UK Supreme Court Blog

EDITORS: Dan Tench, Emma Cross, Zainab Hodgson, Francesca Knight, James Warshaw and Natalie Haefner (CMS)
Hugh Tomlinson KC, Matthew Ryder KC, Dévante Gravesande-Smith and Rebecca Khan (Matrix)

Factual Background

The background to the case has previously been reported on the blog here.

In summary, Mr Loveridge was a council tenant in London under a secure tenancy. In 2009, he visited Ghana for an extended period. Two months after his departure, the Lambeth Borough Council forced entry to his flat for fear that he had passed away therein. Although that was not the case, the Council removed Mr Loveridge’s possessions and re-let the flat to a new tenant. As a result, Mr Loveridge sued the Council for damages.

Issue

In order to assess the potential damages owed to Mr Loveridge as a result of the unlawful eviction, two valuations must be made. Since the basis of the measure of damages is the amount of the gain which the landlord would otherwise have achieved by reason of the eviction, both valuations relate to the landlord’s reversionary interest at the time immediately prior to the unlawful eviction. The first is based on the residential occupier continuing to have the same right to occupy and the second is based on the occupier ceasing to have that right. The key issue in this case centres on whether the potential conversion of Mr Loveridge’s tenancy from a secure tenancy to an assured tenancy on a hypothetical sale of the reversion should be taken in to account in valuation. The point being that a reversionary interest subject to an assured tenancy is more valuable than one subject to a secure tenancy since the tenant in occupation possesses weaker security of tenure and hence the landlord is in a stronger position.

The statutory footing for the rules in this area is the Housing Act 1988. Ss 27 and 28 are most relevant to this scenario. The difficulty with this case arises from s 28(3)(a), which states that both valuations (mentioned above) are made on the basis that the landlord is selling his interest on the open market to a willing buyer. That willing buyer would likely be a private landlord, and as such on completion of the hypothetical sale the tenancies would, by virtue of s 1(1) 0f the 1988 Act, become assured tenancies. The private landlord could then legitimately raise rents to market level.

Appellate History

Mr Loveridge brought proceedings for unlawful eviction and, at the first instance, was awarded statutory damages of £90,500 on the basis that:

1. On a hypothetical sale of the reversion to a private purchaser, the tenant’s secure tenancy would be converted to an assured tenancy (attracting weaker security of tenure rights for the tenant largely due to the potential for demands for market rent);

2. Notwithstanding point 1 above the hypothetical purchaser should for valuation purposes, according to the trial judge, be deemed to take the reversion subject to a continuing secure tenancy;

3. Due to point 2 above, the value of that reversion is decreased (owing to the stronger security of tenure rights enjoyed by the tenant); an

4. That decrease in value was £90,500, according to Mr Loveridge’s valuer.

On an appeal brought by the Council, the Court of Appeal set aside the s.28 award and adjusted the damages to nil. Mr Loveridge subsequently appealed to the Supreme Court and the judgment was given on 3 December 2014.

Supreme Court Decision

The Supreme Court unanimously allowed the appeal. Lord Wilson gave the leading judgment, with which Lord Neuberger, Lord Sumption, Lord Carnwath and Lord Toulson agreed. Lord Wilson observed that the notional valuation exercise required by s 28(3)(a) of 1988 Act does not require adjustments to be made to the nature of the tenant’s rights which may arise following a sale of the reversion (depending on the category of purchaser). In fact s 28(1)(a) effectively forbids such adjustments since it speaks of the “same right” continuing.

In practical terms this means that the fact that on a sale of the reversion to a private landlord, a tenant’s right of occupation would be converted from a secure tenancy to an assured tenancy, is indeed a fact which is irrelevant. This is notwithstanding the fact that an open market sale of the reversion would likely be to a private landlord purchaser rather than to a local authority purchaser.

Lord Wilson noted “The assumption of a sale on the open market is ‘for the purposes of’ the valuations referred to in subsection (1), in which other assumptions are mandated, namely (a) that the tenant ‘continues to have the same right to occupy the premises’ as he had immediately prior to the eviction and, alternatively, (b) that he ‘has ceased to have that right’”. [1]

The order for damages made by HHJ Blunsdon was therefore restored.

Comment

This case highlights both the difficulty inherent in, and the importance of, correctly making an assessment on a hypothetical basis. Interestingly it is only when presented with a task such as making a hypothetical valuation pursuant to 1988 Act, that one really must stop and think about what is actually required, the point in time at which any assessment is to be made and most importantly, what factors are to be disregarded.

Lord Wilson hinted at the inherently synthetic and therefore somewhat troublesome nature of hypothetical scenarios in his judgment: “Within this highly artificial exercise, regard to the effect of one assumption is halted by the terms of another.” [2] He was referring to the effect of the assumption that the sale would be to a private landlord, and therefore Mr Loveridge’s interest would be downgraded, being halted by the assumption that the residential occupier continues to have the same right to occupy the premises as before that time.

The outcome of this case will instil confidence in local authority tenants that unlawful evictions will indeed lead to compensation calculated in accordance with the 1988 Act. Local authorities are now likely to pay even closer attention to the the proper handling of evictions in light of the potential financial ramifications of making an unlawful eviction. In essence the court has read the statute literally and has obediently followed through Parliament’s intention of compensating the wronged tenant by reference to the landlord’s hypothetical gain.

Perhaps the most important lesson here is that, to use the language from our Case Preview, sometimes assessing things in a vacuum is precisely what is required in order to comply with the rules prescribed by Parliament. The Court of Appeal felt that overlooking the likely downgrading of Mr Loveridge’s interest ignored the true nature of his occupation but in fact the task was just to produce two valuations reflecting the freeze-frame immediately pre-eviction and deduct one from the other. The Supreme Court has brought this complicated case to a close with refreshing simplicity.

[1] Paragraph 26, 2014 UKSC 65

[2] Paragraph 27, 2014 UKSC 65