Howard De Walden Estates, R (on the application of) v London Rent Assessment Committee

MR JUSTICE ELIAS: These are consolidated appeals brought by the appellant landlord against the determination dated 23rd October 2002 by the first respondent, the London Rent Assessment Committeee (the Committee). The Committee stipulated fair rents under the Rent Act 1977 for three flats owned by the appellant. Written reasons for the decision were given on 6th December 2002.

The reasoning used by the Committee is essentially the same in each of these cases. The appeal raises issues of the proper approach to be adopted by a Committee when determining a fair rent for property under section 70 of the Rent Act, and also the approach which a Committee should adopt on application of Article 2(7) of The Rent Act (Maximum Fair Rent) Order (S.I. 1996 No.6) ("the Order"). The Order sets a cap in certain circumstances for the maximum rent increases that can be made.

The Committee has been represented before me but not the individual tenants, who are also respondents to this appeal. One of them, however, Mr De Walden, did address me in person.

Before becoming embroiled in the detail of this particular case, it is useful to set this appeal in the context of the legislative history of regulating the rent of properties of this nature. I gratefully draw for this purpose upon the judgment of Lord Bingham of Cornhill in the case of R v Secretary of State ex parte Spath Holme Limited [2001] 2 AC 349, at 378 to 379:

Lord Bingham then set out the circumstances in which the government passed regulations in order to limit the increases that may be made in rental properties, that is the order to which I have just made reference. It was passed with effect from 1st February 1999. The effect of that order is summarised in Lord Bingham's judgment as follows:

The properties which are the subject of this appeal are Flats 1, 5 and 6 Crofton House, New Cavendish Street, Marylebone. They are held on Rent Act tenancies by the second to fourth respondents. Crofton House is a purpose-built block of flats. Each flat has an entrance hall, reception room, three bedrooms, a kitchen/breakfast area, a bathroom/WC and a boxroom. Flats 1 and 5 are 1320 sq ft and Flat 6 is 960 sq ft.

Fair rents were registered of £7,000 in March 1997 for Flats 1 and 5, and £7,100 for Flat 6 in August 1997. A fresh registration of rents for Flats 1 and 5 was made on 20th May 1999, that was fixed at £7,400. The appellant became the landlord of the subject properties on 25th March 1999, that is shortly before the registration of rents for Flats 1 and 5 to which I have just made reference. After that registration of rent the appellant carried out works of repair and improvement to the common parts of the block of flats; this included recarpeting and redecoration in the common parts, work to the lifts, new boilers and a video entry system in the flats themselves. These works were completed in September 2000. The cost of the works was in the region of £135,000.

Normally, a fresh application for a fair rent can only be made two years after the last registration. There is, however, an exception provided by section 67(3) of the 1997 Act. This allows an application to be made sooner in certain of the cases where there has been a change in circumstances. Here, in the light of the works to the common parts, an application was made on the basis that there had been such a change resulting from the repair and improvements. On 17th October 2000 the appellant applied for a fair rent to be set for all the subject properties, despite the fact that the two year period had not elapsed.

The rent officer registered new rents on 22nd September 2000. He determined that the annual fair rents for Flats 1 and 5 should be £9,700 and for Flat 6 £8,900. In each case, however, those rents were capped at lower figures.

The appellant appealed to the Rent Assessment Committee. On 3rd December 2001 it determined fair rents as follows: for Flat 1 £10,500 (capped at £8,159); for Flat 5 £10,150 (capped at the same figure); for Flat 6 £9,850 (capped at £8,340).

The appellant appealed that decision to this court. I am told that the appeal raised similar issues to those that were addressed before me. By a consent order, dated 20th June 2002, made by Silber J, the decision was quashed on the ground that the Committee had failed to give adequate, proper or intelligible reasons as to why Article 2(7) of the Order did not apply. The matter was sent back to a differently constituted committee for a redetermination. In view of that, the appellant did not pursue other arguments which it would otherwise have advanced had the hearing taken place.

The Committee determined rents on 23rd October 2002, that is the determination which is now challenged in this appeal. In respect of Flats 1 and 5 they held that the uncapped fair rent would be £15,561, but they applied the Order and capped that figure at £8,253. In respect of Flat 6 they held that the uncapped fair rent would be £13,513.50 but again applied the cap, and the figure fixed was £8,434.50. As I have indicated, the Committee produced two sets of written reasons but they are essentially identical.

At the hearing of the redetermination the appellant relied on the expert evidence of Mr Kevin Patrick Ryan FRICS on the valuation of the subject properties. Ms Penelope Farr Leander (the second respondent) relied on the evidence of Mr Stephen Phillips FNAEA.

The principal legislation with which I am concerned is, as I have indicated, section 70 of the 1977 Act and Article 2(7) of the statutory order. As to the latter, it is accepted that if the Order applies then the maximum rent that can be imposed is indeed that awarded by the Committee. Section 70, so far as is material, is as follows:

There is extensive jurisprudence dealing with the interpretation of application of section 70. The principles have not themselves been the subject of significant dispute in this case but rather it is their application which has been the issue. I will not recite lengthy extracts from previous decisions. I will seek to summarise what seemed to me to be the important principles, drawing heavily upon three cases in particular. First, the decision of the Court of Appeal in Curtis v London Rent Assessment Committee [1999] QB 92, a decision which is referred to in the extract from the judgment of Lord Bingham, which I have already quoted, and two more recent first instance decisions, one by Richards J in Queensway Association v the Chilton Thames and Eastern Rent Assessment Committee 31 HLR 945, and a decision of Ouseley J in Yeoman's Row Management Limited v Chairman of the London Rent Assessment Committee [2002] EWCH 835 (Admin).

I shall consider the relevant principles under three headings. First, the method of calculation of the market rent. It is common ground that, in essence, subsection (1) of section 70 identifies the principles which are to be applied in determining the market rent. They have, however, been the subject of judicial exegesis. Second, I will look at the difficult question of the principles applicable when reducing the rent to take into account the scarcity of dwelling houses of the relevant kind. This involves the application of subsection(2) of section 70. Finally, I will summarise the principles which stipulate the nature and extent of the reasons which committees need to give in their determinations. One of the central criticisms of this case by the appellant is that the reasoning of this Committee was inadequate.

In the Queensway case Richards J set out the following propositions put forward by Mr Bonney QC in that case which, as the judge accepted, set out the broad principles to be derived from the authorities, albeit that they had to be applied with some caution. The principles are set out in the Queensway decision as follows:

Second, it was urged before me by Mr Gavaghan, counsel for the appellants, that in determining the market rent under section 70(1) the Committee should have regard to the fact that the respondents have security of tenure. This will increase the rental value of the properties. I accept that in principle the presence of security of tenure could be a relevant factor which will justify an increase in market rents. However, its effect in this context will be marginal, if it has any effect at all. The reason for this was explained by Lord Widgery, giving judgment for the Divisional Court in Palmer v Peabody Trust [1975] 1QB 604, in a case involving a predecessor of section 70, namely section 46 of the Rent Act 1968. He said this:

Accordingly, I do not accept that it was incumbent upon the Committee to have regard to this consideration. (Mr Gavaghan also submitted that the Committee should have had regard to the fact of security in the context of assessing the value of the improvements. I deal with these points separately below.)

There is a well recognised tension which exists between the increase in rent that results from the benefits of local amenities (such as shops, theatres or playgrounds) which is permissible under subsection (1), and such increases which result from the fact that the demand exceeds the supply, which is not permissible and is regulated by subsection (2). The existence of the amenities may themselves increase demand, thereby resulting in a scarcity of housing in the locality in question. Such scarcity is permitted to be reflected in the price. A Rent Committee has to distinguish from that element such rent increase as is attributable simply to the fact of a shortage in housing supply. The leading case is a decision of the Divisional Court in Metropolitan Property Holdings Ltd v Finegold (1975) 1 WLR 349. In that case property in St John's Wood was particularly attractive to Americans living in London because the American school was located there. The London Rent Assessment Committee considered that it had to reduce the rent under what is now section 70(2) because of the element of scarcity produced by the presence of the school. The Divisional Court held that they were wrong to do so. Lord Widgery expressed the relationship between the two sections as follows:

There is however a certain artificiality about this exercise. As Richards J pointed out in the Queensway case (at page 963) the dynamics of supply and demand are such that they cannot be isolated entirely from other elements, such as amenity. In some cases an entire area will have a higher than usual level of amenity which will result in scarcity, yet, as Richards J pointed out, that is the kind of scarcity which Parliament must have intended to fall under subsection (2). In that same case Richards J also made certain observations about the area which should be taken into account when analysing whether and to what extent there is scarcity. As he pointed out, there is no single approach and it is ultimately a matter for the Committee which area it chooses, provided it is sufficient to meet the legislative policy of depriving landlords of the wholly unmeritorious element in the market rent which is attributable simply to excess of demand over supply. One approach he recommended was to consider the area where potential tenants of the property could reasonably be expected to live. But he observed that a broader-brush approach would be acceptable:

I would also respectfully adopt the following observation of Ouseley J in the Yeoman's Row case where he said (at paragraph 63) that whilst the basis of the area needs to be reasoned "the imprecision of the concept may restrict the detail or depth of reasoning which a committee can realistically be expected to provide."

A related problem relating to the assessment of scarcity is how any deduction referable to it is to be quantified. It seems to me that this is classically an area where the Committee will have to rely upon its own experience and knowledge of its area. Moreover, as Ouseley J pointed out in the Yeoman's Row case, the imprecision involved in this exercise also precludes any expectation of detailed reasoning (paragraphs 75 to 76). At the same time, it is incumbent on the Committee at least to set out the factors which cause it to make the particular reduction which it does, identifying those factors by reference to the relevant area it has chosen for the purpose of assessing scarcity. Indeed, in the Yeoman's Row case Ouseley J expressed the view that it would be necessary to explain in that case why it chose a reduction of 30 per cent rather than some lesser figure of 10 or 20 per cent. I would not myself go that far; it seems to me very difficult to give such precise reasons for what is inherently an exercise of judgment based significantly on experience. But I do accept that, especially where there is a substantial deduction, some explanation is needed to identify why the Committee concluded that the reduction should be so significant. It is not enough, as Ouseley J observed, simply to pluck a figure out of the air, or to give the impression that that is all that has been done.

The obligation relating to the giving of reasons was considered in some detail by Richards J in the Queensway case after a review of certain observations of Auld LJ in the Curtis case and other decisions. I gratefully adopt his analysis. His Lordship summarised the position as follows:

As I have said, the appeal raises two broad issues. First, the appellant submits that the Committee wrongly applied section 70 of the 1977 Act when calculating the fair rent; second, they allege that it wrongly applied Article 2(7) of the Order. Strictly, the latter is logically the first question to consider since, if the tribunal properly analysed this Order and fixed a maximum rent in accordance with its terms, then it matters not whether it erred in fixing what would have been the fair rent, absent the order. Accordingly, I shall analyse this aspect of the case first.

The appellant's claim that the Committee should have found that Article 2(7) applied so as to disapply the application of the Order. As I have indicated, they spent some £135,000 on works of repair and improvement to the common parts of the property. The appellant said that the effect of these improvements was to increase the rental value well in excess of the stipulated 15 per cent, and that accordingly the cap was not applicable. They should therefore have been entitled to charge the fair rent stipulated in accordance with section 70.

The tribunal's analysis of this aspect of the case was as follows. First, they set out the contention of the appellant:

The appellant submits that this approach demonstrates a number of errors of law. Mr Gavaghan directed most of his fire power on the argument that the Committee did not adequately identify what caused the increase in rent from the earlier determination. He submitted that the Committee ought to have identified the factors which caused the rent to increase from the earlier stipulated fair rent. While Mr Gavaghan conceded that it could have been for reasons other than the improvements and the effect of inflation, he said that the Committee had erred in law in not seeking to identify what those reasons were in this case. This, it was submitted, rendered the reasoning inadequate.

I do not accept this contention. The task of the tribunal is to fix a fair rent in accordance with the evidence before them. They are not starting from the premise that the earlier determination was correct, indeed they will not know what issues or evidence were before the Committee on that earlier occasion. It is not for them to speculate what they would have done had they fixed the original rent, and they are not in a position to do so. So the earlier registered rent is not relevant to them when assessing what they consider to be the proper rent, save, if they think it helpful, as a touchstone against which to check their own conclusions. They could only explain which factors led to the increase in rent if they took the original rent as their starting point in making their own determination. That is not how they should approach their task.

I accept the submissions of the defendant that the issue here is simply how much of the increase is due to the improvements. In order to assess that, it is only necessary for the Committee to identify the aspect of the fair rent which it stipulates is attributable to the repairs and improvements and then determine whether that exceeds 15 per cent of the previous registered rent. That is precisely what it did here. It neither could nor should reach conclusions on the other factors which might have led to the increase in rent, as opposed to the rent itself. Of course it will have to have regard to the original fair rent when determining whether the amount referable to repair and improvements exceeds that figure by 15 per cent; but it is only at that point that the earlier rent becomes relevant.

The appellant further submitted that the Committee erred in failing to give proper consideration to the evidence of the increase in market rents. This came close to submitting that the rise in fair rents was so high, and the increase in market rents was so low in comparison, that the Committee must have erred in failing to accept that at least 15 per cent was due to the improvements. Again, however, this involves accepting that the later fair rent is calculated on precisely the same set of assumptions, and in the light of essentially the same material, as the earlier one. That is not a legitimate assumption. The Committee sought to determine what effect the improvements of the common parts had had on the rental value of the particular properties in issue. In my view that is precisely what it needs to do when carrying out its task under Article 2(7) of the Order.

A further argument was that the Committee erred in failing to take into consideration that since the tenants had security of tenure, they would particularly benefit from the improvements in the common parts. I do not think that the Committee can be said to have erred in this way. First, as I have already indicated, to the extent that there are benefits to be derived from security of tenure, these are effectively removed by the fact that there is a reduction for scarcity. It seems to me that the observations of Lord Widgery in the Palmer case apply as much to the benefits resulting from improvement as to the other elements of the rent. Second, the argument was never advanced to them in this way. They cannot be criticised for failing to deal with a point which was not addressed to them. It is true that the landlord did refer to the enhanced benefit of security of tenure but, as Mr Gavaghan concedes, in a different context to that in the argument he addressed to me. Moreover, it is not self-evident that it would be treated as a matter of such significance that it can be said that it was something which the Committee plainly should have considered of its own motion. In any event, to the extent that there were certain detrimental effects of the changes identified by the Committee, namely the unsightly pipework and the arguably at least detrimental effect on the hot water, these would equally be of greater significance to a secure tenant.

A somewhat complex argument was advanced on the basis of the last sentence of paragraph 31. It was suggested that insofar as the Committee was saying that the rent would increase because they would honour their maintenance obligations, whereas the former landlords would not, this was already a factor taking into account by the improvement in the amenity of the properties. I do not accept this argument. There would be some, albeit I surmise relatively minor, increase in rental value if the landlords are known to repair fully in accordance with their obligations An alternative submission was that in any event this factor was irrelevant to two of the flats, namely 1 and 5, because there had not been a change in landlord since the last registered review. The change in landlord had taken place shortly before that review. If the Committee were intending in that paragraph to place real weight on this factor, this argument might have some force (although the argument would still depend upon whether this had been a factor considered at the previous review.) But I accept the submission of Mr Karas that the Committee was merely giving an example of why the basic approach of the appellant's expert was, in its view, flawed. It was an illustration in the defect in the methodology. The Committee was merely rejecting the argument that it must be assumed that the increase in the rental values should be attributed to a combination of the increase in the index of real market values and the landlord's improvements. The Committee took the view that the index was not faithfully reflected in the registered fair rents; and pointed out that variations in the fair rent could also reflect the fact that the later rent was fixed by a different committee with different opinions and based on different evidence. That seems to me plainly right and the Committee was justified in choosing not to follow the analysis of the appellant's expert on this matter and it gave clear reasons for not doing so.

I should add that Mr Gavaghan further submitted that if the Committee had erred in its rejection of Mr Ryan's approach, then its own independent approach to the assessment of the value of the improvements could not stand. Even had I found in his favour on construction of this argument based on paragraph 31 I would not have acceded to this submission. The Committee gave cogent reasons for preferring a different approach to that advanced by Mr Ryan. It was an approach which was more fully in accordance with the statutory language. Even if it had in part erred in its analysis of Mr Ryan's approach, the substance of its objection was clear. I would not have been prepared to accept that such an error justified quashing the whole decision.

It follows, in my view, the Committee's conclusion that the fair rent is fixed by the maximum permitted under the Order was lawfully reached. Accordingly, it is not strictly necessary to go further. However, I have heard argument on the other points and it is right that I should express my conclusions on them.

The Committee held that the market value of the refurbished property should be reduced by 30 per cent to take account of a number of differences between the terms of tenancy and the amenities of the comparable properties. The Committee identified the factors which led to this reduction. They were the lack of central heating, the lack of floor coverings and white goods in the subject property, which are provided in the lettings of the comparables properties, the lack of modernisation to the bathroom and kitchen (disregarding the tenant's improvements), and the difference in repairing and decoration obligations. The Committee considered that an alternative way of calculating this reduction, suggested by Mr Ryan for the landlords, involved an assessment of depreciation of the cost of making relevant improvements, but it rejected that approach and gave reasons for doing so. It then gave its conclusion that the proper deduction to reflect these matters should be 30 per cent.

Mr Gavaghan's submission was that this was simply inadequate. The Committee had picked a figure out of the air. In particular it has failed, he says, to demonstrate the extent to which the reduction is referable to the difference in the terms of the lease, namely the repair and decoration covenant, and which is referable to the state of the properties. Mr Karas accepts that a committee could have broken down the elements of reduction in respect of each head, but he submitted that there was no need to do so as a matter of law. The Committee has given adequate reasons by identifying the factors which caused it to reach the figure it did.

I confess that I have some concerns about the Committee simply fixing a figure in this way. I accept that it is not obliged to set out quantification for each of the physical differences from the comparables, although it seems to me that it would be desirable to do so in cases where they are relatively few and the reduction is significant. It will assist in focusing the minds of the Committee and is a useful check on the overall reduction which they make under this head. However, in my judgment the reduction to reflect the difference in the tenant's obligations under the lease involved a different exercise to assessing the reduction referable to the amenity of the property itself. That of itself is a powerful reason for identifying this reduction separately. Moreover - and I think this is important in this case - it was separately identified and assessed by both the experts. Mr Ryan said that it should reduce the rent otherwise payable by two per cent, whereas Mr Phillips put on a figure of seven-and-a-half per cent. So there was an issue specifically on that point, potentially of some significance to the overall level of rent. In these circumstances I consider that it was an issue which the Committee ought separately to have addressed.

In my judgment, therefore, on this particular basis, I accept Mr Gavaghan's submission.

Mr Gavaghan also submitted that in assessing the market rent under section 70 the Committee ought to have taken into account the fact that the tenants had security of tenure. For reasons I have already given, I do not accept that submission.

There are a number of arguments advanced under this head. First, Mr Gavaghan says that the Committee did not select a wide enough area when assessing whether and to what extent there was any scarcity. Second, he contends that it failed to explain how it reached the deduction of 25 per cent which it held to be the appropriate deduction for these properties.

It is necessary to set out part of the Committee's analysis on this aspect. The Committee accepted that there had been an increase in the housing available since the Housing Act 1988. However, it also concluded that there had been a significant rise in demand. It identified certain reasons for this, namely increased immigration and the trend to more separate households. It rejected the submission of Mr Ryan that the market in central London was now in a state of equilibrium. It also specifically rejected an observation by him that the waiting list held by local authorities were not evidence of scarcity, since they consisted principally of the unemployed and/or homeless, who were not in the market even for accommodation at fair rent levels. The Committee pointed out that there were many people on such lists who were seeking social housing simply because they could not get accommodation at an affordable price. It considered that this need would affect the level of rents. Although it does not specifically say so, it seemed to have in mind, at least in part, the indirect effect which that demand would in turn generate on more desirable properties.

In determining the appropriate area for assessing scarcity and in determining the quantification for such deduction, the Committee said:

Mr Gavaghan says that the area selected for the assessment simply is too small. It is not a "really large area" which is the only appropriate area, at least in the absence of some specific explanation as to why a smaller area has been chosen. He coupled this argument with a contention that the Committee had erred in failing to set out the purpose behind section 70(2). He suggests that the Committee may have been confusing amenity and scarcity, particularly given the exclusion of the London Borough of Lewisham. I do not accept this particular criticism. The Committee referred to the basic principle underlying section 70(2) by quoting in terms the analysis of Ouseley J in the Yeoman's Row case. It is true that it did not say in terms that the purpose of this exercise was to prevent landlords benefiting from unmeritorious increases but, in my judgment, it would be absurd to say that the failure to make express reference to this constituted an error of law. The only question is whether it applied the subsection properly.

I have no real doubt that the area chosen would eliminate any scarcity resulting from the amenity of the immediate locality, but in addition the Committee must choose an area large enough to ensure that they can make a proper assessment of the trends in demand and supply for similar properties. The Committee chose three-and-a-half London boroughs. That does not on the face of it amount to a "really large area", to use the language used in the Finegold and Queensway cases. I accept that a smaller area can be used if, for example, it is defined by reference to the area where there are reasonable alternatives for the tenant in question. But the Committee has not sought to justify its assessment on that basis; nor do I think that I can properly conclude that it is implicit in its analysis that it did so. Moreover, it is not obvious that the reasonable alternatives to the tenant should be limited in this way.

Mr Karas submitted that the area was one which the Committee properly choose, and that it is essentially a matter for the Committee. But, in my view, if it is to choose a limited area, it is necessary for it to spell out how it has been selected. In this case it is not clear why it was selected. The Committee has expressed the view that the whole of inner London is too large, but that is a far cry from justifying this much more limited area. Mr Karas submits that there is a broad range of housing in the areas, which may well be true, but that submission came close to suggesting that the area chosen was representative of a wider area. That could in principle be a justification for providing a smaller area, provided there was evidence to justify that conclusion, but that is not what the Committee has said here. Accordingly, although I do not say that this area could not properly be selected, in my judgment the Committee ought to have explained, albeit briefly, why it thought this was an appropriate area in the circumstances, particularly given that, on the face of it, it was a relatively small area to choose in order to identify the trends in scarcity.

That finally leads to the analysis of the quantum reduction. Mr Gavaghan submits that there is an inadequate explanation of why 25 per cent is chosen. He submits that there is no evidence demonstrating the demand, save a reference to the potential impact of those on housing lists. He points out that there is no reference to any specific factors which demonstrate the dichotomy between demand and supply in the particular areas selected by the Committee. Mr Karas contends that the Committee has identified factors which create well-documented pressures on the housing market and has properly had regard to the waiting lists. I accept that the Committee could properly consider the impact of waiting lists. Nonetheless, in my judgment, Mr Gavaghan is correct in this challenge. The problem, it seems to me, is that the Committee itself has commented that changes in supply and demand have not been evenly spread over the whole of London, nor over all parts of the market. Accordingly, the general factors which affect demand, such as immigration and the move to separate households, does not identify the extent of the scarcity in the particular areas chosen. There is no evidence referred to by the Committee, such as considerations as to the length of time properties are left empty in their chosen area, or the speed and pattern of lettings, or matters of that kind. It is not clear, for example, whether the effect of immigration is felt more or less strongly in the particular area chosen by the Committee than in the wider community. If the Committee had identified such considerations, and given an evidential basis for concluding that in the chosen area the demand substantially outstripped supply, which was its conclusion, then I would not myself be inclined to question a judgment, based on their experience, that this merited a reduction of 25 per cent. But that is not what it has done. I am left with the impression that the figure has been determined more by broad considerations relevant to the housing market generally rather than by focusing on the particular extent of the scarcity in the area which the Committee itself has chosen.

Mr Gavaghan says that on the assumption that I found for him in relation to the arguments addressed to section 70, but found against him on the argument addressed to the order, I should nonetheless refer the matter back to the Rent Assessment Committee for a new rent to be fixed. He submits that the order can be repealed at any time and the landlords would then be able to resort to the market rents, subject to a proper reduction for scarcity. He says that that rent, therefore, ought to be identified and properly identified.

I do not accept this submission. I do not think that the mere possibility that this could occur in the next 12 months, when a fresh application can be made in any event, justifies the matter being considered afresh now. It is not suggested that it is a likely scenario; any repeal may in any event not take immediate effect but could provide for time to enable tenants to adjust to their new obligations. In my judgment, it would involve an unnecessary use of public time and cost as well as putting the tenants to the burden of what, in all probability, would turn out to be quite unnecessary cost in resisting the application.

Accordingly, although I found for the appellant in some of the submissions that have been advanced, the actual determination by the Committee of the fair rent stands because it was made in accordance with the Order. It follows that I dismiss this appeal.

MR REED: My Lord, I appear on behalf of the respondent, my learned friend Mr Richard Dew for the appellant. My Lord, given the nature of the judgment, I wonder if it would be possible for your Lordship to rise for five minutes so we can take instructions and discuss matters amongst ourselves?

MR JUSTICE ELIAS: Yes.

MR REED: My Lord, could I address you on the matter of appeal first. It is my understanding that pursuant to the CPR Part 52.13 that, in fact, as this is an appeal from an appeal that permission has to be obtained from the Court of Appeal?

MR JUSTICE ELIAS: I think that is right.

MR REED: In those circumstances, and given the seriousness of the decision for both sides, but certainly in respect of the respondent, it raises issues in respect of, first of all, the quality of evidence, that is the reasons that committees will have to give in respect of scarcity and, in particular, reasons identifying the reasons of scarcity in respect of those particular areas, and also in terms of tenants the quality of expert evidence that they will be required to obtain. There are, in my submission, very serious issues of public policy.

MR JUSTICE ELIAS: You will have to convince the Court of Appeal.

MR REED: We ask for sufficient time to make a proper assessment of whether (inaudible) leave and also presenting our application for leave. In those circumstances, given that a transcript will be produced, we would ask that there be a period of 28 days from your approval of the transcribed judgment, for that application for permission to the Court of Appeal to be made?

MR JUSTICE ELIAS: Can I give an extension of time for the Court of Appeal?

MR REED: Yes, you can. Part 52.4 specifies the time for filing appellant's notice, and time is such period as may be directed by the lower court or where the court makes no direction 14 days after the date of the decision.

MR JUSTICE ELIAS: I will give 28 days from the date of approval of the transcript.

MR REED: My Lord. On costs there are two approaches that your Lordship could take. The first is the more traditional approach, that is to say that you won, the appeal has been dismissed but the determination of the Rent Assessment Committee stands. Insofar as we won on what was, in effect, realistically the first issue, the second and third issues were obiter and that, therefore, we should have the costs of this appeal.

My Lord, I would obviously urge upon you that analysis and say that in all the circumstances we should have the costs of the appeal. I say further in respect of that analysis, that there are issues that if the institutional landlords are not given some deterrent to raising -- sort of lodging appeals that we see year in and year out in respect of Rent Assessment Committee decisions, then the burden, both on the Rent Assessment Committee and also on the Treasury Solicitor in defending them, is going to become more substantial, in a way some form of real deterrence is needed to be sort of lengthy----

MR JUSTICE ELIAS: That is a rather harsh observation in view of the fact that I found there was some merit in some of their points.

MR REED: My Lord, I accept that. But I simply make that point that the issues have been ventilated at some length in the existing cases. Your Lordship found that the principles were, to some extent, clear in those earlier cases. In those circumstances, I say that there has to be some deterrence to these sort of appeals, and there has to be some sort of realistic encouragement to the large and wealthy institutional landlords not simply to bring these appeals as a matter of course.

My Lord, the second approach would be an issue-splitting approach, which has, to some extent, been encouraged under the CPR. On that I would simply make the point that, in effect, on my counting, there were around 12 to 15 individual grounds of appeal, when you breakdown the three into 1A-D, 2A-E et cetera, they may have succeeded on three, as I count them from your judgment, but that, in effect, they raise a plethora, a whole host of additional tangled thicket of additional grounds of appeal which have largely, apart from those three, been rejected. In those circumstances, it may be that a discount on a robust percentage basis is justified, but I still say that it should substantially be an order that the successful respondent has its costs.

MR DEW: My Lord, in answer to that I would suggest to you that the appropriate order is in fact no order as to the costs. The reason I say that really is for two reasons. First of all, that in this case, according to your judgment, the Committee have, to a substantial extent, got it wrong. Their reasons were incorrect in a number of matters, and really they have only got through because they were correct in the application of the cap. It is worth you remembering also that this is not the first time that this Committee has been wrong in respect of this issue.

MR JUSTICE ELIAS: That is neither here nor there.

MR DEW: I think that point really rather goes to Mr Reed's point in respect of this being a deterrent. What the landlord would, I am sure, say in answer to that is that there should not be in that way a deterrent from applying from these wrong decisions----

MR JUSTICE ELIAS: I am not too persuaded by the deterrent factor.

MR DEW: No. The simple point is that if the landlord can see that there are real things wrong with the decision, and if you so find there were real things wrong with the decision, then he has every reason to appeal.

The second point is that, in any event, your decision, your ruling in respect of the other issues on which the landlord succeeded, was a very real benefit to this landlord. As you may be aware he is obviously the owner of a number of regulated tenancies, and decisions on, for example, the application of the scarcity test, are a very real benefit to this landlord. Equally, it is a very real benefit to the Committee for it to have explained to it that it ought to set out its reasoning on particular issues.

MR JUSTICE ELIAS: I am not sure it will quite see it in that way.

MR DEW: It may not see it in that way. Whatever Mr Reed says, the more decisions there are which set out the manner in which the Committee should make its (inaudible) the less likely it is that there will be future appeals.

MR JUSTICE ELIAS: I am not sure about that either.

MR DEW: Well, as one avenue closes perhaps another opens.

MR JUSTICE ELIAS: I think the fairest order in this case, recognising the fact that the landlords have won on certain points, but nonetheless they must have appreciated they had to win on the Order as well in order for this appeal to succeed, is that I will require the appellant to pay 50 per cent of the costs of the first respondent.

MR DEW: Could I briefly identify the fact that the whole of the first day of this appeal was taken up with matters on which, in effect, you found for the landlord, whereas only a short amount of time----

MR JUSTICE ELIAS: I have considered all that. I think 50 per cent is an appropriate figure in the circumstances, given that you did have to win on all these points in order to succeed on the appeal and must have recognised that. I found very clearly for the Committee in relation to the Order.

MR DEW: Thank you.