the burden of proof lies.”
[65]Mr Morgan’s second theme was that it was important to recognise that the LRAC’s reasoning was closely related to the nature of the arguments and evidence put before it. They were what defined the principal issues in controversy. Much of what Mr Gavaghan had submitted represented arguments or a degree of sophistication in argument with which the LRAC had not been favoured.[66]I accept the correctness of the first theme and the principle of the second. Its application to Mr Gavaghan’s submissions was disputed. But it is important to see Mr Gavaghan’s criticisms in the context of the case as presented to the LRAC and in the context of the Decision Letter read as a whole.[67]First, I deal with the locality selected. The purpose of the legislation is clear. The LRAC need to choose an area large enough, not just to eliminate the rental impact of the immediate area’s particular attraction and amenity, but large enough for a broad and general appraisal of whether there is a shortage of similar accommodation which is affecting rents payable by potential tenants of the subject accommodation; the area to be examined is that over which reasonable alternatives are available to potential tenants of the subject property.[68]The decision in Finegold emphasises the need to examine a “broad, overall, general scarcity affecting a really substantial area ... a broad area”. Curtis refers to a “broad local area” but points out that that issue is not amenable to precise analysis. In Northumberland and Durham No. 3 (as cited in the Queensway group of cases), Harrison J said that it was for a Committee to decide whether to take the Central London area or a wider area. The former was not manifestly wrong. In the Queensway group of cases, Richards J recognised that the need to look to a wide area did not necessarily mean that an area as large as South East England, which might now be the equivalent of the Francis Committee concept of an area within reasonable commuting distance, could sensibly be regarded as the locality to which Parliament had envisaged that Committees should look for the purposes of section 70 (2). Again Richards J emphasised the imprecision of the task.[69]The other relevant theme arising from the imprecision of the task is that the locality is very much for the Committee to select. Its own area, from which its work normally comes and to which its experience would relate, is a very useful guide to what would be an appropriately broad area. The basis for the selection of the area needs to be reasoned, though the imprecision of the concept may restrict the detail or depth of reasoning which a Committee can realistically be expected to provide.[70]In this case the LRAC took as the locality an area less even than Central London, namely Kensington and Chelsea and adjoining Central London Boroughs - which I take to be Hammersmith and Fulham, Brent, Westminster and perhaps Wandsworth. Mr Gavaghan was critical of this because, whilst South East England and the reasonable commuting distance was suggested in Queensway to be too large an area, the area of Central London as a whole was considered appropriate in Northumberland and Durham No 3, rather than something less. The issue, he said, was whether Central London was too small rather than whether a yet smaller area could be justified. On the other hand, the landlord’s case before the LRAC had been that the section 70(2) locality should be Kensington and Chelsea, Hammersmith and Fulham, Westminster, Battersea and Clapham in Wandsworth, Camden, part of Islington, Lambeth and Docklands i.e. it was not confined to Kensington and Chelsea nor was it as large as Central London as a whole. It included an area which overlaps to a very considerable extent with the LRAC’s chosen area, except for the Lambeth and Docklands outlier. The tenant focused on Kensington and Chelsea, Westminster, Hammersmith and Fulham, Battersea and “other high value central locations”.[71]The LRAC does not provide any reasons for its selection of the locality. However, in view of the submissions before it from the landlord and tenant alike as to the appropriate area, it is easy to see that it would regard the area it chose as reasonably reflecting the high degree of common ground between the parties. The issue was not so much as to the locality but as to the conclusions to be drawn from such evidence as there was as to “scarcity” within the locality. I do not consider that any error has been shown in the selection of the locality, in the light of submissions presented to the LRAC, nor that more detailed reasoning was required as to why particular parts of the landlord’s locality were not included in that selected by the LRAC. Notably neither London nor Central London as a whole was put forward by the landlord as the area which the LRAC should select. The arguments presented to me represented a degree of sophistication, in a non-pejorative sense, which the LRAC could not be expected to grapple with unless those arguments had been presented to it.[72]Many of Mr Gavaghan’s points in relation to locality have force however and, if presented to the LRAC and rejected, might well require more detailed reasoning than the LRAC provided in respect of the locality which it selected here. A particularly difficult issue is the extent to which Central London possesses, as a whole, features such as proximity to a range of employment opportunities, a density of transportation network, central area attractions, high property values and a degree of wealth and social homogeneity which cannot be found outside the central areas of the great metropolises, which mean that Central London itself, large though it is, is simply too small to eliminate the effect of its widespread but particular “amenity” rent-related considerations which have nothing to do with scarcity. The criticism made that Central London was the least area which should have been selected, needs also to recognise that the LRAC might take the view that the sub-area of Central London which it selected was reasonably representative of the range of characteristics of Central London as a whole, or indeed of a yet wider area, containing a considerable range of both attractive and indifferent areas and would therefore yield a picture of scarcity reasonably representative of Central London as a whole or of a yet wider area. The LRAC might conclude that the overall picture and the sub-area picture would not differ significantly.[73]The second specific aspect of scarcity relates to the significance of those on housing waiting lists or who are homeless. Mr Morgan acknowledged that the statutory assumption in section 70 (2), that the number of persons seeking to become tenants of similar dwelling houses in the locality on the terms “(other than those relating to rent)” of the particular tenancy was not substantially greater than the number of such dwelling houses in the locality available for letting on such terms, did not mean that it had to be assumed that the accommodation was rent free. He also accepted that a scarcity of similar accommodation for those who could not afford to pay market rents, even without the scarcity of such accommodation having driven up market rents, was irrelevant unless it could be shown that their circumstances had an effect, albeit indirectly, on the level of rents paid. Therefore not merely did there have to be a scarcity of similar accommodation, but the substantial imbalance between households and such accommodation had to affect the rental levels. Section 70(2) was not directed to the provision of affordable housing, nor was it directed to the ability of the tenant to pay. Its purpose was that, although a tenant could pay the market rent to the landlord, the landlord as against the tenant should not benefit from a rental uplift attributable to the fact that there were more seekers for say three to four bedroom flats in the “locality” at the sort of rents which, absent the impact of scarcity, such accommodation would fetch, than there was such accommodation available. The relevant would-be occupants of similar accommodation for these purposes had to be those who genuinely sought to become tenants of market rented similar accommodation or whose accommodation needs affected the market rents.[74]Any other approach, which treated as irrelevant the fact that the premises were to be let at market rents, would treat as relevant to scarcity those who were not genuine seekers of such accommodation and would simply achieve a lowered rent for a tenant not by reference to the scarcity of similar accommodation but by reference to those irrelevant to the rental levels at issue. This would lead only to a fortuitous windfall to the tenant at the expense of the landlord on a basis unrelated to the aim of the legislation. The aim is to prevent a landlord exploiting scarcity so as to obtain from the tenant a rent which the tenant can pay but which represents a bargain which he was forced to make because of a want of similar accommodation, rather than one which he could choose to make in order to enjoy the amenities of the property in the location where it stood.[75]The effect of the phrase “(other than those [terms] relating to rent)” is to preclude the argument by the landlord that any underlying rent which the landlord and tenant have agreed must perforce be the market rent. Where “scarcity” exists, the purpose of the phrase is to eliminate the effect of an aspect of the real world market and to require the assumption instead of a partly theoretical or idealised market. Just as with the concept of the locality, the theoretical nature of the exercise and the imprecision inherent in establishing both the existence of “scarcity” and its effect on rent in a theoretical world, preclude there being a realistic expectation of detailed reasoning.[76]I accept Mr Morgan’s submission as to the way in which an RAC should approach this second aspect of “scarcity”, namely homelessness and its relationship to rents. But I do not see that approach reflected in the LRAC’s reasons.[77]First, when relying on the DETR Statistics in paragraph 25 of its Decision Letter, it failed to draw any distinction between those homeless households, which are not in the housing market at all, let alone in the market for accommodation in Knightsbridge at “non-scarcity” affected rents, and those who are in that market. It is at least obvious that many would be in the former category and could not contribute to the market housing supply/demand imbalance. Indeed it would require careful reasoning, in the light of Mr Morgan’s approach to “scarcity”, and it is the correct approach, in order to explain how any homeless households could contribute to an imbalance between houses and households seeking family accommodation at “theoretical” market rents, especially for the rental levels involved here even after a deduction for “scarcity”.[78]It would be necessary for the LRAC to explain whether and how there was an indirect effect rather than a discontinuity in London between social and market housing for the households in the DETR Statistics. Yet these DETR Statistics were the only specific statistics identified by the LRAC as supporting its conclusion that there “must” be a discount. It would have been useful, in view of the amount of “scarcity” discounted rent, had the LRAC back-checked the reasonableness of its “scarcity” discount and the degree of imbalance between accommodation and seekers of accommodation with that discounted rental figure in mind: can it really be said that the homeless households of London are genuine seekers of such accommodation or that they even indirectly affect that level of rent for it?[79]Second, whilst there may be the two stages for analytical purposes, first of determining whether there should be a discount for “scarcity” and second of determining what that discount should be, there ought to be a rational connection between the two. Yet the DETR Statistics do not appear to form any part of the reasoning as to quantification: if they did, it is far from obvious by what reasoning 27840 households, homeless across the whole of London, are thought to affect in a quantified way, one sector of the accommodation in a part only of that London area. After all the LRAC itself, when dealing with quantification in paragraph 27 states that scarcity is not evenly spread, with some London areas more popular than others. The proportion of homeless households to total households in London as a whole or in the locality chosen, and the composition of such households in relation to the size of accommodation chosen as similar, would be necessary ingredients in the application of the DETR Statistics to the discount quantification process. The relevance of those statistics to the process of establishing and quantifying the discount is not obvious and is not reasoned. If they were ignored for quantification purposes, it is difficult to see how they could have assisted in establishing the need for a discount at all. If they were taken into account for quantification, it is difficult to see on what basis that could have been done. If the relevance of these statistics was to show an indirect effect upon rental levels, the figure of 30% as a consequent discount is startlingly large in the absence of any more explicit reasoning.[80]Mr Morgan submitted that the LRAC did not hold that homeless people were seeking a large flat in Knightsbridge and by so doing were increasing the market rent for such property. The reference in paragraph 25 of the Decision Letter to the DETR Statistics was merely the making of a general point; the detail of “scarcity” in relation to this type of property and the specific locality were dealt with in paragraph 27 of the Decision Letter. I simply do not accept that interpretation of the Decision Letter as realistic. Paragraph 25 is not irrelevant or general musing. It is the very basis of the conclusion by the LRAC that it “must” apply a discount. Indeed paragraph 27 in its first sentence suggests there is a link between the specific reasoning and the general reasoning. Paragraph 27 deals more specifically with the quantification of the discount but it cannot be read as if paragraph 25 were not there. Paragraph 25 only makes sense on the basis that homeless people will affect the market rents for large flats in Knightsbridge. The unsoundness of the Decision Letter in this respect is emphasised by the denial that the reasoning is as, in my judgment, it appears to be.[81]Third, a particular complaint is made by the landlord in relation to the use by the LRAC of those statistics. It is said by Ms Mainwaring in paragraph 7.1 of her first witness statement that the LRAC neither produced nor referred to those statistics at the hearing. Had they done so, she says that she would have demonstrated their irrelevance by putting forward points the essence of which I have dealt with above. It was unfair of the LRAC to rely on those statistics.[82]Mr Morgan first took issue with the factual correctness of Ms Mainwaring’s assertions. Mr Robson, the Chairman of this Committee states however in his witness statement that the DETR Statistics were not specifically put to Ms Mainwaring, although he had intended to put them to her. He says that however, homelessness and published statistics were discussed. Mr Morgan submits that the general picture of homelessness and its significance were discussed and points out, as does Mr Robson, that these DETR Statistics were examples of many that could have been used. Mr Casey, who was a committee member, says in his witness statement, that he put to Ms Mainwaring a statistic about the number of homeless people in London (98,000), which had come to his attention recently in a newspaper report. He said that in the ensuing debate Ms Mainwaring referred to the effect of housing benefit on rental levels.[83]Mr Morgan submitted that in those circumstances there had been no breach of regulation 5 of the Rent Assessment Committees (England and Wales) Regulations 1971. This provides that at hearings, copies of documents relied on by the parties or embodying the results of any investigation by the RAC for the purposes of the reference should be supplied to the parties. He also submitted that there had been no breach of the rules of natural justice because there had been no substantial injustice caused to the landlord.[84]I accept that there was a general discussion about homelessness and its relationship to rental levels. I do not accept that the LRAC put any statistics to Ms Mainwaring with the documentary material relied on. I accept that a general question was put by Mr Casey and that a discussion of the general nature he describes then ensued. The LRAC does not suggest that it was relying here upon the detail of arguments presented by the tenant.[85]I consider that where the LRAC proposes to rely upon particular statistics, whether as an example of a general proposition or not, it ought to give the parties the opportunity to comment on them. Even if there has been a general discussion of the issue, that is no substitute for an opportunity to deal with the particular statistics in question. Such a discussion may reveal particular weaknesses in those statistics or it may illustrate weaknesses in the general proposition which those statistics are said to support or weaknesses in the generality of such statistics. If the general debate had sufficed, the LRAC could have confined itself to reliance upon the general debate. Here the LRAC drew specific attention in its Decision Letter to these particular statistics albeit as an example; there are undoubtedly sensible criticisms that can be made about their significance. If Ms Mainwaring’s answers to the general points had been presented in the Decision Letter it would have been possible to see whether they covered the issues in respect of which reliance was placed upon the DETR Statistics. But I see no reference to anything which Ms Mainwaring said in the course of the discussion to which Mr Casey refers.[86]I conclude that the LRAC was procedurally unfair in this respect. It is possible that there was, strictly, no breach of the Regulations because the statistics were not relied on by the tenant nor were they the result of any “investigation” by the LRAC specific to this case. However, if so, the Regulations can be seen as a specific procedural requirement rather than as exhaustive of the requirements of procedural fairness. The answers given by Ms Mainwaring in relation to these particular statistics could have affected the whole of the LRAC approach to “scarcity”.[87]I should add that in the absence of references to particular statistics which have been discussed at the hearing, a Decision Letter based on generalised references to “publicly available official and influential non-government sources” risks being inadequately reasoned or unfair, unless that level of generality has been the basis of debate and no examination of particular examples has been sought.[88]I recognise that the LRAC is an expert tribunal and is expected to bring its knowledge and experience to bear upon its examination and assessment of the material placed before it. However where the actual material relied on for a particular conclusion is in fact the unspecified and perhaps unrevealed knowledge and experience of the LRAC, there is a real risk of injustice being done unless what it has in mind has been revealed, for example by way of a comment which summarises the experience or knowledge which the LRAC has in a particular area, and upon which a response is then sought from the parties. An alternative and real risk is that a Decision Letter would be inadequately reasoned if it placed reliance upon unspecified and unrevealed knowledge and experience as the key to the conclusion. Some greater insight into that reasoning on a principal controversial issue would probably be called for. The first sentence of paragraph 25 which states that “using our knowledge and experience we consider that there is substantial scarcity in all parts of London” requires some explanation of what that knowledge and experience actually is. The fact that the DETR Statistics are the only identified statistics referred to, adds weight to the need for the parties to be given a specific opportunity to comment on them. In that way they might very well be able to have commented on precisely those factors which constitute the knowledge and experience of the LRAC.[89]Fourth, it is very important that the distinction be carefully observed between an increased demand arising from the amenity of a property or its location, and an imbalance arising from a shortage of similar accommodation over a wide area in relation to those seeking such accommodation. The LRAC was entitled to conclude in paragraph 27 that habitable but unimproved property in the chosen locality was in great demand but increasingly short supply.[90]However what is particularly troubling is the reference in the first sentence to scarcity being spread unevenly with some areas “being more popular than others”. No doubt that is true, but it is necessary on both Mr Morgan’s and Mr Gavaghan’s approach for the LRAC to eliminate from its consideration the self-evident popularity which parts of Central London enjoy and which increases the rents for reasons which relate to the desirability of property in such locations and to avoid which people have choices within cheaper London locations. I do not see that distinction being observed in paragraph 27 of this Decision Letter. Rather it is my view that it has been blurred or overlooked in that first sentence of paragraph 27, which colours all that follows: the LRAC is saying that people look for cheaper accommodation in the attractive areas rather than pay a lesser amount for similar accommodation in less attractive areas. That in my view is how the LRAC have approached matters, but it shows regard being had to what for these purposes are the irrelevant amenity considerations.[91]It is of course a difficult distinction to draw and the LRAC’s choice of locality does not make it any easier for that distinction to be drawn. But at the very least the LRAC’s decision is unclear on this critical issue.[92]Fifth, whilst the 30% discount may be consistent with other discounts and whilst I accept that the quantification of the discount is inherently imprecise and cannot be the subject of detailed analytical reasoning, the 30% figure is still one which is sufficiently large, bearing in mind all the difficulties over the contrast between the rent paid for location and amenity and the rent extracted because of an imbalance in supply and demand over a very broad area, to call for something more explicit. The LRAC’s reasoning gives the impression that the 30% is no more than a figure plucked from the air, with no virtue beyond consistency. The LRAC says it “quantified” the discount; it ought to explain how it did so, so far as possible in this context. Its reasoning is wholly absent. It cannot just rely on “experience” for the reasons which I have already given. Nor in my judgment is it an adequate answer to say that it was faced with a choice of making no discount, on the landlord’s case and making a 30% discount on the tenant’s case and it must be taken to have accepted the tenant’s case. The tenant’s case was very briefly put in relation to this matter and does not advance the reasoning process; one does not improve the LRAC’s reasoning by reading into it, if it were the case, that the LRAC had accepted what Mr Smith for the tenant had to say. In any event the obligation on the LRAC to give reasons for its decision requires it to explain why 30% and not a lesser figure of 10% or 20% was chosen. Even though the landlord did not put forward a fall-back figure, it is quite obvious that her case was that if the discount was not to be nil then it should be as low as possible.[93]There are certain arguments raised by Mr Gavaghan which however I do not accept. I reject Mr Gavaghan’s submission that the LRAC has erred in its assessment of “similar accommodation”. The LRAC has to take a view on what are the factors affecting any imbalance between the numbers of houses and the numbers of seekers of such houses. If it is family sized accommodation of three or more bedrooms which is seen as more greatly sought after than the available supply and the property in question can be used as three or more bedrooms, it is entirely reasonable for the LRAC to put this accommodation with its flexibility in room use into that category. Likewise, if the lack of modernisation affects the imbalance, or its degree of imbalance, I consider that that is a factor to which the LRAC can have regard in deciding what constitutes “similar accommodation”. I do not accept Mr Gavaghan’s submission that an RAC has to go on broad, physical or structural features and cannot have regard to the state of the property, if that is something which, in terms of the balance between houses and households seeking accommodation, assists in delineating similarities and differences in accommodation and thus in differentiating one group of houses and seekers of accommodation and another. That enables a greater degree of precision in the assessment of what is similar accommodation. I do not consider that there has been any misunderstanding of the landlord’s arguments that would affect this point.[94]I also reject Mr Gavaghan’s submission that the LRAC’s reference in paragraph 27 to “tenants of more limited means” shows the LRAC impermissibly having regard to the terms as to rent, contrary to the requirements of the statute. Both Mr Gavaghan and Mr Morgan recognised that the disregard of the terms as to rent did not mean that the property was to be rent free or at affordable or subsidised rents; inevitably therefore it has to be assumed that some rent, and in Knightsbridge or Chelsea, a substantial rent would be paid. More people could afford the lower rent payable for unmodernised property. That increases the scarcity on imbalance without increasing the market rent. In my judgment that is all that the LRAC is saying. It is a type of property in increasingly short supply, in this locality.[95]I reject Mr Gavaghan’s submission that the LRAC’s reasoning was internally contradictory in relation to the differential between modernised and unmodernised rents and the greater discount for “scarcity” for the latter. It is quite logical for the LRAC to say that more people want the cheaper accommodation than the more expensive accommodation but in effect would drop out of the market were the rental level closer to the modernised rent.[96]I reject Mr Gavaghan’s submission that the reasoning of the LRAC in paragraph 26 was deficient. It is perfectly clear that the LRAC is looking at the whole locality and not just one Borough, because it considers that the whole should be looked at for scarcity and rental impact, not just smaller areas. It is a valuation approach which it was entitled to adopt. I am also far from clear how explicitly Mr Gavaghan’s submission was made to the LRAC.[97]I also reject Mr Gavaghan’s submission that the LRAC had ignored the landlord’s argument to the effect that a halving of the return on capital and rental increases only keeping pae with inflation showed no “scarcity”. This is adequately dealt with in paragraph 22 of the Decision Letter.[98]However, if scarcity had been the key issue, I would have concluded that the Decision Letter should be quashed because it was erroneous in its approach or inadequately reasoned. The Maximum Fair Rent Order[99]The key issue for the LRAC in relation to The Maximum Fair Rent Order was whether the improvements to the common parts and exterior to the block of flats had caused a rise of at least 15% in the rent of Flat 44 since it had last been determined at £8,700 in November 1997. These works were accurately summarised in paragraph 31 of the Decision Letter. There were no improvements to Flat 44 itself which had to be considered. The LRAC in agreement with the tenant, was of the view that they had not caused such an increase.[100]Mr Gavaghan submitted that the LRAC erred in a number of respects and had provided inadequate reasons for its decision on this issue.[101]First, he submitted that the reasoning of the LRAC was internally contradictory. Paragraphs 39 and 40 of the Decision Letter, when read with the analysis of Flat 62 in paragraph 36, showed that the LRAC had concluded that the market rent for the block had increased by 31%, whereas elsewhere it had concluded that the market overall was steady. Indeed, Mr Gavaghan had submitted that these contrasts were just what the LRAC ought to have recognised, showing that this block was out-performing the market substantially and that this performance was attributable to factors peculiar to this block, namely the improvements to its common parts and exterior. I do not accept that submission. It is clear that there is no internal contradiction between paragraphs 12 and 39 - 40 of the Decision Letter. The reference in paragraph 12 to the similarity of rents in March 2001 to those in November 2000 and hence to the market being flat, and also to the LRAC’s knowledge and experience being much to the same effect, was a reference to the way in which rents were expected to move looking to the future as at the date of decision in May 2001. This was necessary because the context of the comment in paragraph 12 of the Decision Letter, was the landlord’s argument that rents were rising and that the market rent should now be increased by 5%, to reflect the fact that the rent for Flat 44 would now be fixed for two years, whereas that for comparable assured shorthold tenancies would rise within that period. Paragraphs 39 - 40 by contrast, were dealing with the past changes in the market between November 1997 and May 2001.[102]I also consider that Mr Gavaghan does not here do full justice to the LRAC’s reasoning. It considers the separate flats in the block in relation to the market in general very carefully, both as relied on by the landlord and as relied on by the tenant. It concludes that the picture which emerges is unclear, and that only one flat out-performed the market. It gives reasons for its conclusions on each flat, and for the latter flat, 62, the one upon the increased rent for which Mr Gavaghan relies, it provides clear reasons as to why it alone would have had a more substantial increase.[103]There is no justification for the submission that there is an internal contradiction in the LRAC’s reasoning. Different time periods were being examined; the striking contrast relied on was in any event only applicable to one flat, the rental increase in which was explicitly dealt with by the LRAC.[104]Mr Gavaghan here again criticised the LRAC’s reference to its own knowledge and experience of the movement in flat rents, just as he did in its reliance on its knowledge and experience of recent rent movements. These were but “declarations”. So far as paragraph 12 is concerned, the LRAC used its knowledge and experience to assess the significance of the rental figures which it had and to support the conclusion to which they pointed. I see nothing objectionable in that. Their knowledge and experience, unrevealed and unspecified, is not being used as the main material for a conclusion on a principal controversial issue. The same applies in relation to paragraph 39; it is used to help assess the significance of the rental figures and to support the conclusion to which they pointed. It is not the main material for its conclusion.[105]Mr Gavaghan’s second submission related also to paragraph 39. He was critical of the decision of the LRAC to rely on one index of the market as opposed to another, in its assessment of whether the rents of flats in the block had out-performed the market. The landlord relied on an index relating to flats alone - the FPD Savills Prime Central London Flats Index. The tenant relied on the FPD Savills Central London South West Index, which covered both flats and houses. Ms Mainwaring suggested that the latter would give a misleading picture of the rental movements of flats, especially of smaller flats of 800 square feet such as Flat 44. These had not performed as well as other flats and indeed Mr Smith for the tenant had said as much and, why, to the LRAC.[106]I have no doubt but that valuers can debate this issue; however the choice of index which best represents the overall market for the type of property under consideration is pre-eminently a matter for the judgment of the LRAC, and is not a matter of law for this Court. The LRAC explains why it regards the South West Index as a more accurate reflection of the market here: it reflects location, which the all-flats index cannot do so well because it covers all Central London. The LRAC has not just plumped for one index without regard to the purpose of its use nor has it ignored the limitations in the indices. It regards one as more accurate on the basis of its experience and knowledge of the period and, I infer of the area in question. That is a wholly proper use of its knowledge and experience. I do not consider that I can infer that the LRAC ignored Mr Smith’s reservations about the rents for small flats, in assessing the relationship between the movement in rents for flats in the block and the general market rent for flats. It would have been part of the overall picture referred to in paragraph 39 of the Decision Letter.[107]Ms Mainwaring is critical in her witness statement of the way in which she says Mr Smith introduced the South West Index as the hearing. She says that she was not aware that he had changed indices. The LRAC was plainly aware however of what it was looking at and I do not see that any point of law arises from that complaint. Ms Mainwaring sought to introduce fresh evidence to show that the data in the South West Index, if broken down into flats and houses, supported her contention that the rental movements of South West flats had been much lower than that of South West houses. I do not consider that I can hold the LRAC decision to be erroneous in law, unfair or inadequately reasoned on that account. Had she realised the nature of Mr Smith’s evidence, she could have sought time in which to address it. But it is not an error for the LRAC to have regard to the available material and to fail to have regard to material which is not provided. It is not unfair to do so. The reasons were adequate. Decisions cannot be overturned in law as each party seeks to produce fresh evidence after the event, regardless of its prior availability. It is also to be borne in mind that a very significant part of the LRAC’s reasoning on this issue was the relationship it saw, as a matter of its judgment, between the actual rental increase, the limited nature of the improvement works and other contributory factors.[108]Mr Gavaghan’s third submission was that the LRAC had in effect ignored a relevant consideration in the form of submissions produced to the Rent Officer on behalf of the tenant, by Mr Richardson of “Staying Put”, a body which assists tenants such as the second respondent here. He said that there had been substantial increases in rent in the block, against the back ground of a generally static market and that “one can only assume that this increase has largely been due to the present landlord’s modernising and refurbishing the block”. An enhancement in rental value of more than 100% was suggested in some cases as attributable to the improvements.[109]There was a factual issue over whether that material had been before the LRAC which was continued in correspondence after the conclusion of the hearing of the case before me. Ms Mainwaring said that it was commonplace for the Rent Officer to forward to the LRAC the material which had been placed before him and she produced a letter dated 17th May 2000 in relation to Flat 44, written on behalf of the Chief Rent Officer to the Secretary of the LRAC enclosing the Rent Officer’s papers. Mr Robson, through the Treasury Solicitor stated that neither that letter nor the submission of Mr Richardson had been before the LRAC and confirmed the accuracy of paragraph 15 of his witness statement on that point.[110]I do not find as a fact that this material was before the LRAC in the light of that correspondence. Perhaps it should have been and perhaps it normally would have been. But I accept Mr Robson’s evidence; it is weightier than Ms Mainwaring’s contrary inference. Had it been so important to the landlord’s case, she should have explicitly adopted it in her submissions to the LRAC. There is no error of law shown here.[111]Mr Gavaghan’s fourth submission related to the route whereby the LRAC had arrived at its conclusion that only £1,000 of the market rent and £700 of the fair rent was attributable to these improvements. The approach of the LRAC had been what Mr Morgan described as the direct approach. It had asked itself how much less would the rent for Flat 44 have been without those improvements. Mr Gavaghan submitted that the only logical and lawful way in which to assess the contribution of the improvements to the rent increase was to identify the market rent increase since November 1997, to identify the proportion due to the general market rise (which he said was a flat or slowly rising market), and then allocate the rest to the improvements.[112]This is not a point of law at all. The approach to the assessment of the proportion of the rent increase attributable to the improvements to the block, is entirely one for the LRAC. There was nothing irrational in its approach. The crucial differences are not in the approach in any event but rather in the inputs - how much had the general market moved and what other factors, including the new management, were also involved?[113]It was not incumbent on the LRAC, contrary to Mr Gavaghan’s submission, to take the November 1997 figure of £8,700 fixed by the Rent Officer and treat that as the starting point. I accept that it is possible to have doubts over that figure fixed as it was pre- Curtis, contrasting as it does with the figure of £10,000 fixed for Flat 48 by the LRAC. Besides there is force in Mr Morgan’s point that the LRAC was agreeing to Mr Smith’s assessment that as a matter of common-sense, looking at the nature of the improvements in the block and other factors, only a relatively small sum should be attributed to the improvements.[114]I appreciate that the LRAC’s reasoning for its figure of £1,000 is short but it reflects a view about all the factors influencing the rent increase, including new management, against which it sets the improvements. In describing them as having “some effect” and disagreeing with the landlord’s appraisal, it is clearly reaching a judgment, supported by Mr Smith’s approach, which it is entitled to reach, namely that the improvements were not significant in the context of the rental increase.[115]For those reasons I reject Mr Gavaghan’s submissions in relation to the Maximum Fair Rent Order. In the light of those conclusions I see no reason to quash the decision notwithstanding the conclusions I have reached in relation to “scarcity”. There is no overlap in the issues as I have analysed them. The decision would inevitably be the same even if I were to quash it because of the “scarcity” error. I have dealt with them because they may assist the landlord, tenant and the LRAC if the issue of the fair rent has to be considered without the effect of the Maximum Fair Rent Order, or if in other circumstances the landlord can persuade the LRAC that the cap does not apply.[116]There is a manifest inaccuracy in the “Remarks” section of the LRAC decision but I do not consider it necessary to quash the decision on that account. It is sufficient if it is recorded here. The Remarks section states that the “Landlord has undertaken to operate section 11,” of the Landlord and Tenant 1985. Paragraph 13 of the Decision Letter shows that not to be the case and not to be the basis of the decision. The decision of the LRAC did not resolve the issue finally and stated as much. The remark is simply wrong.[117]I should add that Miss Carrington made short submissions on behalf of the second respondent, supportive of the position adopted by Mr Morgan. I hope I will not be thought discourteous if I do not refer explicitly to them. ****************** MR JUSTICE OUSELEY: For the reasons set out in the judgment, which has been handed down, this application is dismissed. MR MORGAN: As your Lordship has indicated that the application should be dismissed, I would ask that it be dismissed with the first respondent's costs, that is the chairman of the committee's costs, to be paid by the appellant, who has failed to obtain any relief. My learned friend Mr Gavaghan has indicated that he will submit to the court that the right order is no order as to costs, and obviously your Lordship will hear him develop that, but may I very briefly indicate the main points why I say it is proper in this case to make an order that the first respondent's costs be paid. The starting point is that the first respondent has succeeded and the appellant has failed totally. No relief has been secured by the appellant. There were arguments put forward by the appellant which were successful but those arguments have had no effect on the result of the dispute between the parties. Your Lordship recalls very well that there were two separate parts to the argument: one concerned the cap and the other concerned scarcity. In relation to the cap, there were several challenges to the committee's decision, all of which failed. In relation to scarcity, there were many more challenges to the committee's decision, some of which failed and some of which would have succeeded if that had been the only point. It is perhaps not necessary for me to go through your Lordship's judgment point by point. Your Lordship has seen the matter in preparing the judgment so recently. So far as the committee's stance in arguing points which did not find favour with your Lordship, I would respectfully say that the committee acted entirely reasonably. It did not take prolix and unreasonable points in this court. The committee is of course a tribunal. It is a public body. It had reached its decision and it was incumbent upon it to explain its decision to the court, and that was the function of the submissions made on its behalf. The rules guide the court as to how to exercise the discretion as to costs, and I am sure my learned friend will take the court to those, but may I go there first. In the current practice at page 794 your Lordship should find there rule 44.3, and that is headed, "Court's Discretion and Circumstances to be taken into Account when Exercising its Discretion as to Costs". Subrule (1) says there is a discretion, and subrule (2):
"(2) If the court decides to make an order about costs-- (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) The court may make a different order."
Subrule (3) is two special cases, which do not arise here. Subrule (4):
"(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-- (a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has been not been wholly successful; and (c) any payment into court or ... offer to settle ... "
And then:
"(5) The conduct of the parties includes-- (a) conduct before, as well as during, the proceedings, and in particular the extent to which [one complied with protocols]; (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue; (d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."
And (6) lists the range of orders that a court may make, with which your Lordship is, of course, very familiar. My Lord, in my very brief submissions I address those various criteria and, applying them, I would respectfully say the right order is the first respondent should receive his costs. MR JUSTICE OUSELEY: Thank you. Mr Gavaghan? MR GAVAGHAN: May it please your Lordship, in the light of the CPR, Lord Woolf said that we should deal with costs on an issue by issue basis. There were three issues, in my respectful submission, in this case. The first was scarcity. The second -- I say it was the second issue, although it was a sub-issue -- was the natural justice point in respect of the statistics which required further evidence to be filed, and there was the cap. We won on the first two of those issues. We lost the third. We have finally, after two trips to this court, received a comprehensive analysis of scarcity affecting this particular property. We did not obtain remission, which obviously was the main relief that we sought, but we do now have authoritative guidance from your Lordship to the committee as to how they should approach the scarcity matter. MR JUSTICE OUSELEY: You are rather stuck because they might disagree with the basis upon which they have lost. They cannot appeal it, or it is not easy for them to do so. MR GAVAGHAN: One can actually appeal in Curtis . It is possible to appeal a case that you have won below. But your Lordship has gone through and analysed the particular areas of central London and raised the issues in a way which had not been done in the authorities before. If one is just concentrating on the issue point as regards costs, in terms of time spent and the complexity of the points before your Lordship, it is quite clear that the scarcity issue was by far the most time-consuming and difficult point. The difficulty of the point is represented by the fact that my learned friend, leading counsel of His Eminence, appears for the committee, and the committee failed to persuade your Lordship that their decision was correct, and they went out of their way to insist that both scarcity and the cap was correct in their judgments. My Lord, what makes this case unusual is the fact that this is the second time we have had to come here. Your Lordship may recall that Sullivan J quashed a previous determination, and on the scarcity ground. For your Lordship's note the order by Sullivan J is at page 134. One of the grounds that it was quashed was because of a failure to give proper reasons on the scarcity. In that case the committee made a deduction of 35 per cent, unexplained. It was quashed. They then made a deduction of 30 per cent, now before your Lordship, and we have had to come back again. They opposed this appeal through to the bitter end. They did not have to on the scarcity ground; they could have just conceded that the reasons were not there, and a great deal of time and expense would have been saved. MR JUSTICE OUSELEY: It might have made my task a bit easier. I am not sure it would have saved a great deal of time in arguing. MR GAVAGHAN: My Lord, it was a two-day case. The cap point your Lordship dealt with -- I think I win up to paragraph 119 in your Lordship's judgment -- MR JUSTICE OUSELEY: Yes, you lose on locality within the scarcity point. The next point I dealt with in relation to scarcity was really trying to set the scene -- and, as far as I could see, it was more or less an agreed approach -- before turning more shortly to deal with the specific points of complaint, and my recollection is, probably, if you just take them as numbers, it is about 6:4, but I do not think that is a very sensible way of deciding the costs order. MR GAVAGHAN: My Lord. But the background explanation as to what scarcity was was going to have to be given to your Lordship. MR JUSTICE OUSELEY: Yes. MR GAVAGHAN: And we won the point and, in my respectful submission, although we did not win all the points on scarcity -- your Lordship is quite correct -- they did not add substantially to the arguments which had to be brought before your Lordship because the committee refused to concede the scarcity ground for a second time. My Lord, the parties are entitled to a properly reasoned decision and that is a factor which should weigh heavily, in my respectful submission, when your Lordship considers the question of costs. This is an ongoing cycle. We do not have permission now but we will be able to go back in just over a year for a new fair rent to be determined on this property and at that point, obviously, your Lordship's guidance will be of considerable importance. My Lord, if your Lordship is looking at -- it is difficult under 44.3 to apply those sort of generalised matters to every case, but in this case there is this unusual feature, that we have had to come before this court twice now to get a meaningful ruling on the question of scarcity. My Lord, I say there are three options open, which I would invite your Lordship to consider in respect of costs. The first is to split the costs on issues. That would result in, I say, my client paying the costs of the cap, the first respondent paying the costs of scarcity and natural justice. That perhaps leads to the second option, which is to consider that -- and in my respectful submission, if one were to do that approach, it would end up with actually a positive flow of costs running towards my client because of the complexities of the scarcity point, and that would result in the first respondent paying a small proportion of my client's costs. The third option, which may be the most clear option, is there should simply be no order as to costs and that they should lie where they fall. If your Lordship is against me on those three options, then I would ask your Lordship to disallow a proportion, I would say a substantial proportion, of the first respondent's costs, given that they came here, they fought the scarcity point and they lost. MR JUSTICE OUSELEY: Miss Carrington, did you wish to say anything -- MISS CARRINGTON: My Lord, I am the second respondent and therefore I adopt what my learned friend Mr Morgan says, but I have to go a little further because of the Bolton guidelines. My client is the individual who is most likely to be directly affected by the decision of this court, and my Lord may recall that my belated appearance in this case was attributed to the fact that the relief sought included, unusually -- and my learned friend Mr Gavaghan in his skeleton argument accepts that it was unusual -- a claim that this court should determine the fair rent applicable to these premises in the sum of £20,000. My Lord, that is the reason for my appearance and the appearance of my client at a late stage in proceedings, in order to protect that interest. Insofar as the Bolton guidelines are concerned, where my interest is different and separate from that of the rent assessment committee is that my interest is a direct, financial interest, in the sense that, had my Lord acceded to this application and had he also acceded to an application to determine the fair rent himself, of course the consequences would have been immediate and financial in terms of what my client would have to pay per annum by way of rent. And therefore on those grounds I say that I fall within the Bolton exception, as it were: I have a separate and a different interest, one which required protecting because of the relief sought. My Lord, those are my submissions. MR JUSTICE OUSELEY: Thank you very much. I need not hear you in reply to that, Mr Gavaghan. Is there anything you wish to say, Mr Morgan? MR MORGAN: My Lord, yes. My learned friend boldly said that Lord Woolf has, in an unidentified place, said that costs are now to be awarded by reference to issues. The rules are CPR. I have drawn attention to those. Your Lordship has seen the different criteria that are there. It may be possible to reflect success and failure on issues within those criteria, but there are other criteria. Success remains the general rule as to the allocation of costs. So far as conduct is concerned, conduct in unreasonably arguing issues is (inaudible) but conduct in reasonably arguing issues which ultimately do not succeed may have a part to play, but it has much, much less weight to be attached to it. The other point about issues is: issues which affect the remedy and the relief are one thing; issues which do not affect the remedy and the relief are another. If someone makes the claim for a large sum of money and gets a very modest sum of money, albeit beating any payment in made by the defendant, it is likely that that claimant will have failed on quite a few issues, although he will have beaten the payment in, and a court can reflect the fact, if appropriate, that the claimant should not have exaggerated his case, argued issues on which he has ultimately failed. What my learned friend seems to have in mind about Lord Woolf and issues is a note in the practice at page 795. It is the first paragraph of the commentary, 44.3.1:
"Although this rule preserves the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, Lord Woolf MR was anxious to move away from the position that any success is sufficient to obtain an order for costs. He therefore envisaged far more partial orders for costs which more accurately reflect the level of success achieved by the receiving party."
Now, my Lord, one is entirely comfortable with that. An illustration of that at work comes at the bottom of the same page. It is the second last paragraph on 795. It says:
"For a case in which the court awarded successful defendants less than full costs because of the circumstances and conduct of some of the defendants: see Groupo Torras SA v Al-Sabah, September 1, 1999, Mance J . The fourth defendant was awarded only 50 per cent of his costs (deliberate backdating of relevant documents to deceive auditors). The sixth defendant was awarded one third of his costs (conduct unsatisfactory and improper). The tenth defendant was awarded one third of his costs (untruthful evidence at trial)."
So that is a type of case where partial orders for costs are no doubt justified, and it is very remote indeed from anything which is before this court in this case. We have won. My learned friend's success on some arguments has not affected one whit the relief which it failed to obtain. In relation to the arguments put forward, the arguments were not put forward at exaggerated length or taking up undue time. It was reasonable for an explanation to be given of the committee's reasoning. It was reasonable to defend the committee's reasoning, although not all defences found favour. The tribunal is a public body and it is paid for out of the public purse, and in those circumstances, I respectfully say, it is appropriate that it should recover its costs on the standard basis. My learned friend then went through the issues in what I would respectfully say was a very one-sided way and your Lordship made a number of comments which sought to redress the balance. Your Lordship has well in mind the degree to which the arguments found favour and to which they did not. It was also suggested that the committee had opposed this application to the bitter end. The stance the committee took at the hearing was that the result on the cap would favour the committee's decision, the application or appeal to this court would fail, and it was appropriate not to investigate the scarcity matter. Now your Lordship has ruled otherwise, and there is no criticism at all of that, but the committee's stance was very far from opposing to the bitter end. MR JUSTICE OUSELEY: I did not see the committee as opposing anything to the bitter end. MR MORGAN: I think my learned friend also mentioned Sullivan J. The decision was quashed by Sullivan J on an agreed basis that there was apparent bias and also the reasoning for scarcity was inadequate. At that time the cap was thought not to apply because of the decision of the Court of Appeal and so the point which mattered in this court, the cap, did not arise at that earlier ground. So, it is my respectful submission that the committee should have its costs. Perhaps just to confront any other possibility, if your Lordship felt that all of its costs were -- MR JUSTICE OUSELEY: I think that is the only matter that is going through my mind: whether there should be an order for the whole of your costs or an order for the greater part of your costs. MR MORGAN: My Lord, that is very much a matter for your Lordship's discretion, and your Lordship has the facts well in mind and the arguments. I do not know that I could assist very much in helping the court on that decision. It is a discretionary matter. MR GAVAGHAN: My learned friend said that he was not sure where Lord Woolf had said that. I had given him a copy of the case. I can give your Lordship the reference. MR JUSTICE OUSELEY: Well, I do not think that Lord Woolf was intending, in anything that he has said in any case, to say that the exclusively right approach to an analysis of costs is that you divide the case up into issues. Many cases do not really permit themselves to be divided up into issues. Although we can put headings for the purposes of judgment, that does not necessarily reflect the balance of argument or effort or whatever. In the light of the decision which I have made, which has dismissed the appellant's appeal against the decision of the London Rent Assessment Committee, Mr Gavaghan nonetheless resists the claim made by Mr Morgan on behalf of the Committee that the appellant should pay all of its costs. He does so on the basis that, notwithstanding the generality of the rule, the provisions of part 44, part 4 and 5, permit the court in the exercise of its discretion to have regard to the extent to which a party has succeeded or failed on an issue and also to have regard to the conduct of a party in raising or defending an issue. In essence, Mr Gavaghan says that, notwithstanding that he has achieved no relief, nonetheless there were significant issues which he anticipates will be of benefit ultimately to his client, upon which he succeeded. He points out that, although he failed in relation to the cap argument and although he failed in relation to the argument that the decision could be remitted even if he were to fail on the cap argument and although he failed in relation to a number of arguments relevant to the scarcity issue, nonetheless he had succeeded on a number of arguments relevant to the scarcity issue and in particular on those which dealt with the adequacy of reasons on an important issue and a natural justice point. On that basis, he says, there should either be a split order on the issues, which might, if analysed carefully, even lead to a positive flow of costs; alternatively, that there should be no order as to costs, or else that there should be a substantial percentage disallowed. Mr Morgan for the Committee submits, and I accept, that the starting point is that no relief has been obtained. This is not a case where there has been a success, as sometimes happens in relation to the obtaining of some relief and a failure to obtain other relief. He also points out that the Committee was in one sense, as a public body, duty bound to respond to the criticisms which were made of its approach in relation to scarcity, even though its primary submission, upon which it succeeded, was that those were in fact irrelevant to the ultimate determination of the case. For my part, I would not have wished to have been without the helpful submissions of Mr Morgan in relation to all the scarcity issues which had been raised by Mr Gavaghan, even though, in relation to certain aspects of them, I have rejected his submissions and been unsatisfied with certain aspects of the Committee's decision. But there was nothing irresponsible -- quite the reverse -- in the Committee seeking to defend its decision against the multifarious attack which has been launched at it. It is also important to recognise that the starting point of Mr Gavaghan's attack upon the Committee's decision was that they had simply ignored all the judicial guidance that was available to them, a submission which I have also rejected, largely on the grounds that there was not a lot of judicial guidance, notwithstanding the extensive works that were available to the Committee. I have concluded that it would not be appropriate in this case for there to be no order as to costs, and the only issue which I have been considering is whether there should be either a full order of costs in favour of the Committee or whether there should be a small discount to reflect the fact that, on a number of issues in relation to scarcity, the appellant has succeeded, albeit that it has had no effect upon the ultimate decision in the case. I have taken the view, after considering it, that in this case, bearing in mind it was the second time that the matter had come before the court, notwithstanding the helpfulness of Mr Morgan's arguments and the modest extent in many ways to which the appellant succeeded, it would not be right for the whole of the first respondent's costs to be ordered to be paid by the appellant. In my judgment, taking a broad view as to the merits, it would be appropriate for three quarters of the first respondent's costs to be ordered to be paid by the appellant, and I so order. Miss Carrington, on behalf of the tenant, has submitted that the appellant landlord should also pay the tenant's costs. I accept that the tenant has a separate interest and was entitled to appear in order to defend that interest. I do not, however, consider that that suffices to entitle Miss Carrington to a separate and additional order for costs. The arguments which she raised whilst representing a separate interest were not in substance different from those which had already been put forward by Mr Morgan, and I consider on that basis that there is no justification for a second award of costs. MR GAVAGHAN: My Lord, there is then the question of permission to appeal. Before I make that application my learned friend has drawn my attention to rule 13, which deals with second appeals to the court:
"Permission is required from the Court of Appeal for any appeal to that court from a decision of the County Court or a High Court which was itself made on appeal."
Now, my Lord, I could make submissions as to whether or not that counts for a tribunal. One can see on the face of it there is some force in that. I am not sure I would want to necessarily concede it at this point. If I renew my application for permission to the Court of Appeal -- MR JUSTICE OUSELEY: I think, although the name of the case for the moment escapes me, that the Court of Appeal has taken a very broad view as to what natures of body constitute a first appellate body, and I would certainly regard the Rent Assessment Committee as an appellate tribunal and you have had a second appeal. So I do not consider that I have any further jurisdiction in relation to that matter. I have to say, I would not have granted you permission if it had been a case in which you had persuaded me. The reason for that is that you lost in relation to the maximum fair rent order and I do not consider that the points you raised in relation to that are ones upon which you have any realistic prospect of success. MR GAVAGHAN: My Lord, I will not attempt to persuade your Lordship otherwise. I will take those submissions, if I am instructed to do so, with respect, elsewhere. My Lord, may I just ask one point. I have 14 days. I would ask for an extension to 28. Now, I know that is sometimes frowned upon. MR JUSTICE OUSELEY: Why do you need that? MR GAVAGHAN: Two reasons, my Lord. One is personal and one is not. The non-personal reason is to consider your Lordship's judgment. The second is a personal/professional reason. A member of my chambers has recently suffered a stillbirth -- or rather, his wife. I am apparently covering for a four-day trial, commencing in just over a week, which I am going to have to read into, if I am covering it. I am going to be in some grave difficulties, given both those points. I appreciate, my Lord, that, if your Lordship says it needs to be done within 14 days, then it needs to be done within 14 days. MR JUSTICE OUSELEY: Do you wish to say anything, Mr Morgan? MR MORGAN: I have no instructions to make difficulties for my learned friend in the circumstances. MR JUSTICE OUSELEY: I will extend the time for making the application to 28 days. MR GAVAGHAN: I am very grateful, my Lord. MR MORGAN: My Lord, may I raise one or two editorial matters. It may be more convenient to do this by fax to your Lordship's clerk. When I read through the judgment, at first I did not notice anything. But this morning I did notice there were one or two minor ones. They are very minor. MR JUSTICE OUSELEY: It has been distributed but I will -- just tell me what they are. MR MORGAN: I feared that might be so. On the cover sheet the hearing dates were in fact 22nd and 23rd January 2002. Perhaps the only one of significance is paragraph 11. In paragraph 11 your Lordship refers to Crake and Curtis and then to section 10(2) of the Tribunals and Inquiries Act -- that is the jurisdiction created by section 10 to the Tribunals and Inquiries Act. I have not checked but my recollection of section 10(2) was the section in the 1971 Act. We now have the Tribunals and Inquiries Act 1992, and the right of appeal is section 11(1), as your Lordship says in another place. MR JUSTICE OUSELEY: I actually say -- in paragraph 10 I actually say 10(1). MR MORGAN: 10(1) of the 1992 Act is the duty to give reasons and then 11(1) is the appeal. MR JUSTICE OUSELEY: I cannot remember whether I have truncated some of these ... perhaps I did not have the Tribunals and Inquiries Act. MR MORGAN: My recollection is that we handed it in. It was not in the bundle of authorities. Your Lordship correctly refers to 11(1) at paragraph 2 of the judgment and 10(1) is the duty to give reasons; 11(1) is the statutory right of appeal. MR JUSTICE OUSELEY: Yes, it is indeed. MR MORGAN: 10(2) of the current act is to do with refusing to give reasons on the grounds of national security. That would seem not to have been in your Lordship's mind. MR JUSTICE OUSELEY: No. MR MORGAN: And so with a little temerity I do question whether 10(2) was the intended reference. MR JUSTICE OUSELEY: I do not think it can be. You do not need a great deal of temerity to suggest that in the circumstances. MR MORGAN: I do not want to make improper suggestions. MR JUSTICE OUSELEY: I think you are right. It is 11(1). MR MORGAN: I am sorry that I did not draw that to the court's attention earlier. MR JUSTICE OUSELEY: I think all those who might have been interested have departed. But you are quite right; it should be 11(1). MR MORGAN: I think that my learned friend, I understand, faxed to the court at a quarter to 10 two other typos, one relating to -- MR JUSTICE OUSELEY: It is a bit late, I am afraid. This is the problem with these. Last night is the -- just tell me what the typos are. MR MORGAN: They are probably self-evident to any reader or law reporter. Paragraph 63, line 14, he says, the word should be "same" but it is missing the last e; it is "sam". It is in the quotation from Curtis , the fifth line of Curtis :
"... not amenable to the sam precision."
That is not going to cause difficulty. MR JUSTICE OUSELEY: Oh, I see, yes. MR MORGAN: My learned friend also suggested paragraph 90, line 2. In the quotation in line 2 it should be "being more popular than others". Again, your Lordship did set out the passage earlier in the judgment. MR JUSTICE OUSELEY: Yes. MR MORGAN: I do apologise for raising it at this point. I recognise that it is not the right time, but I thought nonetheless it was right to mention it rather than later on. MR JUSTICE OUSELEY: I shall consider what can be done about that. MR MORGAN: I leave it in your Lordship's hands.

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