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URL: http://www.bailii.org/uk/cases/UKUT/LC/2010/LRX_156_2008.html
Cite as: [2010] UKUT 75 (LC)
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Warwickshire Hamlets Ltd & Anor vGedden & Ors [2010] UKUT 75 (LC) (26 March 2010)
LANDLORD AND TENANT
Service Charges
|
UPPER TRIBUNAL (LANDS CHAMBER) |
UT Neutral citation number: [2010] UKUT 75 (LC)
LT Case Number: LRX/156/2008
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
SERVICE CHARGES – jurisdiction of leasehold valuation tribunal – construction of lease – whether rent payable by a management company in respect of the common parts recoverable as part of the service charge – Limitation Act 1980 s.21
IN THE MATTER OF AN APPEAL FROM THE LEASEHOLD VALUATION
TRIBUNAL FOR THE MIDLAND RENT ASSESSMENT PANEL
BETWEEN (1) WARWICKSHIRE HAMLETS LIMITED Appellants
(2) B WOODWARD (HARBORNE) LIMITED
and
OLIVE GEDDEN AND OTHERS Respondents
Re: Premises at
Rosegate, Dorridge,
Solihull, West Midlands
Before: His Honour Judge Huskinson
Sitting at the Birmingham Magistrates Court at, Victoria Law Courts,
Corporation Street, Birmingham B4 6QA
on 11 February 2010
Patrick Darby, instructed by Allsop & Co, for the Appellants
Peter Steele of Steele’s Estate Agents and Valuers, for the Respondents
The following cases are referred to in this decision:
Gilje v Charlgrove Securities Limited [2002] 1 EGLR 41
Lloyds Bank plc v Bowker Orford [1992] 2 EGLR 44
Earl of Jersey v North Union Rural Sanitary Authority (1889) 22 QBD 555
Larsen v Sylvester & Co [1908] AC 295
Chandris v Isbrandsten-oller Co Inc [1951] 1 KB 240
Glasgow Corporation v Glasgow Tramway & Omnibus Co [1898] AC 631.
Cadogan v 27/29 Sloane Gardens Ltd [2006] 2 EGLR 89
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890
Hillingdon London Borough Council v ALC Limited [1999] ch 139 CA
re 3, 12, 23 and 29 St Andrew’s Square (unreported LVT LON/00AW/NSI/200/0054)
DECISION
Introduction
1. The Appellants appeal from the decision of the Leasehold Valuation Tribunal for the Midland Rent Assessment Panel (“the LVT”) dated 3 September 2008 whereby the LVT decided that the First Appellant was not entitled to recover as part of the Maintenance Expenses (to which each of the lessees of the premises at the Rosegate Development were obliged to contribute) certain rent payable by the First Appellant, as tenant, to the Second Appellant, as landlord, in respect of the common parts of the Rosegate development.
2. The Respondents had made application to the LVT dated 27 July 2007 whereby they sought to challenge aspects of the service charge levied upon them through their respective leases for all the years commencing 1987. The particular aspect with which this appeal is concerned is the question of the recoverability of the above mentioned rent payable by the First Appellant (hereafter called the “Management Company”) to the Second Appellant (hereafter called “the Freeholder”) in respect of the common parts of the development.
3. In summary the points raised by the Appellants in this appeal are the points raised before the LVT, namely:
(1) that the LVT did not have jurisdiction to decide whether the Maintenance Expenses extended to include payments of rent for the common parts made by the Management Company to the Freeholder and that accordingly this Tribunal, on appeal from the LVT, also has no jurisdiction to decide the point;
(2) that if jurisdiction exists, then on the proper construction of the Respondents’ leases the Maintenance Expenses do include a rent for the common parts payable by the Management Company to the Freeholder; and
(3) that in any event the Limitation Act 1980 alternatively the doctrine of laches prevents the Respondents from obtaining a decision under section 27A of the Landlord and Tenant Act 1985 as amended in respect of any service charge payments which fell due more than six years before 27 July 2007, which is the date of the Respondents’ application to the LVT.
4. The appeal to the Lands Tribunal proceeded by way of a review. No evidence was called. At the hearing both Mr Darby and Mr Steele informed me that they did not invite me to view the site. Bearing in mind the issues in this case it seemed to me clear that a view would not in any way have assisted determination of the case.
Facts
5. The Rosegate estate comprises 50 self-contained residential units designed for persons over the age of 58. The estate also comprises gardens and grounds and parking areas, and a flat for a resident warden, and a guest room and an office.
6. The leases to the Respondents (ie the occupying lessees at the Rosegate development) are all in standard form. There is before the Tribunal a copy of the lease of 21 August 1986 in respect of plot 12 and I take the terms from that document. The lease was executed between the original freeholder (who was defined in the lease as the Freeholder) and the Management Company (defined as such in the lease) and Mrs Chance as lessee. In return for a premium of £21,950 the Freeholder demised plot 12 to the lessee for a term of 99 years from 24 June 1985 at a rent of £50 per annum until June 2018 and then subject to two increases so as to become, eventually, £100 per annum.
7. The lease contains the following definitions (inter alia):
“ ‘The Development’ means the land buildings and works described in the First Schedule below and known for development purposes as ‘Rosegate’.
‘The Buildings’ means the self contained properties comprised in the Development (but excluding the Warden flat)
‘The Property’ means the property demised by this Lease as described in the Third Schedule below
‘The Warden flat’ means the self contained first floor flat for occupation by a warden arranged by the Management Company for the purposes stated in paragraph 12 of the Sixth Schedule below.
‘The Properties’ means the self contained dwellings forming part of the Development
….
‘The Guest Room’ means the Guest Room adjoining the Warden flat
‘The Common Parts’ means the parts of the Development intended for use in common by owners or occupiers of any two or more of the Properties and comprising the entrances or corridors and the office common room (with kitchen and WC) garden store laundry room and any other parts of the Development so used in common
‘The Parking Spaces’ means the parking spaces shown hatched on Plan No.1 and any car-parking areas added or substituted as part of the Development
…
‘The Gardens and Grounds’ means the whole of the Development except for the New Roads Buildings and the Parking Spaces
‘The Maintained Property’ means those parts of the Development which are more particularly described in the Second Schedule below and the maintenance of which is the responsibility of the Management Company
‘The Maintenance Expenses’ means the moneys actually expended or reserved for periodical expenditure by or on behalf of the Management Company at all times during the term hereby granted in carrying out the obligations specified in the Sixth Schedule below.
‘The Lessee’s Proportion’ means the proportion of the Maintenance Expenses payable by the Lessee in accordance with the provisions of the Seventh Schedule below.”
By recital (C) it was stated:-
“The Freeholder has agreed to grant to the Management Company a lease of the Development including the Warden flat but excluding the other Properties.”
8. The Property was demised to the Lessee together with the rights in the Fourth Schedule which included
“1. The right to use the Gardens and Grounds and the Common Parts subject to any regulations which the Management Company makes from time to time under paragraph 21 of the Eighth Schedule below
2. A right of way (with vehicles where appropriate) over the New Roads and the Parking Access Area the Common Parts and the Gardens and Grounds
3. … The right to use the Parking Spaces for the temporary parking of any private motorcars subject to any regulations which the Management Company makes from time to time under paragraph 21 of the Eight Schedule below.
…
9. The right to book the Guest Room from time to time if available for use by visitors to the Lessee (not more than two at any one time) provided:-
9.1 Booking should be made through the Warden or in such other way as the Management Company may from time to time direct
9.2 The Lessee shall pay in advance to the Management Company (or to the Warden if the Management Company so directs) such reasonable charge as the Management Company may from time to time fix for use of the Guest Room … any sums so paid by the Lessee or others shall be credited against the Maintenance Expenses before the Lessee’s Proportion is calculated.”
9. By Clause 2 of the lease the Lessee covenanted with the Freeholder to observe and perform the obligations in Parts 1, 2 and 3 of the Eighth Schedule and the Lessee covenanted with the Management Company to observe and perform the obligation set out in Parts 2 and 3 of the Eighth Schedule and the Lessee covenanted with the Lessees of the other Properties to observe and perform the obligations in Part 3 of the Eighth Schedule. In Part 1 of the Eighth Schedule the Lessee covenanted with the Freeholder in the following terms:-
“To pay the rent reserved by this Lease as provided in this Lease without deduction”
By paragraphs 5 and 6 in Part 2 of the Eighth Schedule the Lessee covenanted in the following terms:
“5. To pay and discharge all rates taxes assessments charges duties and other outgoings whatsoever whether parliamentary parochial or of any other kind which now are or during the said term shall be assessed or charged on or payable in respect of the Property or any part of it or by the landlord tenant owner or occupier in respect of it
6. To pay to the Management Company the Lessee’s Proportion of the Maintenance Expenses as provided in the Seventh Schedule above and also to pay any value added tax applicable.”
The Seventh Schedule contained the provisions regarding the Lessee’s Proportion of the Maintenance Expenses and provided that this should be 1/50th part (subject to future alteration). The Seventh Schedule further provided in paragraph 3 as follows:
“The Lessee shall pay to the Management Company the Lessee’s Proportion of the Maintenance Expenses in manner following that is to say:-
3.1 In advance on the 31st December and 24th June in every year throughout the Lease one-half of the Lessee’s Proportion of the amount estimated by the Management Company (or its managing agents) as the Maintenance Expenses for the period ending on the next 31st December The first payment shall be apportioned (if necessary) from the date of this Lease
3.2 The amount by which the Lessees Proportion respectively exceeds or falls short of the total sums paid by the Lessee to the Management Company pursuant to paragraph 3.1 of this Schedule during that period will be payable within 21 days after the service by the Management Company on the Lessee of the copy of the summary and certificate referred to in paragraph 2 of this Schedule for the period in question. The said amount will be credited or debited (as the case may be) against any future payments due from the Lessee to the Management Company unless either the Lessee or the Management Company requests in writing in which case the said amount will be paid by the Lessee or the Management Company within 14 days and if in default together with interest at the Interest Rate.”
10. By Clause 3 of the Lease the Freeholder covenanted with the Lessee to observe and perform the obligations in the Ninth Schedule. The Ninth Schedule contains, inter alia, a covenant by the Freeholder in the following terms:
“To observe and perform the covenants on the part of the Management Company contained in the Tenth Schedule PROVIDED:-
5.1 the Management Company is permitted to carry out the Freeholders obligations and
5.2 this covenant shall be enforceable against the person who is for the time being entitled to the freehold estate in the Development but shall not be enforceable against any predecessor in title.”
11. By Clause 4 of the lease the Management Company covenanted with the Lessee to observe and perform the covenants in the Tenth Schedule, which obliged the Management Company to carry out the works and do the Acts and things set out in Sixth Schedule (subject to certain provisos not presently relevant).
12. The Sixth Schedule was entitled “the Maintenance Expenses” and listed a large number of matters for which the Management Company was responsible pursuant to its covenant in the Tenth Schedule. These matters included repairing etc and painting etc and cleaning etc the relevant parts of the Development and keeping the Gardens and Grounds and the parking areas in good condition and repair and properly tended etc. It also included an obligation to insure. For present purposes the relevant provisions are those in paragraphs 9 and 12 of the Sixth Schedule which were in the following terms:-
“9. Paying all rates taxes duties charges assessments and outgoings whatsoever (whether parliamentary parochial local or of any other description) assessed charged or imposed upon or payable in respect of the Maintained Property or any part of it except in so far as the same are the responsibility of the individual lessee of any of the Properties
12. Employing a Warden who will reside in the Warden flat and providing a relief Warden service if the Warden is not available (through illness or absence or otherwise) but the relief Warden may not be able to occupy the Warden flat The Warden shall be employed for the purposes of:-
12.1 Being reasonably available to the occupiers of the Properties to give assistance in cases of emergency by seeking to inform the appropriate next of kin medical or other service required. The Warden need not be medically qualified and is not intended to provide medical or nursing assistance nor domestic duties within the Properties
12.2 Supervising the carrying out of the matters covered by this Schedule and providing a link between the residents and the Management Company
12.3 Such other purposes as the Management Company may reasonably specify from time to time.”
13. On 30 June 1987, after 46 of the 50 leases in respect of the occupational units had been granted, the then freeholder granted to the Management Company the lease contemplated in recital (C) of the occupational lease, namely a lease of the common parts of the Development. This common part lease made use of the definitions contained in the occupational leases and demised to the Management Company for a term of 99 years from 24 June 1985 the Common Parts and Gardens and Grounds the Warden Flat the Guest Room and the Parking Spaces (and certain other property). The rent reserved was £3,010 until the first review and was subject to three yearly upwards only reviews to an open market rent assessed in accordance with a formula contained in the lease.
14. Unhappiness arose amongst the lessees of the units at the size of the yearly contributions they were required to make towards the Maintenance Expenses and, in particular, in relation to their obligation to make payment in respect of rent on the common parts. There was correspondence on the subject in 2000 which included a lengthy letter written on behalf of the lessees indicating that they disputed the entitlement to claim this rent on the common parts as part of the Maintenance Expenses. However no application to a leasehold valuation tribunal or to the courts was made to resolve the matter and the Management Company continued to charge the lessees with the rents payable under the common parts lease as part of the Maintenance Expenses. No formal action to challenge this was taken until the present application to the LVT which raised the question of whether the Management Company could include this rent payable in respect of the common parts as part of the Maintenance Expenses.
LVT’s Decision
15. The LVT decided that it had jurisdiction to decide the question of whether the Maintenance Expenses could include the payment of the common parts rent by the Management Company to the Freeholder (see paragraphs 24 to 26). The LVT decided on the construction of the lease that the Maintenance Expenses could not include this rent payable in respect of the common parts. Evidence had been called before the LVT directed towards the question of the reasonableness of this rent, supposing that it was recoverable as part of the Maintenance Expenses. However the LVT made no finding upon that point, presumably because it had decided that nothing was recoverable in respect of this rent. The LVT also considered the question of limitation and laches and decided that by reason of the interconnection between the Management Company and the Freeholder the rent payments made under the common parts lease had been converted to the use of a trustee such that section 21(1)(b) of the Limitation Act 1980 applied and there was no relevant limitation period. On the equitable doctrine of laches the LVT decided for the reasons stated in paragraph 30 (including its view that the general conduct of the Appellants had been such as to obfuscate and delay the inquiries of the Respondents) that the doctrine of laches should not operate to prevent the Respondents seeking a decision in respect of all years going back to 1987.
16. In summary the LVT decided that no part of the rent collected by the Management Company in respect of the common parts was payable in respect of any of the occupational leases.
Statutory provisions
17. The Landlord and Tenant Act 1985 sections 18, 19 and 27A are, so far as presently relevant in the following terms:
“18. Meaning of “service charge” and “relevant costs”
(1) In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent –
(a) which is payable, directly or indirectly, 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.
(2) The relevant costs are 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.
19. Limitation of service charges: reasonableness
(1) 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.
27A Liability to pay service charges: jurisdiction
(1) An application may be made to a leasehold valuation tribunal for a determination whether a service charge is payable and, if it is, as to—
(a) the person by whom it is payable,
(b) the person to whom it is payable,
(c) the amount which is payable,
(d) the date at or by which it is payable, and
(e) the manner in which it is payable.
(2) Subsection (1) applies whether or not any payment has been made.
…
(4) No application under subsection (1) or (3) may be made in respect of a matter which –
(a) has been agreed or admitted by the tenant,
(b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party,
(c) has been the subject of determination by a court, or
(d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement.
(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.”
Appellants’ submissions
18. On behalf of the Appellants Mr Darby had prepared a helpful skeleton argument, which followed the sequence of the twelve numbered points contained in the Appellants’ grounds of appeal, and which he developed further in oral submissions.
19. Mr Darby first argued that the LVT and this Tribunal have no jurisdiction to determine the question of whether the wording of the lease is sufficiently wide to entitle the Management Company to include within the Maintenance Expenses (which it recovers from the lessees) the rent payable under the common parts lease. Alternatively if that submission was wrong then it was only wrong as regards that proportion of the common parts rent as was attributable to the Warden flat and the Guest Room. The argument was to the following effect:
(1) The LVT only had jurisdiction (and this Tribunal only has jurisdiction) if the application fell within section 27A of the Landlord and Tenant Act 1985 as amended, which makes provision for an application to an LVT for a determination whether “a service charge” is payable and, if it is, as to certain matters including the amount which is payable. Thus what is payable must properly be called “a service charge”.
(2) However “a service charge” is defined in section 18(1) as meaning an amount payable in addition to rent
“which is payable directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management”.
(3) It was submitted that when the Management Company required the lessees to make payment (through the Maintenance Expenses) of money to reimburse the Management Company with what it had paid over as rent for the common parts, the Management Company was not seeking payment of an amount which was payable, either directly or indirectly, for services, repairs, maintenance, improvements or insurance or landlord’s costs of management. Instead the Management Company was seeking from the lessees payment of an amount which was payable for rent in respect of the common parts and this could not be brought within any of the types of expenditure which qualified as a service charge. Also it was submitted that the common parts rent was not a sum which varied or may vary according to “relevant costs” as defined in section 18(2) because the rent is not “incurred by or on behalf of the landlord … in connection with the matters for which the service charges is payable” – instead it is incurred by the Management Company which pays the rent to the landlord.
(4) Accordingly the lessees’ obligation to reimburse the Management Company with the common parts rent which it has paid to the Freeholder falls within neither section 18(1)(a) or (b). The rent paid under the common parts lease does not change its character and become a service charge as defined in section 18(1) merely because the Management Company is recharging the rent to the lessees. Cases such as Gilje v Charlgrove Securities Limited [2002] 1 EGLR 41 and Lloyds Bank plc v Bowker Orford [1992] 2 EGLR 44, which recognised that rent in respect of a warden’s or caretaker’s flat could potentially constitute part of a service charge, are distinguishable because there what was being claimed was for a notional rent (whereas here an actually reserved rent is payable by the Management Company) and also in those cases it was not argued that the notional rent could not constitute a service charge within section 18(1).
20. Mr Darby recognised that the occupational leases contained an obligation on the part of the Management Company to employ a warden to live in the warden’s flat and also to permit the lessees to book the guest room (in return for appropriate payment). His primary submission was the one already summarised above, namely that there was no jurisdiction to consider the recoverability of any part of the common parts rent. However if it were concluded (as apparently concluded by the LVT – wrongly in his submission) that payments of rent in respect of the wardens flat and the guest room were payments which could fall within section 18 (because the payment of such rent was part and parcel of the expenses of enabling the Management Company to make available the resident warden and the guest room) then the jurisdiction was limited solely to deciding the recoverability of those parts of the common parts rent, such that there was no jurisdiction to consider the recoverability of the other parts of the common parts rent in respect of, for instance, the gardens and grounds or the car parking spaces. It may be noted that the common parts rent is assessed as a single figure rather than being separately assessed for the various separate parts of the common parts, but Mr Darby submitted that there would be no difficulty in allocating a separate part of the common parts rent to the warden flat and the guest room and he drew attention to documentation showing that the parties, when they were considering the quantum of the reviewed rent under the occupational lease, had calculated the rent by building it up with separate sums each attributed to separate parts of the common parts. Mr Darby argued that it was not permissible to look at the amount payable (namely the Lessee’s Proportion of the Maintenance Expenses) as a single amount and to decide whether the LVT had jurisdiction in relation to that amount – instead any constituent element of that amount in respect of which any argument arose must be scrutinised by the LVT which must decide whether that constituent part, viewed alone, constituted a service charge within section 18.
21. Mr Darby then advanced arguments as to the proper construction of the lease supposing, contrary to his primary argument, that jurisdiction existed to consider the recoverability of the common parts rent through the Maintenance Expenses. He advanced the following points:
(1) The Maintenance Expenses are defined as being “the monies actually expended … by or on behalf of the Management Company … in carrying out the obligations specified in Sixth Schedule”.
(2) In the present case the Management Company did actually expend in each year the occupational rents because it paid those sums over to the Freeholder. Accordingly the wording of the lease was apt to allow recovery of such common parts rents and cases such as Gilje are distinguishable, because there the landlord sought to recover not a rent which was actually paid for a warden’s flat but a notional rent to represent the value of the flat made available by the landlord. Mr Darby submitted that it was scarcely surprising that such notional rent could not fall within the expression “all monies expended” which were the relevant words in the Gilje case.
(3) It is not and cannot be disputed that the cost to the Management Company of employing the warden (eg the warden’s salary) is a chargeable item as part of the Maintenance Expenses. Similarly the rent payable for the warden’s flat is also chargeable. There is nothing in the Respondents’ leases indicating an obligation to provide rent free accommodation for the warden.
(4) The foregoing showed why rent in respect of the warden’s flat was chargeable by the Management Company as part of the Management Expenses. There was however a separate and wider argument available to the Management Company in respect of the entirety of the common parts rent (rather than merely that part of it attributable to the warden’s flat) namely the argument in the following subparagraphs.
(5) Mr Darby drew attention to the wording of paragraph 9 of the Sixth Schedule and in particular to the obligation on the Management Company to pay all outgoings “whatsoever” payable in respect of the Maintained Property or any part of it (which would include the property demised under the common parts lease). He submitted that it would be impossible to find wider wording and that it was well recognised that the word “whatsoever” would exclude any form of ejusdem generis argument which might otherwise limit the categories of expenditure which could fall within “outgoings”. In support of this principle Mr Darby referred to Words & Phrases Legally Defined (4th ed) 408 and to Earl of Jersey v North Union Rural Sanitary Authority (1889) 22 QBD 555, Larsen v Sylvester & Co [1908] AC 295, Chandris v Isbrandsten-Moller Co Inc [1951] 1 KB 240 and Glasgow Corporation v Glasgow Tramway & Omnibus Co [1898] AC 631.
(6) Mr Darby argued that to read paragraph 9 of the Sixth Schedule as not being sufficiently wide to include the common parts rents would not involve construing the provision but would involve butchering it. He submitted there was no ambiguity and accordingly the principles applied in the Gilje case and in Cadogan v 27/29 Sloane Gardens Ltd [2006] 2 EGLR 89 were inapplicable. In the Gilje case the notional rent of the caretaker’s flat was not recoverable because
“At the end of the day, I do not consider that a reasonable tenant or prospective tenant, reading the underlease that was proffered to him, would perceive that para 4(2)(1) obliged him to contribute to the notional cost to the landlord of providing the caretaker’s flat. Such a construction has to emerge clearly and plainly from the words that are used.” (per Laws LJ).
(7) The analysis becomes simply this: is the payment by the Management Company of rent in respect of a common parts an outgoing? (Answer yes); is this outgoing actually expended by the Management Company? (Answer yes); is it payable in respect of the Maintained Property? (Answer yes). Accordingly the common parts rent can be included within the Maintenance Expenses and recovered from the lessees.
22. Mr Darby reminded the Tribunal of recital (C) which put the prospective lessees on notice of the Freeholder’s intention to grant a lease of the common parts to the Management Company. A purchaser concerned to know what rights were being granted to the Management Company could have asked to see a draft of the lease of the common parts and there is no reason to believe it would not have been provided. The lease would only have been a draft at the date of 46 out of the 50 transactions because the common parts lease was not granted until after 46 units had already been demised, but there is no reason, it was submitted, to think that information regarding the proposed terms would have been withheld from an enquiring purchaser or purchaser’s solicitor. Mr Darby referred to section 199 of the Law of Property Act 1925 and submitted that the terms of the proposed common parts lease was something that the lessees must be taken to have had notice of because it would have come to the knowledge of the lessees or the lessees’ solicitors if such inquiries had been made as ought reasonably to have been made by those solicitors. There was a further point raised in relation to the registration of the common parts lease, when eventually granted, but that point was not pressed as no Land Registry documents were available and it was unclear against what title the common parts lease had become registered.
23. Mr Darby submitted that if he were to lose on the jurisdiction point but to win upon the recoverability of the common parts rents, then this Tribunal would not be in a position to consider “the extent that they are reasonably incurred” within section 19(1)(a). Expert evidence was called before the LVT directed towards this topic but the LVT made no finding upon it, it must be assumed because the LVT had decided nothing was recoverable such that it was unnecessary to consider the extent to which the costs were reasonably incurred. If these circumstances arose Mr Darby accepted that the matter would have to be remitted to the LVT for a finding as to the extent to which the common parts rent was reasonably incurred.
24. Mr Darby then raised the question of limitation and laches. He accepted that what was being claimed here by the lessees, when they made their application to the LVT under section 27A of the 1985 Act, was a determination regarding liability to pay. He accepted there was no express limitation period upon claims upon under section 27A and that any argument had to proceed by way of analogy – the question being what was the most suitable analogy between the section 27A application and actions for which a limitation period is set out in Limitation Act 1980.
25. So far as concerns the LVT’s decision that section 21(1)(b) of the Limitation Act applied such that no period on limitation applied to the claim, he submitted that what had happened here is that the Management Company had not converted any trust property to its own use but had instead paid the money over in pursuance of a binding obligation to pay the common parts rent to the Freeholder. Accordingly even though the Management Company held the money paid by the lessees in respect of the Maintenance Expenses on a statutory trust, section 21(1)(b) could not apply. The mere fact that there was a connection between the Management Company and the Freeholder was insufficient to justify a finding of conversion.
26. Mr Darby submitted that the closest analogy for a section 27A application was with a restitutionary claim to recover money had and received, for which there was a six year limitation period under section 5 of the Act, see Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890 and also Goff & Jones on Restitution (7th ed) at 43-001 and following.
27. Mr Darby further submitted that, if no limitation period applies under the statute, then the doctrine of laches applies. He accepted that the doctrine of laches applies only to claim for equitable relief where there is no limitation period prescribed by the statute and he further accepted that an application under section 27A was not a claim for equitable relief. However he submitted that so great had been the delay since 1987, including delay after 2000 when the lessees and their advisers appeared fully seized of the potential complaint regarding payment of rent for the common parts, that there must be some limitation placed upon the amount of time for which the lessees could seek to go back and reopen the service charge accounts under a Section 27A application.
Respondents’ submissions
28. On behalf of the Respondents Mr Steele made clear that he was not a lawyer and would in the main have to leave all legal points to the Tribunal. He stated that he had relations who were resident at the Rosegate estate.
29. As regards the question of jurisdiction he pointed out that the common parts rent was part of the ingredients of a single charge, namely the Lessee’s Proportion of the Maintenance Expenses. This single charge was, he submitted, a service charge within section 18 and therefore jurisdiction existed. It was wrong for the LVT to be required to look at each ingredient separately and to reach a separate decision on jurisdiction in respect of each ingredient. He also submitted that if the common parts rent is recoverable at all from the Respondents then this rent is part of the cost to the Management Company of providing the services by making available the common parts and it therefore falls within section 18.
30. As regards the provision in the occupational lease enabling lessees to book the guest room, in return for a fee, he submitted that this provision for payment of a one-off fee for such use does not imply any rights to charge also a rent (as part of the common parts rent) for that room or indeed for the warden flat or other parts of the premises. Indeed he submitted it was strange that the lease makes specific provision for payment for use of the guest flat but makes no provision stating rent is payable for these other parts. Mr Steele submitted that the occupational lease did not make sufficiently clear that rent would be paid by the Management Company to the Freeholder and would be charged back to the lessees through the Maintenance Expenses. He submitted that the developer was here trying to get two bites of the cherry, namely by selling off the units at a premium and then, once 46 of the 50 units had been sold, granting the common parts lease to the Management Company and reserving a substantial rent for these common parts being a rent which the lessees, who had already paid their premium, were then asked to pay through the Maintenance Expenses.
31. Mr Steele accepted that a prospective lessee or that prospective lessee’s solicitor would expect to see a common parts lease to a Management Company in order to make it easier to manage, but he pointed out that this did not mean that the lessee or lessee’s solicitor would expect to see a substantial rent payable for these common parts.
32. As regards the wording of paragraph 9 of the Sixth Schedule Mr Steele submitted that this clause was to cover the position if a local authority was able to put a charge on the property but it was not wording which was capable of entitling the Management Company to charge for rent which it was paying for the common parts.
33. As regards limitation Mr Steele adopted a proposition which the Tribunal had put to Mr Darby by way of a question, namely as to whether the proper analysis of the service charge situation was that there was a running account such that at end of each year money wrongly collected in year X becomes a credit or debit for year X plus one, such that in order to solve the question of how much by way of service charge is properly payable for, say, the year 2007 it is necessary to investigate all the previous years with the result that limitation does not apply at all, because the single but detailed calculation stretching back many years has to be performed to work out what is owing in a recent year, being a year well within any limitation period.
34. As regards section 21 of the Limitation Act Mr Steele submitted the LVT was correct and he pointed out that the Freeholder and the Management Company are closely connected.
35. As regards laches Mr Steele pointed out that the lessees are all, in the main very elderly and are people who would be concerned and frightened regarding litigation. He said that the Appellants had a policy of ignoring lessees’ concerns and he drew attention to the LVT’s criticism in paragraph 30 of its decision. In these circumstances he submitted it was disingenuous to argue that the Respondents had unreasonably delayed in bringing their complaints before an LVT and they should be entitled to the benefit of a ruling under section 27A in respect of all the years referred to in their application, ie all the years back to and including 1987.
36. Finally Mr Steele on behalf of the Respondents made an application under Section 20C of the 1985 Act.
Conclusions
37. On the question of jurisdiction the starting point must be sections 27A and 18 of the Landlord and Tenant Act 1985 as amended. Section 27A allows an application to be made to an LVT for a determination whether “a service charge” is payable and, if it is, as to various matters including the amount payable. Section 18 defines “service charge” as meaning “an amount” payable by a tenant of a dwelling as part of in addition to the rent which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management. Turning to the Respondents’ leases these contained a covenant by each lessee enforceable by both the Freeholder and the Management Company to pay to the Management Company the Lessee’s Proportion of the Maintenance Expenses. For simplicity I will call hereafter the Lessee’s Proportion of the Maintenance Expenses “the Charge”. The lease contains an obligation on the lessee to pay a single amount, namely the Charge. The lease does not oblige the lessee to pay a whole series of separate amounts each year to the Management Company in respect of items which are services or alleged services.
38. Having regard to the wording of section 18 I conclude that it is necessary to examine whether the lessee is required to pay “an amount” in addition to the rent. The answer is yes the lessee is obliged to pay such an amount and this amount is the Charge. The next question is whether the Charge is payable directly or indirectly for services repairs, maintenance, improvements or insurance or the landlord’s costs of management. In my judgment it plainly is so payable. I reject the suggestion that it is necessary, when considering jurisdiction, to subdivide the Maintenance Expenses into each and every separate ingredient and then to treat each such ingredient as though it was a separate amount charged in addition to the rent and then to see whether this separate amount falls within the provisions of section 18.
39. In short the only way in which the Management Company can recover the common parts rent is through the Charge, which is a service charge within section 18. Accordingly the LVT had (and this Tribunal has) jurisdiction to decide as to whether the Charge is payable and, if it is, the amount which is payable.
40. Quite apart from the foregoing, and even if the foregoing were wrong, there is the following point. If the common parts rent is recoverable by the Management Company it would be part of the expenses to the Management Company of providing the services, because if the Management Company did not pay the common parts rent then the common parts lease could be forfeited and Management Company could be excluded from the development and it would therefore be unable to provide the matters mentioned in section 18(1)(a) namely the services, repairs, maintenance, improvements, insurance or management. Accordingly for the purposes of section 18 the common parts rent (if payable at all) is payable directly or indirectly for these items.
41. The foregoing point is particularly clear in respect of the warden’s flat, because if the Management Company failed to pay the common parts rent and allowed the common parts lease to be forfeited then the Management Company would be disabled from performing its obligation in paragraph 12 of the Sixth Schedule, namely “employing a Warden who will reside in the Warden flat …”. Mr Darby sought to answer that argument by making the further submission that not merely is it necessary to subdivide the Maintenance Expenses into each separate category of expense, but it is then appropriate to subdivide each category of expense into its own separate constituent parts, such that not merely should the common parts rent be treated as though it was allegedly a separate service charge but the common parts rent (which is a single overall figure) should be broken down into rent for the warden’s flat, rent for the guest room, rent for the gardens, rent for the parking spaces etc and then each of these separate subdivided rents should be tested as to whether it fell within section 18, supposing there was a separate obligation in the lease to pay that amount. I reject that argument as being contrary to the intention of section 18. I add that the amendments made by the Commonhold and Leasehold Reform Act 2002 substantially extended the jurisdiction of the LVT and would appear intended to remove what had hitherto constituted a potential problem, namely that closely linked parts of a dispute between a landlord and a tenant might fall within the jurisdiction of the county court as to some parts and the LVT as to other parts. Mr Darby’s submissions regarding the proper approach to jurisdiction are in my judgment contrary to the intention of Parliament and contrary to the words of the 1985 Act as amended.
42. I conclude therefore that the LVT had and this Tribunal has jurisdiction to decide whether the common parts rent is recoverable as part of the Maintenance Expenses and I now turn to that question.
43. This appeal to the Lands Tribunal is by way of review. No evidence was called by either party. The LVT makes no reference in its decision to any evidence regarding the factual matrix at the date of the execution of the occupational leases, such as sales brochures or documents detailing the rights and responsibilities of the Management Company and neither party has addressed me on the basis that such evidence existed and has been overlooked by the LVT.
44. Mr Darby asked me to assume that the terms of the common parts lease had been settled well prior to its eventual execution on 30 June 1987 and that any lessee or lessee’s solicitor enquiring about the intended common parts lease, as referred to in recital (C), would have been given a draft and would have been expressly thereby informed of the proposed common parts rent. I am not prepared to make that assumption. There is nothing before me to indicate that such an assumption would be incorrect, but equally there is nothing before me to indicate that the contrary is not true and that the decision between the Management Company and the original Freeholder (who were related, see Mr Darby’s skeleton at paragraphs 60 and 61) that a market rent should be charged by the Freeholder to the Management Company for the common parts was not a decision taken at a late date prior to the eventual execution of the common parts lease on 30 June 1987, by which time 46 out of the 50 occupational leases had been granted.
45. I must construe the occupational lease having regard to its terms and in the light of the factual background as I know it to have existed, but without that factual background including any evidence of the nature mentioned above such as sales brochures or documents relating to the Management Company indicating any proposal that the lessees would be required to pay, through the Maintenance Expenses, a market rent for the common parts.
46. It may be noted that Schedule 4 of the occupational leases granted various rights to the lessees. It would be prima facie surprising to find an obligation to pay a market rent for such items as the car parking spaces and the gardens and grounds and the common parts, being areas the right to use which had been expressly granted by the Fourth Schedule without there being any reference to the lessees having to make additional payment for such use.
47. The existence in the Fourth Schedule of paragraph 9 regarding a right to book the guest room in return for a fee is suggestive of the fact that there is not a further charge to all the lessees together, namely a market rent for this room payable as part of the Maintenance Expenses.
48. The terms of paragraph 12 of the Sixth Schedule regarding the warden make express provision for the recovery of the costs of “employing a warden”, but the paragraph then states “who will reside in the Warden flat …”. The wording is in my view more indicative of the warden’s flat being part of the development the benefit of which the lessees are obtaining, in return for their premium and ground rent, rather than there being an obligation to pay a market rent for the warden’s flat as part of the Maintenance Expenses.
49. I turn next to Mr Darby’s argument regarding the great width of paragraph 9 of the Sixth Schedule, especially having regard to the words “paying all … outgoings whatsoever”. I accept, of course, the well established principles set forth in the several authorities to which Mr Darby referred, namely that the word ‘whatsoever’ is a word adopted by draftsmen to show that the greatest width is intended and to exclude an argument, based on ejusdem generis principles, that a restricted width should be placed upon the expression in question. However the fact remains that paragraph 9 of the Sixth Schedule must be construed within the context of the lease in which it appears. The points mentioned in the following two paragraphs in my judgment require paragraph 9 to be construed as not including common parts rent.
50. First it is instructive to examine the Eighth Schedule paragraphs 1 and 5 which are set out in paragraph 9 above. Paragraph 1 contains a covenant by the lessee to pay the rent reserved by the lease. Paragraph 5 contains a covenant by the lessee (enforceable by the freeholder and the Management Company) to pay a variety of matters, the wording for which is effectively identical to that appearing in paragraph 9 of the Sixth Schedule, being wording which includes an obligation to pay all outgoings whatsoever in respect of the Property. Bearing in mind that the draftsman has expressly included a covenant by the lessee to pay the rent it is in my view clear that the covenant in paragraph 5, despite the width of the words, is dealing with matters other than rent. Where the draftsman wishes to include an obligation to pay rent he does so expressly, and the express provision in paragraph 1 indicates that rent is not embraced within the otherwise wide wording of paragraph 5. The question then arises as to whether, although effectively identical wording in paragraph 5 of the Eighth Schedule does not include an obligation to pay rent, the wording in paragraph 9 of the Sixth Schedule does include an obligation to pay rent, namely the common parts rent. I see no reason to construe two effectively identical provisions as in one case including an obligation to pay rent and in the other as excluding an obligation to pay rent.
51. Quite apart from the foregoing there is the following important point. In the Ninth Schedule the Freeholder covenants with the lessee to observe and perform the covenants on the part of the Management Company. These covenants include, in particular, the obligation to carry out the works and do the acts and things in the Sixth Schedule. Paragraph 5 of the Ninth Schedule makes clear that the Management Company is permitted to carry out the Freeholder’s obligations – but this merely serves to confirm that the Freeholder is itself directly responsible by covenant for carrying out the Sixth Schedule obligations. In other words the provisions for the Charge (ie the payment of Lessee’s Proportion of the Maintenance Expenses) must be equally capable of working irrespective of whether it is the Freeholder or the Management Company who is providing the services. However, if the Freeholder is providing the services (eg because the common parts lease had been forfeited) then there will be no common parts rent payable because no common parts lease will exist and the Freeholder clearly will not be obliged to pay to itself any rent in respect of the common parts, whether the warden’s flat or the grounds and gardens or parking spaces etc. In these circumstances the Freeholder could only charge to the lessees a market rent for all these common parts etc if the terms of the lease were such as to indicate an obligation in the lessees to pay the freeholder a notional rent for these items, ie a rent to represent what the Freeholder was foregoing by making these parts of the development available to the lessees rather than let them out on the market. However, in my view there is nothing in the occupational leases to indicate any such entitlement to a notional rent. Indeed the picture conveyed by the occupational leases is that, in return for the lessees’ premiums and ground rent, the Freeholder is making available the other parts of the development. If the Freeholder had, for instance, told a prospective lessee: you realise that although I have just granted you the rights in the Fourth Schedule to enjoy the car parking spaces and the grounds and gardens etc you will have to pay a market rent for these items, I conclude that the prospective lessee would have replied that they had no idea that that was what the Freeholder intended.
52. For all the foregoing reasons I conclude the LVT was correct in finding that the common parts rent payable by the Management Company to the Freeholder is not an item which can be included in the Maintenance Expenses and recovered from the lessees.
53. I now turn to the question of limitation and laches.
54. There is a passage giving consideration to the applicability of the Limitation Act 1980 to applications under section 27A which is to be found in Service Charges and Management: Law and Practice (2nd Ed) by Tanfield Chambers at paragraph 22-006. This states:
“Section 38(1) of the Limitation Act 1980 defines an ‘action’ within the meaning of the Limitation Act so as to include ‘any proceedings in a court of law’. In Hillingdon London Borough Council v ALC Limited [1999] ch 139, CA, the Court of Appeal held that the Lands Tribunal is a court of law for the purposes of the Limitation Act. By parity of reasoning it therefore appears that the LVT is also a court of law for Limitation Act purposes.”
I consider that the foregoing is correct.
55. Later in the same paragraph the learned authors state:
“It will be evident that the application of Limitation Act defences to liability on proceedings before the LVT under section 27A is complex and not entirely free from doubt. Further, if it is correct that different considerations may apply depending on whether the application is brought by the landlord or the tenant, the position would appear to be potentially unsatisfactory and in need of clarification by the Lands Tribunal or the Court of Appeal.”
I also agreed with this comment, which is made after giving consideration to the LVT’s decision in re 3, 12, 23 and 29 St Andrew’s Square (unreported LVT LON/00AW/NSI/200/0054).
56. However I do not consider it necessary or appropriate in these proceedings to seek to reach any conclusions of general applicability upon the effect (if any) of the Limitation Act 1980 upon section 27A applications. I take this view because (a) the matter was not fully argued before me (Mr Steele understandably having made clear that he was unable to advance any legal submissions and must leave such matters to the Tribunal), and (b) because for the reasons mentioned below I consider that upon the particular facts of this case, which are unusual, section 21 (1)(b) of the Limitation Act applies to displace such limitation period if any, as might otherwise be applicable.
57. Section 21(1) provides:
“21(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action –
(a) ….;
(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.”
It must also be noted that section 42 of the Landlord and Tenant Act 1987 imposes a statutory trust in respect of sums paid to a payee by contributing tenants by way of service charge. Subsection 42(3) provides as follows:
“(3) The payee shall hold any trust fund –
(a) on trust to defray costs incurred in connection with the matters for which the relevant service charges were payable (whether incurred by himself or by any other person), and
(b) subject to that, on trust for the persons who are the contributing tenants for the time being …”
58. Mr Darby invited me to consider that a limitation period did apply by analogy, namely the six year limitation period applicable under section 5 of the Limitation Act in respect of a restitutionary claim to recover money had and received. However insofar as it is appropriate to proceed by way of an analogy (having noted that there is no specific provision in the Limitation Act which appears directly applicable to an application under section 27A) the closest analogy in this present case is in my judgment an action to recover from the trustee of trust property the proceeds of trust property previously received by the trustee and converted to his use. This is for the following reason. In the present case the Respondents’ complaint regarding the monies which they say have been charged to them over past years by way of excessive service charges is not a complaint that, for instance, works have been done to the Rosegate development but that the costs were not reasonably incurred or the work was not done to a reasonably standard. Instead the complaint is that money which they have paid by way of service charge, being money which was therefore held by the Management Company upon the statutory trust imposed by section 42 of the 1987 Act, has been spent not upon items which can properly form part of the Maintenance Expenses, but instead this money has been used by the Management Company to pay off a debt owed by Management Company to the Freeholder. Thus the Management Company chose to enter into the common parts lease whereby it became bound to pay a substantial rent to the Freeholder. The Management Company has used money held on trust not for the purpose for which it was held (namely to provide the services which can properly form the subject of the Maintenance Expenses) but instead to pay off the trustee’s personal debt to a connected company namely the Freeholder.
59. Upon this appeal, which is proceeding by way of review, I see nothing to show that the LVT was wrong in its conclusion that the monies paid by the Respondents in respect of the common parts rent were converted by the Management Company to its use. I therefore agree with the LVT that section 21 (1)(b) of the Limitation Act 1980 is applicable and prevents any limitation period barring the present applications by the Respondents to the LVT.
60. As regards Mr Darby’s appeal to the doctrine of laches, it is right to note that Mr Darby realistically and frankly accepted that he could not say that laches applies because the doctrine of laches only applies to claims for equitable relief where no limitation is prescribed by statute. Here he recognises there is no claim for equitable relief but instead the Respondents have made an application to the LVT under a statutory provision giving them power to do so, namely section 27A of the 1985 Act as amended. Accordingly I conclude that the doctrine of laches cannot help the Appellants. Also and in any event this is an appeal by way of review. Bearing in mind the findings in paragraph 30 of the LVT’s decision I do not consider I could properly interfere with such findings of fact upon this appeal.
61. In the result therefore I agree with the conclusion reached by the LVT to the effect that in respect of each of the years for which the Respondents made application under section 27A the Management Company was not entitled to include within the Maintenance Expenses (in respect of which each Respondent had to contribute the appropriate proportion) the rent paid by the Management Company to the Freeholder under the common parts lease. It follows therefore that the Appellants’ appeal is dismissed.
62. As regards the application under section 20C of the 1985 Act I conclude that, having regard to the outcome of this appeal, it is just and equitable to order that the Appellants’ costs incurred in connection with these proceedings before this Tribunal are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the Respondents.
Dated 26 March 2010
His Honour Judge Huskinson