FOURTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 78031/01 by Spath Holme Ltd. against the United Kingdom

The European Court of Human Rights (Fourth Section) , sitting on 14 May 2002 as a Chamber composed of

Mr M. Pellonpää , President ,

Sir Nicolas Bratza , Mr A. Pastor Ridruejo , Mr J. Makarczyk , Mrs V. Strážnická , Mr R. Maruste , Mr S. Pavlovschi , judges , and Mr M. O’Boyle , Section Registrar ,

Having regard to the above application lodged on 4 June 2001 and registered on 19 December 2001,

Having regard to the application form and further observations submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

The applicant is a corporate body registered in England and Wales. It is represented by before the Court by Willan Bootland White solicitors of Manchester.

A. The circumstances of the case

The applicant is the freehold owner of a purpose-built block of flats, which it constructed in 1963 in Manchester. Twelve of the flats are regulated by the Rent Act 1977 (see below).

B. Relevant domestic law

The current system of rent control in the United Kingdom dates back to 1915. Early provisions intended to protect tenants from high rents had the effect of reducing the amount of accommodation available for private letting, with the result that a series of Rent Acts, culminating in the Rent Act 1977 (“the 1977 Act”) were passed in an attempt to revitalise the market by way of a system of “fair rents” calculated in accordance with statutory criteria. In default of agreement of a “fair rent” by the parties to a regulated tenancy agreement, a rent assessment is carried out, in the first instance, by rent officers, who do not need to give reasons for their decisions. An appeal lies first to rent assessment committees, who give written reasons upon request, and thereafter on a point of law to the High Court. Once a “fair rent” has been assessed by a rent officer or rent assessment committee, it will be registered  and constitutes the maximum recoverable rent for the regulated tenancy concerned. No application for registration of a different rent may be made for a further two years.

However, the absence of an open market in private letting following the 1977 A              ct , combined with a period of high inflation, had the effect that “fair rents” as set by rent officers and rent assessment committees lost pace with inflation, to the disadvantage of landlords. The Housing Act 1988 (“the 1988 Act”) sought to stimulate the market by creating assured and assured- shorthold tenancies, at rents to be negotiated between individual landlords and their tenants. Regulated tenancies under the 1977 Act continued to exist, but no new regulated tenancies were to come into existence. The number of such tenancies steady fell from around fifty-nine per cent of private tenancies in the United Kingdom in 1988 to approximately ten per cent in 1998/9.

The creation of an open market provided rent officers and rent assessment committees with a new comparator on which to rely when calculating “fair rents” under the 1977 Act. However, regional variations arose in the weight given to open market rents when calculating “fair rents”, with the result that in some areas, including Manchester, the gap between registered “fair rents” and open market rents increased to the point where the former were at a level of about half the latter. This led landlords in those areas to challenge the “fair rent” assessments concerned and, in 1995 (in the case of Spath Holme Ltd v. The Greater Manchester & Lancashire Rent Assessment Committee [1995] 28 HLR 107) and again in 1997 (in the case of Curtis v. London Rent Assessment Committee [1999] QB 92), the Court of Appeal held that market rents should be awarded greater weight when calculating “fair rent” in those areas. A consequence of these decisions was that tenants whose rents had previously been registered at levels well below the open market level suffered very sharp and unexpected rent increases.

The Government issued a consultation paper entitled “Limiting Fair Rent Increases” in May 1998 setting out various options as to how to address this new problem. Following public consultation in which a number of landlords’ organisations, as well as individual landlords, made representations, the Government adopted the option most favourable to tenants, namely the making of an order (the Rent Acts (Maximum Fair Rent) Order 1999 (“the Order”)) applying a maximum index-linked limit to most increases in “fair rents” registered under the 1977 Act (the exception applying in cases where rental value had increased significantly due to works carried out by the landlord). The effect of the Order was to cap increases in “fair rents” at a level between 5 and 7.5 per cent above inflation.

The Order was made under section 31 of the Landlord and Tenant Act 1985 (“the 1985 Act”), sub-section (1) of which states:

“The Secretary of State may by order provide for-

(a) restricting or preventing increases of rent for dwellings which would otherwise take place, or

(b) restricting the amount of rent which would otherwise be payable on new lettings of dwellings;

and may so provide either generally or in relation to any specified description of dwelling.”

The applicant sought judicial review of the Order on grounds, inter alia , that it was ultra vires as ( i ) being beyond the purposes for which the enabling power under the 1985 Act had been intended; (ii) having failed to take account of all relevant considerations; and (iii) being unreasonable and disproportionate. The Court of Appeal granted judicial review on the first ground only and thus declared the Order ultra vires ( R v. Secretary of State for the Environment, Transport and the Regions ex parte Spath Holme Ltd [2000] 3 WLR 141). The Secretary of State’s appeal was allowed by the House of Lords, which found the Order to have been made in proper exercise of the powers conferred by the 1985 Act ([2001] 2 WLR 15).

Lord Bingham of Cornhill , delivering the leading judgment in the House of Lords, stated:

“I do not find, studying the language of section 31, that it is in any way ambiguous or obscure, or such as to lead to absurdity if given its full apparent effect. But Mr Bonney [counsel for the applicant] is correct in his submission that the language is, on its face, very broad. It applies to lettings of dwellings of every kind, no matter who is the landlord or what the nature of the tenancy ... ; it places no limit on the restrictions which the minister may impose on rental payments; it provides only for annulment on negative resolution; and it gives no indication of the circumstances in which Parliament contemplated that the order-making power should be exercisable. One learns only, from the sidenote and the reference in section 32(3), that this is a reserve power, which indicates that it is not a power to be exercised very readily or routinely. ...

I have no doubt that clear and unambiguous words should be used if the citizen is to be deprived of his property without compensation and any reasonable doubt should be resolved in his favour. But a power to restrict or prevent increases of rent which would otherwise take place or restrict the amount of rent which would otherwise be payable on a new letting must of necessity deprive the landlord of rent which he would, but for the minister’s order, receive. The words used are capable of no other construction. ...

Any measure restricting rents, or prices or charges of any kind, must have the effect of depriving the recipient of what he would otherwise receive, but the European Court of Human Rights has respected the need for national authorities to strike a balance between the rights of individuals and the general interest of the community. This would appear to be such an instance. ...

Landlords did indeed have strongly arguable grounds for resisting the government’s proposal, but it cannot be said that their interests were ignored. In the annex to the consultation paper the object of the proposed measure was said to be “to slow down the rate at which fair rents are increasing for tenants but nevertheless to ensure that there is no disproportionate impact on landlords”. Under the heading “Issues for equity or fairness”, the question was posed “is it fair to landlords to change the fair rent system which was left intact when the Housing Act 1988 was introduced and which they would not have expected to be changed subsequently”. Having posed the question it cannot be thought that ministers ignored the landlords’ answer, disappointed though landlords may be that it was not given greater weight.

Some of the ministerial statements on this subject could have been more felicitously expressed. But the problem of sharp and unexpected rent increases had indeed arisen despite the fair rent regime, since that regime had been in force throughout and the increases would not have occurred had it been faithfully implemented in all areas from the beginning. Ministers did not suggest that the Court of Appeal decisions which had brought the reluctant rent officers and rent assessment committees into line had not given true effect to the fair rent legislation, nor that the general law should be changed. But it was the case that what ministers considered a serious social problem had arisen, even if it should not have arisen, and their observations are readily understandable in that context. I see nothing to suggest that the ministers had misconceived the source of the problem. ...

It is an enduring and intractable problem of social policy that those who need relief cannot always be helped without giving relief to those that do not need it. Housing benefit is means-tested, and the allocation of public resources is a matter for ministers, not courts. The hardship which the order imposed on landlords was a very relevant consideration, but it was for ministers to judge where the balance between the competing interests of landlords and tenants should be struck. It was not unreasonable to provide that the maximum recoverable rents should be the rents registered. The timing and scope of the Order were matters on which the ministers had to form a judgment, and their judgment cannot be stigmatised as perverse. There was no breach of the European Convention: the European Court of Human Rights has recognised the need for a wide measure of discretion in the implementation of policy in this field, as shown by Mellacher v. Austria (1989) ... . Any actions the ministers took, or any failure by the ministers to take action, were bound to be bitterly resented by those who were disadvantaged as a result. That does not mean that the action which the ministers did take in making the Order was unreasonable, unfair or disproportionate, disadvantageous to landlords though it certainly was.”

COMPLAINTS

The applicant complains about the capping of fair rents effected by the Order. In particular, it alleges that the Order interfered with its possessions contrary to Article 1 of Protocol No. 1 in that it was not properly founded in law, did not pursue a legitimate aim and was disproportionate. The applicant also complains under Article 14 of the Convention that it has been discriminated against because the Order does not apply to regulated tenancies whose rents are unregistered, nor to unregistered tenancies. It complains under Article 6 § 1 that the Court of Appeal’s decisions in the above-mentioned cases of Spath Holme Ltd v. The Greater Manchester & Lancashire Rent Assessment Committee and Curtis v. London Rent Assessment Committee were deprived of any practical effect by the Order. It also invokes Article 13.

THE LAW

1. Article 1 of Protocol No. 1

Article 1 of Protocol No. 1 provides as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Court notes that the Order, the underlying legality of which for domestic law purposes has been confirmed by the House of Lords, prospectively removes any entitlement of the applicant to uncapped rents. Any legitimate expectation created by the 1977 Act and the above-mentioned Court of Appeal decisions to such rents thus ceased to exist as from 1 February 1999, when the Order entered into force. The Court therefore concludes that any lost rent following the Order was not a “possession” for the purposes of Article 1 of Protocol No.1.

The Court notes also that the Order amounts neither to a formal nor to a de facto expropriation. There was no transfer of the applicant’s property and the applicant has not been deprived of its right to let or sell its property.

However, the Court recognises that the Order deprives the applicant of part of its income from its property and does thus constitute a “control of use” for the purposes of the second paragraph of that Article (see Mellacher and Others v. Austria, Series A no.169, judgment of 19 December 1989, § 44).

The Court observes that the “control of use” was provided for by law since, as the House of Lords confirmed, it was effected pursuant to powers contained in an Act of Parliament. The House of Lords found that, although the wording of the section 31 power was “very broad”, it was in no way “ambiguous or obscure”. The intent behind the power was also clear, namely “to protect tenants from the hardship caused by increased or excessive rents”. The Court considers that such an intent clearly represents a legitimate aim of social policy, the regulation of which cannot entirely be left to the play of market forces (see the James and Others v. the United Kingdom judgment of 21 February 1986, Series A no. 98, § 47).

As to proportionality, the Court notes that the concerns which eventually led to the making of the Order were set out in the consultation paper entitled “Limiting Fair Rent Increases”, published in May 1998. The Order was made only following a consultation exercise lasting some months, which allowed all concerned to voice their views. The House of Lords found that landlords’ interests had by no means been ignored in the course of the consultation exercise.

The Court notes further that, although the Order leaves some “fair rents” well below market levels without any immediate prospect of making up the difference, it does allow rent increases up to a reasonable level above inflation.

Bearing in mind the wide margin of appreciation afforded to States in determining the existence of social problems, particularly those of a housing nature, and ways for remedying them (see the above-mentioned Mellacher case, § 45), the Court concludes that the effects of the Order were in no way disproportionate.

It follows that this part of the application is inadmissible as being manifestly ill-founded within the meaning of Article 35 § 3 and must be rejected pursuant to Article 35 § 4 of the Convention.

2. Article 6 § 1 of the Convention

Article 6 § 1 provides as follows (as relevant):

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by [a] ... tribunal...”

The Court notes that the applicant’s Article 6 § 1 complaint does not relate to the fairness of the domestic civil proceedings challenging the Order. Rather, the complaint is that the above-mentioned Court of Appeal decisions of 1995 and 1997 were deprived of any practical effect by the Order.

The Court considers that although the execution of judgment forms an integral part of the “trial” for the purposes of Article 6 § 1, that Article does not prevent States from legislating so as to reverse prospectively the effect of domestic court decisions in proper exercise of Parliamentary sovereignty. There is no indication that the Order in any way prevented enforcement of the judgment obtained by the applicant in the Court of Appeal in 1995, which related to an assessment of rent at individual properties. In contrast, the Order operated only so as to cap future rent increases.

It follows that this part of the application is inadmissible as being manifestly ill-founded within the meaning of Article 35 § 3 and must be rejected pursuant to Article 35 § 4 of the Convention.

3. Article 14 of the Convention

Article 14 provides as follows:

“The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

The Court recalls that Article 14 does not forbid every difference in treatment in the exercise of the rights and freedoms recognised by the Convention. It safeguards persons (including legal persons) who are “placed in analogous situations” against discriminatory differences in treatment. For the purposes of Article 14, a difference in treatment is discriminatory if it “has no objective and reasonable justification”, that is, if it does not pursue a legitimate aim or if there is no reasonable relationship of proportionality between the means employed and the aim sought to be realised. Furthermore, States enjoy a certain margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment in law. The scope of this margin will vary according to the circumstances, the subject-matter and its background (see, amongst other authorities, Lithgow and Others v. the United Kingdom, judgment of 8 July 1986, Series A No. 102, § 177)

The Court considers that the position of a landlord of a regulated tenancy agreement cannot be equated with that of a landlord of an assured tenancy since the latter regime was introduced more recently than the 1977 Act in order to reintroduce a free market element into the private rented sector whilst specifically retaining an entirely separate regulated element.

As to the difference between registered and unregistered regulated tenancies, given that both are governed by the “fair rent” requirement under the 1977 Act it would appear that the rents agreed by landlords and tenants at unregistered properties will inevitably follow quite closely those assessed at registered properties. Wherever a landlord of an unregistered regulated tenancy attempts to impose a rent level above a “fair rent”, well-advised tenants will apply for a “fair rent” assessment and registration. The Court therefore considers that there is no material difference in treatment between the two classes of regulated tenancy for the purposes of Article 14.

Even in the absence of these considerations, the Court concludes that any differences in treatment between the relevant classes of tenancy would have objective and reasonable justification for the reasons cited in relation to Article 1 of Protocol No. 1 (see also the above-mentioned James and Others case, § 76).

It follows that this part of the application is inadmissible as being manifestly ill-founded within the meaning of Article 35 § 3 and must be rejected in accordance with Article 35 § 4 of the Convention.

4. Article 13 of the Convention

Article 13 provides:

“Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity.”

According to the Court’s case-law, Article 13 applies only where an individual has an “arguable claim” to be the victim of a violation of a Convention right (see the Boyle and Rice v. the United Kingdom judgment of 27 April 1988, Series A No. 131, § 52).

The Court has above found that the applicant’s complaints under Articles 6 and 14 of the Convention and Article 1 of Protocol No. 1 are manifestly ill-founded. For similar reasons, the applicant did not have an “arguable claim” and Article 13 is therefore inapplicable to his case.

It follows that this part of the application is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention and must be rejected pursuant to Article 35 § 4.

For these reasons, the Court unanimously

Declares the application inadmissible.

M. O’Boyle M. PELLONPÄÄ Registrar President