Judgments - R (On The Application of Heffernan) (Fc) V The Rent Service

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31.  Like my noble and learned friend Lord Rodger of Earlsferry, I was at the end of the hearing inclined to think that the appeal should be allowed. But further reflection, and in particular study of Lord Rodger’s opinion (which I have had had the advantage of reading in draft), have led me to the conclusion that the appeal should be dismissed, for the reasons set out in Lord Rodger’s opinion. I cannot usefully add to them.

LORD NEUBERGER OF ABBOTSBURY

My Lords,

32.  Section 130 (1) of the Social Security Contributions and Benefits Act 1992 entitles a person to receive housing benefit, if “he is liable to make payments in respect of a dwelling in Great Britain which he occupies as his home", and either he has no income, or his income is below a specified level. Section 122 of the Housing Act 1996 empowers the Secretary of State by order to require rent officers (who are employed by the Rent Service, an executive agency of the Department for Work and Pensions) to carry out functions in relation to housing benefit.

33.  This appeal concerns the meaning and effect of an Order made pursuant to section 122, namely the Rent Officers (Housing Benefit Functions) Order 1997 (1997 SI/1984), as amended by the Rent Officers (Housing Benefit Functions) (Amendment) Order 2001 (2001 SI/3561). This Order (“the 1997 order”) requires rent officers, on request, to determine, and, where appropriate, to re-determine, the maximum amount of housing benefit that a particular tenant should receive.

The 1997 order

34.  Part I of Schedule 1 to the 1997 Order (“the schedule”) requires a rent officer to carry out four assessments. First, by para 1, the rent officer has to determine “whether, in his opinion, the rent payable under the tenancy of the dwelling … is significantly higher than the rent which the landlord might reasonably have been expected to obtain under the tenancy…". In carrying out that exercise, the rent officer must, by virtue of para 1(3), “have regard to the level of rent under similar tenancies of similar dwellings in the vicinity". If the rent is found to be “significantly higher", then para 1(2) requires the rent officer to “determine the rent which the landlord might reasonably have been expected to obtain".

35.  The second task assigned to the rent officer is under para 2(1), which requires him to “determine whether the dwelling, at the relevant time, exceeds the size criteria for the occupiers". If it does exceed the size criteria, then he has to assess the rent which a landlord would obtain for a notional dwelling in the vicinity which accords with the size criteria. In such a case, the third and fourth tasks are then carried out by reference to this notional rent.

36.  Thirdly, para 3(1) requires the rent officer to “determine whether, in his opinion, the rent payable for the tenancy of the dwelling… is exceptionally high". Para 3(4) states that, when carrying out this exercise, the rent officer must:

“have regard to the levels of rent under assured tenancies of dwellings which -

a)  are in the same neighbourhood as the dwelling and or in as similar a locality as is reasonably practicable and;

b)  have the same number of bedrooms and rooms suitable for living in as the dwelling…”

By virtue of para 3(3), if the rent officer decides that the rent is exceptionally high, then he has to “determine the highest rent, which is not an exceptionally high rent and which a landlord might reasonably have been expected to obtain … for an assured tenancy of a dwelling which … is in the same neighbourhood as the dwelling", and which has the same number of bedrooms and living rooms as the dwelling.

37.  The fourth task for the rent officer is under para 4(1) which requires him to determine a “local reference rent” (“LRR”). This is defined as being half the aggregate of H and L, which are, respectively, “the highest rent” and “the lowest rent":

“in the rent officer’s opinion -

a)  which a landlord might reasonably have been expected to obtain, at the relevant time, for an assured tenancy of a dwelling which meets the criteria in sub-paragraph (2); and

b)  which is [neither an exceptionally high nor an exceptionally low rent].”

The criteria in para 4(2) are:

“a) that the dwelling under the assured tenancy -

(i) is in the same locality as the dwelling;

(ii) is in a reasonable state of repair; and

(iii) has the same number of bedrooms and rooms suitable for living in as the dwelling…".

38.  A person’s entitlement to housing benefit is then based on the rent payable for the dwelling, or, if lower, the lowest of the rents determined under the four paragraphs of the schedule.

39.  It will be noted that paras 1 to 4 of the Schedule refer variously to the “vicinity", the “neighbourhood", and the “locality". Until the amendments effected by the 2001 Order, the word used throughout the first four paragraphs of the Schedule was “locality", which was not defined. The amendments were effected following the decision in R (Saadat) v Rent Service [2002] HLR 613;[2001] EWCA 1559, in which the Court of Appeal had disapproved the working definition of “locality” in para 4 as adopted by rent officers.

40.  These amendments not only introduced the words “vicinity” and “neighbourhood” in addition to “locality"; they also provided definitions of all three expressions. Para 1(4) defines “vicinity” as meaning “the area immediately surrounding the dwelling", with a fallback provision if there is no other dwelling in the vicinity. By para 3(5) “neighbourhood” is defined as meaning:

“a) where the dwelling is in a town or city, that part of that town or city where the dwelling is located which is a distinct area of residential accommodation; or

b) where the dwelling is not in a town or city, the area surrounding the dwelling which is a distinct area of residential accommodation and where there are dwellings satisfying the description in sub-paragraph 4(b).”

41.  Of central relevance to the present appeal, is the definition of “locality", which is to be found in para 4(6) and it is in these terms:

“[L]ocality means an area -

a) comprising two or more neighbourhoods, including the neighbourhood where the dwelling is situated, each neighbourhood adjoining at least one other in the area;

b) within which a tenant of the dwelling could reasonably be expected to live having regard to facilities and services for the purposes of health, education, recreation, personal banking and shopping which are in or accessible from the neighbourhood of the dwelling, taking account of the distance of travel, by public and private transport, to and from facilities and services of the same type and similar standard; and

c) containing residential premises of a variety of types, and including such premises held on a variety of tenancies.”

42.  The Schedule reflects a balancing exercise which has to be carried out where a person claims housing benefit. On the one hand, it would be a waste of public funds to pay for accommodation which is inappropriately expensive or extensive for that person. On the other hand, it would be unduly harsh to require a radical deterioration in such a person’s residential circumstances. Sir Thomas Bingham MR said, in relation to predecessor regulations, in R v Housing Benefit Review Board for East Devon District Council, ex p Gibson & Gibson (1993) 25 HLR 487, 493:

“[T]his whole scheme is directed to mitigate the demand on public funds where recipients of Housing Benefit are paying rent above the market level or living in accommodation which is larger than reasonably necessary to meet their needs, or living in accommodation which is unreasonably expensive. The key to the operation of the reduction mechanism is the finding that recipients of housing benefit are paying a rent which is, for one reason or another, unreasonably high.

It is…plain that the procedure is designed to protect the public purse. But it is fair, I think, to infer that the procedure is not designed to produce homelessness, which would be the result if a beneficiary’s rent were restricted, so that he could not afford to stay where he was but was unable to find any other accommodation to which he could be expected to move at the level of rent payable.”

43.  Accordingly, the Schedule involves a graduated approach on the part of the rent officer. First, under para 1, he considers the rent payable for the actual dwelling, and decides whether it is “significantly higher” on the basis of rents payable within a relatively small area, namely the “vicinity". Secondly, he asks whether the dwelling is too large for the tenant, in which case he fixes a market rent for an appropriately sized dwelling in the vicinity. Thirdly, under para 3, he enquires whether the rent payable is “exceptionally high” by reference to similarly sized dwellings “in the same neighbourhood", a rather larger area than the vicinity. Finally, under para 4, he has to assess the LRR, and it is this paragraph which, although “a blunt instrument” (per Sedley LJ in Saadat [2001] EWCA 1559, para 10), most vividly encapsulates the balancing exercise. Bearing in mind rents paid in the “locality” for various types of property of the same size as the dwelling, the tenant should not be funded for living extravagantly (hence “L”), but he should not be expected to move to substantially less attractive accommodation (hence “H”). It is clear that the “locality” is larger than the “neighbourhood", not least because it must consist of at least two neighbourhoods.

The factual and procedural history

44.  Mr Daniel Heffernan, who is 51 years old, blind and registered with various physical and medical complaints, does not work and is dependent on welfare benefits. In March 2004, he was granted an assured (private sector) tenancy of a two-bedroom, one living-room apartment, together with a parking space, in Cavendish Street, central Sheffield, at a rent of £745 per month. In April 2004, he applied to Sheffield City Council for housing benefit in respect of the whole of the rent, and the Council referred the question of his maximum allowable housing benefit to the Rent Service. After four determinations, which are irrelevant for present purposes, there were two subsequent re-determinations.

45.  First, on 20 December 2004, the Rent Service through Mr Shaw re-determined (a) that the rent of £745 per month was not significantly higher than the reasonable rent for the apartment given its vicinity, (b) that the apartment complied with the relevant size criteria, (c) that the rent was not exceptionally high for the apartment in the context of the neighbourhood, but (d) that the LRR was £433.34 per month.

46.  A second re-determination was made on 25 May 2005, by which time the contractual rent had been reduced to £695 per month, because the parking space had been consensually removed from the tenancy. This re-determination was made by Mr Spedding, who came to the conclusions (a) that the rent of £695 per month was not significantly higher than the reasonable rent for the vicinity, (b) that the apartment complied with the relevant size criteria, (c) that the rent was not exceptionally high for the neighbourhood, but (d) that the LRR was £455 per month.

47.  The two re-determinations were each carried out on the basis that the “neighbourhood” of the apartment was “Sheffield Central", and the “locality” for assessing the LRR was “the whole of the city of Sheffield and some of its surroundings” (which I shall call “the Sheffield area”). This area is made up of a total of 13 neighbourhoods, including, of course, Sheffield Central. In each of the two re-determinations, the rent officer stated that he was proceeding on the basis that the meaning of “locality” was:

“a broad geographical area made up of a number of neighbourhoods with a mix of property types and tenure where a tenant could, as an alternative to the property in question, reasonably be expected to live and benefit from similar amenities".

This formula was taken from a circular (“the circular”), GA/18a/2001, distributed by the Rent Service to rent officers nationally in June 2001, after the amendments had been effected by the 2001 order. The circular repeated the guidance given to rent officers as to the meaning of “locality” in the 1997 order prior to its amendment by the 2001 order, on the basis that the effect of the amendments was to restore the law to what it had been understood to be before the decision in Saadat [2002] HLR 613.

48.  The sole relevant ground upon which Mr Heffernan sought judicial review of the two re-determinations was that it was impermissible to have taken the whole of the Sheffield area as the “locality” for the purpose of para 4(6). Mr Shaw put in no evidence to support his choice of that area as the relevant locality. However, in its evidence, the Rent Service relied on a brief three-page official description of the City of Sheffield. The Judge, His Honour Judge Gilbart QC, sitting as a Deputy High Court Judge, rejected this description as being of no significant help for present purposes, and, to my mind realistically, nobody has suggested otherwise.

49.  Much more significantly, Mr Spedding made a detailed witness statement, in which he sought to justify his choice of the Sheffield area as the “locality". Having “considered the nature and characteristics of the area", he said that he had concluded that “Sheffield and its rural hinterland [i.e. the Sheffield area] formed the suitable locality for the purposes of the LRR re-determination". He went on to state that the definition in para 4(6), “precludes the locality from being as small as merely the centre of Sheffield, as Sheffield Central formed the neighbourhood, and there is a requirement for the locality to comprise at least two neighbourhoods". He then said this (with sentence numbering added):

“(i) Likewise, I did not consider it correct in my professional judgment merely to include neighbourhoods immediately adjoining Sheffield Central in order to include an area which would afford the variety of property types and tenures that para 4(6) (c)…required.

(ii) I also considered in my professional judgment that the whole of the city of Sheffield and some of its surroundings formed a cohesive area in which a prospective tenant living in Sheffield Central could in fact exercise reasonable choice when looking for a home and within which he might reasonably be expected to live having regard to the factors identified [in para 4(6) (c)].

(iii) Access to services of the same type and similar standard throughout Sheffield is broadly the same, and travel times by both private and public transport allow cross-city travel for access to these services and facilities.

(iv) Although there are a number of locally named areas throughout the city, I concluded that there were only 13 distinct areas of residential accommodation within the locality, having regard to the definition of neighbourhood in para 3(5)(a)….

(v) I considered that the rural hinterland [was] an area within which the claimant could reasonably be expected to live having regard to the factors contained in para 4(6)(b)… relating to the facilities and services and distance of travel by public and private transport to those facilities and services including those within Sheffield itself.”

50.  It appears that, when performing their functions under the 1997 order, rent officers in Sheffield routinely tend to proceed on the basis that there are thirteen “neighbourhoods” in the Sheffield area and that they all form part of a single “locality". The Sheffield area extends to some 350sq km and its total population is in the region of 550,000. The thirteen neighbourhoods vary in size from about seven sq km to around 180 sq km, and in population from some 18,000 to over 65,000. Two of the neighbourhoods, namely Stocksbridge in the north-west and Bradfield to the west, are “predominantly rural and incorporate large swathes of the Peak District National Park to the west with open moor land, forests and reservoirs” and include “areas of agricultural land and a number of isolated villages", as well as containing “more urban centres". A third neighbourhood, Sharrow, to the south-west, extends to rural villages in the Peak District National Park, as well as to “the actual inner-city working-class residential area” within the city boundaries.

51.  On the basis of this evidence, the Judge quashed the two re-determinations; he considered that the two rent officers had each wrongly followed the guidance in the circular that “locality” involved a “broad geographical area", and had not properly examined each of the twelve neighbourhoods (in addition to Sheffield Central) to confirm that it complied with para 4(6) - [2006] EWHC 2478 (Admin), paras 75 and 78-80. The Court of Appeal allowed the Rent Service’s appeal: in a judgment given by Pill LJ, with which Rix and Longmore LJJ, agreed, they concluded that the view that the Sheffield area was the appropriate “locality” for the apartment was one which each of the rent officers was entitled to reach on the evidence - [2007] EWCA Civ 544, paras 35-38.

The correct interpretation of para 4(6)

52.  A number of questions concerning the interpretation of para 4(6), and in particular sub-para (b), require to be resolved. The interpretation of the Schedule presents difficulties, which is not surprising as the draftsman was faced with the task of laying down a formula which not only had to give effect to two competing and very different concerns, but which also could be applied to every dwelling in Great Britain. In the first sub-paragraphs of paras 1 to 4, he managed to identify four tolerably simple concepts, and to express them in clear terms. However, the identification of the exercises required by those paragraphs, above all para 4, was plainly more difficult, not least when it came to defining the “vicinity", “neighbourhood” and “locality” in the amendments made by the 2001 order. Much had to be left to the assessment and opinion of the particular rent officer carrying out the exercise, but consistency and predictability were obviously desirable.

53.  The definition of “locality” in para 4(6) must have presented real problems, and, as Pill LJ said, sub-para (b) in particular is “unclear and difficult to construe” - [2007] EWCA 544 at para 34. It is therefore particularly important to approach its interpretation bearing in mind not only its overall purpose, but also its immediate context. As to its purpose, it is an integral ingredient of the final of the four stages of a regime whose purpose was summarised by Sir Thomas Bingham MR in Gibson (1993) 25 HLR 487, 493. More particularly sub-para (b) is an attempt to complete the exercise of balancing the need not to over-subsidise a tenant against the desire not to over-penalise him, the exercise encapsulated in the formula in para 4(1). As to the context, para 4(2) makes it clear that the rent officer has to consider levels of rent over a wide range of types of dwelling and letting. There are only three limiting factors, namely size, locality and, not of much relevance for present purposes, state of repair.

54.  The first question concerns the inter-relationship of the three sub-paragraphs of para 4(6). The rent officer knows from sub-para (a) that he has to look at rents of premises in the neighbourhood of the dwelling plus at least one other contiguous neighbourhood, but he does not know from that sub-paragraph how many other neighbourhoods. However, passing from sub-para (a) to sub-para (c), what the rent officer does know is that his search has to come up with enough properties to satisfy the requirements of sub-para (c). Thus, detached, semi-detached and terraced houses, flats in purpose-built or converted buildings, dwellings with or without gardens, and dwellings subject to regulated, secure and assured tenancies are all to be considered.

55.  Once the rent officer has assembled enough neighbourhoods to satisfy, in his judgment, the requirements of sub-para (c), the language of para 4(6) appears to be open to three possible interpretations. The first is that the rent officer is at that point required to stop looking for, or including, any further neighbourhoods: he has identified the locality. The second possibility is that he is free, but not obliged, to increase the size of the locality by adding further neighbourhoods, provided, of course, that they satisfy sub-paras (a) and (b). The third possibility is that he is positively obliged to go on adding neighbourhoods, so long as he is satisfied that they satisfy sub-paras (a) and (b), until he is satisfied that there are no further such neighbourhoods to be found.

56.  All three interpretations could be justified in the light of the rather loose language of para 4(6), but I have reached the conclusion that the first is to be preferred. It is the interpretation which best fits the purpose of the Schedule, leads to the least unpredictability, and is the most easy to operate.

57.  The fact that sub-para (a) appears to give no guidance as to the maximum number of neighbourhoods to be included in the “locality” was a point which concerned Sedley LJ in Saadat [2002] HLR 613, paras 14-15 and the Judge in this case - [2006] EWHC 2478, para 36. However, as my noble and learned friend, Lord Hope of Craighead, observed in argument, on the first interpretation sub-paras (a) and (c) give rise to a control mechanism as to the maximum number of neighbourhoods to be included in the locality. Once the rent officer has identified a sufficient number of neighbourhoods to provide enough properties to satisfy sub-para (c) no further neighbourhoods are needed, or indeed appropriate, for inclusion in the locality. On this basis, the function of sub-para (b) is to ensure that any neighbourhood which might otherwise be added, in order to satisfy sub-paras (a) or (c), cannot be added if it falls foul of sub-para (b).

58.  At first sight, it may seem somewhat curious to approach para 4(6) by treating sub-paras (a) and (c) as the governing provisions, with sub-para (b) as a limiting provision. However, in my judgment, such an approach is justified once one looks more closely at the drafting. There is no doubt that, as a matter of language and layout, sub-paras (a), (b) and (c) each appear to refer to the “area” and hence to the “locality", as mentioned in the opening part of para 4(6). That is, indeed, the true meaning and effect of sub-paras (a) and (c). However, it seems to me that, by contrast, sub-para (b) refers to each “neighbourhood” in sub-para (a). As both counsel accepted in argument, if sub-para (b) referred to the “area", it would appear to be meaningless, as the dwelling itself must be in the area, and therefore ex hypothesi the locality would always satisfy sub-para (b), unless that sub-paragraph has to be satisfied in relation to every part of the locality, which would seem a little impractical. Hence, it does not seem inappropriate to treat sub-paras (a) and (c) as governing the number and purpose of the neighbourhoods to be included in the locality, and to treat sub-para (b) as excluding any neighbourhood which might otherwise be included, if it does not comply with that sub-paragraph’s requirements.

59.  This approach has the advantage of limiting the extent to which the identification of the locality is left to the judgment of the individual rent officer in a particular case. While the choice of the particular adjoining neighbourhood to be added will be a matter for him, there will be a limit to the number of neighbourhoods he can add: once he has enough properties to satisfy sub-para (c) he should stop. The notion that the identification involves less subjectivity than the rent officers in these two re-determinations seem to have assumed is consistent with the need for consistency and certainty. It is also supported by the absence of any reference to the rent officer’s opinion in para 4(6), which, as my noble and learned friend Lord Rodger of Earlsferry has pointed out, is in contrast to paras 1(1), 3(1) and 4(1). I agree with what Lord Hope says in connection with this point in paras 4 to 6.

60.  The second interpretation, which is favoured by Lord Rodger, does not require the rent officer to stop adding neighbourhoods once he has aggregated a sufficient number to satisfy the requirements of sub-para (c). At that point, it is a matter for him whether, and if so how far, to search for and add more neighbourhoods. On this basis, the only mandatory limitation on the number of neighbourhoods occurs when (or if) there are no further neighbourhoods which satisfy sub-paras (a) and (b). There is no guidance in para 4(6) or elsewhere in the schedule as to how a rent officer should decide whether, and if so on what basis, to add more neighbourhoods, once he has enough to satisfy sub-para (c). Once he had aggregated sufficient neighbourhoods to satisfy sub-para (c), a rent officer would not know whether he should add further neighbourhoods, and, if he was to add, when he should stop. Different rent officers would be entitled to take very different views.

 
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