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United Kingdom Upper Tribunal (Lands Chamber)
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URL: http://www.bailii.org/uk/cases/UKUT/LC/2014/330.html
Cite as: [2014] UKUT 330 (LC)
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UPPER TRIBUNAL (LANDS CHAMBER)
UT Neutral citation number: [2014] UKUT 0330 (LC)
UTLC Case Number: LRX/79/2013
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
LANDLORD AND TENANT - service charge – whether estate service charge are a recoverable head of expenditure under Sub-underleases – determination of the extent of liability of the sub-underlessees - true construction of terms of Sub-underleases – whether LVT misdirected itself on the aspect of “reasonableness” pursuant to Landlord and Tenant Act 1985, s. 19.
IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE FIRST-TIER TRIBUNAL (PROPERTY CHAMBER) (LEASEHOLD VALUATION TRIBUNAL LONDON RENT ASSESSMENT PANEL)
BETWEEN:
ONE HOUSING GROUP Appellant
and
THE LEASHOLDERS OF 29 FLATS IN THE BUILDING
KNOWN AS NAVIGATION COURT Respondents
Re: Navigation Court,
1 Gallions Raod,
London E16 2QL
Before: Judge Edward Cousins
Sitting at: 43-45 Bedford Square, London WC1A 3AS
on
30th April 2014
Nicholas Grundy, of Counsel, instructed by Messrs Devonshires, Solicitors for the Appellant
The Respondents were represented by Mr Leon Lee, Chairman of the Navigation Court Residents Association Representation
© CROWN COPYRIGHT 2014
The following cases are referred to in this decision:
Universities Superannuation Scheme Ltd. v Marks & Spencer [1999] L&TR 237
Arnold v Britton [2012] EWHC 3451 (Ch)
Redrow Regeneration (Barking) v Edwards [2013] L&TR 8
Country Trade Ltd. v Noakes [2011] UKUT 407 (LC)
DECISION
THE BACKGROUND TO THE APPEAL
Introduction
1. By an application (“the Application”) the Appellant, One Housing Group, applied to the Leasehold Valuation Tribunal (“the LVT”) for determination of the liability of the Respondents for service charges for each of the years from 2006/2007 to 2011/2012 (“the Relevant Years”) pursuant to the terms of the Sub-underleases (“the Sub-underleases”) of flats in the building known as Navigation Court (“the Building”) .
2. One of the issues which arose for determination by the LVT involved the true construction of the terms contained in the Sub-underleases held by the Respondents as sub-underlessees (hereinafter referred to for ease of reference as the Lessees) and the extent of their liability for service Charge described therein as the “Estate Service Charge”.
3. In its decision dated 9th April 2013 (“the Decision”) on the interpretation of the terms of the Sub-underleases the LVT disallowed the claim for the Estate Service Charge in its entirety and found that there was no service charge liability on the part of the Lessees in relation to the Relevant Years in respect of these charges.
4. On 2nd May 2013 the Appellant sought permission to appeal the Decision from the LVT. This was refused in a decision made by the LVT on 14th May 2013. The reasons given for such refusal included the point that the Appellant had failed to provide clarity as to what constituted “the Estate” for the purpose of defining the service charge liability of the Lessees, and that the Appellant “…cannot simply choose a definition of the Estate at random on the basis that it might possibly reflect the original intention of the parties…”
5. On 5th June 2013 the Appellants sought permission to appeal from the Upper Tribunal, and on 28th August 2013 the Deputy President granted limited permission to the Appellant to appeal the decision of the LVT in the following terms:
“It is well arguable that the LVT did not properly interpret the Shared Ownership Sub-underlease so as to give effect to the clear intention that the leaseholders should contribute towards the cost of services provided to the Estate as a whole. It is also arguable that the LVT was wrong in any event to determine that none of the Estate Service Charge was payable, rather than to limit itself to a finding that the amount payable had not been demonstrated on the evidence put before it……
The LVT was entitled on the evidence placed before it to reach the conclusion which it did on other matters in respect of which permission is sought….
The appeal will therefore be limited to the issue of the interpretation of the shared ownership sub-underlease and it will be dealt with as a review.”
The basis of the relationship between the parties
6. Each Respondent is the lessee of a shared ownership sub-underlease of a flat in the Building. The Sub-underleases are all in common form. An example of one of the Sub-underleases in respect of flat number 604 (“Flat 604”) is included in the bundle of documentation (“the Bundle”) at Tab 3. The Appellant is the assignee of the reversion immediately upon the term of each lease. The basis of the relationship is that in each case at the date of grant of the lease the lessee made an initial contribution to the purchase price known as the “Initial Percentage”. This was an alternative method of purchasing the leasehold interest whereby an immediate transfer of 100% of the purchase price to the lessor is avoided. However, the Sub-underleases make provision for the lessees to increase the percentage of their shares in the properties by making further future premiums. This is known as “staircasing”. In the case of Flat 604 the lessee’s initial contribution was 35%. The relevant terms of the Sub-underleases are set out below.
7. The interest held by the Appellant derives from an underlease, (“the Underlease”), dated 8th June 2004 made between Gallions Approach Limited (“Gallions”), as lessor, and Community Housing Association Limited (“CHAL”), as lessee, and is registered at HM Land Registry under Title Number EGL479879. A copy of the Underlease appears at Tab 5 of the Bundle. The Underlease is defined as the “Superior Lease” in the Sub-underleases.
Summary of the Appellant’s case
8. It is submitted that on a true construction of the Sub-underleases, when construed in the context of the other relevant deeds, “the Estate” means the land defined as the Estate for the purposes of the Underleases. It is submitted that it is by reference to the definition of the Estate that the extent of the liability of the Lessees to pay the Estate Service Charge is capable of being assessed. It is also submitted that it was also the clear intention of the parties that the Lessees would be liable to pay the Estate Service Charge. It is therefore necessary to analyse the various provisions contained in the relevant deeds in order to define the respective liabilities of the parties.
THE DECISION OF THE LVT
9. In its decision (“the Decision”) the LVT held as follows:
“The estate service charges are disallowed in their entirety (and are therefore not payable) in relation to each year covered by the application, namely [the Relevant Years].”
10. The parties submissions before the LVT in relation to the Estate Service Charge are to be found at paragraphs 7-11 of the Decision. The LVT’s reasons for its decision are set out in paragraphs 30 to 36 thereof under the heading “Tribunal’s analysis regarding Estate Service Charge”.
11. At paragraph 31of the Decision the LVT held as follows:
“The Tribunal found the Applicant’s case to be very weak in relation to the estate service charge. There seems to the Tribunal to be significant discrepancies between the Applicant’s title document, the Respondents’ leases and the superior lease in relation to the definition of the estate and the Applicant was simply unable plausibly to explain what the extent of the estate actually was. As the possible options as to the size of are wide-ranging, this is considered by the Tribunal to be a fundamental problem, especially as it is the Applicant who is asking the Tribunal to confirm that the estate service is reasonable and properly payable in its entirety for each of the six years to which the application relates.
12. At paragraphs 32 to 34 of the Decision the LVT sets out its concerns about the method by which the Estate Service Charge have been calculated and apportioned and the evidence in support of the amounts claimed.
13. At paragraphs 35 and 36 the LVT found as follows:
“The Tribunal notes the concerns expressed by the Respondents regarding employment costs, CCTV and insurance, but whilst there might be some validity in the points in the points raised the Tribunal does not consider that the evidence provided in support of them was strong enough. The main issue is that, in the Tribunal’s view, the estate service charge figures are simply unreliable for reasons given above and that they are sufficiently problematic that the Tribunal is not in a position to confirm a specific minimum figure as being reasonable and payable in any one year.
In conclusion, therefore, whilst this might seem to the Applicant a little harsh, the Tribunal determines that none of the estate service charge years is payable in respect of any of the [Relevant Years]….”
14. The Appellant submits that the LVT’s reasoning in its Decision in relation to the Estate Service Charge is confused in that:
(1) It is not clear whether the LVT decided that the sum was not recoverable on a construction of the Sub-underleases; and
(2) Although it is apparent that the LVT accepted that the lessees derived some benefit from some items of expenditure which give rise to the Estate Service Charge the LVT nonetheless allowed no sums in respect of it.
THE RELEVANT LEASE PROVISIONS
The Headlease
15. The interest in the Building held by Gallions derives from a headlease dated 31st March 2003 (“the Headlease”) made between the London Development Agency (“the LDA”), as lessor, the Royal Docks Management Authority, as the management company, Gallions, as lessee, and Gladedale Holding PLC, as guarantor. A copy of the Headlease appears in the Bundle at Tab 4. The Headlease has since been assigned to Abacus.
16. It is the Appellant’s case that a number of features of relevance to the appeal can be discerned from the provisions of the Headlease by reference to its terms. These are:
(1) By reference to Plans B and C annexed to the Headlease the land demised under the Headlease comprises the Building and other surrounding land; and
(2) The Headlease was granted in the course of a development of the area of land identified on Plan C annexed to the Headlease (”the Development Site”);
(3) That development involved the construction on the Development Site of 12 buildings, 11 blocks of residential flats and one hotel;
(4) The Development Site was to be served by an estate road as shown shaded yellow on Plan B annexed to the Headlease, and the buildings on the Development Site were to be served by site roads, shaded green on Plan B to the Headlease.
Clause 1 - “Definitions and Interpretations”
17. Clause 1 provides, inter alia, as follows:
“Demised Premises” means the land and premises on the north side of the Royal Albert Dock in the London Borough of Newham more particularly delineated and shown edged in red on the Plan B and each and every part thereof….
“Estate” shall mean the freehold land and buildings of the Lessor from time to time at the Royal Victoria Dock, the Royal Albert Dock, the Albert Basin, The King George V Dock and the Pontoon Dock and neighbouring areas all in the London Borough of Newham
“Site Road” shall mean the road within the Demised Premises and serving the Demised Premises and other parts of the Estate shown coloured dark green on the Plan.
Clause 3 – Lessee’s covenants
18. Clause 3.3(b) of the Headlease includes the following covenants on the part of Gallions
3.3 Outgoings and common facilities
(a) Outgoings….
(b) Contribution to facilities enjoyed in common
To pay to the Lessor on demand a fair and proper proportion (to be conclusively determined by the Lessor or the Lessor’s Surveyor save in the case of manifest error) of the expense of cleaning, lighting, repairing, decorating, maintaining and rebuilding any party walls, fences, gutters, drains, the Estate Road and all other roads, pavements, stairs passages and all accessways and areas which are or may be enjoyed or used by an occupier of the Demised Premises in common with any other person or persons.
3.4 Repair
(a) ….
(b) ….
(c) Pending the adoption of the Site Road as a public highway to put and keep the Site Road in good and substantial repair and condition.
(d) Pending the adoption of the Estate Road as a public highway to pay to the Lessor within seven days of demand a fair proportion (to be conclusively determined by the Lessor’s Surveyor) of the costs incurred from time to time by the Lessor of maintaining and repairing the Estate Road.
The Underlease
19. It is contended by the Appellant that the premises demised by the Underlease are identical to those demised under the Headlease. However, it is necessary to have regard to the detailed provisions of the Underlease.
Clause 1 - Definitions and interpretations
20. Clause 1 of the Underlease contains, inter alia, the following definitions:
Demised Premises means the land and building at Phase 1A Gallions Approach, Royal Docks, London E16, registered at HM land Registry under title number EGL 455082 and shown edged red on Plan B
Estate shall mean the land and buildings at Gallions Approach, Royal Victoria Dock, the Royal Albert dock, the Albert Basin, the King George V Dock and the Pontoon Dock shown edged in red on Plan C.
Estate Road shall mean the road serving the Demised Premises and other parts of the Estate shown coloured yellow and dark green on Plan B
Estate Services means the services detailed in Schedule 6
Estate Service Charge means a fair proportion of the costs incurred by the Lessor in providing the Estate Service
Plan A means the plan marked “Plan A” annexed to the Superior Lease ...
Plan B means the plan marked “Plan B” annexed to the Superior Lease ...
Plan C means the plan marked “Plan C” annexed hereto.
Plan D means the plan marked “Plan D” annexed hereto.”
21. Attached to the Underlease is a signed Plan marked ‘Plan C’ upon which the 11 blocks of residential flats (referred to in paragraph 15(3), above) each of which is shown edged blue, and lying within the curtilage of the boundary shown edged red. The 11 blocks of residential flats are identified as ‘A’ to ‘M’ (excluding I and L). Navigation Court is identified as Building ‘C’ on Plan C.
Clause 3 - Lessee’s covenants
22. By Clause 3.1 of the Underlease the Lessee covenanted to pay the rents (if demanded) together with the Estate Service Charge.
23. By Clause 3.3.2 of the Underlease the Lessee covenanted to contribute to the facilities enjoyed in common, as follows:
3.3.2 Contribution to facilities enjoyed in common
To pay to the Lessor on demand a fair and proper proportion (to be conclusively determined by the Lessor or the Lessor’s Surveyor save in the case of manifest error) of the expense of cleaning, lighting, repairing, renewing, decorating, maintaining and rebuilding any party walls, fences, gutters, drains, the Estate road and all other roads, pavements, stairs, passages and all accessways and areas which are or may be enjoyed or used by any occupier of the Demised Premises in common with any other person or persons.”
Clause 5 – Lessor’s Covenants
24. By Clause 5.3 the Lessor (Gallions) covenanted to provide the Estate Services as defined in the Sixth Schedule to the Underlease.
The Sixth Schedule
25. The Estate Services set out in Schedule 6 are defined as including the following:
(1) The maintenance, repair, renewal, redecoration, cleansing, lighting, cultivation, landscaping and replenishment of the Estate and walls and fences and roads to or on the Estate;
(2) The maintenance of a car park ramp;
(3) The insurance of such parts of the Estate as are used in common by the various tenants of the Estate;
(4) The provision of traffic control services and landscaping services within the Estate;
(5) The provision and maintenance of a security system within the Estate including CCTV;
(6) The provision of a concierge service and a refuse collection on the Estate;
(7) The cleaning of external surfaces of all communal windows; and
(8) All general repairs and maintenance of the Estate including (but not limited to) any repairs and maintenance of the pumping stations, lighting, drainage and refuse stores.
The Sub-underleases
26. As in the general nature of shared ownership schemes the Sub-underleases provide for the lessees to pay both rent (in respect of that percentage of the lease which the lessees does not at any time own), and service charges. It is a fundamental plank of the Appellant’s case that the fact that the Sub-underleases are shared ownership leases has no impact on the issue in the appeal, which, the Appellant submits, only concern the service charge liability on the part of the Lessees.
Clause 1 - Definitions and Interpretation in this Lease
27. Clause 1(2) of the Sub-underlease provides the following definitions:
The following expressions have, where the context admits, the following meanings:-
1(2)(a) “the Common Parts” means the entrance landings staircases ... and other parts (if any) of the buildings in the Landlord’s title referred to above and any garden landscaped areas walls hedges fences gates access areas steps pedestrian ways footpaths estate roads accessways forecourts lighting and parking spaces on the Estate appurtenant to it which are intended to be or are capable of being enjoyed or used by the Leaseholder in common with the occupiers of the other flats on the Estate
1(2)(b) “the Estate” means the land and property now or formerly comprised in the areas defined in the Superior Lease.
1(2(m) “The Building” means the block of flats of which the Premises forms part.
Clause 3 - Leaseholder’s covenants
28. By Clause 3 of the Sub-underleases the Lessees covenant to pay, inter alia, the service Charge as follows:
3(1) …
3(2) To Pay Rates, Outgoings and Service Charge
3(2)(b) To pay the Service Charge in accordance with clause 7.
Clause 7 – Service charge
29. Clause 7(1) of the Sub-underleases provides, inter alia, the following definitions:
(b) “Block” means the Building
(c) “The Block Service Charge” means the Block Specified Proportion of the Block Service Provision
(d) “The Block Service Provision” means the sum computed in accordance with Clause 7(4), 7(5) and 7(6)
(e) “Block Specified Proportion” and the “Estate Specified Proportion” means the proportions respectively specified in the Particulars
(f) “the Estate Service Charge” means the Estate Specified proportion of the Estate Service Provision
(h) “the Estate Service Provision” means the sum computed in accordance with Clauses 7(4), 7(5) and 7(6).
(i) “the Service Charge” means the sum (i.e. the aggregate) of the Block Service Charge and the Estate Service Charge.”
30. By Clause 7(2) of the Sub-underleases the lessees covenant to pay the service charge by equal monthly instalments in advance, and Clause 7(3) provides for this to be on the basis of an estimate of the landlord’s expenditure in respect of the Block (or Building) and the Estate.
31. The landlord’s expenditure which is to be included in the calculation of the Service Provision is set out in Clause 7(5) of the Sub-underleases, as follows:
Expenditure to be included in Service Provision
The relevant expenditure to be included in the Service Provision shall comprise all expenditure reasonably incurred by the Landlord in connection with the repair management maintenance and provision of services for the Building the Estate and the Common Parts and shall include (without prejudice to the generality of the foregoing) ...”
32. The Particulars set out in the Sub-underleases include the following:
Title Number EGL479879
Property Flat No. [X] Navigation Court
PARTICULARS
Landlord: CHAL
Leaseholder: [Name(s) of lessee]
Premises: Apartment No. [X] Navigation Court, 1 Gallions Road….
Estate: All the land and buildings now or formerly registered under the above title number
Estate Specified Proportion: 0.217%
Block Specified Proportion: ____
Superior Lease: means the Underlease dated 8th June 2004 and made between Gallions and CHAL
33. For the purposes of the appeal the Appellant emphasises the following provisions of the Particulars:
(1) The “Estate” is stated in the Particulars to be the land and buildings now or formerly registered under the title number of the Underlease i.e. EGL 479879;
(2) Provision is made for two separate specified proportions, the “Block Specified Proportion” and the “Estate Specified Proportion”;
(3) The “Block Specified Proportion”refers to the Building;
(3) In this case the Appellant asserts that the Estate Specified Proportion, i.e. 0.217% represents 1/461;
(4) There was no amount specified in the Sub-underlease as to the Block Specified Proportion.
34. Thus it is the Appellant’s case that it is apparent from the analysis of the above provisions that the Service Charge payable by the Sub-Underlessees comprise two sets of the landlord’s costs, namely:
(1) The costs referable to the landlord’s expenses in relation to the performance of its obligations in respect of the Block, or the Building and Common Parts thereof; and
(2) The costs referable to the landlord’s expenses in respect of the Estate.
On this basis the Appellant submits that as the Building comprises 51 Flats the Block Specified Proportion for Flat 604 chargable by Appellant and for which the Lessee is liable is 1.95% or 1/51.
SERVICE CHARGE - THE LEGAL POSITION
35. In its submissions the Appellants rely upon the general principles of construction in so far as they apply to the true construction of service charge provisions in leases.
36. The general purpose of service charges is that the landlord should recover its reasonable costs incurred for the benefit of the lessees of the relevant building(s). In Universities Superannuation Scheme Ltd. v Marks & Spencer[1] Mummery LJ sets out the general rule as follows:
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 allow, the service charge provisions should be given an effect which fulfils rather than defeats their evident purpose. The service charge provisions have a clear purpose: the landlord who reasonably incurs liability for expenditure in maintaining the Telford Shopping Centre for the benefit of all its tenants there should be entitled to recover the full cost of doing so from those tenants and each tenant should reimburse the landlord a proper proportion of those service Charge.
37. The court must construe the wording of the relevant service charge provisions in the context of the lease and all the admissible background evidence, and in the light of the apparent purpose of the clause, and then decide what the provision means and how it operates.[2]
38. The construction of a lease is a matter of law and there is no evidential burden on either party to establish construction for which it contends.[3]
39. Section 19 of the Landlord and Tenant Act 1985 applies to the Estate Service Provision in this case.
40. There is no presumption that the burden of establishing that any costs were reasonably incurred or are reasonable in amount lies on the landlord.[4]
THE APPELLANT’S SUBMISSIONS
The Definition of the Estate for the purposes of the Sub-underleases
41. The Appellant makes a number of detailed submissions on what it contends is the true construction of the Under-leases. The Appellant submits that the LVT appears to have approached the construction of the Sub-underleases, and in particular the meaning of the Estate for the purposes of the service Charge under those leases, as if the burden was on Appellant to establish the definition of the Estate.
42. The competing possible definitions of the Estate in the Sub-underleases are as follows:
(1) Clause 1(2(b) the Estate is expressly defined as ‘the land and property now or formerly comprised in the areas defined in the Underlease; and
(2) The Particulars in which the Estate is described as ‘all the land and buildings now or formerly registered under’ Title Number EGL479879, i.e. the Title number of the Underlease.
43. The Appellant submits that the definition in Clause 1(2)(b) incorporates into the Sub-underleases the definition of the Estate in the Underlease.
44. The definition in Clause 1(2)(b) of the Sub-underlease should be preferred for the following reasons:
(1) Clause 1(2) of the Sub-underleases expressly states that the expressions defined in the clause have the meaning set out in that section where the context admits that meaning.
(2). The Particulars do not expressly state that the particulars provided are definitions for the purposes of the Sub-underleases.
(3). The Sub-underleases expressly refer to services provided to the Building and to the Estate (see Clause 7(5) - Estate Services) and these relate to different areas of land/ buildings.
(4) The Landlord’s expenses of maintaining the building in which the relevant flats are situated (i.e. the Block) is defined in the Sub-underleases as “the Block Service Provision”. The Landlord’s expenses of providing the services to the Estate is defined in the lease as the ‘Estate Service Provision’.
(5). The Lessees’ proportionate liability for the Block Service Provision is different (and much lower than) the Lessees’ proportionate liability for Estate Service Provision. For example, Flat 604 provides that the lessee’s Estate Specified Proportion is 0.217% (or 1/461). The Block Specified Proportion has not been set out in the Flat 604 underlease, but it has been applied by Appellant as 1.94% (or 1/51) in accordance with the conveyancing documentation.
45. It is therefore submitted by the Appellant that the Block and the Estate must be definitions of two different areas of land. However, although it would be possible for one area to contain the other, it is noteworthy that the Estate is a larger area of land containing more residential flats than the Building. Further the Lessees’ proportion is lower and it is apparent that a greater number of Lessees are contributing to the Estate costs than the Block costs. The Definition of the Estate in the Particulars of the Sub-underleases would result in the Block and the Estate being defined as the same land and buildings.
Conclusion
46. Thus the Appellant submits that on a true construction of the Sub-underleases ‘the Estate’ means the land defined as the Estate for the purposes of the Underlease That was also the clear intention of the parties.
Estate costs
47. As to the Estate costs the Appellant further submits that it is apparent that the LVT accepted that it had incurred costs in the provision of Estate Services.[5] It also appears that the LVT approached the matter on the basis that it was for Appellant to establish that the sums incurred were reasonable without any evidence that they were unreasonable.
48. It follows that notwithstanding the LVT’s concerns about the amount of the Sstate Service Charge, there was some service which was provided for which the Lessees’ were liable and therefore the LVT should have assessed a reasonable sum for the service provided and not have simply disallowed the Estate Service Charge.
49. In the circumstances, it is submitted that the LVT erred in failing to assess the sums for the Landlord’s Estate Service Provision from which the Sub-underlessees’ service charge could be calculated by reference to the Estate Specified Proportion in each case.
THE RESPONDENTS’ SUBMISSIONS
50. The Respondents make a number of points in response to the Appellant’s submissions set out in its Statement of Case. These are as follows:
(1) paragraphs 5-11 - The Respondents rely upon the fndings set out in the Decision of the LVT at paragraphs 31-35, and cite a number of these findings. They submit that these findings go to the reasonableness of the Estate Service Charge and the extent to which the Appellant established or failed to that it had incurred any sums as Estate Service Costs establish on the balance of probabilities.
(2) paragraph 12 – The Respondents state that the Appellant’s grounds of appeal are based upon a construction of the Sub-underleases. However, it is submitted by the Respondents that it is clear from the combination of reasons set out in paragraphs 5-11 that the Decision “… has a wider scope than that. In addition to the discrepanies between the aforementioned documents, the audited service charge accounts in relation to the Estate Charge were found to be confusing, unreliable and full of errors, which led to the LVT’s conclusion that it did not feel that ‘it was in a position to confirm a specific minimum figure as being reasonable and payable in any one year’. And since it was the Appellant who is asking the Tribunal to determine the payability and reasonableness of the service charge, the LVT felt that the onus rests with the Appellant to produce a “prima facie” case.”
(3) paragraph 13 – Further, the Respondents strongly disagree with pararaph 65 of the Appellant’s statement that “it further appears that the LVT approached the matter on the basis that it was for [the Appellant] to establish that the sums incurred were reasonable without any evidence that they were unreasonable.” It is submitted by the Respondents that the Appellant has a legal duty to ensure that the estate charges were incurred properly, reasonably and correctly apportioned. It is submitted that it was clearly established during the course of the hearing that various items including electricity and employment costs were arbitrary, disproportionate and/or unreasonably high; and services such as security, CCTV, landscaping and garden maintenance were not delivered to the Building. Furthermore, the estate chargee that the Appellant re-charge to the Respondents in all six years were not supported by a single invoice and receipt.
51. It is in these circumstances that the Respondents challenge the basis of the Appellant’s appeal, and seek to rely upon the findings of the LVT in its Decision.
THE APPELLANT’S REPLY
52. The Appellant makes a number of short points in response.
(1) Paragraph 4 – the Appellant submits that proper regard should be had to the terms of the Headlease by reason of the fact that it is expressly referred to in the Underlease, and accordingly is part of the factual matrix of the construction of the Sub-underleases.
(2) Paragraphs 5-11 – As the Appellant points out, the findings of the LVT as set out in paragraphs 31 to 35 of the Decision go to the “reasonableness” of the Estate Service Charge and/or the extent to which the Appellant established or failed to establish on the balance of probability that it had incurred any sums as an Estate service cost. However, it is said that these findings fail to address the important consideration as the construction of the effect of the Sub-underleases in so far as they require the Lessees to pay the Estate Service Charge. Further, the fundings of the LVT set out in these paragraphs do not support its conclusion as set out in paragraph 36 of the Decision that none of the Estate Service Charge is payable in respect of any of the Relevant Years.
(3) Paragraph 12 – The Appellant accepts that the LVT (now the First-tier Tribunal (Property Chamber) has jurisdiction to construe the Sub-underleases, and also to determine what sums if any are reasonable and are therefore payable pursuant to section 19 of the 1985 Act. However, the Appellant submits that it is incorrect for the Respondents to assert that there is an onus or burden upon the Appellant to establish that any costs that seeks to recover service Charge were reasonably incurred or are reasonable. It cites the case of Country Trade Limited v Noakes, to which reference has been made above.[6]
(4) Paragraph 13 - the Appellant submits that its obligation to pay the Estate Service Charge to Gallions is provided by the terms of the Underlease (see clauses 3.1 and 3.2.2). By clause 5.3 of the Underlease Gallions covenanted to provide the Estate Services as defined in the sixth schedule to the Underlease. The Appellant has no contractual duty to the Lessees under the Sub-underleases to ensure that the Estate Service Charge levied by Gallions are incurred “properly”. Clearly the Lessees have the right to challenge the amount of the Estate Service Charge charged to them by the Appellant as unreasonably incurred or unreasonable in amount pursuant to the provisions of section 19 of the 1985 Act. However, as the Estate Service Charge under the Sub-underleases is determined by the amount charged by Gallions to the Appellant, it is obvious that the Appellant would not have in its possession any invoices for the costs of the provision of the relevant services in any event because the duty to provide those services lies on the Lessor on the Underlease. Thus, the absence of primary invoices is not therefore evidence that the Estate Service Costs were not incurred nor were unreasonable in amount. It is on this basis that the Appellant submits that the determination of what is a reasonable amount to be charged in respect of the Estate Service Charge should be referred back to the First-tier Tribunal if the Appellant’s appeal is successful.
THE DECISION
53. Drawing together the various strands of the submissions made on this appeal I come to the following conclusions. In my judgment the LVT erred in material respects in so far as the true construction of the underleases is concerned. I consider that the various submissions made by the Appellant in this regard are unanswerable and that the appeal must be allowed. My reasons are as follows:-
(1) The definition of the Estate contained in clause 1(2)(b) of the Sub-underleases expressly incorporates into the sub-underleases the definition of the Estate in the Underlease. It means “the land and property now all formally comprise in the areas to find in the Superior Lease.”
(2) Clause 1(2) of the Sub-underleases expressly states that the expression to find in the clause would have the meaning set out in that section where the context admits that meaning.
(3) The Sub-underleases expressly refer to services provided to the Building and to the Estate (see clause 7(5)), and that these relate to different areas of land/buildings.
(4) The landlord’s expenses of maintaining the building in which the relevant flats are situated (i.e. the Block) is defined in the sub-underleases as the “Block Service Provision”. The landlord’s expenses of providing the services to the Estate is to find in the lease as the “estate service provision.”
(5) Thus, in my judgment, “the Block” and “the Estate” provided definitions of two different areas of land.
(6)
For the sake of completeness in so far as I have not made specific
reference the submissions made by Counsel for the Appellant as set out in
paragraphs 41 to 49, above, I find that the analysis provided is a correct
interpretation of the various provisions contained in the various deeds. .
54. In conclusion, I find that on a proper construction “the Estate” means the land defined as the Estate for the purposes of the Underlease, and that this was also the clear intention of the parties at the time. In such circumstances, I find that the LVT failed to analyse correctly the construction of these various and somewhat convoluted provisions.
55. As a consequence, of this appeal being allowed, it is therefore necessary for a determination of the the question of the reasonableness or otherwise of the cost of services pursuant to the provisions of section 19 of the 1985 Act for the Relevant Years. As a consequence the case must be remitted back to the LVT for such a determination.
Judge Edward Cousins
16th July 2014
[1] [1999] L&TR 237, at p 243.
[2] See Arnold v Britton [2012] EWHC 3451 (Ch) at [39ff] citing a number of well-known cases.
[3] See Redrow Regeneration (Barking) v Edwards [2013] L&TR 8. Although certain things about “ the Development” could be ascertained from the leases, the meaning of the word could not be determined from the lease alone.
[4] See Country Trade Ltd. v Noakes [2011] UKUT 407 (LC).
[5] See the Decision, at paragraph 35.
[6] See footnote 4