Hughes v Borodex Ltd.  EWCA Civ 425
This was the Court of Appeal hearing of the appeal from the High Court decision on first appeal that we reported in March 2009. I won’t rehearse the facts, which are in the earlier post, but the issue was whether former long leaseholders who had ended up with an assured tenancy as a result of notice served under the Local Government and Housing Act 1989 should have improvements that they carried out during the period of the lease taken into account in determination of the rent level for the assured tenancy, set by the Rent Assessment Committee after the interim tenancy. The High Court had held that, on the phrasing of Schedule 10 of the 1989 Act, the improvements could not be taken into account, despite the apparent unfairness to the (former) leaseholder, as the improvements would have been taken into account had they been the assured tenant at the time they were made. The effect was to raise the rent level on the back of improvements that the tenant, not the landlord, had carried out – something of a windfall for the landlord.
On second appeal, both parties acknowledged that the issue was solely that of the interpretation of Schedule 10 paragraphs 9 and 11.
Mrs Hughes, via leading counsel Martin Rodger QC, argued that the effect of Schedule 10 as found by the Judge below was without precedent, as the disregard for improvements would only be for the first 12 months a new tenancy, after which the landlord could serve notice under s.13 Housing Act 1988 to increase the rent and the disregard would not apply. Further, this does not sit with the intention of the 1989 Act to enable tenancies subject to Part I of the 1954 Act to be replaced by assured tenancies. Also the approach both in the Rent Act 1977 and the 1954 Act was to disregard the tenant’s improvements done under the same or an earlier contractual tenancy. Mrs Hughes submitted that if it is possible to construe Schedule 10 to permit a fair and logical treatment of improvements, this construction should be preferred.
The argument from there was, in short, that paragraph 9 of Schedule 10 of the 1989 Act established a framework or principles for the life of the whole of the new assured tenancy, not just for the interim tenancy. After all, 9(e) refers to rent, not just initial rent. On this view, s.13 and 14 Housing Act 1988 should not apply where they clashed with paras 10 to 12 of Schedule 10 of the 1989 Act.
The Court of Appeal was having none of this:
The essential question is one of interpretation in accordance with well-established principle. I agree with Mr Rainey that it is not open to this court to adopt Mr Rodger’s interpretation on the basis that it is a permissible interpretation and that it should be preferred because it meets the objections which I have set out above to the omission of the protection of the disregard once the landlord is able to operate sections 13 and 14 of the HA 1988. As I see it, the effect of paragraphs 9 and 11 in their form and context in relation to rent is clear. They provide a means of fixing the initial rent. Their function is thus limited to that of enabling the rent to be fixed at the outset. Once the initial terms, including rent, are fixed, these paragraphs are spent, and it is open to the landlord to serve a notice and start the procedure for fixing a new rent, when he is entitled so to do, under the provisions of section 13 of the HA 1988.
Furthermore, it is in my judgment impossible to read sections 13 and 14 as providing for the assessment of rent on the principles laid down by paragraph 9(2)(e) of schedule 10 of the LGHA 1989. If that were the intention of Parliament, there would have been some indication of that inserted into in sections 13 and 14 of the HA 1988 at the time of the LGHA 1989. Sections 13 and 14 provide a complete code for the notices to which they apply and there is no warrant to read in a further principle deduced from schedule 10.
It is, moreover, unusual, though not unknown, for a statute to set out principles rather than operative provisions. One would expect it to be made clear that, or the extent to which, a particular provision laid down a principle and not an operative provision, and how that principle was to relate to other operative provisions. Here, if paragraph 9(2)(e) lays down an overriding principle, it contradicts the express provisions of section 14(3) of the HA 1988. I have already explained that it applies only to improvements which the tenant has carried out under the new assured tenancy or some previous assured tenancy. It also only applies to improvements carried out in the previous 21 years whereas a long residential tenancy may have been for a greater term of years than this and improvements may have been made at any time during that tenancy. The absence of guidance on such points in either the LGHA 1989 or the HA 1988 is, in my judgment, a strong indication that the interpretation urged on us by Mr Rodger is not correct.
Further, para 9 introduces a range of provisions in para 10 -12, It was either unclear how or impossible for some of those provisions to have the lasting effect ‘throughout the tenancy’ argued for by Mrs Hughes, but no distinction was made between them in the statute as might be expected if Mrs Hughes’ case on the effect of para 9 was what was Parliament intended.