WITTON PROPERTIES LIMITED v THOMAS ISENSCHMID [2019] UKUT 328 (LC)

UPPER TRIBUNAL
LANDS CHAMBER
[2019] UKUT 328 (LC)Case No RAP/5/2019
Between
WITTON PROPERTIES LIMITEDApplicantTHOMAS ISENSCHMIDRespondent
Before
Martin Rodger QCProperty: 408A Kings Road,, London,, SW10 OLJ, Martin Rodger QC, Deputy Chamber PresidentCatchwords: LANDLORD AND TENANT – RENT DETERMINATION – assured tenancy by succession – premises in acknowledged disrepair – whether due to tenant’s refusal to permit access – valuation date – sufficiency of reasons – ss.13, 14, 16, Housing Act 1988 – appeal allowed
[1]This appeal is against a decision of the First-tier Tribunal (Property Chamber) (“the FTT”) on 18 November 2018 by which it determined that the rent payable for an assured tenancy of a flat at 408A Kings Road, London SW10 should be increased from £3,287 per quarter to £4,972.50 per quarter. The FTT reached its conclusion after making deductions totalling 57.5% from its assessment of the market rent for a property of comparable size in a similar location to reflect the poor condition of the flat. The substance of the appeal brought by the landlord, Witton Properties Ltd, is that some of those deductions were not justified because the condition of the flat was due in part to the refusal of the tenant, Mr Thomas Isenschmid, to permit access for necessary repairs while other deductions were insufficiently explained. The appellant’s case is that the quarterly rent should be £8,482.50, based on deductions from an open market rent totalling 27.5%.[2]At the hearing of the appeal the appellant was represented by Mr Philip Jones and Mr Isenschmid appeared in person. The facts[3]The appellant acquired its interest in the property in 2015. At that time the property was occupied by Mr Isenschmid’s father, Mr Michael Isenschmid, who had been the regulated tenant under the Rent Acts since he and his wife were first granted a tenancy on 20 September 1965.[4]The tenancy under which the disputed rent is payable is an assured tenancy which commenced on 8 August 2017 on the death of Mr Isenschmid senior. Where a regulated tenant of a dwelling-house dies, a member of his or her family who has been residing with them for a period of two years at the date of death is entitled to an assured tenancy of the dwelling-house by succession (paragraph 3(1), Sch.1, Rent Act 1977, as modified by section 39(2)-(3) and Pt 1 of Sch.4, Housing Act 1988). Mr Isenschmid satisfied that requirement. At the time of his father’s death the registered fair rent for the flat was £3,287 per quarter.[5]On 5 February 2018 the appellant gave notice under section 13, Housing Act 1988 proposing a new rent of £12,350 per quarter to take effect from 24 June 2018. Because of the transition from a regulated tenancy subject to a fair rent, to an assured tenancy subject to a market rent, it was inevitable that the rent payable would increase significantly, but the respondent did not agree that the proposed increase was justified. On 4 April 2018 he referred the proposal to the FTT under section 14(1), Housing Act 1988.[6]In his application the respondent stated that he was unsure who was responsible for repairs, but that all of the fixtures, fittings and furniture in the flat had been provided by the tenants and that, since 1965, he or his father had undertaken all maintenance and improvements. This had included the installation of central heating, a bathroom and w.c., the provision of carpets and all painting and decorating. In a supporting letter he explained that the property was in a dilapidated condition and that category 1 hazards had been identified by the local housing authority’s environmental health department, including damp, deterioration of the party wall, an absence of artificial lighting on the staircase and inadequate electrical wiring. 4[7]The appellant’s evidence to the FTT was in the form of a witness statement by Ms Anna Michael, an employee of its managing agents. Ms Michael provided evidence of lettings of comparable properties which were said to justify an open market rent of £950 per week. She also answered the respondent’s criticisms of the state of repair of the property. She agreed that “fairly extensive works” were required, but suggested that this was due to breaches on the part of the tenants in failing to provide access. Her clients had had engaged a builder to undertake a programme of works drawn up in consultation with the environmental health officer in March 2016. It had offered to pay for temporary accommodation while the work was undertaken, but that offer had been refused because the family insisted that Mr Isenschmid senior was too ill to move. It had then been agreed that the works could be undertaken at the appellant’s expense by a builder selected by Mr Isenschmid, but no work had been done by the time of Mr Michael Isenschmid’s death on 8 August 2017. When the respondent became the tenant, he proposed that he should buy the flat and had asked that works should not be carried out while that possibility was under consideration.[8]Mr Isenschmid did not attend the hearing before the FTT as he was out of the country. Nor did he arrange for representation. As a result, the account given in Ms Michael’s witness statement was not challenged. The relevant statutory provisions[9]By section 14(1), Housing Act 1988 where a notice proposing an increase in rent is referred to the FTT under section 13, the tribunal is required to determine the rent at which, on certain assumptions, it considers the dwelling house might reasonably be expected to be let in the open market by a willing landlord under an assured tenancy. The assured tenancy in question is described in section 14(1) and is a periodic tenancy beginning at the beginning of the rental period specified in the landlord’s notice proposing a new rent (section 14(1)(b)). In this case that date was 24 June 2018 and the period of the tenancy is quarterly.[10]The FTT is required to disregard certain matters when making its determination of the rent at which the property might reasonably be expected to be let. Two of these are potentially significant in this appeal.[11]By section 14(2)(b) the FTT must disregard any increase in the value of the property attributable to a “relevant improvement” carried out by a person who at the time it was carried out was the tenant. A “relevant improvement” is one which satisfies conditions in section 14(3). The improvement must have been carried out not more than 21 years before the service of the notice proposing an increased rent; the property must have been let on an assured tenancy for the whole of the period from the date the improvement was carried out until the date of service of the notice; and during that period the tenant must not have quit the property on the coming to an end of an assured tenancy. As it was Mr Isenschmid’s case that improvements had been carried out by his father, this requirement might be material if any of those improvements had been carried out by him in the period of 21 years ending on 5 February 2018.[12]By section 14(2)(c) the FTT is also required to disregard “Any reduction in the value of the dwelling-house attributable to a failure by the tenant to comply with any terms of the tenancy.” 5[13]It is a term of every assured tenancy, implied as a matter of law by section 16, Housing Act 1988 “that the tenant shall afford access to the dwelling-house let on the tenancy and all reasonable facilities for executing therein any repairs which the landlord is entitled to execute.”[14]In North Lincolnshire Homes Ltd v Bentley [2015] UKUT 451 (LC) the Tribunal (Judge Cousins) held that where, in breach of the term implied by section 16, 1988 Act, an assured tenant had persistently refused the landlord access to her home to carry out repairs, for the purpose of determining a new rent under section 14 any reduction in the value of the property caused by the existence of disrepair must be disregarded.[15]In New Crane Wharf Freehold Ltd v Dovener [2019] UKUT 98 (LC) the Tribunal (HHJ Behrens) considered the extent of a tenant’s obligation under a covenant to “permit” access on notice given by the landlord. Although that was not a case concerning the effect of section 16, a number of useful points emerge from the decision. In particular, the tenant’s obligation under such a covenant is to “permit” or “afford” access at a time of the landlord’s choosing. In New Crane Wharf there was a notice requirement, which is absent from section 16, but the initiative remains with the landlord. If the tenant positively refuses access in advance of the landlord attending the premises, the landlord will be entitled to rely on that refusal as a breach of covenant; but if there has been no positive refusal and the landlord has not attended the premises in order to obtain access it will be more difficult to say that the tenant is at fault.[16]In this case there has been some uncertainty about the other terms of the respondent’s tenancy. It appears to be the case that a written tenancy agreement was provided to Mr Isenschmid’s father and mother in 1965 but no copy of that agreement has yet been made available. As he is an assured tenant by succession, section 39(6), Housing Act 1988 provides that the terms of Mr Isenchmid’s tenancy will be the same as the terms of the regulated tenancy which preceded it. It would have been relevant to consider what, if any, repairing obligations are imposed on the tenant by the agreement entered into in 1965, but the FTT was not given that opportunity as the agreement was not produced. (By section 11, Landlord and Tenant Act 1985 the appellant’s obligations require it to keep the structure and exterior of the property in repair together with the installations for the supply of water, gas, electricity, sanitation, space heating and for heating water). The FTT’s decision[17]In the written reasons given by the FTT it recorded Ms Michael’s evidence without comment. It made no reference to any of the documents supplied by the respondent. It recorded the results of its inspection as follows: “The tribunal found the subject property to be in a state of substantial disrepair which included single glazed windows that were broken, failed to close or were missing parts of the glazing; an unmodernised kitchen, toilet and bathrooms, significant areas of damp and a lack of carpets, curtains and white goods supplied by the landlord. The tribunal noted that works to the electrical supply had been carried out with surface re-wiring apparent on inspection.” 6[18]The Tribunal then recorded its decision in two paragraphs. In the first of these, drawing on its own knowledge, expertise and experience, it determined that the “appropriate starting market rent for a flat of this size and this location is £900 per week.” It made no reference to the evidence of comparable lettings supplied by Ms Michael in her evidence, nor did it explain why it considered that an appropriate market rent was less than the figure of £950 a week Ms Michael had said was supported by those comparables.[19]In paragraph 8 of its decision the FTT then dealt with the condition of the property and stated that significant deductions were required from the market rent to reflect the absence of modernisation and disrepair which it found to be the reasonability of the landlord. It accepted that the previous tenant had failed to carry out many works of repair or internal re-decoration that fell within the tenant’s obligations but directed itself that only the actions of the current tenant were relevant. It continued:
“The tribunal accepts that Mr Isenschmid has created some delays in works of repair being carried out by the landlord due to his refusal to allow works due to his changes of mind and his wish to acquire the long leasehold from his landlord, the identity of whom he was well aware, but determines that as at the start of his tenancy the subject property was already in significant disrepair for which substantial deductions are required in order to properly reflect this.”
[20]The FTT then quantified the deductions from the market rent which it considered were required. It did so in a table which attributed a percentage to each item. Items of disrepair included a 10% deduction for “general disrepair”, and 5% each for “poor windows” and “damp problems”. Other items related to the standard of the property and its unmodernised condition: a 10% deduction was made for “unmodernised kitchen, 5% for “basic w.c.”, and 7.5% each for “unmodernised bathroom” and “unmodernised shower room”. A “lack of carpets and curtains” and a “lack of white goods” attracted deductions of 2.5%, as did “electrical wiring” and “layout”. In total the FTT found that deductions of 57.5% were required from the open market rent.[21]Applying the aggregate 57.5% deduction to the market rent of £900 per week the FTT found that the adjusted rent was £382.50 which it converted to a quarterly figure of £4,972.50. The appeal[22]Permission to appeal was granted by this Tribunal after it had been refused by the FTT. The grounds of appeal, so far as they are now pursued, were, first, that the FTT had wrongly taken into account the assumed condition of the property at the start of the tenancy, rather than at the date of commencement of the new rent. Secondly, it was said that the FTT had failed to give sufficient reasons for the various deductions it had made.[23]In response to the appellant’s grounds of appeal Mr Isenschmid acknowledged that his father had refused to vacate the property due to ill health, but that since he had taken over the tenancy the only time he had asked for works to be delayed was while he was negotiating for the purchase of the property. He also suggested that he had not been supplied with details of the appellant’s case to the FTT and had he known what was going to be alleged in relation to delays 7 in carrying out works, he would have ensured that a representative had attended on his behalf. He also raised the issue of hardship, as a ground for postponing the commencement of the new rent.[24]The appellant’s first ground of appeal is clearly made out.[25]The FTT was correct up to a point in its direction that breaches of the tenant’s repairing obligations during the tenancy of the respondent’s father were no longer relevant. Section 14(2)(c) requires only that there be disregarded any reduction in the value of the property attributable to a failure by the tenant to comply with the terms of the tenancy; a reduction in value attributable to a failure by a predecessor of the tenant is not to be disregarded. A person who obtains a periodic assured tenancy by succession from a Rent Act tenant is deemed to have a new interest and in N & D (London) Ltd v Gadson (1991) 24 HLR 64 it was determined in the High Court that in assessing a market rent a Rent Assessment Committee could not take into account the defaults of the tenant's predecessor. But it is important to remember that a breach of a repairing obligation is a continuing matter. If breaches of the tenant’s limited repairing obligations had existed during the previous tenancy and had then continued after the start of the new tenancy, any diminution in value attributable to them would be required to be disregarded. It is not clear that the FTT took that into account.[26]More significantly, however, the FTT failed to address the consequences of its acceptance that Mr Isenschmid had delayed the carrying out of works of repair while he sought to acquire the long lease of the property. It made no clear findings of fact about how long a delay had been caused, nor did it consider what repairs would have been carried out but for that delay. It did not even say, in terms, that Mr Isenschmid had been in breach of the implied obligation to afford access.[27]The FTT appears to have regarded more detailed findings as unnecessary because of its conclusion that “as at the start of the tenancy the subject property was already in significant disrepair”. That finding, which was not disputed, was only of importance if the FTT considered that the condition of the property in August 2017 was significant. But the important date, at which the condition of the property ought to have been assessed, was the valuation date of 24 June 2018. The FTT was required by section 14(1)(b) to determine the rent which would have been agreed for a letting on that date. On such a letting the condition of the property 10 months earlier would have been irrelevant. It follows that the FTT could not absolve itself of the need to consider the consequences of the delays it accepted Mr Isenschmid had caused, simply on the basis that the property had been in disrepair at the start of the tenancy.[28]The appeal must therefore be allowed, and the determination of the new rent must be remitted to the FTT for redetermination.[29]The questions the FTT ought to have considered were, first, whether the value of the property on 24 June 1988 was reduced by its condition; if so, secondly, to what extent was that condition attributable to a failure by the respondent to comply with the terms of the tenancy? The terms in question were the implied term requiring the respondent to afford access and all reasonable facilities for the appellant to execute any repairs which it was entitled to carry out, and the express or implied terms concerning the tenant’s obligation to use the property in a “tenant- 8 like manner”. Before any such reduction in value could be disregarded the FTT would have had to be satisfied that there was a causal connection between the tenant’s breach and the continuing state of disrepair. That required a close examination of the facts which the FTT did not embark on.[30]The obligation under section 16 is to afford access for repairs, and section 14(2)(c) requires any reduction in the value of the property attributable to non-compliance with that obligation to be disregarded. It does not require the FTT to assume that works which are not repairs have been carried out. To take an example, the FTT should disregard any reduction in value attributable to an ill-fitting window (if satisfied that it would have been repaired had access been allowed), but it should not value the flat on the assumption the window had been replaced with a modern double- glazed unit, even if that was the work the landlord proposed and was prevented from doing. Similarly, if the unmodernised kitchen was in a state of repair, a refusal of access by the tenant to allow its replacement would not justify valuing the flat as if a new kitchen had been installed.[31]I should add that Mr Isenschmid was adamant that he had not delayed the carrying out of works except for a short period. In an email to Ms Michael on 10 January 2018 he had suggested that works should not be undertaken while he was negotiating the purchase of the property. He made an offer on 11 March 2018 but it was refused on 28 March. In an email of that date Ms Michael said that the appellant would like to continue with the works and referred to the fact that Mr Isenschmid was in direct contact with the appellant’s contractor. These were points raised in Mr Isenschmid’s cross appeal, and which he will have the opportunity to make in person to the FTT which reconsiders the issues. One matter for consideration will be whether these facts amount to a breach of covenant by Mr Isenschmid at all, or whether there was a consensus between the parties that no works should be carried out while a possible purchase was considered.[32]Mr Isenschmid also complained that he had not been given notice of the appellant’s evidence to the FTT. It is neither necessary nor possible for me to determine whether he received a copy of Ms Michael’s witness statement before the FTT hearing, but I have no reason to doubt her evidence in a supplemental statement that she sent him copy in good time.[33]The appellant’s second ground of appeal concerned the reasons given by the FTT, which Mr Jones submitted were inadequate and did not explain why such substantial reductions were required. As I am allowing the appeal on other grounds it is not necessary to examine that question in detail, but as I agree that the reasons given were insufficient in some respects I will comment briefly on what more ought to have been provided.[34]The FTT did not explain what it meant by its finding that “the appropriate starting market rent for a flat of this size and location is £900 per week”. Nor did it comment on the evidence relied on in support of a higher figure. An informed reader, familiar with the practice of tribunals in assessing rents under section 14, would probably have appreciated that what the FTT meant by its reference to a “starting market rent” was that a property of comparable size, in the same location, which was in the condition in which such properties are usually offered for letting, would have been expected to command a rent of £900. It is probable that its starting rent was based on the value of properties which had been refurbished, had modern kitchens and bathrooms, electrical installations of modern standard, carpets, curtains and white goods supplied by the 9 landlord and, probably, double glazing. The FTT ought to have said so, to make its decision comprehensible to a reader who was not familiar with the conventions of residential property valuation. If it had, the purpose of its deductions would, for the most part, have been comprehensible; but without that explanation there was a real risk of confusion.[35]I do not accept that it was necessary for the FTT to explain why a deduction of, for example, 7.5% for an unmodernised kitchen, was the right allowance, rather than 5% or 10%. But I do accept that, where such substantial deductions were being made, a proper explanation was required of the difference between the assumed state, capable of commanding a rent of £900, and the actual state. That could have been supplied succinctly, but it was missing.[36]As for the deductions themselves, the technique of producing a table of percentages without any additional commentary or prior explanation risks falling below the required standard of reasoning. In this case the reference to “general disrepair” was not supported by any example which did not attract a separate deduction in its own right, and was left unexplained; nor was it clear what electrical wiring was being referred to as justifying a deduction of 2.5%, or why (the limited rewiring which had been carried out was completed in October 2018 and, on any view, was irrelevant). The deduction of 7.5% both for an unmodernised bathroom and for an unmodernised shower room required explanation to avoid the appearance of double counting. The reference to “layout” was equally mysterious. Disposal[37]For these reasons I remit the application to the FTT for redetermination. In the circumstances of this case it would be preferable for that redetermination to be by a differently constituted tribunal. The new tribunal should also consider Mr Isenschmid’s request that it exercise it discretion under section 14(7), Housing Act 1988, to specify a date later than 24 June 2018 as the date from which the new rent will commence on the grounds that undue hardship would otherwise be caused to him. Martin Rodger QC, Deputy Chamber President 23 October 2019

Cited in 1 later judgment