United Kingdom Upper Tribunal (Lands Chamber)

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URL: http://www.bailii.org/uk/cases/UKUT/LC/2013/LRX_171_2010.html
Cite as: [2013] UKUT 0338 (LC), [2013] UKUT 338 (LC)

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UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 0338 (LC)

Case Number: LRX/171/2010

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – recovery of service charge – construction of lease – matters to be raised before Tribunal on review

IN THE MATTER OF AN APPEAL AGAINST A DECISION

OF A LEASEHOLD VALUATION TRIBUNAL FOR THE

LONDON RENT ASSESSMENT PANEL

BETWEEN (1) PADDINGTON BASIN DEVELOPMENTS Appellants

LIMITED (PBDL)

(2) EUROPEAN LAND AND PROPERTY LIMITED

(3) PADDINGTON BASIN MANAGEMENT LIMITED

and

(1) MR RAYMOND GRITS Respondents

(2) WEST END QUAY ESTATE MANAGEMENT LIMITED

(WEQEM)

(3) FREEHOLD MANAGERS NOMINEES LIMITED

(4)MR D MOSSELSON

(5) MR M H B JEANS

(6) MR ANDREW SHARR

(7) LEASECLIFFE LIMITED

(8) MS BRIDGET WALKER

Re: West End Quay

Paddington

London W2

Before: Her Honour Judge Karen Walden-Smith

Sitting at: Upper Tribunal (Lands Chamber), 45 Bedford Square,

London WC1B 3AS

on 2-3 May 2013

Katharine Holland QC for the Appellants

Daniel Dovar for the First Respondent

James Fieldsend for the Second Respondent

The Fourth Respondent, Mr Mosselson, in person and on behalf of the Fifth to Eighth Respondents

The following cases are referred to in this decision:

Paddington Basin Developments Ltd v West End Quay Ltd [2010] 1 WLR 2735

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896

Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900

Universities Superannuation Scheme Ltd v Marks and Spencer [1999] 1 EGLR 13

Embassy Court Residents v Lipman (1984) 271 EG 545

Sella House v Mears (1989) 21 HLR 147

Earl Cadogan v 27/29 Sloane Gardens [2006] 2 EGLR 89

Gilje v Charlgrove Securities [2002] 1 EGLR 42

Cherry Tree Investments Ltd v Landmain Ltd (2012) EWCA Civ 736

DECISION

Introduction

1. This is an appeal against the decision of the Leasehold Valuation Tribunal (“LVT”) dated 9 September 2010.

2. The LVT heard preliminary issues on the following questions:

(1) Do the provisions of the applicant’s underlease dated 2 October 2002 entitle the respondent to recover the costs of maintaining the land and premises which were the retained land under an assignment part dated 29 December 1997 between Paddington Basin Management Limited (the third respondent) (1); European Land and Property Developments Plc (2); Frogmore Developments Limited (3); and Frogmore Estates (4).

(2) Whether the first respondent is prevented from pursuing the contentions advanced in paragraphs 10 to 14 inclusive of his reply dated 4 February 2010 by reason of the order and judgment of Master Moncaster dated 24 October 2008 in the Chancery Division of the High Court of Justice in Claim No. HC0800558.

(3) If no, whether the deed is void for the reasons alleged in paragraphs 10 to 14 of the reply.

(4) If the answer to the last question was no, whether the deed is voidable by reason of the matters alleged in paragraph 18 of the reply and if so whether it had been avoided.

3. The LVT promulgated its decision on 9 September 2010. It found that the provisions of the first respondent’s underlease did not entitle the second respondent to recover the costs of maintaining the land and premises which were the retained land under the 1997 assignment of part.

4. On the second issue the LVT determined that the first respondent was prevented from pursuing the contentions advanced in paragraphs 10 to 14 inclusive of his reply by reason of the LVT’s decision on the second issue. The LVT made no further order with respect to the third and fourth preliminary issues.

5. I will deal with the LVT decision in further detail through this Decision.

The High Court Proceedings

6. The appellants (represented by Ms Katherine Holland QC) commenced proceedings against the second respondent, West End Quay Management Limited, in the Chancery Division of the High Court claiming arrears of service charge under the terms of an Estate Management Deed dated 5 September 2005 in the sum of £599,881.33 together with interest thereon in the sum of £54,810.23.

7. A defence was filed to the High Court proceedings on 26 March 2008. In that defence (drafted by Mr Stan Gallagher), the second respondent to these proceedings (West End Quay Estate Management Limited: WEQEM) averred that the Estate Management Deed (EMD) is a qualifying long term agreement so that, by virtue of the provisions of section 20(1) of the LTA 1985, the residential service charges are limited by virtue of section 20(6) and 20(7) unless the consultation requirements had been complied with or those consultation requirements had been dispensed with by the LVT. The defence averred that the consultation requirements had not been complied with and, as there had been no dispensation by a LVT, it was denied that the service charge was due and payable.

8. A reply was served on 30 May 2008 denying that the EMD was a qualifying long term agreement. By an order made by Master Moncaster on 3 June 2008, a preliminary issue was directed to be heard as to whether the EMD dated 5 September 2005 was a qualifying long term agreement within section 20 of the LTA 1985 and the Service Charges (Consultation etc) Regulations 2003. On 24 October 2008, Master Moncaster dismissed the application to amend the defence to include a counterclaim.

9. The trial of the preliminary issue was adjourned in order for a representative underlessee to be joined to the proceedings and, in due course, Alan Sharr was added as a second defendant to the proceedings. On 25 September 2009, the appellant issued further proceedings in the Chancery Division of the High Court in order to claim further arrears of £565,792.95 together with interest thereon of £24,034.76.

10. By an order sealed on 21 April 2010, Lewison J (as he then was) declared that the EMD was a qualifying long term agreement. He held that the three requirements set out in section 20ZA(2) of the LTA 1985 were satisfied, namely that it was an agreement; that WEQEM was a landlord within the extended meaning of section 30 of the LTA 1985 (namely a person who has a right to enforce payment of a service charge); and that while without a fixed term, the underlease could not be determined until the expiry of 25 years and is therefore an agreement of more than 12 months. He went on to say as follows:

“Entry into the estate management agreement was not, I think, a necessary consequence of the development of the overall estate. For one thing, Paddington Basin Management Ltd could have been made a party to each of the leases and could have had a benefit of a covenant by each lessee to contribute towards the estate-wide costs. In that event although the covenant itself would not have been a qualifying long term agreement the lessees would have had the right to challenge individual items of expenditure, and individual long term agreements made with service providers. Second, the estate management deed was not made until some years after the first of the leases was sold off. Third, the sale agreement of 2 August 1996 envisaged that a lease of the common parts would be granted to the estate management company; and that does not appear to have happened. Ms Holland placed some reliance on clause J4 in the lease. However that clause is drafted in very general terms. It does not oblige anyone to provide estate-wide services. Nor does it confine itself to the provision of estate-wide services by a dedicated management company. I do not consider that clause J4 will bear the weight that Ms Holland seeks to place upon it.” Paddington Basin Developments Ltd v West End Quay Ltd [2010] 1 WLR 2735

The Proceedings Before the Leasehold Valuation Tribunal

11. On 14 March 2008, the first respondent, Mr Raymond Gritz (now represented by Mr Daniel Dovar) made an application to the LVT pursuant to the provisions of section 27A of the Landlord and Tenant Act 1985 (“the LTA 1985”) seeking a determination as to the liability to pay the service charge pursuant to the terms of the EMD to WEQEM.

12. The preliminary issues that were to be determined by the LVT were decided at a case management conference 29 March 2010. The matter was listed for hearing before the LVT on 25 June 2010.

13. On 9 September 2010 the LVT provided its decision that there was no provision in the underleases that obliged the leasees to make contributions towards the liability of WEQEM (the second respondent) under the terms of the EMD dated 5 September 2005. In paragraph 40 of the Decision, the LVT stated “Accordingly, there is no provision in the underleases that would oblige the lessees to make contributions towards WEQEM’s liability under the Sept 2005 Estate Management Deed.”

14. The appellants made an application to the LVT for permission to appeal, which application included the ground that “In [the LVT] concluding that “there is no provision in the underleases that would oblige the lessees to make contributions towards WEQEM’s liability under the September 2005 Estate Management Deed”, the Tribunal did not answer the question posed by the Preliminary Issue but purported to answer a wholly different question which was not before the Tribunal. The conclusion arrived at by the Tribunal formed no part of the pleaded case of the Applicant [or] nor was it a question upon which the Tribunal heard argument. The potential effect of the breadth of the conclusion stated in Paragraph 40 of the Decision is that the First Respondent is not only precluded from recovering from the underlessees in respect of the retained land under the 1997 Assignment but also in relation to the West End Quay Land, upon which the block in which the Applicant is a underlessee is situated. Accordingly, the broad terms of the conclusion stated in Paragraph 40 of the Decision would mean that the underlessees would enjoy a complete windfall benefit, namely the benefit of the services in relation to the maintenance of the West End Quay Land, without making any payment for it.”

15. The LVT refused permission to appeal, however acknowledged in that refusal that paragraph 40 of its Decision may have been misleading, and that its decision was actually contained in paragraph 21 “For the reasons set out below the Tribunal determined that the provisions of the Applicant’s underlease dated 2 October 2002 do not entitle the First Respondent [WEQEM – the second respondent in these proceedings] to recover the costs of maintaining the land and premises which were the retained land under the Assignment of Part dated 29 December 1997 …” and a Correction Certificate dated 14 December 2010 was issued to the same effect. The appellant contends that the decision expressed in paragraph 40 reveals a fundamental error in the reasoning on the part of the LVT and the removal of paragraph 40 fails to correct the error in thinking. Having removed paragraph 40, it is submitted on behalf of the appellants that it is not possible for the LVT to justify the conclusion that they came to.

16. The parties consented to a stay of the High Court claims pending the outcome of the appeal from the LVT by order of Master Moncaster on 20 October 2010.

17. Upon the LVT’s decision to refuse permission to appeal the appellants applied to the Upper Tribunal (Lands Chamber) for permission to appeal. The grounds for the application for permission to appeal were that the LVT had acted in error in concluding that the provisions of the Underlease did not entitle the second respondent to recover the costs of maintaining the land and premises which were the retained land under an assignment of part dated 29 December 1997.

18. The then President of the Lands Chamber, George Bartlett QC, granted permission to appeal on 24 March 2011. He did so on the grounds that the proposed appeal stood a realistic prospect of success. The Order granting permission to appeal confined the appeal to the first of the preliminary issues determined by the LVT and stated that the appeal would be by way of review. The covering letter sent to the parties enclosing permission to appeal provided that the appeal would be by way of review so that the only evidence that could be considered on appeal was the evidence that had been presented to the LVT. I have had the opportunity to consider those various documents thoroughly.

19. A Statement of Case was provided by the appellant on 26 April 2011. The first respondent provided a Statement of Case on 23 June 2011. The second respondent provided a Statement of Case on 14 June 2011 and an undated Statement of Case was subsequently provided by the fourth to eighth respondents. The third respondent, namely Freehold Managers (Nominees) Limited, have not provided a Statement of Case and have taken no part in these appeal proceedings. A Statement in Reply was served on behalf of the appellants on 18 August 2011.

20. The appeal was listed for a hearing to commence on 1 May 2012, but as a result of an application made on 20 January 2012 by the second respondent, and supported by the fourth respondent, directions were made with respect to further disclosure subject to the appellants providing objections to such disclosure being made. The appellants’ objected to the disclosure order and after consideration by the President the hearing on 1 May 2012 was ordered to be a Case Management conference in place of the originally listed substantive hearing.

21. Further directions were given at the hearing on 1 May 2012. The substantive hearing was relisted to be heard on 24 and 25 October 2012. Unfortunately, as a result of other judicial commitments that substantive hearing had to be adjourned and the matter finally came on for hearing on 2 and 3 May 2013.

22. At the substantive hearing the appellants were again represented by Katharine Holland QC and the first respondent was represented by Mr Daniel Dovar. The second respondent was represented by Mr James Fieldsend and the fourth to eighth respondents were represented by the fourth respondent, Mr D Mosselson. I have been much assisted by the detailed written and oral submissions made before me and also the boards provided by Mr Mosselson to show the entire site, including both the West End Quay and the retained land. In addition to those submissions I had the benefit of a site visit to the Paddington Basin Development on the morning of 3 May 2013.

The Factual Background

23. By a Lease dated 5 December 1995 (“the 1995 Lease”) made between (1) British Waterways Board as landlord; (2) Paddington Basin Developments Limited as tenant and (3) Trafalgar House Property Limited as surety, the premises shown edged red on the plan attached to the lease were demised to Paddington Basin Developments Limited for a term of 999 years commencing on 25 March 1995.

24. A Sale Agreement dated 2 August 1996 (“the 1996 Sale Agreement”) was entered into between (1) European Land and Property Development Plc (as seller); (2) Chelsfield Plc (as seller’s guarantor); (3) Frogmore Developments Limited (as buyer) and (4) Frogmore Estates Plc (as buyer’s guarantor) for the sale of part of the leasehold interest created by the 1995 Lease to Frogmore. Clause 13 of the 1996 Sale Agreement included provisions for an estate service charge in the following terms:

“13.1 The Property includes areas of land and the Works include works which, in the context of the Seller’s proposals for the comprehensive redevelopment of the Retained Land and adjacent lands are intended (together with parts of the Retained Land and adjacent lands) to be common areas for the use and enjoyment of all persons having resort to the Retained Land and adjacent lands and the Property. The Seller will develop as soon as conveniently may be, within the framework of its proposals for the comprehensive redevelopment, detailed arrangements (“Estate Services”) for the repair maintenance and renewal of all such common areas (“Estate Areas”) for the benefit of all occupiers of the comprehensive development of the Property. The cost of such Estate Services shall be borne on a fair and equitable basis by the occupiers of the comprehensive development inclusive of the Property (“the Estate Service Charge”).

13.2 The Seller currently anticipates that an estate management company will be created in order to provide the Estate Services and that this company will be granted leasehold interests in the Estate Areas. The Buyer will not unreasonably withhold agreement to the form and substance of any arrangement relating to the Estate Services and/or the Estate Areas and/or the Estate Service Charge and will in particular, grant to any such estate management company a lease in such form as may be agreed with the estate management company, the Seller and Buyer in relation to those parts of the Estate Areas which fall with the Property”.

The scheme envisaged by that clause was not, in fact, put into effect.

25. The first appellant and the second appellant entered into an agreement on 24 December 1996 for the purpose of transferring all trade and undertaking of the first appellant to the second appellant.

26. By an Assignment of Part dated 29 December 1997 referred to above, that part of the leasehold interest relating to the land known as the West End Quay Land was assigned to Frogmore.

27. A deed of apportionment and variation was entered into, also on 29 December 1997 between (1) British Waterways Board as landlord; (2) Paddington Basin Developments Limited as tenant; (3) European Land and Property’s Development Plc as beneficial owner; (4) Chelsfield Plc; (5) Frogmore Developments Limited as assignee and (6) Frogmore Estates as guarantor. This Deed of Apportionment and Variation was entered into for the purpose of apportioning the rent covenants and other provisions of the lease between the assigned West End Quay Land and the retained land. By clause 2, “The yearly rent referred to in Part I of the Fifth Schedule of the Lease shall with effect from the Completion Date be apportioned to the Retained Part and be payable exclusively out of the Retained Part in exoneration of the Assigned Part.” By clause 6 of the deed of apportionment and variation the landlord (British Waterways Board), the tenant (Paddington Basin Developments Limited – the first appellant) and the assignee (Frogmore Developments Limited) agreed that the covenants on the part of the landlord and tenant “shall be servered as if the Lease had contained separate demises of the Assigned Part and the Retained Part. By clause 6.1 it was agreed that in any case where the first appellant, as tenant, had “covenanted to pay or contribute towards costs and expenses of the Landlord those payments or contributions shall with effect from the Completion Date be apportioned so that 80% of such payments or contributions shall be payable and issue out of the Retained Part and 20% out of the Assigned Part”. The “Assigned Part” amounted to 8179 square metres of the site area of the Demised Premises and the whole of the Assigned Part forms part of the permitted Residential Areas (see clause 5) and by clause 6.3, for the purpose of giving effect to the provisions of clause 6.1 of this Deed and with effect from the completion date the amendments set out in the Schedule to this Deed will be made to the Lease in respect of the Assigned Part only (clause 6.3.1) and save as varied hereby the Lease shall continue in full force and effect in all respects in relation to the Assigned Part and the Retained Part (clause 6.3.2). By paragraph 2.5 of the schedule to the Deed of Apportionment and Variation, clause 3.9.2.1 shall be deleted in its entirety and substituted with “3.9.2.1 Residential use with ancillary retail and/or ancillary office and/or ancillary leisure and/or restaurant uses and the staging of performances.”

28. The leasehold title to the “Assigned Part”, as described in the Deed of Apportionment and Variation, was registered at the Land Registry under title number NGL758149. That “Assigned Part” or “Assigned Property” is the West End Quay Land. By a transfer dated 4 May 2000, Frogmore Developments transferred the West End Quay Land (registered under title number NGL 758149) to West End Quay Limited. As from 4 May 2000, the landlord of the West End Quay Land was British Waterways Board and the tenant was West End Quay Limited.

29. The third appellant, Paddington Basin Management Limited, was incorporated on 4 January 2001. Its objects are to carry on the business of the management company responsible for the ongoing maintenance and management of the Paddington Basin Estate.

30. WEQEM, the second respondent, was incorporated on 28 January 2002. The sole subscriber to WEQEM was West End Quay Limited. The objects of WEQEM as described in its Memorandum was:

“(A) (i) To undertake the management and administration of the communal parts including car parking of a development known as West End Quay, Paddington, London W2 the leasehold title to which is currently registered at HM Land Registry under Title No. NGL758149 and to provide such services for the owners and occupants thereof and to carry out such reconstruction, renewal, repairs, maintenance or renovations thereto as may be necessary or desirable.”

The operative date for the purposes of WEQEM’s Articles was 4 November 2005. Until that date WEQEM was controlled by West End Quay Limited and thereafter it was controlled by the lessees.

31. By an Estate Management Deed dated 5 September 2005 (“the EMD”) made between the first appellant and the second appellant (formerly known as Paddington Development Corporation Limited) (1) the third appellant (2) and the second respondent (WEQEM) (3) the first and second appellants and WEQEM appointed the third appellant to provide Estate Services in connection with the Paddington Basin Estate. By clause 7.2 of the EMD, WEQEM covenants with the appellants to pay to the third appellant the Estate Service Charge Percentage according to the provisions set out in Schedule 2. By clause 15.6 of the EMD it was provided that interest on unpaid sums would be payable at the rate of 3% per annum above National Westminster Bank PLC base rate.

32. By paragraph 2 of Schedule 2 of the EMD, WEQEM covenanted with the first and second appellants, and as a separate covenant with the third appellant to pay to the third appellant:

(a) The Estate Service Charge Percentage of the Estimated Expenditure in advance by equal quarterly instalments on the Quarter Days during each Estate Financial Year;

(b) If any of the Estimated Expenditure is revised, within 14 working day after written demand the Estates Service Charge Percentage of the amount by which any revised figure for the estimated expenditure exceeds the figure previously notified

33. Paragraph 4 of Schedule 2 of the EMD provided the following:

“4.1 For the purposes of Paragraph 2 of this Schedule hereof until the next Quarter Day following the date hereof until the next Quarter Day following the date hereof the Estate Service Charge Percentage shall be the annual sum of £272,710.80 pro rated for the period from and including the date hereof to and including the date immediately prior to the next Quarter Day.

4.2 For the purposes of Paragraph 2 of this Schedule from and including the next Quarter Day following the date hereof until such time as a Certificate is issued by the Estate Surveyor pursuant to paragraph 3(b) of this schedule the Estate Service Charge Percentage shall be 45 per cent of the Estimated Estate Expenditure and after such time as a Certificate is issued by the Estate Surveyor pursuant to Paragraph 3(b) of this Schedule the Estate Service Charge Percentage shall be as indicated in the last available Certificate issued by the Estate Surveyor pursuant to Paragraph 3(b) of this Schedule.”

34. The West End Quay Land comprises 467 flats together with approximately 10 commercial units, divided into three blocks being block A (Westcliff Apartments), block B (Peninsular Apartments) and block C (Balmoral Apartments).

35. During the period from 2002 to 2004 West End Quay Limited granted underleases of all the flats for a term of 990 years commencing on 1 January 2001. The first respondent and the fourth respondent who has been representing the interests of himself and the fifth, six, seven and eighth respondents are some of the long leasehold owners of the flats in the West End Quay Land. The first respondent’s underlease was granted on 2 October 2002. The lease provides in the recitals that “the Block Management Company and the Estate Management Company have been formed for the purpose of maintaining managing and controlling respectively the Apartment Block of which the demised premises form part and the Estate.” The Estate is defined as “all that leasehold land and buildings to be erected thereon shown…and known as West End Quay Praed Street and South Wharf Road Paddington London W2 as registered at HM Land Registry under title number NGL758149 and all additions amendments and deletions to the Estate”

36. The demise in the lease is set out (in clause B) as being the demised premises “together with the rights specified in the Second Schedule”, which are the rights of the Estate as a whole. Again, the “Estate” is defined as the land registered at HM Land Registry under title number NGL 758149 – that is the West End Quay Land.

37. Clause E3 of the Lease, under the sub-heading “Service Charges” provides that, as one of the tenant’s covenants:

“The tenant to the intent that the obligations may continue throughout the term hereby granted covenants with the Landlord and (where appropriate) as a separate covenant with the Management Companies as follows:-

To pay:-

3.1 to the Block Management Company a service charge (“the Block Service Charge”) being the sum or sums equal to the proportion referred to in Paragraph 7 of the Particulars Page and

3.1.1 to the Estate Management Company a service charge (“the Estate Service Charge”) being the sum or sums equal to the proportion referred to in Paragraph 8 of the Particulars Page

of all amounts sums costs expenses and outgoings of each and every kind whatsoever which may from time to time during the continuance of this Lease be expended or incurred or become payable by the relevant Management Company in relation to the Apartment Black and the Estate such service charges to be payable in accordance with the provisions of Clauses I and J”

39. Clause I sets out the method of calculation of service charge and Clause J sets out the matters to be included in the service charges. Clause J is widely worded and the appellants place reliance upon clause J4 which provides:

“MATTERS TO BE INCLUDED IN THE SERVICE CHARGE

It is agreed and declared that there shall be included in the Service Charges

4.Any payments to be made by the Landlord and/or by the relevant Management Company to the Superior Landlords and/or to the company authority or body which manages and maintains the whole area known as the Paddington Basin of which the Estate forms part whether under the provisions in the Headlease or otherwise including the maintenance of the Basin as set out in the Headlease.”

40. Paragraph 3 of the recitals to the underlease provide that

“The Block Management Company and the Estate Management Company have been formed for the purpose of maintaining managing and controlling respectively the Apartment Block of which the demised premises form part and the Estate”

Paragraph 12 of the Definitions provides that

“the Estate” means all that leasehold land and buildings to be erected thereon shown edged blue on Plan 1 annexed hereto and known as West End Quay Praed Street and South Wharf Road Paddington London W2 as registered at HM Land Registry under title number NGL758149 and all additions amendments and deletions to the Estate”

and paragraph 16 of the Definitions provides that

“the Estate Common Parts” means all parts of the Estate available for the common use of the owners residents or occupiers of the apartment blocks within the Estate, but shall not include the Apartment Block nor the other two apartment blocks within the Estate nor the Parking Area.”

41. In order to construe the Lease it is necessary to consider the whole of the document. Clause J4 cannot be read in isolation to the rest of the Lease.

The Appeal

42. The appellants bring this appeal on the grounds that they say the LVT erred in determining that the provisions of the underlease do not entitle the second respondent to recover the costs of maintaining the land and premises which formed the retained land under the 1997 Assignment of Part.

43. The appellants contention is that the costs of maintaining the retained land, which is defined in the 1997 Assignment of Part as being “the property comprising the Property less that Assigned Property as shown for the purpose of identification edged blue on Plan 2”, are recoverable from the underleasees by reason of the provision appearing at clause J4 of the standard form of underlease for West End Quay as is set out above.

44. The appellants’ contention is that the words of J4 provide that the recoverable service charge may include payments made in respect of the maintenance of the whole of the Paddington Basin Estate including West End Quay. As a consequence, the appellants contend that the service charge includes payments in respect of the maintenance of the area which was retained following the 1997 Assignment of Part. It is the appellants’ case that the EMD was entered into by the second respondent (WEQEM) in a deal which delegated most of their functions: it was a cost sharing exercise with one body dealing with all the maintenance. The appellants contend that clause J4 was sufficiently broad to allow the appellants to recover the works carried out in accordance with the EMD and as the management company had no assets other than the management fund, it is the appellants contention that the court should interpret the service charge clause (insofar as it is possible) on the basis of full recoupment of the cost of those services which the company is obliged or entitled to provide.

45. The appellants contend that J4 was worded deliberately widely as at the time the underleases were entered into there was no final conclusion as to how the maintenance of the Paddington Basin Estate was to be dealt with. The appellants contend that the words “any payments to be made” and the phrase “or otherwise” give this clause exceptional breadth.

46. The respondents, save for the third respondent who takes no part in these proceedings, all seek to uphold the decision of the LVT. While to some extent they raise different arguments and justifications, the respondents all seek to contend that the LVT was correct in their construction of J4.

47. The respondents contend that there was nothing in the lease or headlease which would have alerted the tenant to the argument that they would have to contribute towards costs incurred with respect to work and services carried out on and for the retained land. It is not accepted by the first respondent that the EMD was entered into as part of the overall plan for the provision of services. At the time it was entered into, WEQEM was in the control of the developer/head lessee. Both the first and second respondents refer to the contemporaneous correspondence which they say shows that the second respondent (WEQEM) entered into the EMD for the purpose of obtained rights of way over an adjacent road for the purpose of gaining access/egress to commercial units on the West End Quay land. In a letter dated 3 December 2001, Collyer Bristow (then acting for WEQ Limited) wrote saying:

“Our client’s agents have been in discussion with your agents, Donaldson’s, regarding a service charge with Donaldson wished to levy upon our clients relating to the management of the entire Basin. We have examined our client’s title to the property and cannot readily find any legal basis upon which our clients are required to pay a service charge for the management of the Basin as a whole.”

The other correspondence I have seen around that letter does not support there being any agreement that there was any obligation upon the tenants of the West End Quay land to pay a service charge for the management of that land and the retained land: for example, the letter dated 26 March 2004 from Collyer Bristow states that:

“The heads of expenditure under which my clients are to contribute towards the expenses at Paddington Basin Management Limited are to be narrowly defined and should reflect the relatively limited items discussed at the meeting between Chelsfield and OM Peverel.”

and on 2 November 2004, Collyer Bristow wrote to say :

“There seems to be a fundamental disagreement between us as to the effect of the deed and the relevance of the various Heads of Expenditure. My clients are adamant that most of them do not relate to their site and it would appear that we have reached an impasse. Accordingly, my clients will have to hand [c]over control of the Management Company to the tenants and it will be for them to take over negotiations with regard to the agreement”

On 29 November 2004, Collyer Bristow wrote that it had been agreed that formal rights of way would be agreement over Harbet Road and that the management agreement would be looked at again and then by an email (which is undated but appears to have been from early 2005) a director of West End Quay Limited wrote to Mike Rayner of the appellants to say:

“With regards to the Paddington Basin Management Agreement, your lawyer has still not sent us any documents and quite frankly, I will have no option but to hand over the Management Companies without entering into the Agreement. This will mean that at some time you may have to deal with 468 occupiers who will certainly take up more of your time than I do currently. As you well know, I have held off for as long as possible but I have now compromised my position and must instruct my solicitor to do what is right and to hand control to the residents.

If I am correct the residents will have not obligation to sign up to your Agreement. If I am wrong – so be it.”

48. One of the issues that has been raised by the appellants is the contention that the respondents cannot now argue many of the points that they seek to put before this Tribunal. It is the appellant’s case that the LVT erred in its determination, and the error in its thinking is highlighted by the necessity to issue a Correction Certificate removing paragraph 40 from the Decision. Having removed paragraph 40 from the Decision the appellants are content that the LVT could then not justify the finding that the second respondent was not entitled by virtue of the provisions of the first respondent’s underlease to recover the costs of maintaining the land and premises retained under the 1997 Assignment of Part. The appellants says that if it is correct on that submission then the respondents cannot seek to have the decision of the LVT justified on alternative grounds as no application has been made for permission to cross appeal and there is no cross appeal setting out that the Decision of the LVT should be upheld but on different grounds.

49. In my judgment, the appellants cannot seek to limit the matters that the Tribunal ought properly to hear with respect to the construction of this underlease and the provisions contained therein (in particular the construction of Clause J4) with respect to the service charge. This is a hearing by way of review. That means that the only evidence that can be considered is evidence that was presented to the lower tribunal and the arguments put before the LVT. That Order granting permission to appeal by way of review is, of course, subject to the further directions that I gave in May 2012. By section 175 of the Commonhold and Leasehold Reform Act 2002, this Tribunal may exercise any power which was available to the LVT and the duty of this Tribunal on appeal is to construe the provisions for service charge in the underlease, particularly clause J4, in light of all the evidence and arguments that were before the LVT. If Mrs Holland were correct in her submissions, then that could have the effect that if the Tribunal were to find the LVT erred in their reasoning, but were correct in their construction, then the Tribunal would be bound to come to a conclusion on construction that the Tribunal considers to be incorrect. The appellants know well the arguments that the respondents raised in seeking to support the LVT’s decision and it would plainly be wrong for the Tribunal to be bound to accept a construction that they did not agree with because the LVT had come to the right construction but expressing it for the wrong reasons. I should note that neither the appellants nor the respondents wish this matter to be remitted back to the LVT were it to be found that the LVT’s reasoning was incorrect. Instead, all parties sensibly followed the course that it is for the Tribunal to construe the document.

50. The second respondent paid the service charge demanded in the sum of £17,931.67 plus VAT of £3,138.04 on the 29 September 2005 quarter day and the service charge demanded in the sum of £68,177.70 plus VAT of £11,931.10 on 25 December 2005 without, as I understand the situation, any query. The second respondent did then query payment, although it appears from the letter dated 29 March 2006 that a further quarter invoice for service charge in the sum of £68,177.70 plus VAT of £11,931.10 was paid on the March quarter date. The total paid was therefore £181,287.31 but since March 2006 liability under the EMD has been challenged. The fact that the first two (or three) payments were made without argument does not alter the way in which the lease ought to be construed as they cannot form part of the matrix of fact. The EMD was terminated by the appellants on 1 December 2010.

The Law

51. The parties are agreed that the starting point in construing documents is the speech of Lord Hoffman in Investment Compensation Scheme Limited v West Bromwich Building Society [1998 ] 1 WLR 896 pp 912H-913E where he stated as follows:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would have reasonably have been available to the parties in the situation at which they were at the time of the contracts;

(2) The background was famously referred to by Lord Wilderforce as the “matrix of fact” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man;

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for replication. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in original life. The boundaries of this exception are in some respects unclear. This is not the occasion on which to explore them.

(4) The meaning of the document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably be understood to mean. The background may not merely enable a reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Limited v Eagle Star Life Assurance Co Limited [1997] AC 749.

(5) The rule that words should be given their “natural and ordinary meaning” reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language the law does not require Judges to attribute to the parties an intention that they plainly could not have had. Lord Diplock made this point more rigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B.[1985] AC 191, 201: “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made “to yield to business commonsense”.

52. In Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Lord Clarke said (at paragraph 21)

“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

53. The appellants further rely upon the Decision of Munby LJ in Universities Superannuation Scheme Limited v Marks and Spencer [1999] 1EGLR 13, 14M:

“The purpose of the service charge provisions is relevant to their meaning and effect. So far as the scheme, context and language of those provisions allows, the service charge provisions should be given an effect that fulfils rather than defeats their evident purpose. The service charge provisions have a clear purpose: the landlord that reasonably incurs liability for expenditure in maintaining (the premises) for the benefit of all its tenants there should be entitled to recover the full costs of doing so from those tenants and each tenant should reimburse the landlord a proper proportion of those service charges.”

54. Mr Dover, on behalf of the first respondent, drew attention to both Embassy Court Residents v Lipman (1984) 271 EG 545 and Sella House v Mears (1989) 21 HLR 147 (both cases dealing with very different factual scenarios to this matter) as supporting the proposition that where there are service charge claims the landlord must be able to point to clear and unambiguous provisions to establish liability on the part of the tenant. In Embassy Court Residents v Lipman Cumming-Bruce LJ said the following: “No doubt in the case of leases entered into between a landlord and a tenant it is necessary for the landlord to spell out specifically in the terms of the lease, and in some detail, a sufficient description of every financial obligation imposed upon the tenant in addition to the tenant’s obligation for rent and we were shown one or two such forms of precedents which I have no doubt are appropriate for the agreements contemplated in such a case.” In Sella House v Mears, Taylor LJ (as he then was) said that in the case of a landlord seeking to establish that he was entitled to charge legal fees for the cost of suing co-tenants: “…I should require to see a clause in clear and unambiguous terms before being persuaded that that result was intended by the parties.” I do not consider that either of these cases assist me greatly as, in this case, the appellants contend that J4 is clear and unambiguous and what I need to consider is whether the effect of J4 is to cover those costs incurred pursuant to the EMD for the entirety of the Paddington Basin Estate or whether J4 construed, as it must be, in the context of the entire document, is limited to the West End Quay land

55. In Earl Cadogan and Anr v 27/29 Sloane Gardens Ltd & Anr [2006] 2 EGLR 89, HHJ Michael Rich QC sitting in the Lands Tribunal, held that it is for the landlord to show that a reasonable tenant would perceive that the underlease obliged it to make the payment sought; such a conclusion must emerge clearly and plainly from the words used. While the facts of Earl Cadogan are very different from this matter, the respondents rely upon this case as supporting the basic proposition that in order to establish liability the landlord must discharge the onus upon it that the words used in the lease clearly and plainly establish that liability. Gilje & Ors v Charlgrove Securities Ltd [2002] 1 EGLR 41, provides further authority that there must be clear terms to create a contractual liability. Laws LJ said that on ordinary principles when a landlord seeks to recover money from the tenant “ there must be clear terms in the contractual provisions said to entitle him to do so…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…”

56. The respondents also place reliance on the decision of Lewison LJ in Cherry Tree Investments Ltd v Landmain Ltd (2012) EWCA Civ 736 in which he makes the distinction between “the use of background material in the interpretation of what I might call “ordinary” commercial contracts on the one hand, and the interpretation of negotiable and registrable contract or public documents on the other.” (para 124). The clear distinction being that when there are registrable contracts, the parties should be entitled to consider the documentation which is on the record. It is said that in this case, the Sale Agreement dated 2 August 1996, a document referred to by the appellants (but not, it is said by them, relied upon to the extent the respondents allege), was not a document which would have been known to the lessees of the flats forming the three blocks of West End Quay. The second respondent further contends that the appellants cannot make a connection between the Sale Agreement and the EMD: as Lewison J stated in the High Court proceedings: “Entry into the estate management agreement was not, I think, a necessary consequence of the development of the overall estate.”]

57. In this case, the appellants contend that the words in clause J4 are absolutely clear and that the recoverable service charge is for the whole of Paddington Basin, including the retained land. The appellants further contend that the totality of the documentation supports that the tenants would have anticipated and understood that they would be paying for the whole of the Paddington Basin. The respondents dispute this and contend that the J4 does not extend to the retained land and that the clause has to be read in the context of the entirety of the underlease and that, further, the relevant documents that properly form the factual matrix do not extend the obligation of the lessees to pay for the retained land in addition to the estate.

Conclusion

58. The issue for determination is whether the provisions of the underleases entitle WEQEM, the second respondent, to recover the costs of maintaining the land and premises which were retained under the assignment dated 29 December 1997. In my judgment, they do not. To repeat the words of Lewison J in Paddington Basin Developments v West End Quay, clause J4 does not “bear the weight that Miss Holland seeks to place on it.”

59. The starting point in determining the meaning of the underlease is to consider the meaning which the document would convey to a reasonable person having all the background knowledge which would have reasonably been available to the parties in the situation in which they were at the time of the contracts. The background knowledge reasonably available to the lessee when entering into the lease would have been limited. The lease is registerable and the lessee is taken to know what is on the register and in June 2000, a title note was provided by Collyer-Bristow which referred to the “deeds and documents affecting the estate, which should obviate the need for Buyers solicitors to be supplied with full copies of bulky documents”. Reference was made to the headlease, the deed of apportionment and variation dated 29 December 1997, the assignment of part and to other documents but not to the 1996 Sale Agreement. That document does not, in my judgment, form part of the matrix of fact as it would not have been a document that would have been known to the lessees.

60. What this Tribunal has to consider is the meaning of the document. What did the parties, given the words used in clause J4, reasonably understand those words to mean as against the relevant background. Giving the words in J4 their “natural and ordinary meaning” as against the matrix of fact and in light of the authorities I have referred to above, I have come to the conclusion that the underlease does not entitle WEQEM to recover the costs of maintaining the retained land.

61. The Estate Management Company, pursuant to the provisions of clause H of the underlease, covenanted to provide the services set out in Part I of the Fifth Schedule, namely services to the Estate. The Estate being defined, in paragraph A12, as the WEQ land registered under title number NGL758149. By clause E3 the tenant covenants to pay to the Block Management Company a block service charge (in the proportion of 1.36%, as is set out in paragraph 7 of the Particulars page) and to the Estate Management Company an estate service charge (in the proportion of 0.33%, as is set out in paragraph 8 of the Particulars page). The reference to the registration of the land at HM Land Registry makes it entirely clear that the Estate in the underlease is limited to the West End Quay land and does not include any of the retained land.

62. The service charges to be paid by the tenants are “of all amounts sums costs expenses and outgoings of each and every kind whatsoever may from time to time during the continuance of this Lease be expended or incurred or become payable by the relevant Management Company in relation to the Apartment Block and the Estate such service charges to be payable in accordance with the provisions of Clauses I and J”. J4 must therefore be read in the context of it being for services provided to the Estate under the Fifth Schedule which is, inter alia, to “maintain and keep in good and substantial repair and condition and where necessary to renew rebuild or replace: 2.1 the Estate Common Parts; 2.2 all Conduits in under or upon the Estate; 2.3 all other parts of the Estate except to the extent that the maintenance or repair therefore shall be the responsibility of the Tenant under the terms of this Lease or of any other tenant or occupier of the apartment blocks or any of the management companies of the blocks on the Estate”. There is no requirement within the Fifth Schedule for services to be provided to the retained land and, in my judgment, clause J4, which sets out the matters to be included in the service charge does not extend the services to be provided and the services for which the tenants are liable to pay. The reference to “the Basin” in J4 goes no further, in my judgment, than ensuring that the matters in the Headlease are covered and no conflict arises. It does not impose an extended obligation outwith the obligation to pay the service charges for the block and the estate as set out in E3.

63. I must construe the lease so as to determine what the parties using the words in the lease reasonably understood them to mean as against the relevant background, or matrix of fact.

64. The reference in J4 to “the company authority or body which manages and maintains the whole area known as the Paddington Basin of which the Estate forms part” is not identifying the area for which a service charge is to be paid but the body to which payment is to be made. Consequently, it is not to be construed, as the appellants would have, that services are to be provided (and service charges to be paid) for both the retained land as well as the WEQ land. The words “or otherwise” in clause J4 allows for a wide interpretation and thereby includes the possibility of payments that may be made pursuant to an unspecified document other than the headlease. However, it is not, in my judgment to be interpreted to widen the obligations to be undertaken to provide services to include services provided for the retained land. The obligation to pay the service charge is set out in E3. J4 is just one part of what is to be included in the service charge. As was found by Lewison J in Paddington Basin Developments Limited v West End Quay (the High Court action) the EMD was not a necessary consequence of the development. The tenant would not have been aware, when entering into the underleases, that there would in the future be a document such as the EMD and, in my judgment, the 1996 Sale Agreement, is not a document that would have been “reasonably available to the parties.

65. Further, as was found by Mr Justice Lewison, J4 “is drafted in very general terms. It does not oblige anyone to provide estate-wide services. Nor does it confine itself to the provision of estate-wide services by a dedicated management company.” In my judgment, in order for the underlease to bind the tenant to pay for services for the retained area the wording of J4 would need to be very specific. It does not achieve this and the wording is too generalised. A reasonable person having all the background knowledge which would have reasonably been available to the parties in the situation in which they were at the time of the contracts would not have recognised that the underlease would obliged them to make a contribution to works and services provided on the retained land pursuant to an agreement not yet entered into.

66. For the reasons set out, this appeal does not succeed and is to be dismissed.

Dated 18 July 2013

Her Honour Judge Karen Walden-Smith