United Kingdom Upper Tribunal (Lands Chamber)

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URL: http://www.bailii.org/uk/cases/UKUT/LC/2013/LRX_159_2012.html
Cite as: [2013] UKUT 2 (LC)

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UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 2 (LC)

Case Number LRX/159/2012

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – service charges – construction of lease – whether service charges were payable to the landlord as opposed to the management company

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF

THE LEASEHOLD VALUATION TRIBUNAL OF THE

NORTHERN RENT ASSESSMENT PANEL

BETWEEN TRIPLEROSE LIMITED Appellant

and

MR IMRAN KHAN Respondent

Re: 1 Forth Bank Towers

Forth Banks

Newcastle Upon Tyne

NE1 3PN

Before His Honour Judge Nicholas Huskinson

(Decision given upon written representations)

There are no cases referred to in this decision.

DECISION

1. This is an appeal from the decision of the Leasehold Valuation Tribunal for the Northern Rent Assessment Panel (“the LVT”) dated 16 August 2012 whereby the LVT made a determination regarding whether service charges were payable by the respondent to the appellant in respect of the above mentioned premises.

2. The respondent had applied to the LVT for determination under section 27A of the Landlord and Tenant Act 1985 as amended and also under schedule 11 of the Commonhold and Leasehold Reform Act 2002 for a determination regarding what service charges and administration charges were payable by him as lessee in respect of his flat. The respondent joined three parties to this application, namely (1) the appellant (2) Mandale Residential Management Company Ltd (“Mandale”), and (3) Y & Y Management Limited.

3. The LVT made certain determinations regarding the amount payable by the respondent to the appellant in respect of insurance rent. However as regards the service charges and the administration charges the LVT concluded that it was unable to reach a decision as to how much was payable to the appellant. The LVT drew attention to the terms of the respondent’s lease which makes provision for the payment in respect of service charges to be made to Mandale, which was a party to the respondent’s lease and which is referred to in that lease as “the Management Company”. In paragraphs 57-62 of its decision the LVT stated as follows:

“57. The Tribunal must then consider the service charges themselves. Schedule 4 of the Lease provides that the relevant proportion of the Service Charges are payable to the Management Company at the times and in the manner provided for.

58. The 2^nd Respondent is the Management Company and a party to the Lease and therefore the person to whom the Service Charges are payable. However, the 2^nd Respondent went into liquidation on 21 March 2011. Under the terms of the Lease in that eventuality the Landlord becomes liable to carry out the services subject to receiving payment of the service charge from the tenants. In 2009 and 2010 the service charges were payable to the 2^nd Respondent and in respect of 2011 an apportionment is required between the 2^nd and 1^st Respondents as at the 21 March 2011 when the 1^st Respondent took up responsibility for providing of the services under the Lease.

59. The demands for payment dated respectively, 26 November 2009; 30 November 2010 and 1 December 2010 all pre-date the liquidation of the 2^nd Respondent but are made in the name of the 1^st Respondent. The Applicant is asked to make cheques payable to the 3^rd Respondent, who is a managing agent appointed by the 1^st Respondent. There is no liability under the Lease for the Applicant to pay the 3^rd Respondent. Payments to the 3^rd Respondent are made to it on behalf of the 1^st Respondent.

60. The complicated legal structure under which the Property is held leads to a lack of clarity and to understandable uncertainty on the part of the Applicant about who the service charges are payable to.

61. Services charges due from the Applicant in 2009 and 2010 are payable to the 2^nd Respondent now in liquidation and in respect of 2011 need to be apportioned between the 2^nd Respondent and the 1^st Respondent as at 21 March 2011 the date of the liquidation, Those charges cannot simply be apportioned on roughly a 25%/75% basis because the apportionment will depend on the date that the various costs were incurred and not on the date of the liquidation.

62. The Tribunal is not able to undertake the accounting exercise required to determine what part of the 2011 services charges is payable to the 1^st Respondent. It can only state the basis on which those charges are to be calculated.”

4. The appellant sought permission from the LVT to appeal to the Upper Tribunal. The LVT granted such permission. In support of the LVT it is right to observe that, in granting permission to appeal, the LVT drew attention to the fact that certain documents (now relied upon by the appellant) were not before it and also to the fact that its attention was not directed to a provision in the respondent’s lease which is particularly relied upon by the appellant, namely schedule 5 paragraph 5.

5. The problem arises in the following manner. Forth Banks Tower is a thirteen storey block situated close to the Quayside in Newcastle–Upon-Tyne overlooking the River Tyne. Flat 1 is demised to the respondent by a lease dated 13 May 2008. The freehold owner of the building is Bowesfield Investments Ltd (Bowesfield). The lease was expressed to be made between Bowesfield (as “the Landlord”), Mandale (as “the Management Company”) and the respondent (as “the Tenant”). The lease contains the following provisions:

(1) By clause 2.4 it is provided:

“The Landlord has entered or shall enter into a contract to grant a lease to the Management Company of the Estate following completion of the grant of leases of all of the flats within the Estate (though subject to the leases of all the flats within the Estate) (“the Head Lease”).”

(2) The respondent (as the Tenant) covenanted with the Landlord and the Management Company in the terms in Schedule 4. This schedule included a covenant by the Tenant with the Landlord and a separate covenant with the Management Company that the Tenant would at all times -

“Pay to the Management Company the relevant Specified Proportion of the Service Charges at the times and in the manner provided in this Lease without any deduction.”

(3) The services and the service charges were provided for in Schedule 3. These provisions were framed on the basis that the Management Company would provide the services and that the Tenant should pay to the Management Company the appropriate amount by way of his proportion of the costs.

(4) Bowesfield as Landlord covenanted with the respondent as Tenant in the terms specified in Schedule 5. This included in paragraph 5 the following text:

“Prior to the grant of the Head Lease (and in the event of the termination of the Head Lease or the liquidation or winding up of the Management Company) the Landlord will carry out the Services on the part of the Management Company and observe and perform the covenant contained in clause [illegible] subject to the Landlord receiving payment of the relevant Service Charge from the Tenant in the event that the same are not carried out by the Management Company.”

(5) As already noted, recital 2.4 contemplated that in due course a lease would be granted to Mandale as the Management Company and that this lease would be the Head Lease. For some reason which is not immediately apparent to me the lease also provided in the definition section at paragraph 1.9 a definition of the expression “Head Lease” namely this expression:

“Means a lease of the Estate to be granted by the Landlord to UKGRE or such other third party as the Landlord shall decide following the grant of the leases of all flats within the Estate in a form to be decided by the Landlord.”

Thus the expression Head Lease appears intended to refer to this contemplated lease to UKGRE and also to the intended lease to Mandale as the Management Company.

6. By a lease dated 31 March 2009 (described as a Head Lease) Bowesfield demised what I understand constituted the Estate (i.e. the Estate as contemplated in the respondent’s lease) to the appellant. This lease to the appellant was expressed to be subject to the various leases set out in the third schedule, which includes the lease of flat 1 to the respondent. By the covenant contained in paragraph 3 of the Second Schedule the appellant as lessee covenanted with Bowesfield in the following terms:

“The Lessee shall observe and perform the covenants and conditions covenanted to be performed by the “Management Company” and the “Landlord” in the leases referred to in the Third Schedule save those which relate to the Car Park and shall keep the Lessor indemnified against any breach of the same occurring during the Term.”

7. The papers before me are substantially less extensive than those before the LVT. I do not have the statements of case submitted by the respective parties to the LVT nor the bundle of documents which was before the LVT. However as I understand the facts no lease was ever actually granted to Mandale as the Management Company. Also as I understand the facts, the various services were provided and expenses were incurred by the appellant (or by Y & Y Limited as agents on behalf of the appellant) rather than by Mandale. However this is not intended to be any final finding to the foregoing effect, it is merely an expression of my understanding of the facts on the material before me.

8. In these circumstances the position is as follows. No Head Lease was ever granted to Mandale as the Management Company. Accordingly, in accordance with Schedule 5 to the respondent’s lease, Bowesfield as freeholder remained responsible for carrying out the services and was entitled to receive payment by the respondent of the service charges. By the lease dated 31 March 2009 Bowesfield granted to the appellant an overriding lease of the entire Estate, including the respondent’s flat. This lease was granted subject to all of the existing leases including the respondent’s lease of his flat. Accordingly the appellant became entitled to the reversion immediately expectant upon the respondent’s lease and became, for the purposes of the respondent’s lease, “the Landlord”. In effect the appellant had stepped into Bowesfield’s shoes. In consequence the appellant became subject to the obligations and entitled to the rights previously possessed as against the respondent by Bowesfield. This included the obligation to provide the services and the right to receive payment of the service charges as contemplated in paragraph 5 of Schedule 5 of the respondent’s lease.

9. Accordingly I conclude that the LVT was wrong in its decision that Mandale was entitled to be paid the service charges up until the date of its liquidation on 21 March 2011. As I understand it, Mandale never obtained a Head Lease. Also, as I understand it, Mandale did not provide the services or incur the costs of doing so.

10. It will now be necessary for the matter to go back before the LVT for it to decide, in the light of the present decision, what payments are due by way of service charges for the various service charge years in question and what payments are due by way of administration charges. These are matters which were not considered in detail by the LVT and clearly this Tribunal cannot consider them upon the material available.

11. In the result therefore the appellant’s appeal is allowed and the respondent’s application to the LVT is remitted back to the LVT for further consideration in the light of the present ruling by this Tribunal.

Dated: 23 April 2013

His Honour Judge Nicholas Huskinson