Commissioner for Housing v Key [2003] ACTSC 44 (3 June 2003)

Last Updated: 5 June 2003

COMMISSIONER FOR HOUSING v PAMELA KEY [2003] ACTSC 44 (3 June 2003)

LEASES AND TENANCIES - appeal from Residential Tenancies Tribunal - application of test posited by s 68(2) of the Residential Tenancies Act 1997 (ACT) - whether factors referred to in subs 68(3) of that Act properly taken into account - whether challenge to rental increase properly determined - whether respondent denied natural justice.

Residential Tenancies Act 1997 (ACT), ss 68(2), (3), (4), 126(1)

Housing Assistance Act 1987 (ACT)

Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24

Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223

APPEAL FROM THE RESIDENTIAL TENANCIES TRIBUNAL

No SCA 3 of 2003

Judge: Crispin J

Supreme Court of the ACT

Date: 3 June 2003

IN THE SUPREME COURT OF THE )

) No. SCA 3 of 2003

AUSTRALIAN CAPITAL TERRITORY )

APPEAL FROM THE RESIDENTIAL TENANCIES TRIBUNAL

BETWEEN: COMMISSIONER FOR HOUSING

Appellant

AND: PAMELA KEY

Respondent

ORDER

Judge: Crispin J

Date: 3 June 2003

Place: Canberra

THE COURT ORDERS THAT:

1. the appeal be allowed;

2. the orders of the Residential Tenancies Tribunal be set aside;

3. the matter be remitted to the Residential Tenancies Tribunal for a re-hearing of the respondent's application for orders disallowing the increase in whole or in part.

1. This is an appeal against a decision of the Residential Tenancies Tribunal effectively ordering that the rent payable by the respondent to the appellant pursuant to a residential tenancy agreement in respect of a house at 15 Bannister Gardens, Griffith, ACT be increased by $15 per week rather than $60 per week as sought by the appellant and that the appellant rectify problems with a dual flush toilet installed in the premises.

2. The appeal was brought under s 126(1) of the Residential Tenancies Act 1997 (ACT) ("the Act") and was based solely upon perceived errors of law.

3. I will deal with the grounds in the order in which they were argued.

Application of the "formula" in s 68(2)

4. It was common ground that, in determining whether the rental increase sought by the appellant should have been allowed in whole or in part, the Tribunal was bound by the provisions of s 68 of the Act. That section is in the following terms:

(1) The tribunal shall allow a rental rate increase that is in accordance with the prescribed terms unless the increase is excessive.

(2) For subsection (1) -

(a) unless the tenant satisfies the Tribunal otherwise, a rental rate increase is not excessive if it is less than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later); and

(b) unless the lessor satisfies the tribunal otherwise, a rental rate increase is excessive if it is more than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later).

(3) Where a tenant or lessor proposes that a rental rate increase is or is not excessive, the tribunal, in considering whether it is satisfied as to the proposal, shall consider the following matters:

(a) the rental rate before the proposed increase;

(b) if the lessor previously increased the rental rate while the relevant tenant was tenant -

(i) the amount of the last increase before the proposed increase; and

(ii) the period since that increase;

(c) outgoings or costs of the lessor in relation to the premises;

(d) services provided by the lessor to the tenant;

(e) the value of fixtures and goods supplied by the lessor as part of the tenancy;

(f) the state of repair of the premises;

(g) rental rates for comparable premises;

(h) the value of any work performed or improvements carried out by the tenant with the lessor's consent;

(j) any other matter that the tribunal considers relevant.

(4) Where the tribunal considers a proposed rental rate increase is excessive but a lesser increase would not be, it may disallow so much of the increase as is excessive.

(5) In subsection (2) -

index number means the Consumer Price Index (Privately - owned dwelling rents expenditure class) for Canberra published from time to time by the Australian Statistician.

5. Mr Kettle, who appeared for the appellant, submitted that the Tribunal had erred in law by taking into account the formula provided by subs (2) in determining the quantum of the increase in rental that should be allowed, rather than treating the subsection as merely raising a rebuttable presumption which, in effect, determined which side would bear the onus of proof in relation to the issue of whether the increase sought by the lessor was excessive.

6. In answer to this contention, Mr Clark, who appeared for the respondent, submitted that, even if the effect of subs (2) was limited in the manner suggested by Mr Kettle, the Tribunal had been entitled to take the formula into account because par 3(j) authorised it to consider any matter it considered relevant.

7. I accept Mr Kettle's submission that subs (2) provides a rebuttable presumption which, in effect, determines which party bears the onus of proof and that the formula thereby provided should play no further part in the Tribunal's determination of the extent to which the proposed increase may be excessive.

8. It is true, as Mr Clark pointed out, that the "Index Number" refers to the consumer price index dealing with the rent paid for privately owned dwellings in Canberra and movements in prevailing rentals for such properties might well be relevant, especially when there is little evidence as to the rents payable for "comparable" properties. However, the fact that the proposed increase in the rental for the property in question was more than 20% greater than a general increase in prevailing rentals could have no significance other than to cast on to the proponent the onus of proving that the increase was not excessive. The Tribunal was not entitled to treat the formula as exerting a moderating influence against which other factors such as increased rentals for comparable properties would need to be balanced. Its task was to determine which party bore the onus of proof, having regard to the rebuttable presumptions provided by subs (2), then to determine whether that onus had been discharged, having regard to the matters enumerated in subs (3) and then, if appropriate, to determine how much of the proposed increase should be disallowed.

9. In the present case, it appears that the Tribunal took into account "the application of the formula in subs 68(2)" rather than merely an increase in prevailing market rentals as a factor to be weighed in the balance with other matters in determining how much of the proposed increase should be disallowed. Consequently, I am obliged to accept Mr Kettle's submission that an error of law has been demonstrated.

10. Regrettably, I am unable to determine what impact this error may have had on the Tribunal's decision and I am unable to resolve the matter by making an appropriate adjustment. Since the Tribunal has special expertise in this area, I think it is appropriate to order that the matter be remitted to the Tribunal for re-determination.

Rent increase conditional on improvements to a property

11. Mr Kettle submitted that the Tribunal had erred in law in finding a lessor was only entitled to a rent increase by improving the property. He conceded that the judgment contained no express statement to that effect but suggested that it was implicit in remarks characterising some of the work that had been carried out on the subject premises as "routine maintenance work or repairs".

12. It is, of course, appropriate for the Tribunal to draw a distinction between renovations to a property, which might justify a rental increase substantially higher than that which would have been appropriate had the property been left in its original state, and routine repairs of a kind required by the covenants in the lease. On the other hand, there is nothing in the Act to require the renovation of properties or to require that rentals be frozen until works of renovation have been undertaken.

13. Having read the Tribunal's reasons carefully, I am unable to accept that there was any implicit finding to the effect that a lessor would be entitled to an increase in rent only upon improving the property. On the contrary, I am satisfied that the remarks upon which Mr Kettle relied were intended to explain why less weight had been given to the work carried out on the property than might have been the case had they consisted substantially of works of renovation rather than routine repairs.

14. This ground has not been established.

Tenant's subjective intentions in relation to a previous rental increase

15. Mr Kettle submitted that the Tribunal had erred in law by considering the tenant's subjective intentions in relation to a previous rental increase. He again conceded that there was no explicit statement to this effect but suggested that it could be inferred from the Tribunal's reasons. In support of this contention, he pointed out that the Tribunal had referred to the respondent's claim of having agreed to pay an extra $21 per week with effect from 16 September 2001 because there had been no rental increase during the three years prior to that date and she had understood that the appellant had agreed to carry out certain work "in part to justify the increase".

16. In the context in which they appear, these remarks do not, in my opinion, provide an adequate basis for an inference that the Tribunal was influenced by the subjective impressions of the respondent. As Mr Clark pointed out, the appellant had, in one letter, undertaken to carry out the work and advised the respondent of a revised rental increase which it suggested was appropriate. Whilst the work was carried out subsequently, it was appropriate for the Tribunal to take into account the fact that the earlier rental increase had occurred in the context of that undertaking and that it would be inappropriate for the value of that work to be "double counted" by again treating it as a relevant factor in assessing an increase in rent with effect from September 2002.

17. This ground has not been established.

Length of the tenancy

18. Mr Kettle argued that the provision contained in par 68(3)(j) should be construed ejusdem generis with the earlier provisions and that the length of the tenancy could not be accommodated within the same genus.

19. As a matter of principle, I accept that there is nothing in the Act to suggest that a tenant should be entitled to a discounted rental merely because he or she has occupied the premises for an extended period. It would be inappropriate for the Tribunal to take into account any perceived claim based upon either considerations of past loyalty or sympathy for someone who might be unable to afford the proposed increase and hence excluded from a property that had been her home for many years. However morally compelling such claims may seem, the Tribunal is bound by the terms of s 68 and the general provision contained in par (3)(j) extends only to such other matters as may be considered relevant to determining the fair rental value of the premises, having regard to the nature of any ancillary arrangements between the parties such as agreements for provision of services by the lessor or the value of work performed or improvements carried out by the tenant. Whilst the appellant in this case is the Commissioner for Housing, the property is not rented pursuant to statutory provisions such as those contained in the Housing Assistance Act 1987 (ACT) and par 68(3)(j) does not permit the Tribunal to take into account public policy considerations related to the moral claims of less affluent or otherwise needy tenants.

20. However, recognition of these principles does not mean that the length of the tenancy must be regarded as irrelevant. In considering the matters enumerated in subs 68(3), the Tribunal may properly take into account the fact that a long term tenancy has obvious advantages to a landlord. Comparatively short term tenancies may be interspersed by periods of vacancy during which the lessors will derive no rent and may be required to expend money on advertising and, perhaps, on other expenses associated with finding fresh tenants and negotiating the terms of fresh leases. There may also be other costs, such as the need to more frequently upgrade portions of the premises in order to attract new tenants. It is true that the prospective length of the tenancy may be of more importance to any assessment of current rental value than the past period of occupancy, but the Tribunal may be entitled to infer that a person who has already been a tenant for a lengthy period is likely to remain so for an extended period in the future.

21. In the present case, the respondent had rented the property for 17 years and was approaching 57 years of age. She was obviously a person who saw the property as her home and was likely to remain as a tenant for an extended period. Hence, in my opinion, the Tribunal was entitled to regard the length of the tenancy as a relevant consideration. There is nothing in the Tribunal's reasons to suggest that it was taken into account in an impermissible manner.

22. This ground has not been established.

The toilet

23. Mr Kettle raised two issues in relation to the toilet: first, that the Tribunal had erred in ordering repairs to the toilet; and second, that it had erred in reducing the quantum of the rental increase that should otherwise have been allowed because of problems with the toilet.

24. The first issue may be readily resolved. Whilst the Tribunal may have been entitled to accede to an application for an order of this kind, no such application was made and the appellant was given no opportunity to be heard in relation to the issue. Hence, I am obliged to accept that the appellant was denied natural justice. I might mention that if I had not been assured that the toilet had now been repaired, I would have immediately given the appellant the opportunity to be heard on the issue and, in the absence of some compelling reason, made a further order to the same effect. However, Mr Kettle is entitled to maintain the legal principle that orders should not be made against a party unless that party has been given a fair opportunity to address the relevant issues.

25. The second issue requires some further explanation.

26. Mr Kettle submitted that the structure of the reasons for judgment suggested that the problems which the respondent had experienced with the toilet had been taken into account not under par 3(f), which refers to "the state of repair of the premises", but under 3(j), which refers to "any other matter which the Tribunal considers relevant". He argued that this fact alone indicated that the Tribunal's consideration had "proceeded irregularly".

27. Whilst I accept that it would be possible to construe the Tribunal's reasons in the manner suggested by Mr Kettle, I am not satisfied that the Tribunal actually approached the matter in that manner. Furthermore, even if the Tribunal had done so I am unable to see how such an error could have impugned the validity of the Tribunal's determination. It was plainly entitled to take into account the state of repair of the property and, equally plainly, entitled to regard the toilet as part of the property. If it properly took that issue into account, then even if it associated the issue with the wrong paragraph of the subsection, that mistake could not, of itself, constitute appealable error.

28. Mr Kettle also argued that it was inappropriate to both order that the toilet be repaired and reduce the rental increase because of its deficiencies. It should be noted however, that, whilst the order required that the problems with the toilet be rectified on or before 31 January 2003 the rental increase was backdated to 22 September 2002. Hence, the Tribunal was entitled to take into account the fact that the toilet had been in a defective state for at least part of the period for which the increase in rental was applicable.

29. In the alternative, Mr Kettle argued that the Tribunal should, at least, have limited any reduction in rental on this ground to the period up until the repairs had been completed. However, as Mr Clark pointed out, the power provided by subs 68(4) is to "disallow so much of the increase as is excessive" and there is nothing in the subsection to authorise a succession of different rates commencing on succeeding dates. Furthermore, even if it had not been within the Tribunal's jurisdiction to approach the matter in the manner suggested, the Tribunal was at least entitled to deal with this issue by, in effect, amortising an allowance for the poor state of the toilet over the whole period until the next rental review.

30. I can see nothing in the Tribunal's reasons to demonstrate appealable error.

31. In the alternative, Mr Kettle argued that the Tribunal's reasons were insufficient to demonstrate that it had clearly approached this issue in a legally defensible manner. However, the notice of appeal did not include any ground challenging the adequacy of the reasons provided by the Tribunal and, in any event, I do not accept that the Tribunal was obliged to explain either what weight had been given to a particular factor or how that factor had been taken into account in determining the extent to which a proposed rental increase should be disallowed.

32. This ground has not been established.

Market rental rate of comparable properties

33. Mr Kettle submitted that the Tribunal had erred in failing to properly take into account the market rental rate for comparable properties. The Tribunal referred to the fact that there was little evidence of comparative rents but was nonetheless prepared to accept that the premises might attract a rent of $250 per week if leased to a new tenant. Despite this finding, it expressed the opinion that the proposed increase to $245 per week would have been excessive and, after considering a number of factors, concluded that it was appropriate to make an order effectively increasing the rent to $200 per week.

34. As Mr Clark pointed out, the diversity of factors which must be taken into account by virtue of subs 68(3) may well lead a Tribunal to conclude that an increase is excessive even if it accords with the rents payable for comparable properties. Furthermore, in the present case the Tribunal identified a number of factors of a kind likely to justify such a conclusion, such as the state of repair of the premises and the long-term nature of the tenancy. However, as mentioned earlier, the factors also included "the application of the formula in subs 68(2)" and it is unclear what weight may have been given to this factor. Accordingly, despite Mr Clark's cogent analysis of the paucity of evidence provided by the valuer's report concerning comparable properties, I accept that the reasons for judgment do not demonstrate that the combination of the factors identified provided adequate grounds for reducing the market rental to the figure adopted by the Tribunal which was, of course, substantially less than that payable in respect of comparable properties.

35. Hence, for the reasons previously given, the matter will have to be re-determined.

Unreasonableness

36. Finally, Mr Kettle argued that, even if no particular error of law could be identified, the overall result was so unreasonable as to demonstrate an error of approach. He conceded that in Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24 Mason J at 40-42 suggested that a Superior Court should be slow to adopt unreasonableness as a test for legal error when assessing claims that " . . . an administrative decision . . . does not give proper weight to relevant factors . . .". Mr Kettle also conceded that a similar approach would be adopted in relation to claims that an administrative decision had taken irrelevant matters into account.

37. As Mr Clark pointed out, in the absence of any demonstrated error of law, the test that must be applied in considering a ground of this nature is whether the decision was so unreasonable that no reasonable decision maker could have made it: see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223. In the present case, Mr Kettle relied upon the combination of errors identified in the course of his earlier submissions. Whilst, as I have indicated, I accept his submissions in relation to the approach taken by the Tribunal to the provisions of s 68(2) of the Act, I do not accept that a Tribunal's decision could otherwise have been impugned on the ground of unreasonableness.

Conclusion

38. The appeal must succeed, the orders of the Tribunal be set aside and the matter remitted to enable the Tribunal to redetermine whether the rental increase sought by the appellant was excessive and, if so, the appropriate level of rental having regard to the factors set out in s 68(3).

39. It is common ground that I should make no order as to costs.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Associate:

Date: 3 June 2003

Counsel for the appellant: Mr D Kettle

Solicitor for the appellant: ACT Government Solicitor

Counsel for the respondent: Mr J Clark

Solicitor for the respondent: Welfare Rights & Legal Centre Ltd

Date of hearing: 6 May 2003

Date of judgment: 3 June 2003