Kilby, R (on the application of) v Basildon District Council

This appeal raises the question whether a local authority can lawfully bind itself by contract to subject its statutory power, to vary its tenancy agreements by notice, to the approval of tenants’ representatives. McCombe J has held that it cannot do so, and the appellant, Mr Maurice Kilby, a secure tenant of Basildon District Council, the respondent (the “Council”), submits that the judge is in error.

That question arises under the Housing Act 1985 and in particular its sections 21, 102(1) and 103.

Thus, section 21 sets out the local authority’s purpose, and duty, namely to manage its housing stock. Section 102(1) places limits on the local authority’s powers to vary its secure periodic tenancies, by providing that such variations should be either by agreement, or (if relating to rent and certain other matters) in accordance with existing contractual agreement, or by notice in accordance with section 103; “and not otherwise”. Section 103 sets out the procedure for such variation by notice: namely, by means of a preliminary notice which gives rise to a period of consultation, as a result of which the authority as landlord is required to consider any comments made by its tenants; after which the definitive notice may be served. Such a notice can statutorily and unilaterally effect variations to secure tenancies.

The need for such a unilateral method of varying tenancies can be readily acknowledged. A local authority may have thousands of housing units. Circumstances, or changes of policy, may require it to be able to vary the terms of its tenancies. If such variation had to be sought severally and bilaterally, the local authority’s housing stock could become impossible to manage, in breach of its duty under section 21.

I can take the facts straight from the helpful skeleton of Mr Nigel Giffin QC (and Ms Liz Davies with him) on behalf of Mr Kilby.

Mr Kilby is the secure tenant of 53 Frettons, Basildon, Essex SS14 1QN. His tenancy is held from the Council on the terms of its standard 1995 form of tenancy agreement. He held that tenancy jointly with his wife until she passed away in August 2006.

For many years Mr Kilby has served as an elected tenants’ representative. He was most recently re-elected in September 2004. He sits on the community panel for his area and is a deputy representative on the borough-wide tenants and leaseholders panel.

The Council has approximately 12,000 properties let on secure tenancies.

The Council’s standard tenancy agreement (whether in its 1995 or more recent 2000 version) contains a clause 11, as follows

In 2003 the Council wanted to change the terms of its tenancy agreements. The nature of the proposed changes is immaterial to the legal issue, save so far as it is illustrative of the kind of variations which a housing authority might wish to make to tenancy agreements. The proposed changes included: the introduction of a power to levy service charges for the cost of leasing equipment for space and water heating; extending the definition of “rechargeable works” to include the costs of responding to unjustified emergency call-outs; prohibiting tenants from running a business in their home without the Council’s permission; extending and strengthening clauses prohibiting nuisance, harassment and anti-social behaviour; prohibiting the keeping of pets by tenants without written permission; clauses restricting parking; extending the Council’s right to enter property to include the removal of any leased equipment and to require access annually in order to service gas appliances; ensuring that tenants are liable to reinstate any alterations carried out without permission by the termination; the reduction of succession rights to those provided for by statute; the removal of clause 11 (in favour of an obligation to consult before making changes); and rewriting the agreement in simpler and clearer (“plain English”) language.

In short, the proposed variations covered a spectrum between relatively trivial changes and changes which could potentially have a major financial or non-financial impact on tenants. They included changes which appear sensible and non-controversial, and ones which have the potential to be controversial (and were so in some cases, especially in relation to service charges). The proposed removal of clause 11, if valid, would expose tenants to future changes of uncertain nature.

It is common ground that the Council consulted on the changes, but also that they did not obtain consent in accordance with clause 11. The Council ultimately resolved to adopt the changes. In doing so it was acting consistently with legal advice that it received, to the effect that clause 11 was invalid.

Ultimately the judge decided the case on a short point of statutory interpretation. He said:

Essentially what the judge appears to me to be saying there is that the method of variation adopted by clause 11 was in conflict with the statutory prohibition on variation otherwise than by one of the three methods stipulated in section 102(1). However, the reference to unlawful fettering in the middle of that paragraph is perhaps an additional reason adopted by the judge, which he then developed in his next paragraph:

On behalf of Mr Kilby, Mr Giffin submitted that whether the matter is considered simply as a point of statutory interpretation, or by reference to doctrines which prohibit the fettering of a public authority’s discretion or the delegation of its powers, fundamental doctrines upon which the Council relied, the judge came to the wrong conclusion. The statutory method of variation by notice was preserved by clause 11: it was merely that as part of that process, for perfectly sound reasons of good housing management, the Council had introduced an element of restriction in favour of the consent of a majority of tenants’ representatives. No attack had been made on the Wednesbury reasonableness of that provision. It was in no way repugnant to the Council’s powers of variation that their exercise should be restricted, provided that such a restriction represents, as it did in this case, a legitimate decision in the context of the management of the Council’s housing. Normal doctrines of rationality, relevancy, proper purpose and fiduciary duty constituted perfectly adequate safeguards against entry into constraints on the power of variation which are genuinely improper.

Thus a public body does not act unlawfully merely and whenever it commits itself by contract to a particular course of action or forecloses some other course of action. Where pursuant to their statutory functions public bodies are required to enter into contracts, it requires a sensitive rather than a dogmatic analysis to distinguish between an acceptable contractual restriction and an illegitimate fettering of discretion. As Wade & Forsyth, Administrative Law, 9^th ed, 2004, observed (at 334):

In this context, the principal authority relied on by Mr Giffin was R v. Hammersmith & Fulham London Borough Council, ex parte Beddowes [1987] 1 QB 1050, where a majority in this court upheld Hammersmith & Fulham’s agreement of a restrictive covenant which prevented their letting their retained estate other than on long leases at a premium. I will examine that case below.

Relying on that authority, Mr Giffin submitted that it could not be thought to be repugnant or incompatible with the statutory purpose of providing and managing housing accommodation for the benefit of tenants to give to those tenants some measure of control over their own destiny, by ensuring that they are not vulnerable to unilateral changes in the terms on which they occupy their homes where those changes cannot secure the support of their representatives. In that connection it was to be noted that clause 11 only applies to terms for current tenants which are not concerned with rent or other legally essential matters, and does not hinder variations agreed with individual tenants or new tenants. Sections 102/103 provide a mechanism for a large-scale landlord to vary the terms of its standard tenancy agreements with existing tenants without the necessity of individual negotiations and individual deeds of variation. It is simply a convenient and efficient mechanism. There is no reason therefore why a landlord should not voluntarily contract to restrict the use of that mechanism where it judges that such a restriction will better serve its overall housing purposes.

On behalf of the Council, however, Mr Andrew Arden QC submitted that the judge had come to the right result as a matter of statutory interpretation, but that his reasons could well have been expanded by reference to fundamental doctrines prohibiting the fettering or delegation of a public body’s discretion. Clause 11 provided an absolute veto on the Council’s power unilaterally to vary the tenancies’ terms by notice. As such it was incompatible with sections 102/103, and amounted to both an illegitimate fetter on the Council’s discretion and to the delegation of its power (to vary) to the tenants’ representatives. He relied on well-known cases such as Ayr Harbour Trustees v. Oswald (1883) 8 App Cas 623, Birkdale District Electricity Supply Co Ltd v. Southport Corporation [1926] AC 355, British Transport Commission v. Westmoreland County Council [1958] AC 126, and Parker v. Camden London Borough Council [1986] 1 Ch 162. As for Beddowes, he submitted that it was to be explained on the basis relied on by the majority in that case, that there were overlapping or conflicting statutory powers, and that the restrictive covenant, even if contrary to one of those powers, was in accordance with the other, and for relevant purposes, dominant power involved.

In truth, there was no dispute about the relevant principles of public law applicable to such statutory bodies as the Council in the housing context, and in my judgment it is possible to proceed directly to Beddowes, which was relied on by Mr Giffin as the primary authority in his favour.

In Beddowes, Hammersmith & Fulham owned an estate consisting of blocks of rented flats which were in a bad state of repair. The council adopted a policy, permitted by the Housing Act 1980’s push in favour of owner-occupation, of selling the estate for development on that basis. However, it was not practicable to sell the whole estate at once (at 1066C). Therefore, in order to make both the instant sale and the ultimate development of the whole estate feasible, the council was willing to grant the purchaser of phase one a restrictive covenant relating to the retained estate, preventing the letting of its flats on other than long leases at a premium. In other words, the whole estate was to be destined in the long run for owner occupation. The issue was whether such a fetter on the council’s housing powers and functions was lawful. In a powerful dissent, Kerr LJ said that it was not. However, the majority of this court, Fox LJ and Sir Denys Buckley, upholding Schiemann J, ruled otherwise.

Fox LJ reasoned the matter as follows (at 1064/1066):

Sir Denys Buckley said (at 1076):

So, in the present case, Mr Giffin submits that clause 11 was a reasonable and proper clause to introduce into the Council’s standard contracts, in exercise of its management powers. That being so, it matters not that at a later date such a clause constitutes a limitation on the Council’s complete freedom of unilateral manoeuvre, just as it would not matter that Hammersmith & Fulham’s complete freedom to use its retained land for the purpose of ordinary letting was restricted by the covenants that it had entered into.

R v. London Borough of Brent, ex parte Blatt (1991) 24 HLR 319 concerned a point similar to that which we are considering. The applicant was a secure tenant of Brent, which decided to revise its standard form of tenancy agreement. That contained provisions setting out a procedure, by which Brent could vary the terms of the agreement, which was modelled on what is now section 103 of the 1985 Act. By a further provision, however, clause 8(b), Brent agreed that “no such variation may be made” to reduce its repair obligations or the tenants’ security of tenure. In 1991, Brent sought by operating the section 103 procedure to remove the list of its repair obligations from the tenancy agreement, as well to substitute the contractual security of tenure provisions with the grounds provided by statute, and to abrogate clause 8(b). The applicant sought judicial review of Brent’s decision approving the new form of agreement, relying on clause 8(b): the complaint was that Brent’s subcommittee had not been advised or aware of clause 8(b). Brent relied on sections 102 and 103 of the Act, submitting that clause 8(b) could be varied unilaterally, just like most other provisions of the tenancy agreement.

The tenant in that case was not, however, concerned with the substantive variations being wrought at that time, but rather with the absence for the future of the protection of clause 8(b). As Leggatt LJ said (at 324):

On that basis, the critical issue in the case was Brent’s ability, in the face of clause 8(b), to vary the tenancy agreement by omission of clause 8(b).

The tenant’s application failed. Leggatt LJ said (at 325):

Leggatt LJ then added (ibid):

Owen J agreed, but said (at 326):

Not altogether surprisingly, both Mr Giffin and Mr Arden have relied on Blatt as supporting their respective submissions. Mr Giffin relies on the brief remarks of Owen J, and submits that Leggatt LJ did not deal with the issue as a matter of ultra vires. Mr Arden, on the other hand, relied on the remarks of Leggatt LJ, while acknowledging that for present purposes they were obiter dicta, since in his view the ratio of the decision was that in any event the proposed variation did not constitute a diminution of the tenants’ rights. There was no third judge in this court on that occasion.

In my judgment, the critical fact about Beddowes was that there Hammersmith & Fulham had to choose as a matter of policy between two separate, and, as Fox LJ put it, “overlapping or conflicting powers”: either to let the remainder of the estate in the ordinary way, or to sell it on long leases to owner occupiers. Both functions and powers were legitimate under the statute, and it was for Hammersmith & Fulham to choose. If they chose in favour of owner occupation, then it would be necessary for them to exercise their powers accordingly. In the present case, however, the Council is exercising its management powers under section 21 for the single purpose of regulating secure periodic tenancies, and sections 102 and 103 in that context mandate that, in the absence of proceeding by agreement or pursuant to agreement, the Council was to have a unilateral right to vary conditions of a tenancy by notice, following consultation. However, clause 11 prevents such a unilateral right. Although the tenants, through their representatives, cannot initiate change, those representatives by means of clause 11 have an absolute veto over the outcome of the Council’s proposals. Their absence at a meeting at which the 25% quorum required by clause 11 is unfulfilled prevents any progress; and, secondly, any failure to obtain the approval of the majority of tenants’ representatives is destructive of the proposed variations. Such a clause therefore is simply incompatible with the Council’s statutory right and power to vary their tenancies unilaterally.

It seems to me that what Leggatt LJ said in Blatt is consistent with this conclusion. I do not found myself on that authority, first because Mr Arden relegates what Leggatt LJ said about the relationship of sections 102/103 and clause 8(b) in that case to mere dictum, and secondly because there is some uncertainty as to whether Owen J, although purporting to agree with Leggatt LJ, was in truth doing so. However, in my judgment, the first and decisive reason given by Leggatt LJ was that clause 8(b) could not survive the contrary effect of sections 102/103. As he said, the clause “cannot…prevail over the language of the statute…Clause 8(b) is itself a term of the tenancy, so it can be varied by deletion”. It is true that Leggatt LJ also said that the deletion of clause 8(b) did not amount to a substantial diminution in the tenants’ rights (sc on that occasion, because by concession the tenant was not otherwise complaining of the changes sought to be effected by the council). But Leggatt LJ thereafter immediately reverts to his primary reasoning, when he says that “For the reasons I have given, the respondents were entitled by statute to vary the tenancies as they affected to do by deleting clause 8(b)”. In my judgment, therefore, Leggatt LJ’s reasoning was entirely in line with what I would regard as the first and decisive difficulty with this appeal, namely that section 102(1) taken together with section 103 is incompatible with the Council’s clause 11.

That is simply a question of statutory interpretation. Section 102 states that the terms of a secure tenancy may be varied in three ways, which are set out, “but not otherwise”. One way is by agreement. That has not been achieved in the present case. The second way, but limited to variations relating to rent or payments in respect of rates, council tax or services, is pursuant to existing contractual arrangements. That is not relevant in the present case. The third way is by unilateral notice, following consultation (as set out in section 103). Mr Kilby’s argument is that section 103 cannot be given its statutory effect because of clause 11. But, because clause 11 requires the agreement of a majority of tenants’ representatives, that is simply to attempt to drive the third way into the path of one or other of the first two methods, namely to achieve a variation by agreement or pursuant to the terms of the existing agreement. That, however, is effectively to abrogate the statutory third way. In my judgment, the Council did not have the power to amend statute by these means, in other words to give up its power of unilateral variation. Sections 102 and 103 constitute a complete code governing the variation of the terms of a secure tenancy. It seems to me that that is what Leggatt LJ was saying in Blatt, and I respectfully agree. Owen J himself agreed with Leggatt LJ, but went on inconsistently to say that Brent could have bound itself by stronger language. I prefer the reasoning of Leggatt LJ.

It is therefore unnecessary to go into the doctrines concerning the prohibition on the fettering or delegation of a public body’s discretion. I would simply say that, not surprisingly, those doctrines would produce the same answer in this case. Clause 11 was a fetter on the Council’s statutory power, which had been given to it in support of its function of managing its housing estate for the public benefit, to effect unilateral variations in its tenancies by notice after consultation. It also amounted to a delegation to the tenants’ representatives of its statutory power of variation by notice. If the statute had not said that variation was to be effected in the manner stipulated and not otherwise, the question raised by these doctrines might have been more debatable. As it is, the sometimes difficult questions which arise where public bodies make contracts (see Wade & Forsyth at 330/334), do not seem to me to arise here. In this case, the statute specifically states that the local authority’s contractual tenancies can be varied by unilateral notice, and describes in detail how that is to be done. A system which circumscribes that power by giving to tenants’ representatives an absolute veto is simply incompatible with the statute.

I would therefore dismiss this appeal.

I agree with the judgment of Rix LJ.

Part II of the Housing Act 1980 introduced a revolution, judged against previous assumptions about public housing, by creating private law rights of tenure through the mechanism of the newly-created secure tenancy. In contrast to the protection given to tenants of private landlords by the Rent Acts, the new regime operated by placing restrictions on the enforcement of the terms of the contractual tenancy, in particular in relation to the landlord’s ability to recover possession of the premises, rather than by creating new statutory rights that only arose after the contractual tenancy had terminated. On the other side of the coin, however, provisions that departed from normal contractual assumptions in favour of the public landlord had to be introduced in order to assist the landlords in their public duty of housing provision and management. Important amongst those was the power of the landlord unilaterally to vary the terms of the tenant’s contract, the power that is in issue in this appeal.

This power is phrased in sections 102 and 103 of the Housing Act 1985 (which consolidate the original section 40 of the 1980 Act) as if there had been created de novo three ways of varying the terms: (i) by agreement; (ii) according to the terms of the lease; and (iii) by what is now the section 103 procedure. However, the first two of these would hardly seem to need specification in a contractual context, and may (possibly) have been included only to underline the distinction between the contractual secure tenancy and a Rent Act statutory tenancy. The important provision is (iii), giving the public landlord new, substantial and important powers.

That is the background to my being unable to agree with the first, and I think principal, reason given by the judge in the passages set out by my Lord in §§ 13-14 above for holding clause 11 to be ineffective. The judge thought that clause 11 was adding a means of variation of the terms to those that are stated in the statute to be the only way in which the contractual terms could be varied. But as we have seen the object of the statutory scheme is to make available the section 103 procedure, which was introduced into the contractual relationship between landlord and tenant for the protection of, and to give increased powers to, the (public) landlord. Clause 11 does not seek to add to that protection, by adding to the landlord’s powers a still further route to the variation of the contractual terms. Rather, by clause 11 the landlord subtracts from his powers, by undertaking that he will only exercise those powers if certain conditions are fulfilled.

All of this takes place within the framework of, and is only explicable in the context of, the section 103 scheme. If the relationship were that of landlord and tenant purely in private law there could be no question of clause 11 being outside the powers of the landlord, or of the clause introducing terms that the statutory scheme did not permit. But the relationship is not one governed purely by the norms of private law. The secure tenancy is limited, by the “landlord condition”, to tenancies granted by public bodies, which latter retain their public law obligations in addition to their role as landlords. The vice of clause 11 is therefore precisely that what is within the discretion of a private landlord, constrained only by the doctrines of freedom of contract, is not permitted to a public body, constrained by statute. As set out by my Lord in §35 above, and also mentioned by the judge, clause 11 unreasonably fetters the powers given to the local authority by Parliament in the interests of rational management of the housing stock which is a public asset subject to public interests that go beyond those of the immediate tenants. This was not a case where the contractual commitment that the local authority wished to give was necessary for the reasonable discharge of its business. Quite the reverse. Far from being facultative, clause 11 was a fetter on what can indeed be called the local authority’s statutory birthright, accepted by the local authority for no good reason that anyone was able to suggest at any stage of the proceedings.

I regard this as a clear case, and for that reason I also would dismiss the appeal.