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25/05/2014

How much is a secure tenancy worth?

London Borough of Lambeth v Loveridge [2013] EWCA Civ 494

We are appallingly late with this one, and have no excuse. But this case has just been given permission by the Supreme Court, so this is a good moment to make amends.

Mr L was the secure tenant of Lambeth. Lambeth unlawfully evicted him.  Mr L was on an extended visit abroad, Lambeth apparently didn’t know about it. The rent was paid but Lambeth decided Mr L might have died in the property and forced entry. Despite the total absence of a deceased Mr L, Lambeth cleared his belongings out of the flat and re-let it.  Mr L claimed for unlawful eviction and for wrongful disposal of his belongings.

At trial, it was agreed that damages for the lost belongings would be £9000. There was a further agreement, subject to liability on general damages of £7400 as a measure of actual loss. However, the issue of statutory damages under s.27 and s.28 of the Housing Act 1988 arose. It became common ground that those damages would be either £90,500 or nil, depending on construction of the statute. The parties valuers agreed £90,500 as

a purchaser of the block on the open market would pay as much for it with the property subject to Mr Loveridge’s rights, converted to those of an assured tenant upon sale to a private landlord, as would be paid if the block were offered with vacant possession of the property. In short, there was a buy to let market for the property, not merely an owner occupier market.

So, the issue was the construction of s.27 and s.28 HA 1988 damages. S.27(3) provides for statutory damages for unlawful eviction to be assessed as per s.28. S.28 provides:

(1) The basis for the assessment of damages referred to in section 27(3) above is the difference in value, determined as at the time immediately before the residential occupier ceased to occupy the premises in question as his residence, between—
(a) the value of the interest of the landlord in default determined on the assumption that the residential occupier continues to have the same right to occupy the premises as before that time; and
(b) the value of that interest determined on the assumption that the residential occupier has ceased to have that right.
(2) In relation to any premises, any reference in this section to the interest of the landlord in default is a reference to his interest in the building in which the premises in question are comprised (whether or not that building contains any other premises) together with its curtilage.
(3) For the purposes of the valuations referred to in subsection (1) above, it shall be assumed—
(a) that the landlord in default is selling his interest on the open market to a willing buyer;
(b) that neither the residential occupier nor any member of his family wishes to buy; and
(c) that it is unlawful to carry out any substantial development of any of the land in which the landlord’s interest subsists or to demolish the whole or part of any building on that land.

The measure of damages is the difference between the open market value of the property with the occupier in place and the market value without the occupier in place. What turned out to be more complicated was the meaning of a valuation determined on ‘the assumption that the residential occupier continues to have the same right to occupy the premises as before [the eviction]’.

At first instance, the Court was referred to three authorities.

Tagro v Cafane [1991] 1 WLR 378 established that actual constraints on an open sale by the landlord are of no relevance to the valuation process, such that although Lambeth would in actuality have faced great difficulties in selling, “those constraints are of no relevance to the application of the open market valuation formula set out in s.28(3). The valuation formula requires it to be assumed that the landlord in default (even if a local authority) has an unconstrained right to sell its interest on the open market.”

Melville v Bruton (1996) 29 HLR 319, sets out that

statutory damages are to be calculated by reference to a valuation based upon the actual realities affecting the premises, that there is no supervening requirement that all landlords in default are to be penalised by a substantial fine in excess of the profit, if any, derived from the unlawful eviction and that, in particular circumstances, the valuation may perfectly properly produce a nil outcome.

And then there was Osei-Bonsu v Wandsworth London Borough Council [1999] 1 All ER 265. In that case, Wandsworth had unlawfully evicted a joint tenant, in reliance on an invalid notice to quit given by the other joint tenant, his wife. While at first instance, statutory damages had been agreed at £30,000, Wandsworth appealed, arguing that the damages should be nil because of the precariousness of Mr O’s continued tenancy – subject to being ended at any moment by Mrs O, who clearly intended to. The Court of Appeal refused to allow Wandsworth to go back on agreed damages, but found that, had the point been open for Wandsworth to take:

“…have had a very considerable impact upon the damages. As at 18 June 1990, the respondent’s tenure was in the highest degree precarious, wholly dependent in law upon his wife not serving a valid notice to quit as she was clearly anxious to do. Even giving the respondent the benefit of all possible doubts as to the true extent to which his continuing rights in the property reduced its open market value, and recognising not least that he could undoubtedly have put the local authority to some expense and delay in securing the wife’s necessary further co-operation and obtaining and executing the necessary court order for possession, I would have assessed statutory damages here at no more than £2,000.”

And further, that the interest:

being valued is the interest of the landlord in default, not the abstract interest of a notional willing buyer. Although the concept of a willing buyer helps to fix the respective valuations, one postulates the landlord’s continuing ownership in fact.”

In that case, it was quite possible that the wife and the landlord would end Mr O’s tenancy before a sale. The sale did not have to be regarded as taking place at the point of the valuation.

At first instance, it appears that the Judge took this to mean that it had to be assumed that there would be no sale, as argued by Jan Luba QC for Mr L. The first instance decision was:

I refer back to s.28(1)(a). In this case the interest of the landlord in default before eviction was subject to a secure tenancy. The difference in value has to be determined as at the time immediately before eviction. I then read s.28(3) which defines by three assumptions the basis of the 2 valuations based on an assumed sale. However the sale is a fiction and to convert the secure tenancy to an assured tenancy for valuation purposes is to ignore the nature of the right to occupy the premises immediately before the eviction took place. Reading the section as a whole I conclude that the valuation under s.28(1)(a) requires no gloss or further assumptions. It requires a valuation of the Defendant’s interest before eviction by way of a hypothetical sale subject to the continuation of a secure tenancy notwithstanding that on sale that tenancy would become assured. This gives a purposeful meaning to the words “continues to have” and “same right” in s.28(1)(a) and “that right” in the following subsection. It determines the value of the interest of the landlord in default, “not the abstract interest of a notional willing buyer“. It also addresses the aim of the statutory provision as identified by Dillon LJ in Jones v Miah [1992] 24 HLR 578 “…of entitling the person injured to recover by way of damages from the landlord in default the profit which the latter has made from his wrong” page 587). Further it “postulates the landlord’s continuing ownership in fact” (Osei-Bonsu idem).

This meant the award of statutory damages of £90,500, being the valuation difference between the vacant property and the property with Mr L occupying as a secure tenant.

Lambeth appealed and the Court of Appeal overturned the first instance decision.

The valuation should not be conducted on the basis that the occupier’s right to occupy the property should be set in stone thereafter, immune from adverse change or operation of law. This was what Osei-Bonsu meant.

If there is anything which the landlord in default can lawfully do to mitigate the adverse effect of those rights upon an open market purchase that must be taken into account. Thus in the Osei-Bonsu case, the Court of Appeal would have expected the valuation (but for the parties’ agreement as to damages) to have taken into account the ability of the landlord in default lawfully to evict the occupier, with his wife’s consent, before making its open market sale.

By the same token, I consider that the valuer is equally obliged to take into account the inherent fragility of a secure tenancy to becoming downgraded by operation of law into an assured tenancy, on a sale of a local authority landlord’s interest to a private landlord purchaser. In the first example, the fragility of the occupier’s interest is assumed to be taken advantage of by the selling landlord in default. In the present case, the vulnerability of Mr Loveridge’s secure tenancy to becoming downgraded into an assured tenancy on an open market sale to the highest bidder is inherent in the nature of his rights. This is, in particular, because on an open market sale, the highest bidder is likely to be a private rather than local authority landlord due to the depressing effect upon the value of the block to anyone whose status means that Mr Loveridge would continue to be a secure tenant.

So, the valuation should have assumed that the difference would be between a vacant property and a property with Mr L as an assured tenant.

It was nothing to the point that the landlord had not sold the property and did not intend to do so. Open market valuation in other areas of property law did not involve an intention to sell as a requirement, but would still proceed on “the basis of a hypothetical open market sale, with all the consequences with which such a sale would bring about in relation to existing adverse interests or encumbrances”. So the landlord’s ‘continuing ownership in fact’ was not a key factor for the valuation (although that continued ownership would have meant Mr L remained as a secure tenant).

In my judgment the judge’s error was to conclude that a valuation which took full account of the conversion of Mr Loveridge’s rights on any sale from those of a secure tenant to those of an assured tenant was such as “to ignore the nature of the right to occupy the premises immediately before the eviction took place.” Mr Loveridge’s rights of occupation had, from the very grant of his secure tenancy, been vulnerable to being downgraded upon a sale by his local authority landlord to a private landlord. It was a vulnerability inherent in the nature of his rights. Similarly, nothing in the dictum relied upon by the judge from Osei-Bonsu that the valuation “postulates the landlord’s continuing ownership in fact” detracts from that analysis. The landlord in default is indeed the owner of the relevant interest to be valued at the date prescribed by s.28(1). It is nonetheless an interest to be valued by reference to the valuer’s assessment of the best price which it could reasonably be expected to obtain in the open market, on the specific assumptions set out in s.28.

The statutory damages, on this assessment, would be nil, as the valuation should have been on the basis of a private buyer and Mr L’s tenancy becoming an assured tenancy. The appeal succeeded.

As noted above, Mr L has permission to take the a case to the Supreme Court. The outcome will be significant, not just for unlawfully evicted secure tenants but for any tenant, public or private, seeking damages under s.27 and.s28, as the Court of Appeal’s version would mean that such damages would only be awarded in the most unusual circumstances (or where the unlawfully evicted tenant had a protected Rent Act tenancy).

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

9 Comments

  1. Jerry

    Thank you for writing this up Giles. Wow – don’t fall out with a wife or husband! We can expect a lot more LBS secure tenancies “becoming downgraded into an assured tenancy on an open market sale to the highest bidder”

    Reply
    • Giles Peaker

      Well, no. This is a conceptual exercise for the assessment of damages. The statutory hurdles for a council selling off stock to the private sector, let alone tenanted stock, are extremely high.You really can’t expect it to happen.

      Reply
  2. chief

    Isn’t the problem here for the claimant that the unchallenged valuation evidence was that a sitting assured tenancy would make no difference to the value? Surely anyone in a similar position just needs to ensure that their valuation evidence shows a difference between vacant possession and a sitting assured tenant, which shouldn’t be that hard.

    Reply
    • Giles Peaker

      True up to a point, but I suspect that in many areas, the reduction in valuation for a property with sitting assured tenant as opposed to a secure tenant will be significant. It is already the reason that s.28 damages for short hold assured tenants aren’t worth the candle.

      Reply
      • chief

        I agree – I’m sure there would be some difference between a sitting secure and a sitting assured, but it surely can’t be as much as £90.5k in a case like this. There must be some difference between vacant possession and a sitting assured tenant.

        Reply
  3. glenn Parker

    Quick query: As a Secure tenant Mr L has the Right to Buy. As an Assured Tenant would he retain the Preserved Righ to Buy? If so would this not affect the willingness of a Private landlord to pay top buck for the property?

    Reply
    • Giles Peaker

      Good point. Yes that should be factored in to a valuation. In this case it appears that the valuation for Mr L was done on the basis of him being a secure tenant and the position of him being an assured tenant perhaps not adequately considered.

      Reply
  4. chief

    Judgment coming from the Supreme Court this Wednesday (3rd December).

    Reply
  5. chief

    (Ex-)Tenant’s appeal allowed by the Supreme Court, although with an invitation to Parliament to change the law.

    Reply

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