England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WANDSWORTH COUNTY COURT
(sitting as Brentford)
(His Honour Judge Oppenheimer)

		Royal Courts of Justice Strand London WC2 Thursday 18th October, 2001

1. LORD JUSTICE CHADWICK: This is an appeal, with the permission of the judge, from an order made on 18 August 2000 by His Honour Judge Oppenheimer, sitting in the Wandsworth County Court at Brentford, in proceedings brought by Cinnamon Ltd as landlord of premises known as 2 Coral Row, Plantation Wharf, London SW11, against Miss Fiona Morgan, the tenant of that property under a lease dated 19 June 1998. The second claimant named in the proceedings, Plantation Wharf Management Ltd, is (as its name suggests) the management company responsible under the lease for providing services to the tenant and to other tenants within the estate of which the demised premises forms part.
2. The management company and the tenant are in dispute as to the costs which can be taken into account in determining the service charge. The tenant seeks to invoke section 19(1) of the Landlord and Tenant Act 1985. The section is in these terms:

"Relevant costs shall be taken into account in determining the amount of a service charge payable for a period-

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

and the amount payable shall be limited accordingly."

3. Subsection (2A) of section 19 enables a tenant to apply to a leasehold valuation tribunal for determination whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred. Section 31C of that Act enables the County Court to transfer that question to a leasehold valuation tribunal if it arises in proceedings before the Court.
4. In the context of section 19 "relevant costs" and "service charge" have the meanings attributed to those expressions by section 18. Section 18(1) defines "service charge" to mean:

"... an amount payable by a tenant of a dwelling as part of or in addition to the rent-

(a) which is payable ... for services, repairs, maintenance or insurance or the landlord's costs of management, and

(b) the whole or part of which varies or may vary according to the relevant costs."

5. Section 18(2) defines "relevant costs" as:

"... the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable."

6. The management company took the point that costs incurred or to be incurred by a service company were not "relevant costs" within section 18(2); and, because those costs were not relevant costs, a charge payable by the tenant which varied according to those costs was not a "service charge" within the meaning of section 18 (1). Accordingly, it was submitted, sections 19(2A) and 31C had no application. The basis of that contention was that costs incurred by a service company are not "costs incurred ... by or on behalf of the landlord".
7. The proceedings were commenced on 16 December 1999. On 12 April 2000 it was ordered that there should be a trial of preliminary issues. Those included an issue in these terms:

"Whether the management company rather than Cinnamon comes within the definition of "the landlord" within s.18 (2) of the Landlord and Tenant Act 1985, ..."

8. The judge decided that issue against the tenant. That decision is reflected in paragraph 3 of the order which he made on 18 August 2000. The judge felt constrained to reach the conclusion which he did by observations in this Court in Berrycroft Management Co Ltd and others v Sinclair Gardens Investments (Kensington) Ltd [1997] 22 EG 41. In giving permission to appeal against paragraph 3 of his order the judge noted:

"As to issue 3, it seems odd and potentially unjust that the statutory regime in the L & T Act 1985 does not apply where the service charges were incurred by the 2nd Claimant Management Company, rather than the 1st Claimant Landlord.

Is my understanding of Berrycroft correct?"

9. The Appellant's Notice was lodged on 29 September 2000. The landlord and the management company, who were named as respondents to the appeal, at first opposed the appeal. Skeleton arguments in support of the judge's conclusion on issue 3 were lodged on 16 November 2000.
10. But, upon further reflection on the matter, the respondents no longer feel able to support the judge's conclusion on issue 3. They join with the appellant in inviting this Court to dispose of the appeal by consent. The order sought from this Court includes declarations: first, that the management company comes within the meaning of "landlord" for the purposes of section 18(2) of the 1985 Act; and second, that section 18 applies to the service charges which are claimed in these proceedings. To make an order in those terms would require paragraph 3 of the order made by the judge on 18 August 2000 to be set aside.
11. CPR Part 52 governs the practice on an appeal. The provisions of that part of the Civil Procedure Rules are supplemented by a practice direction. Paragraph 13.1 of the practice direction (noted at 52 PD/044 in the current edition of Civil Procedure) provides that:

"The appeal court will not make an order allowing an appeal unless satisfied that the decision of the lower court was wrong."

12. It follows, therefore, that before I can make an order in the terms to which all parties now consent, I must be satisfied that the decision of the lower court was wrong. It is not sufficient, although clearly persuasive, that experienced counsel on both sides take the view that he was.
13. The starting point is to look at the language of the 1985 Act; in particular to have regard to the inclusive definition of landlord in section 30 of the Act. Section 30 provides that:

"In the provisions of this Act relating to service charges-

`landlord' includes any person who has a right to enforce payment of a service charge; ..."

14. In the context of this lease, there is no doubt that the management company is a person who has a right to enforce payment of charges payable by the tenant directly or indirectly for services, repairs and maintenance. So that, in so far as "service charge" means an amount payable by the tenant in respect of those matters, the management company is a landlord.
15. There is, I think, some circularity in the definitions of "service charge", "relevant costs" and "landlord" respectively contained in sections 18(1), 18(2) and 30 of the Act. "Service charge" means an amount which varies according to the relevant costs; "relevant costs" are costs incurred by the landlord; and "landlord" includes any person who has a right to enforce payment of a service charge. So, in order to know whether a person (other than the lessor under the lease) is a landlord, it must be ascertained whether the charge, payment of which that person is entitled to enforce, is a service charge; and, in order to know whether the charge is a service charge, it is necessary to know whether it varies according to relevant costs - that is to say, costs incurred by the landlord. But it seems to me sufficiently plain that the legislature intended that a person who has a right under a lease to enforce a charge for services, repairs and maintenance which varies according to the costs incurred by that person in providing those services under that lease is a "landlord" for the purposes of the Act relating to service charges.
16. I am satisfied, therefore, that service charges capable of being enforced by a management company, which vary according to the costs actually incurred by the management company, are intended to be within the scope of Part I of the Act; and, in particular, within the provisions as to reasonableness which are included in section 19. It follows that, in the absence of authority requiring a contrary conclusion, I would hold that the judge was in error. But, in fairness to him, I should emphasise that he felt constrained to reach the opposite conclusion because of observations made by Beldam LJ in the Berrycroft case. I must now examine that case.
17. It is important, first, to identify the issues which were before this Court in Berrycroft. In that case the landlord sought to require the management company to effect insurance with a particular insurer. The tenant was not required to effect insurance; but was obliged to pay to the management company the costs incurred by the management company in effecting insurance. Both the tenant and the management company took the view that the insurer nominated by the landlord was seeking to charge a premium which was unreasonably high. The judge came to the conclusion that that was not the position on the facts; and the Court of Appeal accepted the judge's finding on that point. That appears from page 52D-E, where Beldam LJ said this:

"As previously indicated, the judge concluded after a thorough review of the evidence that the quotations for insurance from Commercial Union were competitive compared with a quotation obtainable by a single management company acting alone and that the active and responsible management of the agency nominated by Sinclair was, taken overall, beneficial to the lessees. Consequently, the costs of the insurance were not unreasonably incurred."

18. Special provisions relating to insurance charges had been introduced into the 1985 Act by section 43(1) of the Landlord and Tenant Act 1987. The principal section introduced into the 1985 Act, section 30A, in that context incorporates the provisions of a schedule. The schedule defines "landlord" as the person who has a right to enforce payment of a service charge. The definition in that schedule is in substantially the same terms as that in section 30 of the Act. Paragraph 8 of the schedule is in these terms:

"(1) This paragraph applies where a tenancy of a dwelling requires the tenant to insure the dwelling with an insurer nominated by the landlord.

(2) Where on an application made by the tenant under any such tenancy the court is satisfied that:

...

(b) the premiums payable in respect of any such insurance are excessive ...

the court may make an order requiring the landlord to nominate another insurer."

19. The judge had identified three questions arising out of those provisions: first, did the cost of insurance included in the service charge payable by each of the tenants exceed what was reasonable and, if so, by what amount; second, did the tenancies of the flats require the tenant to insure the dwelling house with an insurer nominated by the landlord; and third, if so, was the insurance available from the nominated insurer unsatisfactory in any respect or were the premiums excessive?
20. Strictly, the judge having come to the conclusion on the facts that the costs of insurance did not exceed what was reasonable, the second question, under paragraph 8(1) of the Schedule, did not arise for his decision. Any observations on that question were obiter. But the judge had answered the question in these terms:

"None of the leases of the flats with which I am concerned require the tenant to insure at all, much less to insure with a nominated insurer. On the contrary it is the management company which covenants with each tenant to insure his flat as part of the block and that company is or may be required to insure with an issuer nominated by the landlord."

21. If the judge were correct in his view that the lease did not require the tenant to insure at all - as, plainly, he was - then the question whether the insurer was nominated by "the landlord" for the purposes of paragraph 8(1) did not arise. Paragraph 8 of the Schedule only applies to a tenancy which requires the tenant to insure; and this was a tenancy which did not require the tenant to insure. It was the management company which had to insure.
22. So the question "who was the landlord" was irrelevant. First there was already a finding of fact that the costs of the insurance were not unreasonably incurred; second, the judge had provided a convincing answer why paragraph 8 of the Schedule could not apply in any event.
23. Beldam LJ's observations in the Berrycroft case have to be read in that light. Beldam LJ took the view that the lessor came within the definition in paragraph 1 of the Schedule. It is unnecessary for me to differ from that conclusion. The relevant question in this case is not whether the lessor comes within the definition of landlord in section 30; the question in this case is whether the management company also comes within that definition. The definition is, as I have indicated, an inclusive definition. Beldam LJ asked himself whether the terms of the Act required the management company to be regarded as the tenant's landlord to the exclusion of the lessor as the landlord defined in the lease. It is clear that, had it been necessary, he would have reached the conclusion, in that case, that the terms of the Act did not require the company to be regarded as the landlord to the exclusion of the lessor who had demised the property. But even if that be right, that conclusion provides no answer to the question which arises in this case. The question in this case is not whether the management company is landlord to the exclusion of the first claimant, but whether the management company is landlord at all. There is no reason, as it seems to me, why in the context of service charges, there should not be two persons answering the description of landlord. Indeed, in this case the grantor of the lease - or the person entitled to the reversion expectant upon the determination of the term - plainly is a landlord in relation to insurance charges. That does not lead to the conclusion that the management company cannot also be landlord in relation to charges for other services.
24. In my view, therefore, His Honour Judge Oppenheimer - understandably in the circumstances - was wrong to reach the conclusion that he was bound by any observations on this point in the Berrycroft case. He was wrong, first, because the observations are plainly obiter; and second, because the observations do not address the question which he had to decide. Freed from any fetter imposed by the Berrycroft case, the answer that I would give - and which, I suspect, His Honour Judge Oppenheimer would have given - is that the management company is a landlord in relation to the charges which it seeks to recover.
25. Accordingly, I am satisfied that the decision of the lower Court was wrong and that it is open to me to make the order which the parties seek.
ORDER: Appeal allowed by consent; counsel to lodge a signed draft minute of order. (Order not part of approved judgment)