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|Judgments - R (On The Application of Heffernan) (Fc) V The Rent Service
HOUSE OF LORDS
 UKHL 58
on appeal from: EWCA Civ 544
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
R (on the application of Heffernan) (FC) (Appellant) v The Rent Service (Respondents)
Lord Hope of Craighead
Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Neuberger of Abbotsbury
Richard Drabble QC
(Instructed by Irwin Mitchell )
David Pannick QC
(Instructed by Treasury Solicitors)
11 JUNE 2008
WEDNESDAY 30 JULY 2008
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
R (on the application of Heffernan) (FC) (Appellant) v The Rent Service (Respondents)
 UKHL 58
LORD HOPE OF CRAIGHEAD
1. I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Neuberger of Abbotsbury. I agree with it, and for the reasons he gives I would allow the appeal and make the order that he proposes.
2. The exercise which is contemplated by para 4 of Schedule 1 to 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), leaves much to the judgment of the rent officer. But, as its rather complex formula indicates, the area within which that judgment is to be exercised is not unlimited. It follows that, if his decision is challenged, the rent officer must be in a position to show that he has conducted the exercise in the way that is required by the paragraph.
3. The principle of valuation which the rent officer is asked to apply requires him to make an assessment based on a comparison with the rents payable for dwellings that are, on a carefully framed hypothesis, comparable with that which the beneficiary occupies. In order to arrive at a local reference rent by applying the formula which para 4(1) of Schedule 1 sets out he must be in possession of a sufficient basket of rents to form a judgment as to the highest and lowest rents that it envisages. The criteria that a dwelling must satisfy for its rent to be put in the basket are set out in para 4(2). Three assumptions must be made, two of which no doubt are familiar to every rent officer: its state of repair and the number of its bedrooms and rooms suitable for living in. It is the third assumption, as to the locality, that gives rise to difficulty. The rules that must be applied to determine the area of the locality are set out in para 4(6).
4. The essential difference between the approach of the Court of Appeal and that which I would favour lies in the extent to which the rent officer is restrained in his determination of the area which constitutes the locality. The basic purpose of the scheme remains the same as that which Sir Thomas Bingham MR described in R (Gibson) v The Housing Benefit Review Board for East Devon (1993) 25 HLR 487. The balance that he described is to be found in the determination of the highest and lowest rents for the purposes of the formula used to arrive at the cap that is imposed by the local reference rent (LRR). The cap must not be set at such a low level as to make it impossible for the occupier of the dwelling to find any other accommodation to which he could be expected to move at the level of rent payable. The amendments contained in the 2001 Order were made in response to the decision of the Court of Appeal in R (Saadat) v The Rent Service  HLR 613;  EWCA Civ 1559. It is plain that they exclude any consideration of the demographic restraint to which Sedley LJ referred in Saadat, para 13. But they continue to place a geographical restraint on the extent of the area within which the dwellings are to be found whose rents are to be placed in the basket before the rent officer makes his judgment as to the LRR according to the formula.
5. As Pill LJ said in para 35 of his judgment in the Court of Appeal, the requirement in para 4(6)(a) that the area must comprise two or more neighbourhoods imposes a minimum requirement but it does not suggest a maximum:  EWCA Civ 544, para 35. He thought that para 4(6)(b) did not favour a narrow geographic restriction. I would, with respect, differ from him on this point. His approach reflects the advice that an area may be made up of a city and its immediate area which is to be found in the circulars. It invites a broad geographical approach which is, no doubt, the most convenient one to adopt. But in my opinion it is the wrong approach. It starts the exercise at the wrong end. Para 4(6)(a) does indeed impose a minimum requirement of two neighbourhoods. The fact that it starts with such a low number is in itself quite significant. It indicates that a combination of two will do. It suggests that the addition of any more neighbourhoods must be justified. The addition of a neighbourhood will be justified if the rent officer considers that the variety of types of residential properties and tenancies is insufficient to enable him to determine the highest and lowest rents for the purposes of the formula: para 4(6)(c). Arriving at an appropriate figure for those rents is, after all, the aim of the entire exercise.
6. In my opinion para 4(6)(b) imposes a geographical control on the extent of the area within which the variety referred to in para 4(6)(c) is to be found. The result of its application may be wide or narrow in terms of geography according to the circumstances. This will depend on the judgment of the rent officer. He must however apply the criterion mentioned in para 4(6)(b) to every neighbourhood which he wishes to add to the one where the dwelling is situated. The only rents which can be added to his basket are those for dwellings which are to be found within a neighbourhood which satisfies this criterion. Those for premises in a neighbourhood which fails to satisfy it must be discarded. The protection that the system provides against unfairness to the beneficiary is ensured by the application of para 4(6)(b) to every neighbourhood that the rent officer needs to include, in addition to the beneficiarys own neighbourhood, for the purposes of the formula.
LORD SCOTT OF FOSCOTE
7. Having had the advantage of reading in draft the opinions of my noble and learned friends Lord Hope of Craighead and Lord Neuberger of Abbotsbury I would allow this appeal for the reasons they give with which I am in full agreement.
LORD RODGER OF EARLSFERRY
8. Those who live in rented accommodation but have little or no income are entitled to a means-tested housing benefit. Whatever the amount of the rent which they pay, however, they are not entitled to receive more by way of benefit than the local reference rent (LRR). The LRR is the mean between the highest and lowest rent which a landlord might reasonably have been expected to obtain for an assured tenancy of a similar dwelling, in a reasonable state of repair, in the same locality": para 4(1) and (2) of Part I of Schedule 1 to the Rent Officers (Housing Benefit Functions) Order 1997 (the 1997 Order). The issue in the present appeal turns on the interpretation of the definition of locality in para 4(6) in that Schedule. The definition was inserted by article 2(5) of the Rent Officers (Housing Benefit Functions) (Amendment) Order 2001.
9. Although a new system of local housing allowances based on broad rental market areas is replacing housing benefit, the definition of those areas is largely similar to the definition of locality". The point in dispute is therefore one of continuing importance.
10. At the conclusion of the hearing I was inclined to favour a construction of para 4(6) along the lines of Lord Neubergers. On further consideration, however, I have come to the view that it introduces too many elements which are not to be found in the text. In explaining my view, I gratefully adopt Lord Neubergers outline of the legislation and of the facts of the present case. In discussing rents, I assume that all the other requirements of the scheme are met.
11. As Lord Neuberger points out, before the decision of the Court of Appeal in R (Saadat) v Rent Service  HLR 613;  EWCA 1559 the Rent Service had developed a working definition of the term locality", which appeared in paras 4 and 5 of Schedule 1 but was not defined. In particular, the Rent Service regarded a locality as being a broad geographical area". The Court of Appeal interpreted the term differently, however. The purpose of the amendments made by the 2001 Order was to restore the previous working definition. Against that background, it would scarcely be surprising if the language of the amended legislation were apt to describe a broad area - especially since similar wording is used in the definition of broad rental market area inserted into article 2(1) of the Rent Officers (Housing Benefit Functions) Order 1997 by para 4 of Part I of Schedule 3A to the Rent Officers (Housing Benefit Functions) (Local Housing Allowance) Amendment Order 2003.
12. Para 4(6) of Part I of Schedule 1 to the 1997 Order provides:
For the purposes of this paragraph and paragraph 5 locality 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.
13. While a literal interpretation of a legislative provision may have to give way to broader considerations, the best place to start is with the text. Indeed, rather unusually, at the hearing of this appeal counsel on both sides devoted a good deal of time to analysing the language of para 4(6). Looking at the provision as a whole, I see no room for doubting that all three sub-paragraphs (a) - (c) are elements in the definition of an area which constitutes a locality for the purposes of determining LRRs. A locality is an area which meets the cumulative criteria in the three sub-paragraphs. Equally, for purposes of sub-paras (a) and (b), the term neighbourhood is defined in para 3(5). The nature of that definition is such that it will apply to areas of different sizes, depending on the particular situation.
14. In my view, no gloss on either of these definitions is permissible unless para 4(6) would otherwise be unworkable. More especially, they are not to be modified to conform to some extra-statutory idea of what amounts to a locality or neighbourhood".
15. In the course of discussion at the hearing, the suggestion was made that, somehow or other, para 4(6)(b) should be read, not as part of the definition of the area which constitutes the locality", but as referring to each of the two or more neighbourhoods which make up that area. That line of thinking surfaces in para 58 of the speech of Lord Neuberger where he says that para 4(6)(b) must refer to each neighbourhood in sub-para (a) since, if it referred to the locality, it would be meaningless, as the dwelling itself must be in the locality and therefore ex hypothesi the locality would always satisfy para 4(6)(b).
16. Although I doubt whether much turns on the supposed distinction, I would respectfully reject that approach, which is inconsistent with the grammatical structure of the provision. Sub-para (b) qualifies an area". A locality is simply an area within which", i e, within the whole of which", a tenant of the dwelling could reasonably be expected to live, having regard to the various accessible facilities. It follows, of course, that the hypothetical tenant must be able to live in the whole of any of the neighbourhoods included in the area and so the highest and lowest rents in any neighbourhood are potentially relevant for LRR purposes. So a locality is an area (a) comprising two or more contiguous neighbourhoods, including the neighbourhood where the actual tenant lives in a dwelling, (b) within the whole of which a tenant of that dwelling could reasonably be expected to live, having regard to the various accessible facilities, and (c) containing residential premises of various types and including such premises held on a variety of tenancies.
17. Sub-paras (a) and (c) prescribe certain minimum features which an area must have if it is to qualify as a locality". It must (a) contain two or more contiguous neighbourhoods, including the one where the actual tenant lives, and it must (c) contain various types of residential premises and include such premises held on a variety of tenancies. On the other hand, neither sub-paragraph prescribes any kind of upper limit for an area which is to count as a locality". Nor does sub-para (b). Again, it concentrates on features which the area must have in order to qualify. In that sense, sub-para (b), too, is concerned with the minimum standard which an area must meet if it is to qualify: it must be an area within the whole of which a hypothetical tenant of the actual dwelling could reasonably be expected to live, having regard to the various accessible facilities.
18. In theory, a problem could arise if the only area which would meet the standard set by sub-para (b) did not contain a variety of types of residential premises or include such premises held on a variety of tenancies, as required by sub-para (c). But the point does not seem to have given rise to difficulties in practice and there is, accordingly, no need to consider it.
19. Provided that an area meets the criteria in the three sub-paragraphs, the rent officer is entitled to use the highest and lowest rents in that area in fixing the relevant LRRs for the purposes of housing benefit. That makes sense. Since a hypothetical tenant of the actual dwelling could reasonably be expected to live anywhere in that entire area, having regard to the accessible facilities, the rents in the whole of the area are relevant when considering the amount of housing benefit which it would be reasonable for the actual tenant to receive.
20. I respectfully agree with Lord Neuberger that, in considering whether the hypothetical tenant of the actual dwelling could reasonably be expected to live in an area, the only factor to which the rent officer is to have regard is the physical accessibility of comparable facilities of the kinds specified in sub-para (b). The legislators decision to confine the scope of the test in this way must be respected. It follows, in my view, that a locality may include both urban and rural neighbourhoods. I see absolutely nothing in the language of para 4(6) which would introduce the idea that, as a matter of law, a tenant living in an urban neighbourhood could not reasonably be expected to live in a contiguous non-urban neighbourhood. According to the unqualified text of sub-para (b), if comparable facilities are accessible, the hypothetical tenant can reasonably be expected to live anywhere in the area, whether in an urban or more rural neighbourhood". The hypothesis is true to life: in the real world, people move from towns and cities to the surrounding area and back again, for various reasons - not least, the cost of housing. The legislation envisages that the hypothetical tenant, too, would be prepared to do so.
21. As I have indicated, in assessing the position under para 4(6)(b), the rent officer is concerned only with the physical accessibility of the various facilities. He has to consider the facilities in the neighbourhood of the actual dwelling and those that are accessible from that neighbourhood. In doing so, the rent officer obviously does not consider whether, in fact, the actual tenant has been taken on as a patient by the local medical practice, or whether, in fact, he has children or has been able to get them into the local school. The market rent for the dwelling is not affected by these aspects of the tenants personal situation. An area will not qualify as a locality for LRR purposes unless the hypothetical tenant of the actual dwelling could be expected to live anywhere in the area, taking account of the distance of travel, by public and private transport, to and from facilities of the same type and of a similar standard. Only the distance of travel, by public and private transport, to and from the equivalent facilities is to be taken into account. Again, the rent officer is not concerned with whether or not a particular medical practice would, in reality, be full or a particular school would, in reality, be oversubscribed. All that matters is that the facilities which would be physically accessible, taking account of the distance of travel, are of the same type as, and of a similar standard to, those which are physically accessible from the actual tenants dwelling.
22. It is for the rent officer to judge whether, given the local transport system, any particular facility is accessible from any given neighbourhood. Much may depend on the facility in question: people are prepared to travel much further to buy a computer than to buy a pint of milk. It is, moreover, a fact of modern life that many shopping developments, for instance, draw their clientele from every part of a town or city, as well as from the surrounding area. At one time, department stores tended to be situated in the centre of cities and people travelled in to them from residential areas all over the city and surrounding area. Nowadays, many stores are situated in shopping malls with large parking areas far from the city centre. But people still travel considerable distances by public and private transport from all over the city and surrounding area to shop there. Parents take children on long journeys across town to and from the school of their choice. Both children and adults embark on equally long journeys to a stadium to attend a pop concert or football match. Similarly, the only specialist cardiology unit may be in a hospital on the south side of a city and the only specialist renal unit in a hospital on the north side. Patients and their relatives have to travel to and from the appropriate hospital. Bus services may be run with their needs in mind.
23. What the legislation requires is that the facilities be comparable, not that the access to them should be comparable. A tenant in one neighbourhood may be within walking distance of a swimming pool, while a tenant in another neighbourhood would need to make a twenty-minute journey by bus to get to it. But that tenant might be within walking distance of the local hospital, to which the tenant in the first dwelling would have to travel by bus from his neighbourhood. The pool and hospital would be accessible in or from both neighbourhoods, even though the journeys to them would be different.
24. In these circumstances, I see nothing objectionable, in principle, in a rent officer concluding that various facilities are accessible to everyone living in a town or city and the surrounding area, which can therefore be regarded as a locality in terms of para 4(6)(b). Indeed, a contrary conclusion would often be divorced from reality.
25. I agree with Lord Neuberger that Pill LJ, 2007 EWCA 544, at para 36, was wrong to say that it would be sufficient if the facilities met the requirements of the law and the appropriate public authorities, as opposed to being of a similar standard. That would be to ignore the unmistakable terms of sub-para (b). I also agree that rent officers can easily acquire sufficient information to make the kind of comparison that is needed. But, of course, a comparison is only required if the facilities which are accessible in, or from, the actual tenants neighbourhood are not also accessible in, or from, another neighbourhood which is being considered for inclusion in the locality". If the rent officer concludes that the transport links are such that the same facilities are accessible in, or from, another area, then there will be no need to compare the standards of other accessible facilities.
26. Applying the approach which I have indicated to the information available to him, the rent officer must decide whether an area meets the criteria in sub-paras (a) - (c). If it does, then he can use it as a locality for determining LRRs. There is no size limit beyond which an area cannot count as a locality for these purposes. So long as the whole area is one in which the hypothetical tenant could reasonably be expected to live, having regard to the accessible facilities, the rent officer fulfils the objective of the legislation by having regard to the rents in that area. Nothing in the language of para 4(6) or in its rationale justifies imposing some arbitrary limit on the size of the area which a rent officer can use as a locality. In particular, I see no justification for saying that, once the rent officer has identified an area - comprising a minimum number of neighbourhoods - which meets the criteria in sub-paras (a) - (c), he must call a halt and draw a line. If there are other contiguous neighbourhoods in which, or from which, facilities of the same type and of a similar standard would be accessible, the hypothetical tenant could reasonably be expected to live in those neighbourhoods too. So the rent officer would be entitled to include them in the locality". Para 4(6) does not oblige the rent officer to include all the possible neighbourhoods which would constitute an area meeting the criteria; equally, there is nothing to prevent him from including any neighbourhoods which do. The decision is left to his judgment.
27. Suppose, for example, a rent officer decided that a tenant living in the neighbourhood of Blackheath could reasonably be expected to live in the adjoining neighbourhood of Greenwich to the north - and there were enough dwellings and tenancies in the two neighbourhoods to meet the requirements of sub-para (c). Nothing in the language of para 4(6) requires the rent officer, as a matter of law, to ignore his professional judgment - if it be his judgment - that, having regard to the accessible facilities, the hypothetical tenant could also be expected to live in a wider area, including, say, the neighbourhood of Lewisham to the south-west. On the contrary, in my view, he would be entitled to include Blackheath, Greenwich and Lewisham in the one locality, even though the smaller area of Blackheath and Greenwich would, on this hypothesis, also meet the requirements of para 4(6). The rents in the additional area would be just as relevant as the rents in the smaller area and their inclusion might well affect the level of the LRR by altering the value of either H or L in the relevant formula. In principle, therefore, it would be wrong for this House to devise a rule to exclude them from consideration. Moreover, the approach which I prefer places no additional demands on rent officers since, on any view, there must be a locality for every dwelling in the country and so the sub-para (b) exercise has to be carried out in respect of every neighbourhood.
28. It follows that I can detect no error in principle in the approach adopted by the rent officers in this case. Admittedly, their analysis may seem to be broad-brush rather than refined. But that is justified if their basic premise that the transport system in Sheffield makes all the facilities accessible to people living in the area is justified. Making that assessment is very much a matter for the rent officers, and I can find nothing in the case which would actually justify a court in interfering with it.
29. For these reasons I would dismiss the appeal.
LORD WALKER OF GESTINGTHORPE
30. I have had great difficulty in the resolution of this appeal. Bearing in mind that the new definition of locality in para 4(6) of the amended Order was intended to rectify the difficulties identified in R (Saadat) v The Rent Service  HLR 613, I find it surprising that Parliament has given so little guidance as to how to answer the question posed by Sedley LJ in Saadat (para 15): Where does it stop? The absence of clear guidance suggests to me that Parliament must have intended rent officers to have a wide margin for judgment.