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UPPER TRIBUNAL
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UT Neutral citation number: [2010] UKUT 283 (LC)
UTLC
Case Number: LRX/59/2010
TRIBUNALS,
COURTS AND ENFORCEMENT ACT 2007
LANDLORD
AND TENANT – service charges – construction of lease – whether the costs of
employing a chartered accountant to provide the relevant account of the service
charges and the required certificate could be included within the service
charges payable by the lessee
IN
THE MATTER OF AN APPEAL AGAINST A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL
FOR THE LONDON RENT ASSESSMENT PANEL
BETWEEN RALPH
RETTKE-GROVER Appellant
and
Respondents
JOHN
ELLOTT NEEDLEMAN
ANN-MARIE
WOLFRYD
Re:
First Floor Flat,
8 Ulva Road,
Putney,
London,
SW15
6AP
Before:
His Honour Judge Nicholas Huskinson
Sitting
at: 43-45 Bedford Square, London, WC1B 3AS
on
7 July 2011
The Appellant appeared in
person.
Jennifer Lee, instructed
by pdc legal, on behalf of the Respondents.
The following
cases are referred to in this decision:
Lloyds
Bank Plc v Bowker Orford [1992] 2 EGLR 44
Broadwater
Court Management Co Ltd v Jackson-Mann Court of Appeal (unreported
dated 23 October 1997)
DECISION
Introduction
1.
The Appellant appeals from the decision of the Leasehold Valuation
Tribunal for the London Rent Assessment Panel (“the LVT”) dated 23 March 2010
whereby the LVT decided that the service charges payable by the Appellant (as
lessee) to the Respondents (as lessors) in respect of the above mentioned
premises could properly include costs of a chartered accountant engaged by the
Respondents for the preparation of the service charge accounts and of the
appropriate certificate. The hearing before the LVT involved various other
matters concerning the reasonableness of the service charges payable by the
Appellant for the years 2006/7 and 2007/8, but the point regarding the
recoverability of an accountant’s fees through the service charge provisions
is the only point which is raised on this appeal.
2.
The LVT decided (in paragraph 10 of its decision) that it was not unreasonable
for the Respondents to engage a chartered accountant to prepare the service
charge account and the certificate; that the amount charged by the accountant
was within the band of reasonableness; and that on the proper construction of
the lease the accountant’s fees could be included within the service charges.
Permission to appeal was granted by the President when he made the following
observations:
“It is clearly arguable that
the lease makes no provision over and above the management fee for the costs of
preparing management accounts or certifying the amount of the service charge”.
It is only this point regarding the proper construction of the
lease with which the present appeal is concerned. I am not concerned as to the
reasonableness of engaging an accountant or the reasonableness of the fees
charged by that accountant. The question remains however as to whether the
terms of the lease allow the Respondents to charge the accountant’s fees to the
Appellant through the service charge provisions. It has been ordered that the
appeal proceed by way of review.
3.
At the hearing the Appellant (who appeared in person) had produced a
helpful skeleton argument and bundle and Miss Lee had also prepared a helpful
skeleton argument. Both the Appellant and Miss Lee developed their arguments
orally before me. No evidence was called.
Lease
4.
The premises at 8 Ulva Road, SW15 contained, so I was told, four flats.
The Appellant holds his first floor flat pursuant to a lease dated 18 August
1978 whereby the Respondents’ predecessors demised to the Appellant’s
predecessors the first floor flat at 8 Ulva Road (which was called “the
Building”) for a term of 120 years from the 25 March 1978 at a ground rent.
The reddendum provisions in clause 2 made further provision regarding the
payment of service charges:
“AND ALSO PAYING (by way of further and additional rent
payable as hereinafter provided) one quarter of the total amount expended by
the Lessor in –
(a)
…[provision relating to insurance]
(b)
carrying out the covenants on its part hereinafter contained in clause
4(3)(a) hereof and one-third of the total amount expended by the Lessor in
carrying out the covenants on its part hereinafter contained in clause 4(3)(b)
hereof PROVIDED THAT in addition the Lessee shall pay to the Lessor by way of
further rent payable as aforesaid by way of a management fee one quarter of the
sum equivalent to 15 per cent of the said total amount expended by the Lessor
such further and additional rent (hereinafter called “the service charge”)
being subject to the following terms and provisions:-
(a) The amount of the service
charge shall be ascertained and certified annually by a certificate
(hereinafter called “the certificate”) signed by the Lessor or its agents as
soon after the end of the Lessor’s financial year as may be practicable and
shall relate to such year in manner hereinafter mentioned
(b) The expression “the Lessor’s
financial year” shall be deemed to mean the period from the First day of April
in every year to the Thirty-First day of March or such other annual period as
the Lessor may in its discretion from time to time determine as being that in
which the accounts of the Lessor either generally or relating to the Building
shall be made up
(c) A copy of the certificate for
each such financial year shall be supplied by the Lessor to the Lessee on
written request and without charge to the Lessee
(d) The certificate shall contain a
fair summary of the Lessor’s said total amount expended by the Lessor during
the Lessor’s financial year to which it relates and the certificate (or a copy
thereof duly certified by the person to (sic) whom the same was given) shall be
conclusive evidence for the purpose hereof of the matters which it purports to
certify save for any patent error therein
(e) ….[provision regarding
anticipated expenditure].
(f) …. [provision regarding advance
payments]
(g) As soon
as practicable after the end of each Lessor’s financial year the Lessor shall
furnish to the Lessee an account of the service charge payable to the Lessee
(sic) for that year ….[provision for calculation of balance payable or
allowance to be made after giving credit for advance payments]
5. Clause 4 of the lease contained
covenants by the lessor with the lessee and clause 4(3)(a) and clause 4(3)(b)
(which are the provisions expressly referred to in clause 2(b) set out above)
provide as follows –
“3(a) Subject to contribution
and payment by the Lessee as hereinbefore provided that the Lessor will –
(i)
Throughout the said term repair and keep the exterior of the Building
and the approaches to the Building and the roof outer walls main drains gutters
and down pipes and structure thereof in good tenantable repair and condition
including decorative condition (reasonable wear and tear excepted) and the
gutters and down pipes cleared and in good condition and in particular paint
such exterior with three coats of good quality paint in every fifth year of the
said term where usually painted
(ii)
Maintain and keep in good and substantial repair and condition all such
gas and water mains storage tanks pipes drains waste water and sewage ducts and
electric cables and wiring as may from time to time be used by the lessee in
common with other tenants supplying all materials and labour necessary for this
purpose and make good at its own expense any damage caused in the course of
such maintenance or repairs or as a consequence of failure so to maintain or
repair to any property of the Lease
(iii)
Pay all existing and future rates taxes assessments and outgoings now or
hereafter imposed or payable in respect of the whole of the Building not
payable by the Lessee under his respective Lease or under general law
(iv)
To provide any other services and to carry out any other works of
whatever nature as the Lessor may from time to time deem necessary or expedient
for the efficient management of the Building and the garden areas forecourt and
footpaths belonging thereto
(b) Subject
to contribution and payment by the Lessee as hereinbefore provided that the Lessor
will keep the entrance hall staircases and other parts of the Building used in
common cleaned and properly lighted and decorated every seven years of the said
term”
Appellant’s
submissions
6. The
principal arguments advanced by the Appellant were as follows:
(1) The lease should be construed contra
proferentem against the lessor, i.e. against the Respondents. There is no clear
and unambiguous provision in the lease entitling the lessor to recover an accountant’s
fees through the service charge and accordingly the lessor should not be
entitled to do so.
(2) The lease requires the lessor
(through itself or its agents) to perform certain functions under clause 2, but
the costs which the lessor can recover through the service charge provisions
are limited to the costs of carrying out the covenants in clause 4(3)(a) and
clause 4(3)(b), which do not include reference to these obligations on the
lessor contained in clause 2.
(3) As regards the provisions of
clause 4(3)(a)(iv) (which I hereafter refer to as “paragraph iv” and which Miss
Lee referred to as the sweeping up clause), the Appellant submitted that this
must be construed ejusdem generis with the other provisions in clause 4(3)(a)
and accordingly should be construed as limited to the provision of services
which were enjoyed at the Building or in the garden areas forecourts and
footpaths, rather than services in the nature of professional expertise in
dealing with the lessor’s paperwork. He submitted that the decision of Mr
David Neuberger QC (as he then was) in Lloyds Bank Plc v Bowker Orford
[1992] 2 EGLR 44 showed that the expression “total cost to the lessor …. of
providing the services” is a wide one but was limited in that case to the costs
of employing managing agents to organise and supervise the provision of
services rather than extending for instance to costs of collecting rent. He
submitted the paragraph iv costs could not include the expenses in
administering the lease.
(4) The
Appellant drew attention to the fact that the lease makes provision for the
payment of a 15% management charge. It is through this management charge that
the Lessor is to be paid for its costs of administering the lease, including
the employment of an accountant if it chooses to employ an accountant to
perform tasks under clause 2 which it would be entitled to perform itself if it
so chose.
Respondent’s
submissions
7.
Miss Lee commenced by submitting that this Tribunal should be slow and
cautious before overturning the LVT’s decision and that the LVT’s
interpretation of the lease was within its area of discretion. She submitted
this Tribunal should not overturn the LVT’s decision unless there is a very
clear reason for doing so. However in answer to questions from me Miss Lee
said she did not argue that this Tribunal should refrain from substituting its
own views as to proper construction of the lease for those of the LVT if this
Tribunal considered that the LVT’s construction was wrong. For the avoidance
of doubt I should record that I would not have been able to accept any
submission by Miss Lee that I should approach the question of the proper
construction of the lease by asking not what was the proper construction but
asking instead whether the LVT’s construction was outwith the range of
reasonable constructions which could properly arguably be placed on the lease.
It is for this Tribunal to construe the lease.
8.
Miss Lee argued that the sweeping up clause in paragraph iv was
sufficiently wide, especially when coupled with the wording “the total amount
expended by the Lessor” in the introduction to Clause 2(a), to allow the lessor
to recover an accountant’s fees. She submitted that a “purposive approach”
should be adopted and (as I understood her) that the purpose to have in mind in
this purposive approach was a purpose which involved the lessor being able to pick
up through the service charge provisions the totality of its expenditure in
running the Building.
9.
As regards paragraph iv Miss Lee drew attention to the width of the
words used:
“To provide any other services… of whatever nature as the
Lessor may from time to time deem necessary or expedient for the efficient
management of the Building and the garden areas forecourt and footpath
belonging thereto.”
Miss Lee submitted the Tribunal should apply a broad purposive
approach which should lead to the conclusion that reading clause 2 and clause
4(3)(a) together the costs of an accountant’s fees which are incidental and
necessary to the computation of service charge should be recoverable from the
lessees and not borne by the lessor. She submitted that the provision of
accurate and properly presented accounts was a necessary and expedient step in
the efficient management of any leasehold building and that therefore the
lessor could properly and reasonably conclude that it was necessary or
expedient, in order properly to manage the Building, that an accountant should
be engaged for the preparation of the accounts. Accordingly the provision of
this service (namely the making available of accounts prepared by a chartered
accountant) fell within paragraph iv. She submitted that the proper recovery
by the lessor of service charges is in the long run of crucial importance to
the proper management of the Building and that the provision of accounts
prepared by a chartered accountant assists in the proper management of the
Building because without such professionally certified accounts the recovery of
service charges would be more difficult. The foregoing therefore supports the
argument that the provision of this service (namely the making available of
accounts prepared by a chartered accountant) falls within paragraph iv.
10.
I asked Miss Lee as to whether there was any distinction in kind between
the lessor deeming it necessary or expedient for the efficient management of
the Building etc to engage professional managing agents on the one hand and the
lessor deeming it necessary or expedient for the efficient management of the
Building etc to engage an accountant to prepare the accounts and certificate on
the other hand. I suggested to Miss Lee that it might be thought difficult to
argue that under paragraph iv the lessor could properly deem it necessary or
expedient etc to engage professional managing agents and then to recover the
whole of the costs of such managing agents through the service charges (on the
basis that their engagement fell within paragraph iv) and then, in accordance
with the terms of clause 2(b), to charge in addition a management fee of 15%
based on this total amount expended by the lessor, being an amount which would
have been swelled by the costs of engaging the managing agents. Miss Lee
accepted that the lessor could not properly argue that the engagement of
professional managing agents involved the provision of a service within
paragraph iv for which the lessees could be charged, with the further 15% on
top for management, but she submitted that managing agents provide a different
service from an accountant and that paragraph iv is wide enough to allow the
costs of an accountant to be included in the service charges.
11.
Miss Lee drew attention to clause 2(b)(c) which requires that a copy of
the certificate for each financial year is to be provided by the lessor to the
lessee on written request without charge. The Appellant no longer pursued an
argument that this amounted to an express provision that there was to be no
charge for the preparation of the accounts and the certificate – he accepted
that this provision merely made clear that there was to be no charge for
supplying a copy of the certificate. However Miss Lee argued that this
provision in Clause 2(b)(c) was a positive indication that there was power to
charge for the preparation of the certificate in the first place – otherwise
why is it necessary expressly to provide that a provision of a copy of the
certificate is not to be charged for. By expressly providing that the copy is
not to be charged for the clause implies that the preparation of the original
certificate can be charged for.
12.
Miss Lee referred to the Court of Appeal decision in Broadwater Court
Management Co Ltd v Jackson-Mann dated 23 October 1997 (a transcript
of which she provided but which may otherwise be unreported). She drew
attention to the provisions of the Fourth Schedule to the lease which was there
under consideration and pointed out that, even though there was no express provision
for the recovery of administration costs, the court held that the provisions
were sufficiently wide to cover the administration costs necessarily involved
in ascertaining and computing the amount of the service charge. Miss Lee
submitted that the decision in the Broadwater Court case showed that a
broad and purposive instruction should indeed be given to the provisions of the
lease in the present case.
13.
Miss Lee then sought to advance an alternative argument, supposing that
her primary argument based upon paragraph iv was wrong. She submitted that
having regard to the expression “the total amount expended by the Lessor” in
the introductory words to clause 2(a) the lease should be construed as
entitling the lessor to recover all of its reasonable costs in running the
Building.
Conclusions
14.
I deal first with Miss Lee’s alternative argument mentioned in the
immediately preceding paragraph. This cannot be correct. The words of the
lease require the lessee to pay a proportion of the total amount expended by
the lessor in doing certain things. These things are then set out. After the
reference to insurance (not presently relevant) the things which the lessor can
charge the total amount expended in doing are carrying out the covenants on its
part contained in clauses 4(3)(a) and (b). It is common ground that if the
engagement of an accountant does not fall within paragraph iv (i.e. within
clause 4(3)(a)(iv)) then it does not fall within any of the other provisions in
clauses 4(3)(a) or (b). Accordingly if Miss Lee’s primary argument is wrong
and paragraph iv does not cover the engagement of an accountant, the result
must be that the cost of engaging an accountant cannot be included in the
calculation of the service charge. This is simply because the service charge
provisions allow for the recovery of the costs of carrying out the covenants in
clauses 4(3)(a) and (b) and if the costs of an accountant do not fall within
paragraph iv then they do not fall within clauses 4(3) (a) or (b) and the
lessee cannot charge the costs thereof.
15.
The crucial question therefore is whether the engagement of an
accountant to prepare and certify the accounts can be said to be the provision
of –
“…. any other services …. of whatever nature as the Lessor
may from time to time deem necessary or expedient for the efficient management
of the Building and the garden areas, forecourts and footpaths belonging
thereto”.
16.
In my judgment the engagement of an accountant and the provision of
accounts prepared and certified by an accountant does not constitute the
provision of services within paragraph iv. My reasons for so concluding are as
follows.
17.
This is a case where a management fee is expressly made payable
calculated as 15% of the total amount expended by the lessor on insurance and in
complying with the covenants in clause 4(3)(a) and (b). It is in my view clear
that the lessor is not entitled to argue that the engagement of professional
managing agents, however sensible or desirable that may be for the efficient
management of the Building etc, is something which falls within paragraph iv
and can therefore be charged for through the service charge. Were the position
otherwise one would get to the remarkable result that the lessor could engage managing
agents to perform all of its tasks under the lease and could argue that the
provision of the managing agents’ services in this regard fell within paragraph
iv and that therefore the costs of the managing agents were part of the “total
amount expended” for the purpose of calculating the service charge – and the
lessor would then be entitled through the express provisions of the lease to
add a 15% management fee on top. In my judgment paragraph iv must be construed
on the basis that the provision of professional management services for the efficient
management of the Building is not the type of “other service … of whatever
nature” as is referred to in paragraph iv. There is express provision in
clause 2 for a management fee. Paragraph iv is not therefore sufficiently wide
as to allow the provision of the services of managing agents to come within it.
If the provision of the services of managing agents does not fall within
paragraph iv I see no reason to reach a different conclusion in respect of the
provision of the services of an accountant insofar as the lessor chooses to
employ an accountant to perform a function which otherwise the lessor would
have to perform itself in managing the Building.
18.
The lease imposes certain express obligations on the lessor in the
covenants in clause 4(3)(a) and (b). It is the total amount expended in
performing these obligations (and in effecting insurance) which can be charged
through the service charge provisions. However the lease lays certain further
express obligations on the lessor, for instance the obligation in clause 2 to
ascertain and certify the amount of the service charge and the furnishing of
accounts to the lessee. The cost of performing the obligations under clause 2
is conspicuously not one of the costs which can be charged through the service
charges. The Respondent’s argument involves reading clause 2 as though,
instead of allowing the recovery of the total amount expended by the lessor in insuring
and in carrying out the covenants in clauses 4(3) (a) and (b), the lease
instead provided that the lessor could recover the total amount expended in
complying with all of its obligations under the lease. However the lease does
not so provide.
19.
Also bearing in mind the fact that clause 2 imposes certain express
obligations on the lessor I conclude that paragraph iv, when speaking of the
provision of any other services of whatever nature as the lessor may from time
to time deem necessary or expedient for the efficient management of the
Building etc, cannot properly be construed as extending to steps taken by the
lessor to perform its contractual obligations under clause 2.
20.
Also the wording of paragraph iv is in my judgment directed towards
services which are actually enjoyed by the lessees as the fruits of “the
efficient management of the Building and the garden areas, forecourts and
footpaths belonging thereto.” The lessees would consider that, for instance,
the sweeping up of fallen leaves in the garden to be such a service, but the
lessees could not reasonably be expected to accept that the dealing with
accounting problems lying on the lessor’s desk was such a service.
21.
I do not consider the Respondents’ arguments are assisted by Miss Lee’s
reference to the Broadwater Court case. In that case there was no
provision in the lease for the recovery by the lessor of a management fee. It
may also be noticed that an argument was there advanced that it must have been
in the contemplation of the parties at the date of the grant of the lease that
the freehold would be transferred to a management company which would perform
the landlords’ obligations in return for the payment of the tenants’
contributions – the argument was that if such a scheme is to work then it is
necessary that the tenants should contribute sufficiently to cover all the
proper outgoings of the company which has no other source of funds. The fact
that in those circumstances it was held on the wording of that lease that the
administration costs necessarily involved in ascertaining and computing the
amount of the service charge were recoverable does not assist the Respondent’s
argument that on the terms of the present lease (which has an express provision
for a 15% management fee) the Respondents can do likewise and can include an
accountant’s fee within the relevant “total amount expended” and can then charge
a 15% management fee on top.
22.
Miss Lee’s argument based on clause 2(b)(c) of the lease (see paragraph
11 above) does not undermine the above conclusions. All that clause does is to
lay down that the lessor cannot make a charge to the lessee for supplying a
copy of the certificate. The clause makes no provision as to what is to be
included within the “total amount expended” – but other provisions in the lease
(analysed above) make express provision for this.
23.
In summary I conclude that under the lease the Respondents have certain
obligations which are not embraced within clauses 4(3) (a) and (b) being
obligations which the lease contemplates the Respondents will perform at their
own expense in return for the management fee. One of these obligations is the
preparation of the accounts and the appropriate certificate. The lease makes
no provision for the engagement of an accountant. It is of course open to the
Respondents to choose to use an accountant, rather than to prepare the accounts
themselves, in just the same way as it is open to the Respondents to employ
managing agents, rather than to manage the Building themselves, but if the
Respondents do so they must pay from their own pockets for such an accountant
or such managing agents. This is all part of the costs of managing the
Building for which the Respondents are entitled to their management fee.
24.
In the result therefore I allow the Appellant’s appeal against so much
of the LVT’s decision as found that the Respondents were entitled to include
the fees of the chartered accountant as part of the service charge costs.
Dated
13 July 2011
His
Honour Judge Nicholas Huskinson
