Monday, 2nd June 2003

1. MR JUSTICE HARRISON: This is an appeal under section 11(1) of the Tribunals and Inquiries Act 1992 against the determination of the London Rent Assessment Committee ("the Committee") of fair rents under the Rent Act 1977 relating to four studio flats at 27 Lancaster Gate, London, W2. The date of the hearing before the Committee was 23rd May 2002. The date of the determination was 26th July 2002. The date of the extended reasons given by the Committee was 28th January 2003. There was, therefore, a gap of six months between the date of the determination and the date of the extended reasons.

2. The four studio flats ("the subject premises") were all in the same building which was a converted house at 27 Lancaster Gate which had recently been refurbished and which contained 22 studio flats. All of those studio flats were let on assured shorthold tenancies, save for the four subject premises which were the subject of regulated tenancies.

3. The four subject premises are as follows:

i) Flat 6, which is on the third floor, the tenant of which is Ms Nash who is the second respondent.

ii) Flat 14, which is on the first floor, the tenant of which is Mrs Klimke who is the third respondent.

iii) Flat 18, which is on the ground floor, the tenant of which is Ms Mijatovic who is the fourth respondent.

iv) Flat 19, which is on the ground floor, the tenant of which is Miss Parra who is the fifth respondent.

4. The appellant, Wolters (London) Limited, is the landlord of the subject premises. Those premises had all been created during the refurbishment of the building, the respondent tenants having been occupiers of the building prior to those works being carried out.

5. At the hearing before the Committee, the appellant was represented by Mr Walford, who is one of its officers. The respondent tenants were represented by Mr Beirne, who is the Housing Adviser and Tenant Relationship Officer of the Housing Assessment and Advice Centre in the City of Westminster.

6. Mr Walford relied on some 14 transactions relating to studio flats in the building between January and April 2002 as comparables. In particular, he relied on flat 2 and flat 8 in the building as comparables to the subject premises. Flat 2 was on the fourth floor and flat 8 was on the third floor. Mr Beirne relied on Suite 7, 29 Hatherley Grove, W2, as a comparable which was subject to a regulated tenancy and which had been the subject of a decision by the Committee in April 2002. Members of the Committee inspected the subject premises and the appellant's comparables of flat 2 and flat 8, both internally and externally, and they inspected Suite 7, 29 Hatherley Grove externally.

7. The rents per lunar month determined by the Committee for the subject premises were £547.20 for flat 6, £547.20 for flat 14, £518.40 for flat 18 and £518.40 for flat 19.

8. The first five of the appellant's grounds of appeal relate to the methodology by which those rents were determined. The sixth ground of appeal relates to the Committee's decision on the issue of scarcity.

9. Before coming to those grounds of appeal, I should first of all refer to section 70 of the Rent Act 1977 which contains the relevant statutory provisions governing the determination of a fair rent. Section 70 provides as follows:

"(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 dwellinghouses 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 dwellinghouses in the locality which are available for letting on such terms.

(3) There shall be disregarded -

(a) any disrepair or other defect attributable to a failure by the tenant under the regulated tenancy or any predecessor in title of his to comply with any terms thereof;

(b) any improvement carried out, otherwise than in pursuance of the terms of the tenancy, by the tenant under the regulated tenancy or any predecessor in title of his".

10. In the document giving the Committee's extended reasons, which I will refer to for the sake of brevity as "the decision letter", the Committee summarised the provisions of section 70 of the 1977 Act. After some paragraphs dealing with the parties' representations and the Committee's inspection of the subject premises, there followed a lengthy section from paragraphs 11 to 61 dealing with the evidence and the submissions relating to the various matters considered at the hearing.

11. The reasons for the decision are contained in paragraphs 62 to 75. Underlying all the grounds of appeal is the contention that the Committee failed to give intelligible, adequate or proper reasons.

12. Ground 1 and ground 3 of the grounds of appeal can be taken together. In ground 1 it is alleged that the Committee erred in holding that the starting point for flat 6 was £900 per lunar month and that the starting points for flats 14, 18 and 19 was £800 per lunar month.

13. The contention in the third ground of appeal is that the Committee erred in their approach in making adjustments to their calculations of fair rents for flats 14, 18 and 19 to take account of "physical differences". It is said that they failed to identify what they were comparing those flats to when concluding that there were physical differences.

14. In order to understand those grounds of appeal, it is necessary to refer to paragraphs 64 to 68 of the reasons given by the Committee for their decision. Those paragraphs state as follows:

"64. When determining a fair rent the Committee, in accordance with the Rent Act 1977, S.70, had regard to all the circumstances including the age, location and state of repair of the property and disregarded the effect of any relevant tenant's improvements on the rental value of the property.

65. The Committee found the landlord's comparables, Nos 2 and 8, to be helpful. The Committee considered that if flat 6 was improved and let on a typical assured shorthold tenancy, it would let for a rent in the region of £900 per lunar month. If flats 14, 18 and 19 were each improved and let on typical assured shorthold tenancies, they would each let at a rent in the region of £800 per lunar month.

66. If the subject flats were let unimproved in the market on the terms of the regulated tenancies of the subject flats, they would let for considerably less than the starting point AST rents. In their present condition and disregarding any tenant's improvements the Committee considered the market rents for the subject flats would be as follows: Flat 6 - £684 per lunar month, Flat 14 - £720 per lunar month, Flat 18 - £648 per lunar month and Flat 19 - £648 per lunar month.

67. In reaching these conclusions, the Committee had regard to the parties' representations and to its own observations at the inspections of the subject flats and comparable flats. The Committee noted the differences in the terms of the regulated tenancies of the subject flats compared with the terms of the typical AST tenancy agreements produced by Mr Walford. The Committee considered that the terms of the regulated tenancies are more restrictive to the tenancies than those of ASTs, for example the restrictions on leaving time for visitors and prohibition of overnight guests. The Committee considered that the terms of the regulated tenancies of the subject flats are less onerous to the landlord in terms of maintenance and decoration. The Committee saw the overall high standard of presentation of the comparables, and notes that in respect of the flats let on ASTs the landlord will need to maintain the current high standard of presentation of the interiors, fixtures and fittings.

68.

1] The Committee considered that No 6, which is on the 3rd floor, is a single room in a similar style to No 8. However, having inspected both flats, the Committee considered that this flat felt smaller than No 8. The Committee noted what appeared to be cigarette smoke stains and there was a washing machine in this flat, as had No 8. The Committee deducted £140 from the starting point AST rent of £900 per lunar month to reflect the physical differences and then deducted 10% to reflect the differences in terms between the regulated tenancy and AST, to arrive at a market rent of £684 per lunar month.

2] The Committee considered that No 14, which is on the first floor, is arguably less noisy than the flats on the ground floor. The committee considered that the location of the shower on the lower level rather than adjoining bedroom platform, was a disadvantage. The roof terrace, although lacking some privacy, provided a balancing advantage. No adjustment was therefore made for physical differences. The Committee deducted 10% from the starting point AST rent of £800 to reflect the differences in terms between the regulated tenancy and the assured shorthold tenancies to arrive at the market rent of £720 per lunar month.

3] The Committee considered that No 18, which is on the ground floor, is arguably a noisier flat than flats on the upper floors. The Committee considered that there was less headroom on the bedroom platform because of a beam on the ceiling. The Committee deducted £80 from the starting point AST rent of £800 to reflect the physical differences and then deducted 10% to reflect the differences in terms between the regulated tenancy and the assured shorthold tenancies to arrive at the market rent of £648 per lunar month.

4] The Committee considered that No 19, which is on the ground floor, is similar to No 18 except that the shower is on the lower level rather than the upper level. The Committee found the positioning of the shower room on the lower level to be a disadvantage. Although the ceiling height in the bedroom platform was restricted, it was not as restricted as in No 18. The Committee deducted £80 from the starting point AST rent of £800 to reflect the physical differences and then deducted 10% to reflect the differences in terms between the regulated tenancy and the assured shorthold tenancies to arrive at the market rent of £648 per lunar month".

15. The main complaint of the appellant under grounds 1 and 3 of the grounds of appeal is that it is not possible to know from those paragraphs what starting point has been taken by the Committee as the market rent under section 70(1) of the 1977 Act before making the deductions for physical differences in paragraph 68. It was pointed out by Mr Gavaghan on behalf of the appellant that if the rental figures of £800 and £900 per lunar month were intended to be the market rents for the subject properties as improved, some of the deductions made in paragraph 68, for instance for noise, would be unnecessary because they would already have been reflected in the market rent for the improved subject premises.

16. It was said that the only way of making sense of paragraph 65 would be to rewrite it by explaining that the starting point was the rental figures for the appellant's two comparables, flat 2 and flat 8, and that the rental figure of £900 for flat 8 had been taken for flat 6, and that the rental figure of £800 for flat 2 had been taken for flats 14, 18 and 19, with subsequent adjustments to reflect the physical differences between the subject properties and those two comparable properties. It was submitted that that was not what paragraph 65 said had happened. It simply stated that the Committee found the appellant's comparables of flat 2 and flat 8 to be helpful, not that they had been adopted as the starting point.

17. It was contended that, if that was the explanation, it would involve a lot of cross referencing and uncertainty to explain what the Committee had done. It was contended that there appeared to be comparison in paragraph 68 between the subject properties, rather than with flats 2 and 8. It was claimed that, if comparison was being made with flats 2 and 8, it would have been logical to compare flat 14 with flat 8, rather than flat 2, as the appellant had contended at the hearing, because they both had roof terraces.

18. There was a further point taken under this heading which related the tenants' comparable of 29 Hatherley Grove, which was subject to a regulated tenancy. It was submitted that the Committee should not have had regard to such a comparable (see Curtis v London Rent Assessment Committee (1999) QB 92 per Auld LJ at p 116 E and G and p 117 F), but that, in the absence of any statement by the Committee that it had not been taken into account, it may have been taken into account perhaps as a check on the final figures in paragraph 66, because the fair rent for that property was not out of line with the market rents for flats 6 and 14.

19. Mr Rodger submitted on behalf of the first respondent that the decision letter should be read as a whole with the knowledge that the parties would have of the evidence that was given and the submissions that were made, and that, when that was done, it was clear what comparisons were made and why they were made. He then took me along a somewhat complicated route to explain why that was so.

20. It is not necessary for me to go into all the intricacies of that explanation, but it began with the assertion, which was not disputed, that the rental figures per lunar month for the two comparables, namely £800 for flat 2 and £900 for flat 8, could be deduced from earlier parts of the decision letter and that they would be known to the appellant who would immediately recognise them as the starting point figures in paragraph 65.

21. It was submitted that it was clear that the Committee had adopted the flat 2 figure of £800 for flats 14, 18 and 19 and the flat 8 figure of £900 for flat 6. It was further submitted that the parties would understand that flats 14, 18 and 19 had been grouped together because they all had a split level arrangement with a platform for a sleeping area in the same way as flat 2, whilst flat 6 did not have such an arrangement. The fact that flat 14 and flat 8 both had roof terraces was taken into account as a balancing factor in paragraph 68(2). It was submitted that it was clear to an informed reader that, in sub-paragraphs 68(2) to (4), the Committee was comparing flats 14, 18 and 19 to flat 2. Not only had those paragraphs adopted the rental starting point of £800 applicable to flat 2, but the way in which they had dealt with such matters as noise and the floor level where the shower was situated was said to be consistent with a comparison with flat 2 which is on the fourth floor and has a bath on the upper level.

22. It was accepted that there was some comparison between the subject premises as well as with the comparables but it was contended that such a comparison simply explained how differences between the final rents for the individual subject premises were determined. It was contended that none of the adjustments for the physical factors referred to in paragraph 68 had already been taken into account in the rental figures in paragraph 65 which were based on the comparables, flat 2 and flat 8, which therefore had to be adjusted to reflect the position relating to the subject premises.

23. Finally, Mr Rodger submitted that there was nothing in the language of the decision letter to suggest that the Committee had been influenced in any way by the fair rent of 29 Hatherley Grove as a comparable.

24. There is no doubt in my mind that the reasoning in paragraph 65 and 68 is thoroughly unsatisfactory. Instead of paragraph 65 stating that the Committee had adopted the rental figures of the appellant's comparables, flats 2 and 8, as the starting point, the Committee simply refer to the comparables as being helpful and then go on to refer to the rental figures for the subject premises in an improved condition. Paragraph 68(1) does refer to a comparison of flat 6 with flat 2, but it involves a tortuous and complicated process to ascertain why flats 14, 18 and 19 are dealt with together and to ascertain that their comparison is with flat 8. Having made the various deductions referred to in paragraph 68 for the subject premises, the resulting figures are given in paragraph 66 for the subject premises let unimproved on the terms of the regulated tenancies.

25. It took Mr Rodger a long time to explain to me, by reference to a number of preceding paragraphs in the decision letter, what must have been the process of the Committee's reasoning. That is no criticism of Mr Rodger. It was necessary for him to take that length of time. It is highly undesirable for such mental leapfrogging to be necessary to understand the Committee's reasoning. However, at the end of the day, I am satisfied that the explanation that he gave was correct. The Committee took as its starting point the rental figures for the appellant's comparables, flat 2 and flat 8, which they applied to the subject premises -- that is to say, the figure of £800 for flat 2 was applied to flats 14, 18 and 19 and the figure of £900 for flat 8 was applied to flat 6.

26. The deductions mentioned in paragraph 68 were then made for the various reasons given in that paragraph, resulting in the figures in paragraph 66. Whilst, therefore, the reasons given in the decision letter are inadequate in the sense that they make it very difficult for even an informed reader to understand the Committee's process of reasoning, it is nevertheless possible, after detailed analysis of the decision letter as a whole, to arrive at an understanding of the reasoning. That being so, I do not find it possible to say that the inadequacy of the reasons is such that it amounts to an error of law. If the appeal were to be allowed on this point, it would simply involve a re-writing to make clearer what detailed analysis has eventually revealed is the reasoning of the Committee. If, however, the decision were to be quashed for some other reason arising from the other grounds of appeal, the opportunity could be taken by the Committee to make their reasoning clearer.

27. I should just add that I am satisfied that the Committee were not influenced in their decision by the fair rent registered for 29 Hatherley Grove. Whilst that property was mentioned in the earlier part of the decision letter because it had been put forward as a comparable on behalf of the tenants, it was not mentioned at all as a comparable upon which the Committee based its decision. The only comparables relied upon by the Committee were flats 2 and 8. There is, therefore, no valid basis for saying that the Committee was influenced by 29 Hatherley Grove when arriving at the fair rent under section 70(1) for the subject premises. The Committee did take 29 Hatherley Grove into account when dealing with the issue of scarcity under section 70(2), but that is a separate matter raised under a separate ground of appeal which I deal with later.

28. It is convenient next to deal with the fourth ground of appeal, because that ground also relates to paragraph 68 of the decision letter. Two points are raised. They both relate to paragraph 68(1), which I have already quoted earlier in this judgment.

29. The first point under ground 4(a) relates to the reference in paragraph 68(1) to cigarette smoke stains in flat 6. Mr Gavaghan submitted that the Committee wrongly included the cigarette smoke stains as part of its justification for the deduction of £140 in relation to flat 6 because it should have disregarded it under section 70(3)(a) as a disrepair or defect attributable to the tenant's failure to comply with the terms of her regulated tenancy. He drew attention to the fact that, in paragraph 64 of the decision letter, the Committee, whilst mentioning the disregard under section 70(3)(b), had failed to mention the disregard under section 70(3)(a).

30. Mr Rodger, on the other hand, submitted that the Committee had not made a deduction for the cigarette smoke stains. He pointed out, by reference to earlier paragraphs in the decision letter, that there was a dispute between the parties as to whether a damp and discoloured patch over the window was in fact a smoke stain caused by Ms Nash's smoking. He contended that the Committee came down on the appellant's side in concluding that no deduction should be made for it. He pointed out that, in paragraph 68(1), the Committee had merely "noted" the cigarette smoke stains. It had not said that it had made a deduction for them.

31. Mr Rodger also submitted that the fact that a tenant smokes, thereby causing the premises to be less attractive, is a personal circumstance of the tenant which the Committee have to disregard under section 70(1). He pointed out that the Committee had expressly recognised in paragraph 69 of the decision letter that it could not take into account personal circumstances.

32. On reading paragraph 68(1), I find it impossible to say whether or not the Committee has made a deduction for the cigarette smoke stains, although my suspicion is that it has done so. I appreciate that the Committee has simply noted the stains, but it certainly has not said that it was disregarding them for the purpose of the exercise it was performing. The £140 deduction was expressed to be made to reflect the "physical differences" in the plural. The only matters mentioned which are capable of being physical differences are the fact that flat 6 felt smaller than flat 8 and the cigarette smoke stains. The washing machine was common to both flats. If the cigarette smoke stains were not the physical differences referred to, there would be only one physical difference to account for the £140 deduction, namely the fact that flat 6 felt smaller than flat 8. I am not in a position to know whether that difference alone could account for the £140, but logically, that paragraph would then refer to a physical difference in the singular, rather than in the plural.

33. For those reasons, I suspect that the cigarette smoke stains have been taken into account as part of the reason for the £140 deduction. If that is so, it would be an error of law. Both sides agree that it should have been disregarded. The only question is whether it has been disregarded. I prefer to base my decision on the fact that it is not clear whether or not it has been taken into account as part of the reason for the £140 deduction. There is therefore a deficiency in the reasons given for the £140 deduction and I would uphold this ground of appeal on that basis.

34. I should just add that I would not accept that the cigarette smoke stains should be disregarded on the basis of personal circumstances under section 70(1). They affect the condition of the property and there is a cost implication to remedy them. They should properly be disregarded under section 70(3)(a).

35. The second point which arises under ground (b) of the fourth ground of appeal relates to the Committee's finding in paragraph 68(1) that flat 6 felt smaller than flat 8, although it was in fact a bit bigger. Mr Gavaghan accepted that he could not challenge that conclusion on a point of law, so he challenged it on the basis of a lack of reasons in that the Committee did not explain why flat 6 felt smaller than flat 8. Alternatively, if the reason why flat 6 felt smaller than flat 8 was because flat 8 had mirrored cupboards and spot lighting, the reduction of £140 in the rental figure was out of proportion to the cost of installing those features in flat 6.

36. Mr Rodger, however, pointed out that flat 8 also had a roof terrace with French windows looking out over the Mews and that the flat was of a more regular proportion compared to flat 6. He submitted that the Committee was entitled to take the view that flat 6 felt smaller than flat 8.

37. I agree with that submission. The Committee was entitled to take that view and, in my judgment, it did not have to give any further reasons for its conclusion. It either felt smaller or it did not. The Committee's conclusion was that it did. That conclusion was not really capable of elaboration and it was not incumbent on the Committee to attempt any such elaboration. There is no evidence before me to conclude that the £140 deduction was excessive and, in any event, that deduction may have included the cigarette smoke stains.

38. I turn next to the second ground of appeal, which relates to paragraph 67 of the decision letter. As pursued by Mr Gavaghan, this ground was confined to the Committee's conclusion that the terms of the regulated tenancies of the subject premises were less onerous to the landlord in terms of maintenance and decoration. The submission was that there was simply no justification for that conclusion because there was no obligation on the landlord in respect of internal decoration under the assured shorthold tenancy agreements of the comparables or under the regulated tenancies of the subject premises. As a result, part of the justification in paragraph 68 for the 10 per cent deductions applying to all the subject properties did not apply. It was pointed out that sub-paragraphs (1), (2), (3) and (4) of paragraph 68 all referred to the difference in the terms of the two types of tenancies when giving the reason for the 10 per cent deduction.

39. Mr Rodger accepted that paragraph 67 was imprecise in referring to the terms of the regulated tenancies being less onerous, because there was no difference in the terms between the two types of tenancies so far as internal decoration is concerned. He submitted, however, that the next sentence in paragraph 67 made it clear that what the Committee was referring to was the overall high standard of presentation of the comparables which would have to be maintained by the landlord for the flats let on assured shorthold tenancies. It was said that, in practice, the landlord needed to decorate regularly as a result of tenants leaving after short tenancies and having defaulted on their internal decorating obligation.

40. I am forced to conclude on this aspect either that the Committee erred in concluding that there was a difference in the terms between the two types of tenancies in relation to maintenance and decoration or, if it did not, its conclusion on this aspect was not adequately reasoned. My suspicion is that the Committee was referring to a difference in the terms of the tenancies, which resulted in the higher standard of presentation which the Committee saw in the case of the comparables. That suspicion is based on the consistency of the terminology used, both in paragraph 67 and paragraph 68, in referring to the terms of the tenancies. If I am wrong about that, the Committee needed to explain why they were making a deduction for this element without there being any difference in the terms of the tenancies in relation to it. In either event, this ground of appeal must succeed.

41. I turn next to the fifth ground of appeal which, in the end, was limited to one narrow point arising out of paragraph 70 of the decision letter, where it was stated, and I quote:

"The services that related to regulated tenancies were caretaker, cleaning, lighting and carpeting of common parts, lift and visual door entry telephone".

42. Mr Gavaghan contended that the Committee had failed to take into account that the appellant provided the service of hoovering the flats, something which was accepted by the tenants, as was shown by paragraph 40 of the decision letter which stated that the tenants submitted that the rooms were vacuumed five times a week if required.

43. I am satisfied that there is nothing in that point. The reference in paragraph 70 of the decision letter to cleaning is not restricted to the common parts. It is perfectly capable of including the hoovering service provided by the appellant.

44. I come finally to the sixth and last ground of appeal which raises a number of different points relating to the Committee's conclusions on the issue of scarcity in paragraph 71 to 74 of the decision letter. It is necessary to quote those paragraphs. They state as follows:

"71. The Committee next considered whether on the assumption set out in section 70(2) of the Act there was any 'scarcity'. Lord Widgery CJ in Metropolitan Property Holdings v Finegold and Others [1975] 1 All ER 389 HL, stated that '... the sort of scarcity we are concerned with is a broad, overall, general scarcity affecting a really substantial area..."

72. Mr Beirne argued that at [sic] deduction of 35% for scarcity should be adopted, as it was consistent with the decision relating to Hatherley Grove. The Committee took note of the tenants' submissions and is aware that in the recent past deductions in the region of 35% have been applied for scarcity.

73. The Committee does not agree with Mr Walford that no scarcity exists, despite his able and interesting presentation of the landlord's case. The Committee considered that:

(i) The marking of the flats in the same building as the subject flats was at particular rents and on the terms of AST's. In Spath Holme Ltd v Chairman of the Greater Manchester Assessment etc Committee [1995] 28 HLR 107 and Curtis v London Rent Assessment Committee [1999] QB 92 the Court of Appeal emphasised that ordinarily a fair rent is the market rent for the property discounted for 'scarcity' i.e. that element, if any, of the market rent that is attributable to there being a significant shortage of similar properties in the wider locality available for letting on similar terms other than as to rent to that of the regulated tenancy. Application of these principles of law must take into account the requirement to disregard levels of rent being quoted in the market. For that reason the Committee did not regard short term fluctuation in supply and demand as being a conclusive reflection of scarcity but preferred instead to assess the underlying supply/demand ratio in the absence of the quoted rent levels on which short term variations may depend.

(ii) The Committee also notes that the evidence related mainly to properties in the subject building available for letting shortly before Christmas 2001, and following the events of September 11th 2001, and that seasonal/post September 11th fluctuations in interest also should not be a conclusive reflection of scarcity.

(iii) Mr Walford's evidence in respect of scarcity related mainly to flats in the same building/very immediately locality of the subject flats. The Committee considers that in accordance with the authorities, it should have regard to the broader picture in respect of locality for the purposes of scarcity and in these cases has had regard to the London boroughs of Westminster, Camden and Kensington and Chelsea.

74. The Committee considers that there is an unsatisfied demand for flats of a similar type in the locality and that there is scarcity for the purposes of section 70(2) of the Act. However, having heard the persuasive evidence of Mr Walford, the Committee came to the conclusion that a lower deduction than 35 per cent proposed by Mr Beirne should be applied. Without claiming to make a precise statistical analysis, the Committee considered the appropriate deduction under section 70(2) of the Act in these particular cases to be 20%".

45. I start by referring to three propositions of law which were agreed between the parties. Firstly, a fair rent will reflect the amenity value of a property or its situation because they will affect the market rent. The purpose of the scarcity deduction is to deprive a landlord of a "wholly unmeritorious" increase in rent which has come about simply because there is a broad overall shortage of houses in the locality, which means a really large area. There must be an excess of demand over supply which makes tenants enter into bargains they would otherwise not contemplate (see Metropolitan Property Holdings Limited v Finegold [1975] 1 WLR 349 at 351 G - H, 352 C - E and 354 A - B, Queensway Association and Others v The Chairman of the Chiltern, Thames and Eastern Rent Assessment Committee and Others [1999] 31 HLR 945 at 959 - 964, and Report on Good Practice in Assessing and Registering Fair Rents (September 1998) at p 20).

46. Secondly, the fundamental need in practice when dealing with scarcity is to distinguish between scarcity which flows from the amenity value of the dwelling itself and its immediate locality (section 70(1)) on the one hand and that which arises from an excess of demand over supply in a really large locality (section 70(2)) on the other hand (see the Queensway Association case at p 963 and Report on Good Practice in Assessing and Registering Fair Rents at p 20).

47. Thirdly, it is important that the Committee has clearly in mind the purpose of section 70(2) and that they should direct themselves by reference to it.

48. Having regard to those agreed propositions of law, I turn now to the various matters raised under this ground of appeal. There is such an interconnection between them that it is not convenient to deal with each sub-ground of appeal as a self-contained entity.

49. It was submitted that the Committee failed to direct itself as to the purpose of section 70(2) and so failed to distinguish between scarcity flowing from the amenity value of the dwellings and their locality on the one hand and that arising from an excess of demand over supply due to housing shortage in a really large area on the other hand. Necessarily connected with that submission was the further submission that the Committee erred by taking such a small area as the London boroughs of Westminster, Camden and Kensington and Chelsea for the purposes of considering scarcity.

50. I was told of an alleged tendency of the Committee to take an increasingly smaller area when dealing with scarcity -- the area of Central London having been taken in the Northumberland and Durham ( No 3 ) case, five London boroughs having been taken in the case of Yeoman's Row Management Limited v The Chairman of the London Rent Assessment Committee [2002] EWHC 835 (Admin) consisting of the same three London boroughs as in this case together with Brent and Wandsworth and three London boroughs having been taken both in this case and in the decision relating to 29 Hatherley Grove.

51. I should say that the trend, if there is one at all, is not all one way because I was referred to the Committee's decision relating to 42 Hanover Gardens where the area of Greater London was taken for the reasons given in that decision.

52. Mr Gavaghan, however, submitted that there comes a point when reasons have to be given for taking such a small high amenity area because of the danger of the scarcity arising from the significant demand of people wanting to live in such a high amenity area of London.

53. Dealing with the purpose of the scarcity disregard, Mr Rodger suggested that the Committee had it well in mind, as could be seen from the quotation in paragraph 71 of the Finegold case referring to a really substantial area, the reference to a wider locality in paragraph 73(i), and the reference in paragraph 73(iii) to the need to have regard to the broader picture in respect of the locality for the purposes of scarcity, in accordance with the authorities, which it was said would be a reference to the Finegold and Curtis cases.

54. So far as the area taken by the Committee is concerned, Mr Rodger submitted that the Committee had explained how they arrived at it by reminding themselves of the purpose for which scarcity was relevant in the manner to which I have just referred. He also submitted that there was no issue before the Committee about the locality to be taken. No submission had been made that any particular area should be taken and there was, therefore, no obligation on the Committee to explain in detail why it considered that the three London boroughs were the appropriate area. I was told that the various postal areas mentioned in paragraph 47 of the decision letter covered by a computer printout produced by the appellant relating to available studio flats were all included within those three London boroughs.

55. I was referred to the Yeoman's Row Management Limited case where the Committee took five London boroughs as the locality for the purposes of scarcity and where Ouseley J held that there was no error in selecting that locality in the light of the submissions made to the Committee, the issue in that case being not so much the locality but the conclusions to be drawn from the evidence about scarcity within the locality.

56. I was also referred by Mr Rodger to the Curtis case where it was said by the Court of Appeal that a Committee's own knowledge and experience of the locality is of particular value when dealing with scarcity, a subject which is not amenable to the same precision of analysis as the assessment of a market rent.

57. I have to say that I am troubled by the way in which the Committee has taken such a small high amenity area as these three London boroughs in the absence of any real explanation for doing so and without any express acknowledgment that the purpose behind the scarcity disregard under section 70(2) gives rise to the need to distinguish between scarcity arising from the amenity value of the dwellings and their locality, as opposed to scarcity arising from an excess of demand over supply over a really large area.

58. There must, in my view, be a real danger of the scarcity element having at least as much to do with the former as the latter in the case of these three London boroughs. It may be that there is a good reason for taking that area derived from the Committee's knowledge and experience. It may be that reasons can be given for showing that the locality taken is sufficiently large so as not to be influenced by amenity considerations. However, in the absence of such reasons, I accept the submissions made by Mr Gavaghan to which I have referred.

59. I make it clear that I am acceding to those submissions solely on the basis of inadequate reasoning, not on the ground that the Committee erred in taking that locality for scarcity purposes because, as I have said, the Committee with its knowledge and experience of the area, may be able to give a reasoned explanation for selecting that particular locality.

60. In coming to that conclusion I am conscious that the Committee did refer to the words "a really substantial area" derived from the Finegold case, but in my judgment the Committee has to go further to explain why these three London boroughs are a really large area in the context of London so as not to be significantly affected by amenity considerations.

61. I am also conscious that the evidence before the Committee was not very specific as to the precise area that should be taken. In that respect, I can understand Mr Rodger seeking to rely on the Yeoman's Row Management Limited case, but in this case the area taken was smaller than in that case, and in this case Mr Walford did refer in his evidence to a survey of the Association of Residential Letting Agents published in March 2002 which stated that 98 per cent of letting agents in Central London have more rental homes than tenants. I understand that Mr Walford did not actually produce the survey and that the survey was not confined to studio flats. Those matters would affect the weight to be attached to the survey by the Committee, but it does give an indication that the area of Central London was being considered as relevant by the appellant.

62. That in turn leads me to another submission made by Mr Gavaghan which was that the Committee failed to consider properly the appellant's evidence and submissions relating to the speed and pattern of lettings. I do not consider that to be a fair criticism of the way in which the Committee dealt with the appellant's evidence relating to the letting of the flats in the same building. It is, however, right to say that the Committee did not deal with the appellant's evidence relating to the computer printout showing the availability of studio flats in an area wider than the "very immediate locality" of the subject properties referred to at paragraph 73(iii) of the decision letter, nor did the Committee deal with the survey of letting agents covering Central London to which I have just referred. Both of the those matters are referred to in paragraph 57 of the decision letter when summarising the appellant's case, but the Committee's decision only deals with the evidence relating to flats in the same building as the subject premises or their very immediate locality. To that extent, therefore, I consider there is force in the appellant's submission which is, in any event, indirectly connected to the issue of the area taken for the purposes of scarcity.

63. Finally, it was submitted that there was inadequate reasoning for the 20 per cent deduction for scarcity referred to in paragraph 74 of the decision letter and that the Committee wrongly took into account the 35 per cent deduction for scarcity in the decision relating to 29 Hatherley Grove. It was suggested that there should have been the kind of reasoning that was to be seen in the Committee's decision relating to 42 Hanover Gardens.

64. Mr Rodger submitted that the Committee was entitled to take into account the Hatherley Grove decision because it was relied on by the tenants. He reminded me that the quantification of the discount was not amenable to precise analysis and he submitted that the Committee had done enough in its explanation to go straight to a figure without claiming to make a statistical analysis.

65. In the same way as did Ouseley J in the Yeoman's Row Management Limited case, I accept the inherent imprecise nature of quantifying the deduction, and that it cannot be the subject of detailed analytical reasoning, but, as Richards J said in the Queensway Association case at p 979, with a high discount figure (25 per cent in that case) it is particularly important to spell out the reasoning in terms that enable one to see that the correct approach has been adopted. In this case, the only reasoning that is apparent from paragraph 74 of the decision letter for the 20 per cent discount is that there should be a lower discount than the 35 per cent suggested by the tenants derived from the Hatherley Grove decision.

66. I do not accept the submission that it is impermissible to have regard to the Hatherley Grove decision, but there must be some sort of reasoning to show how the 20 per cent figure is arrived at in the light of the evidence before the Committee. There is no knowing why a figure of 20 per cent was thought to be appropriate, rather than, for instance, a figure of 5 per cent or 10 per cent or any other figure. I therefore accept the submission that there is inadequate reasoning given for the 20 per cent deduction. The amount of the deduction may, of course, be affected by the area taken for the purposes of the scarcity exercise under section 70(2). There is therefore an interconnection between those two aspects.

67. My overall conclusion in relation to the sixth ground of appeal is that the Committee's reasoning for its decision relating to the scarcity issue under section 70(2) is deficient for the reasons that I have given.

68. In the light of that conclusion and in the light of my conclusions relating to ground 2 and ground 4(a) of the grounds of appeal, it follows that this appeal must be allowed. The decision will be quashed and remitted to a differently constituted Committee for re-determination.

69. MR GAVAGHAN: May I just thank your Lordship for giving judgment so quickly.

70. MR JUSTICE HARRISON: Thank you.

71. MR GAVAGHAN: May I ask for my client's costs to be assessed if not agreed.

72. MR JUSTICE HARRISON: Can you resist that, Mr Rodger?

73. MR RODGER: I cannot resist it in principle, but my learned friend was successful on three out of six grounds of appeal. Perhaps half of the time was taken in dealing with the grounds on which he was unsuccessful and your Lordship will recall that one of the grounds, which involved a certain amount of (inaudible) was not one which in the end my learned friend was successful.

74. My Lord, in those circumstances, I would invite your Lordship to award a proportion of the costs and I would suggest he should have 75 per cent of his costs.

75. MR JUSTICE HARRISON: Thank you, Mr Rodger. No, I think this is not the sort of case where it would be appropriate to apportion costs. The appellant has succeeded on a number of grounds of appeal and I think it is right that they should have their costs.

76. So the respondent will pay the costs, to be assessed if not agreed.

77. MR GAVAGHAN: My Lord, we make that application against the first respondent. We do not seek costs against the tenants.

78. MR JUSTICE HARRISON: Yes, you are quite right, against the first respondent. Thank you very much.

79. MR GAVAGHAN: My Lord, may I just ask for an interim payment? We have produced a summary schedule of costs. My learned friend's side's are £8,834. Ours are unfortunately significantly larger than that, on the condition of fee basis, my assistant and me, but there would be an insurance premium payment on top of our costs.

80. What I was going to ask for is £7,500 as an interim order.

81. MR JUSTICE HARRISON: What do you say about that, Mr Rodger?

82. MR RODGER: My Lord, I say nothing as to the amount, but once there is a detailed assessment, there would be no difficulty about paying. I am not sure that there is any established practice in relation to payment on account, as it were?

83. MR JUSTICE HARRISON: No. I am not aware of one either.

84. I see no reason to make an order for interim payment, Mr Gavaghan.

85. MR GAVAGHAN: My Lord, my understanding is that it is now quite common practice in these cases where there is to be an assessment. It is not that I am suggesting the defendants are not good for the money. It is a cashflow situation. My clients have been left out of pocket in terms of disbursements.

86. MR JUSTICE HARRISON: I am not minded to. I see no particular reason to in this case.

87. MR RODGER: My Lord, finally, I am instructed to seek permission to appeal.

88. MR JUSTICE HARRISON: Do you want to press any reasons upon me for why I should accede to that application.

89. MR RODGER: My Lord, I have instruction but no particular reason.

90. MR JUSTICE HARRISON: Thank you very much. I need not trouble you, Mr Gavagan. There being an application for leave to appeal with no reasons given to substantiate it, and I see no reason myself why there should be any grounds for granting leave to appeal, that application is refused.

91. Thank you both very much.