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Adam_Burrage_phThis technically interesting yet factually simple appeal raises questions about the valuation of a property in light of a council tenant’s strength of security of tenure and the measure of damages under the Housing Act 1988, s 28.

Background

Mr Loveridge, a council tenant in London, visited Ghana for an extended period in 2009. 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.

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); and
  1. That decrease in value was £90,500, according to Mr Loveridge’s valuer.

On an appeal brought by the Council, the Court of Appeal adjusted the award for statutory damages to nil (for the reasons set out below) and Mr Loveridge has subsequently appealed to the Supreme Court.

Court of Appeal decision

Pursuant to s 28 of the 1988 Act the measure of damages to be paid to an evicted tenant is not based on the tenant’s loss but in fact has as its foundation the profit accruing to the landlord due to the eviction. In the words of Lord Justice Briggs,

“Section 28 requires the statutory damages for unlawful eviction to be computed by reference to a comparison between the value of the landlord’s interest subject to the tenant’s rights, and the value of the landlord’s interest free of them.”[1]

Lord Justice Briggs disagreed with the trial judge’s analysis of the situation in so far as the latter’s assertion that “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”[2] was erroneous.

The trial judge felt that his approach was aligned with the aim of the 1988 Act aim (as identified in Jones v Miah [1992] 24 HLR 578) of

“entitling the person injured to recover by way of damages the profit which the [landlord] has made from his wrong.”

Lord Justice Briggs drew attention to the irrelevance of any potential restriction on the landlord to sell only to a private landlord. This point derives from the case of Tagro v Cafane [1991] 1 WLR 378, where the intermediate landlord’s restriction on alienation was irrelevant in considering the damages awarded to the undertenant. The key point, as highlighted by Lord Justice Briggs, is that the s 28(3) “valuation formula”, as he frames it, assumes that the landlord in default “has an unconstrained right to sell its interest in the open market.”

The Court of Appeal felt that a valuer should account for the inherent fragility of a secure tenancy such as that of Mr Loveridge, in as much that it is liable to being relegated to an assured tenancy if the purchaser is of a certain status (i.e. private). By developing that thought process further, the court noted that an open market sale (as required by s 28(3)) is likely to result in a private, rather than local authority, purchaser. The reason for this is that the price offered by the latter would be lower due to the depressing effect on the property’s value to a purchaser whose status would effectively lock-in Mr Loveridge’s secure tenancy. The hypothetical private purchaser would, by contrast, pay the same for the property if subject to an assured tenancy (weaker than secured due to the market rent point made above) as it would if it was sold with vacant possession. This theory works because the hypothetical sale would be agreed with the party offering the highest price.

The Court of Appeal’s conclusion is succinct and sharp – the trial judge erred in finding that a hypothetical valuation which takes account of the downgrading of Mr Loveridge’s interest from a secure tenancy to an assured one, ignores the s 28(1) requirement to make the assessment at the time immediately before the eviction. In other words the Court of Appeal found that at first instance the decision rather reflected Mr Loveridge’s interest in a vacuum, ignoring the true nature of his occupation.

The appeal was thus allowed. Statutory damages were reduced to nil (since, as explained above, a private purchaser would pay the same for the property if subject to an assured tenancy as it would if it was sold with vacant possession) and the agreed common law damages of £7,400 were substituted and added to the existing sum of £9,000 awarded in respect of interference with Mr Loveridge’s possessions.

Appeal to the Supreme Court

The appeal will be heard by the Supreme Court on 21 October 2014. It will be very interesting to see how the Court of Appeal’s construction is viewed. It seems, with the benefit of the concise judgment of Lord Justice Briggs, plain that when considering a tenant’s interest immediately before the eviction, the risk profile of that interest forms part of that consideration; i.e. the reality is that Mr Loveridge’s interest was not set in stone and it is possible that the downgrading would occur. Thus the open market sale price is likely higher, which reduces the quantum of damages.

Perhaps the Supreme Court will find favour in the trial judge’s more simplistic reading of s.28, supporting the valuation as a snapshot of the property with its attendant tenant’s rights and therefore consigning the potential demotion of Mr Loveridge’s interest to the “irrelevant” box.

The appeal is due to be heard by the Supreme Court on 21 October 2014.

[1] Per Briggs LJ at paragraph 3, [2013] EWCA Civ 494

[2] Paragraph 21, [2013] EWCA Civ 494