Landlord and tenant – Management order – Service charges – First-tier Tribunal appointing respondent to manage block of flats – Respondent seeking determination of service charges – FTT deciding respondent had power to demand contributions towards reserve fund from appellant leaseholders – Appellants appealing – Whether management order conferring power to demand contributions for future expenditure – Appeal allowed in part
The respondent was appointed to manage Northwood Hall, an eight-storey purpose-built block of 194 flats, by an order of the First-tier Tribunal (FTT) under section 24 of the Landlord and Tenant Act 1987. The appellants were the leaseholders of 29 of the flats. The respondent applied to the FTT seeking a determination concerning service charges for the year ending 30 June 2018.
The FTT decided that the respondent had the power to demand contributions towards a reserve fund from the appellants; in particular, in 2018 he had been entitled to demand £200,000 towards a general reserve and a further £1.2 million towards an anticipated programme of internal decorations and other works.
The appellants appealed contending that the meaning of the management order was that the respondent was simply to manage the reserve fund which had come into his hands without seeking to add to it. The leases did not include a power to collect reserve funds to meet anticipated future expenditure on the maintenance of the building so any such power would have to be found in the management order itself. If such a substantial departure from the leases had been intended by the FTT it would have said so clearly in its decision and would have made detailed and specific provision in its order.
In April 2019, claims and counterclaims had been heard in the county court concerning the replacement of the central heating and hot water system in the flats. During those proceedings, the parties had agreed and/or conceded that the leases made no provision for a reserve fund and the recorder hearing the case made a finding that the leases did not allow a reserve to be collected.
Held: The appeal was allowed in part.
(1) The management order made several references to the leases of flats in the building which clearly formed part of the relevant context in which the order had to be understood. The management functions of a tribunal appointed manager were not limited to the terms of the lease. The imposition of a management order under section 24 of the 1987 Act did not displace the lease covenants and the lessees remained bound by them, although to the extent that the terms of the order were in conflict with the underlying contract, the order prevailed while it remained in force. Therefore, the FTT itself could have directed the manager to accumulate a reserve fund, whether or not the lease made provision for such a fund. The question was whether, on a proper interpretation of the management order, it had done so: Maunder Taylor v Blaquiere [2003] 1 EGLR 52 and Chuan-Hui v K Group Holdings Inc [2021] EGLR 19 followed.
(2) The interpretation of a court or tribunal order was no different from the interpretation of any other instrument and involved a single coherent process. It depended on what the language of the order would convey, in the circumstances in which the court made it, so far as those circumstances were before the court and patent to the parties. The reasons for making the order, which were given by the court in its judgment, were an overt and authoritative statement of the circumstances which it regarded as relevant. They were therefore always admissible to construe the order. In particular, the interpretation of an order might be critically affected by knowing what the court considered to be the issue which its order was supposed to resolve: Sans Souci Ltd v VRL Services Ltd [2012] UKPC 6 followed.
(3) In the present case, the management order made no detailed provisions for the reserve fund. It was unnecessary for it to do so because sufficient provisions were already contained in the lease. Clause 4(2)(h) enabled the lessor, and therefore the manager, to allocate reasonable anticipated expenditure of a periodic or recurring nature to the current financial year, even though it was not actual expenditure in that year. The management order assumed that the powers of the landlord under the leases included the power to accumulate a reserve fund. An attempt to make sense of the management order separately from the leases was not a legitimate exercise in interpretation. When the management order was made there was no consensus between the parties to the effect that the lease did not include provision for a reserve fund. The order had to be interpreted in the circumstances in which the FTT made it, so far as those circumstances were before the FTT and patent to the parties. The management order was not a private contract, it was a tribunal order, and its meaning did not change because of an agreement between some of those affected by it: St Mary’s Mansions Ltd v Limegate Investment Co Ltd [2002] EWCA Civ 1491; [2003] 1 EGLR 41 considered.
(4) If the rights of the parties were to be determined without regard to the decision in the county court proceedings, the Upper Tribunal (UT) would have had no doubt that the FTT was right to conclude that the manager had power to collect a reserve. However, the parties to the county court proceedings were bound by the recorder’s finding that the leases make no provision for a reserve fund. There was no appeal against that decision, and it was not open to the parties to ask the UT to interpret the management order on the understanding that the leases bore a meaning different from that given them by the county court.
Accordingly, the FTT ought not to have determined that the management order, by itself, authorised the manager to operate a reserve fund. The powers in the leases authorised the reserve fund and the management order conferred those powers on the manager, but he was bound by the decision of the county court that the leases did not have that effect.
(5) That conclusion did not have any effect on the rights of the landlord to collect a reserve fund. It was not party to the county court proceedings or to the management order and was not bound by any of the decisions concerning the rights of the leaseholders and the manager.
Christopher Heather QC (instructed by Payne Hicks Beach) appeared for the appellants; Thomas Cockburn (instructed by Gisby Harrison, of Hertfordshire) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Whale and others v Maunder Taylor
