23/02/2020

Conceptualising damages for housing conditions – they don’t add up.

We don’t often run ‘think-pieces’ (this may be too generous a description), at least not when unattached to new case law, but the ongoing transformation of ‘disrepair’ into ‘housing conditions’ claims has got me (and I know others who write here) thinking about how we (and the courts) have approached quantum for general damages in disrepair and how we (and the courts) could approach housing conditions claims. This is also in the context of shared ownership claims, as will become clear.

Our S did an excellent post on this issue back in 2015, after Moorjani v Durban Estate Limited (2015) EWCA Civ 1252, and this is very much on the back of that.

The basics

General damages will take two forms. The first, and probably least controversial, is that the tenant is not to be required to contribute towards the costs of the remedial works and, to the extent that there might be a contractual obligation to do so (e.g. by way of a service charge) damages need to be awarded: see Rendlesham Estates Plc v Barr Ltd [2014] EWHC 3968 (TCC), (2015) 1 WLR 3663 (a Defective Premises Act 1972 claim) and Daejan Properties Ltd v Griffin (2014) UKUT 0206 (LC) (a long leasehold service charge case).

The second element of general damages arises out of the loss of amenity. Here, the case law is much less clear. Many housing lawyers have got used to a shorthand of general damages on the basis of ‘distress, discomfort and inconvenience’, but this is only helpful insofar as it is a synonym for loss of amenity.

But how do we quantify a loss of amenity? Indeed, what is “amenity” in this context? If we go back to Hewitt v Rowlands (1924) 93 KB 1080, the principle in assessing damages was the difference in value to the tenant of the property in the condition it was in and the condition it should have been in had the landlord complied with his repairing obligations. Likewise, in  Calabar Properties v Stitcher (1984) 1 WLR 287 it was said that the award of damages was:

“so far as money can, to restore the tenant to the position he would have been in had there been no breach. This object will not be achieved by applying one set of rules to all cases regardless of the particular circumstances of the case. The facts of each case must be looked at carefully to see what damage the tenant has suffered and how he may be fairly compensated by a monetary award.”

That the basis for damages is loss of amenity is confirmed in Moorjani:

although the language of the Calabar and Wallace cases speak of discomfort, inconvenience and distress as if they were the very losses caused to the lessee by the lessor’s breach, the better view is that the loss consists in the impairment to the rights of amenity afforded to the lessee by the lease of which discomfort, inconvenience and distress (and even the deterioration of the health of a loved one) are only symptoms.

How has loss of amenity been quantified? Wallace and after.

Wallace v Manchester City Council (1998) 30 HLR 1111 was a social tenancy claim. It suggested three different ways of calculating loss of amenity (at least, where the tenant remained in occupation):

(a) an award for diminution in the value of the property to the tenant calculated by reference to a proportion of the rent payable;

(b) a global assessment of discomfort and inconvenience suffered without any reference to the rent payable; or,

(c) a combination of an award for diminution in value calculated as a percentage of the rent payable and a separate sum for discomfort and inconvenience.

All three approaches were permissible, but if the “global” approach is used then it should be cross-checked against the rent payable for the period of the disrepair.

(We note in passing that the so-called Wallace tariff was no such thing. It was not a finding of the court. But lawyers being what they are, I suppose the ossification of the scales discussed in Wallace into a (temporarily) useful tariff for the mapping of quantum in social tenancy disrepair claims was inevitable.)

But the key takeaways from Wallace for our purposes are that a) what we are dealing with is loss of amenity, and b) there is no fixed attachment to the rent level.

English Churches v Shine (2004) EWCA Civ 434, however, seemed to tie the assessment of quantum rather more certainly to the rent level (frankly to some degree in reaction to the ossified ‘Wallace tariff’):

104 Whilst we accept that the guidelines helpfully set out by Morritt LJ in Wallace v Manchester City Council are not to be applied in a mechanistic or dogmatic way, and whilst we equally accept that there will be cases in which the level of distress or inconvenience experienced by a tenant may require an award in excess of the level of rental payable, we take the view that the plain inference of Morritt LJ’s judgment, and the figures identified in the case itself, demonstrate that if an award of damages for stress and inconvenience arising from a landlord’s breach of the implied covenant to repair is to exceed the level of the rental payable, clear reasons need to be given by the court for taking that course, and the facts of the case – notably the conduct of the landlord – must warrant such an award.

105 It must, we think, always be remembered that an award of damages under LTA 1985 section 11 is an award for a breach of contract by the landlord, not for a tort committed by the landlord. It is, accordingly in our judgment logical that the calculation of the award of damages for stress and inconvenience should be related to the fact that the tenant is not getting proper value for the rent, which is being paid for defective premises. Moreover, the reason for the awards being modest is, it seems to us, related to the fact that the tenant in a secure weekly tenancy has the benefit of occupying premises at a rent, which is well below that which the same premises would be likely to command in the open market.

But it is important to note that it is still possible for damages to exceed 100% of the rent. That must mean that rental levels cannot invariably be the correct basis for assessment of damages. And that itself must be correct because, as we mentioned earlier, what is being compensated is the “loss of amenity”.

But then there was Earle v Charalambous (2006) EWCA Civ 1090. This was a long leaseholder disrepair case. The Court of Appeal, faced with a low annual ground rent, found that the actual rent was not the appropriate measure. The Court emphasised that the levels of damages awarded to rental tenants are of little assistance when assessing the position of a long leaseholder. This is because the leasehold interest not only provides him with a home but also a significant property asset,. So, the Court of Appeal went via Electricity Supply Nominees Ltd v National Magazine (1999) 1 EGLR 130, citing:

“… unless the contrary was conceded, it is not clear why the concept of quantifying the value to a lessee of quiet enjoyment (with all the attendant amenities and standards of comfort to which she was contractually entitled) in terms of a weekly, monthly or annual sum of money to which rack-rental values would be at least a guide, should be treated as equating the premises exclusively with ‘marketable assets’. In an open market rack rents are evidence not only of the return available to investors but also of the value that prospective tenants attach to that enjoyment…” (p 133F)

The upshot was that the appropriate benchmark was a notional open market rental value.

Diminution in market value is a familiar basis for assessing damages for wrongs affecting property. That carries no implication that there is to be an actual sale. An assumed sale in the open market is used as a method of arriving at an objective test of value. The assumed sale is of course “fictional”. But that element of fiction has never been regarded as open to objection, let alone “absurd”, either in principle, or because it may lead into a “complicated underworld” which expert valuers are supposed to inhabit. Where the loss of value is temporary, then rental rather than capital value is an appropriate yardstick.

So, for long leaseholds, the assessment was against not the actual rent, but a notional (even if practically impossible) open market rental value, as the loss of amenity and therefore value of the property was temporary, rather than permanent.

The take away from this is that loss of amenity is a loss of value in the property and that this is not tied to actual rent, or capital value necessarily.

Earle, however, gives rise to two (as yet unanswered) questions. First, in both Earle and Moorjani, a discount was applied to the damages to reflect a period of time when the tenant was absent. Now, if we are valuing loss of amenity then I can see the force of that. But if we are valuing loss of rental value then the location of the tenant is irrelevant to that question.

Secondly, how “fictional” is the valuation? What if the lease contains an absolute prohibition on sub-letting? Does that matter when trying to ascertain the notional open market rental value? If we are measuring a loss of amenity then I suspect not. But it is hard to see how a legal restriction on the ability to rent the property would be irrelevant to a market rent assessment.

Is this coherent?

The simple answer is no. Where we seem to have ended up, via Shine and Earle is that for ‘short’ tenancies, the measure of damages is a proportion of the actual rent, whereas for long leases, the measure of damages is a hypothetical (albeit with comparators) notional open market short tenancy rent, regardless of whether the property ever would, or could, have been let.

The consequence is that for three identical properties, with identical defects, but under different tenures, the measure of quantum is:

  • Social rent tenancy – proportion of actual social rent
  • Private rent tenancy – proportion of actual private rent
  • Long lease (regardless of landlord) – proportion of hypothetical open market rent

Three tenures of identical properties, suffering the same defects, the same loss of amenity, but resulting in very different levels of quantum.

And then what of shared ownership? The first problem here is that, despite the best efforts of shared ownership marketing teams, it is important to remember that a shared ownership lease granted by a housing association or private body is, in law, an assured (or sometimes assured shorthold) tenancy, albeit for a very long period of time: Richardson v Midland Heart Ltd (2008) L. & T.R. 31. The tenant “owns” nothing unless and until she has staircased to 100% (at which stage she owns a full long lease).

There are no decided cases on assessment of quantum on a shared ownership disrepair (or section 1 Defective Premises Act 1972) claim. Believe me, I would know. I’ve been running quite a few and they have all settled. But there we have a long lease, which is also an assured tenancy with a monthly rent (albeit a rent notionally discounted by the percentage ‘share’ purchased). The argument in Wallace that low damages – based on a social rent – are somehow justified because the tenant has the benefit of occupation at a lower rent can’t apply to shared ownership. Not only are the rent levels not that low, they are only lowered by the degree of capital investment into a long lease that was the basis for the ‘notional open market rent’ valuation in Earle.

I’ve rather come to think that conceptualising the basis for general damages in shared ownership claims highlights the incoherence of what has by and large been accepted as the current means of assessing quantum.

Towards a conclusion

The approach to social rents in Shine is somewhat incoherent in its own terms. If it is possible for an award to be greater than 100% of rent (and on the basis of the landlord’s conduct, no less) then the argument in the same judgment that it is effectively purely a contractual claim and not tortious does not fit. And conceiving of it as a contractual claim pure and simple is effectively to cast the damages as a ‘rent rebate’, when all the previous authorities (including Wallace), and the subsequent ones such as Earle and Moorjani, have made clear it is no such thing.

It is loss of amenity/loss of enjoyment for which damages are awarded. I can see no basis for arguing that the loss of amenity suffered by the tenant would be different in identical properties with identical defects based solely on the nature of their tenure. Any attempt to do so seems to me to end inevitably in meaning that social tenants should expect worse conditions because they pay less rent/didn’t pay a premium.

If it is accepted that the loss of amenity and enjoyment of the property is not tenure specific, then the means of conceptualising the value of that loss of amenity should be the same.

As per Earle citing Electricity Supply Nominees, the potential rack rent – the notional open market rental value is arguably the objective “value that prospective tenants attach to that enjoyment” (of the property). This should be the case regardless of the happenstance of actual tenure or actual rent.

In some cases, the notional open market rent and the actual rent will coincide, particularly with private sector tenancies (though not always even in those cases). In others not. But the principle is the valuation of the loss of amenity/enjoyment, and as a measure, what a prospective tenant on the open market would be prepared to pay for enjoyment of the property (without the defects) is the most objective measure we currently have.

As claims for lack of fitness under section 9A Landlord & Tenant Act 1985 (via the Homes (Fitness for Human Habitation) Act 2018) begin to come through, the issue of the valuation of damages will again be live, outside of the habits and traditions of valuing section 11 L&TA 1985 claims. Might I suggest that this is a good moment to re-conceptualise and re-argue damages for loss of amenity.

Views and discussion welcome….

 

 

 

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.

12 Comments

  1. peter mengerink

    just to let you know that a lot of the links lead to your webmail login page.

    Reply
  2. Jonathan

    Just a thought – could exemplary damages also come into play where a property has say Cat 1 hazards which the landlord knows about (eg having been given an improvement notice) and the notice has not been complied with, given that non compliance with an improvement notice is an offence?

    Reply
    • Giles Peaker

      Exemplary damages are only available for tortious acts, alas.

      Reply
  3. Jonathan

    Yes, sorry getting a bit ahead of myself. Was thinking of a case where nuisance was pleaded where sewage was coming into a tenant’s back yard from a neighbouring property owned by the same landlord (amongst other s11 defects)

    Reply
  4. Joe Buchan

    Relating this to 1980 Limitation Act. If there is a claim landlord not keeping wall in good and substantial repair then expect 12 year limit applies. However is any consequential damage, e.g to kitchen classes as a Tort and 6 year limit applied.

    Reply
    • Giles Peaker

      No, afraid that is not right. 6 year limitation on a claim (unless on a long lease, where it is 12 years as an action on a deed). Consequential damage is not a tort.

      Reply
  5. Joseph Buchan

    Can consequential damage be claimed when it is not covered by lease covenants. If so, under what law can it be claimed ?

    Many thanks for your prompt and clear response.

    Reply
    • Giles Peaker

      Of course they can, as special damages occasioned by the breach of tenancy obligation. Can I suggest some further reading on the topic? There are plenty of disrepair cases on this site. With all due respect, I’m not here to explain the basics.

      Reply
  6. Joseph Buchan

    Thank you for your prompt and clear reply.
    I do quite a bit of reading and have found, even from solicitors varying views.
    I do appreciate you giving time to share your knowledge and experience. It is valued.

    Reply
    • Giles Peaker

      Joseph, I very much doubt you have found varying views from solicitors. I think you might have misunderstood what exactly the solicitors were talking about.

      Reply
  7. Joe Buchan

    Point taken. I will in future seek to be more diligent. Apologies and thanks again for your generousity.

    Reply

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