Court fixes fair rent under 1975 Law, balancing tenant protection against market forces and landlord rights.

[*58] 1977 March

(PIKIS, AG. P.D.C.)

IN THE DISTRICT COURT OF LARNACA

Chrystalla Er. Antoniadou,

Applicant,

v.

Dinos Philippou,

Respondent.

(Rent Application No. 17/76).

Landlord and tenant - Statutory tenancy - Determination of rent - Section 7(3) of the Rent Control Law, 1975 (Law 36/75) - Discretion of the Court - General principles applicable - Landlords should not be the sole beneficiaries of rises in rent - Inspection of the locus - Comparable properties - Division of subject premises into four areas for purposes of valuation - In fixing the rental of a particular property it must not be overlooked that the rise in the rental of one property in an area will inevitably have repercussions on the state of rentals in the wider area.

A. Andreou, for the Applicant.

C. Varda, (Mrs.), for the Respondent.

JUDGMENT

The following judgment was delivered by:-

PIKIS. AG. P.D.C.: The applicant owns a shop [*59] at the corner of Lord Byron and Galileos streets, Larnaca, of an overall extent of about 1,800 square feet. This shop was let to the respondent in 1964.

There was some uncertainty on the part of the owner and her husband as to the year in which the respondent actually became the tenant of the premises but on a proper sifting of the facts it is clear to me that the respondent became the tenant of the premises in 1964 and not earlier. It is common ground that the employer of the respondent, a certain Kokos, was the tenant of the premises before the respondent acquired possession. In the contention of the owner, made through her husband, Mr. Rikos Antoniades, who manages the property on her behalf, his original understanding with the respondent was that the latter should remain in occupation as tenant for a short time and that the premises would be vacated as soon as the owner wanted to recover possession of them, the allegation being that the owner was, at the time, engaged in negotiations for the letting of this shop to the Co-Operative Bank. Mr. Philippou, on the other hand, the respondent, maintained that the letting of the premises to him was not accompanied by any undertaking on his behalf to vacate the same at any specific future time and that the question of the letting of the premises to the Co-Operative Bank arose for the first time in 1967. Whatever the correct version may be, decision on this factual aspect of the case is unnecessary for my judgment. The fact is that the respondent became the tenant of the premises as from the year 1964, at a monthly rental of [*60] £23. He has remained in occupation since, paying the same rental. For a period of time Mr. Philippou was the tenant of an adjoining yard at a rental of £3 per month; this tenancy came to an end when the respondent abandoned the site.

The rental paid by the respondent was the same as that paid by his employer, who, from what I can make out from the evidence, took possession of the shop sometime in 1963. Before then the firm of Alexandros Demetriou were the occupants of this shop at a rental of £55 per month. In 1973 the owner sought an ejectment order on the ground that the premises were reasonably required by her. The action was unsuccessful and was dismissed. In the allegation of the respondent, in the course of the aforementioned proceedings, he offered to increase the rental paid to £30 per month, an offer that was refused. I accept that such offer had been made despite the lack of recollection of the event by Mr. Antoniades. The fact that the offer had been made constitutes an acknowledgement on the part of the tenant that the monthly rental of £23 was, at least, at the time it had been made, below the fair rental value of the premises.

By her present application the applicant seeks, pursuant to the provisions of s. 7(3) of the Rent Control Law 36/75, to have the rental increased to £83 per month. The claim is based on the valuation of Mr. Patrikios, an experienced land valuer, who came to the conclusion that the monthly rental value of the premises is £83 on the basis of a valuation report, an exhibit [*61] before us. In making his valuation he mostly relied on the rentals fetched from the lease of what he considers to be comparable properties. Detailed information as to the nature of these allegedly comparable properties and the rental paid for their lease appear in supplementary tables (exh.lA and exh.2); these properties, five in number, are earmarked on a map (exh.1B). The first comparable is a shop adjoining that let to the respondent, likewise the property of the owner, used for the conduct of a trade not dissimilar to the trade of the respondent, including, inter alia, trading in electrical appliances. The second, third and fourth comparables are three adjoining shops on Lord Byron street, not far from the shop under consideration, whereas the fifth comparable, a large shop, is situate further up Pallas square but again not far from the subject property. The second, third, fourth and fifth comparables are, on the whole, relatively new buildings and were built between the years 1970 to 1976, as opposed to the shop let to the respondent that had been built much earlier.

The shop let to the respondent and the one adjoining thereto were erected in 1955 or thereabout; the adjoining shop was originally designed as a store but was subsequently converted into a shop. The shop let to the respondent may be described as a big corner shop in a fairly good condition despite the fact that no repairs were made by the owner since the date respondent moved in occupation; it houses comfortably the business of the respondent. In the major part of the shop the goods of the [*62] respondent are exhibited and his trade is conducted therein, mostly involving electrical appliances whereas another part of the shop is used as a workshop. For purposes of valuation the property is divided by Mr. Patrikios into four parts, depending on their use and utility in order to find the shop’s rental value. Basing his valuation on his comparables, subject to certain adjustments reflecting the intrinsic circumstances of the property, Mr. Patrikios gives the rental value of the different parts of the shop as follows:- i. 57.5 mils per square foot - the area covered by what he describes as the main shop;

ii. an area of 143 square feet used as a workshop is valued at 40 mils per square foot;

iii. two lavatories occupying an area of 117 square feet, valued at 20 mils per squarefoot; and

iv. an area of 280 square feet described as a verandah in the forefront of the shop, valued at 10 mils per square foot.

It is manifest, on a comparison of the per square foot rental value of comparables 2 to 5 and that adopted for the shop in question, that the latter is, on the whole, inferior to the comparables; in consequence the price is duly adjusted and the figure finally adopted lower in comparison to the average of these properties.

Mr. Patrikios, unlike Mr. Pantelides, the [*63] valuer for the respondent, is of the opinion that the subject shop, in particular the area used as a main shop, should not be divided into zones and should be valued as a compact entity in view of its depth. And he added that there is no room for this type of zoning unless the depth of a shop exceeds 40 feet. Before leaving his testimony it may be noted that in his view the space covered by the mezzanine is ordinarily valued at a standard rate ranging from 25 to 30 mils per square foot.

Mr. Pantelides, a well qualified and experienced valuer, testified for the respondent. Like Mr. Patrikios, he purported to find the rental value of the shop in question by reference to the rental of what he considers to be comparable properties. It is well recognized that this method of direct comparison where data making a comparison possible are available, is the best method of valuation and as a matter of common sense one may add, the safest.

The four properties relied upon for comparison are situate within Galileos street whereas the fifth property is at the corner of Galileos and Lord Byron street. The properties listed under numbers 3, 4 and 5 are used as part of one entity for the transaction of the business of the tenant. On a consideration of his comparables, subject to adjustments that Mr. Pantelides considers necessary in order to reflect the individual circumstances of the subject shop, he came to the conclusion that the proper rental value of this shop is £26 per month. [*64]

Obviously the two experts disagree about the choice of comparables for reasons they explained in evidence. Each excludes for comparison the properties relied upon by the other. Perhaps the most notable omission is that of Mr. Pantelides in failing to include, in his list of comparables, the shop adjoining that occupied by the respondent at 6 - 8 Galileos street, let at £30 per month.

Mr. Pantelides made extensive reference to the principles of valuation referred to in a book by Lawrence Reis and Britton on the Modern Methods of Valuation, in support of his analysis and conclusions. He worked on the premise that demand for large shops may, more often than not, be limited in comparison to smaller shops. Of course what amounts to a large shop is a matter of fact and degree and depends on the character of a particular locality. Further Mr. Pantelides laid stress on the implications of the principle expounded at p. 264 of the aforesaid book under the description "Quantity Allowance". In accordance with the proposition expounded therein, in areas where demand for shops is mostly limited to small shops larger shops are normally let at a lower per unit price and in finding the rental value of a large shop allowance should be made for this factor. This is a correct statement but it must not be seen divorced from the premise upon which it is founded. For this principle to be invoked it must first be established that demand for shops beyond a certain extent is limited and there- [*65] after it must be made to appear what the percentage of variation is. In this case there is nothing to suggest that the per square foot rental value of shops in the area varies according to their extent and, if so, the data that shape the percentage of this differential.

The two valuers have apparently received different information as to the circumstances, terms and conditions under which the tenant of the properties listed under numbers 3, 4 and 5 by Mr. Pantelides occupy a bank yard coloured yellow on exhibit 4C. It is common ground that the three shops are occupied by one and the same tenant and are used substantially for the purpose of housing one trading unit. One may justifiably express the view that it would be a more realistic approach on the part of Mr. Pantelides had he treated the letting of the three shops as one tenancy, something that would make more feasible still comparison of the three shops as one unit with the subject shop, having in mind their extent. I very much feel that the approach of Mr. Pantelides is not very helpful and tends, in some areas, to be artificial.

Inspection of the Locus

In the course of the proceedings I inspected the locus in the presence of the parties and their counsel and had occasion to view the premises. The purpose of such visit is not merely to enable the Court to appreciate the evidence in its proper perspective; it has a wider significance designed to put the [*66] Judge in the picture through his own powers of perception. Megarry J. reviewed the implications of such visits that serve to import original evidence and are assimilated with the production of real evidence in the case. (See Tito v. Waddell

(1975) 3 All E.R., 997.) The learned Judge made reference with approval to Buckingham v. Daily Hews Ltd. (1 956) 2 All E.R. 904 and Tameshwar v. R.

(1957) 2 All E.R. 683 and quoted passages from the judgment of Denning, L.J., as he then was, in Goold v. Evans & Co. (1951 ) 2 T.L.R. 1189. Analysing the authorities on the subject and the contemporary appreciation of a view of the locus by the Judge, Megarry J. put the matter in this way:-

"What a Judge perceived on a view is itself evidence, in the same way as what he sees and hears in the Court room. Just as a portable object may be brought into Court and, being made an exhibit, becomes real evidence, so if the Judge duly views a place or object which cannot be brought into Court that place or object provides real evidence through the medium of the Judge’s eyes, ears, touch, tongue, or as in one recent case, before me, nose. On this footing the tendering of real evidence no longer depends on the res being portable".

This is, with respect, a salutary approach as it enables the Judge to do justice in the case, unfettered by technical rules that might hinder the [*67] Court to do justice on the merits of the case. It is particularly helpful in rent applications where the intrinsic characteristics of the property have a direct bearing on the judgment of the Court. Viewing the shop in question I was able to appreciate that the premises are used as one unit accommodating comfortably in the circumstances the business of the respondent. On the whole I agree with the division of the property made by Mr. Patrikios, whereby the property is divided into four areas for purposes of valuation, subject to this qualification: A space of square feet, the area of the staircase, should not be included in the area forming part of the main shop and might more suitably be treated as a secondary area attracting a unit rental similar to the area forming part of the workshop.

The Rent Control Law 36/75 - Scope and Implications

The Rent Control Law of 1975 was enacted in order to cope with some of the repercussions of the tragic events of 1974 and the great shortage of accommodation that resulted thereby, one of its objects being to alleviate the hardship that had befallen a large section of the population of Cyprus that had been displaced from their homes. It extended the ambit of the Rent Control Laws then in existence and conferred additional powers on the Court to regulate statutory tenancies in a manner doing justice to the individual circumstances of the parties as well as social

justice by keeping the tenancy of rented premises under close [*68] control thus enabling the Court to check any tendencies

that might appear on the part of any one to exploit the grave shortage of living space to their advantage. Understandably if rents were allowed to rise unchecked this not only would add to the hardships of hard stricken persons but it would also make difficult the reactivation of many businesses, a factor of great consequence for the economy of Cyprus. The Rent Control Law of 1975 is an important piece of social legislation that must be interpreted and applied in the spirit in which it was enacted and with a live sense of the mischief it is aimed to suppress.

In applying the law the Court must, at all times, strive to ensure that rents are kept at reasonable levels; this, of necessity, involves interference in a direct manner with market forces that normally operate and determine the height of rents. In the tragic circumstances of Cyprus this interference is considered justified and socially beneficial. In so saying it should not be ignored that in normal circumstances the free operation of market forces may, in itself, under certain circumstances be beneficial.

In the case of Iacovidou v. Constantinou (1976), 2 J.S.C. 246 the Supreme Court examined the implications of rent control legislation and the criteria that should guide the Court in its application. One of the principal factors

that should bear with the Court in exercising its discretionary powers is the [*69] purpose that the legislation is designed to serve. It was stressed

that one of the aims of rent control legislation is to protect the tenant from unchecked rent rises and from eviction. The history of the Rent Control laws in England shows convincingly that the philosophy behind this legislation is that landlords should not be the sole beneficiaries of rises in rents in given areas, for the reason that it is acknowledged that the tenant of business premises, particularly a successful one, contributes by his activities to the improvement of an area as a market place, a benefit from which he should not be altogether excluded.

Section 7(3), Law 36/75, empowers the Court to fix the rental, in a given case, in a manner that is fair in all the circumstances of the case. The existence of this discretionary power is imported by the words "###".

Findings

Summarising the facts, the picture that emerges may be summed up as follows: The shop occupied by the respondent is a large corner shop that accommodates comfortably the business of the tenant. The property is situate in an area that is gradually developing into a commercial centre. In my judgment all the properties cited by the two experts admit of comparison to the subject property and the rent at which they are let does shed light on the state of the rent market in the area. [*70] Particularly helpful are the rentals fetched from the three shops, viewed as one, opposite the subject shop let to a certain Thanos Apostolides and the shop adjoining that of the defendant at 6 - 8 Galileos street. The financial position of both the landlord and the tenant is, as I can gather from the evidence, fairly good. In my judgment, a study of the comparable properties suggests a rental in region of £50. However, for the reasons above given and having in mind the intrinsic circumstances of the shop and the history of this tenancy I believe that the rental should be fixed at £43 per month as from 1st March 1977. In fixing the rental of a particular property it must not be overlooked that the rise in the rental of one property in an area will inevitably have repercussions on the state of rentals in the wider area.

In applications of this nature costs need not, of necessity, follow the event. In all the circumstances of this case I consider it just and proper that the respondent should be adjudged to pay £25 towards the costs of the applicant.

Rental fixed at £43.- per month

as from 1.3.77. Respondent to

pay £25.- towards costs.