Landlord and tenant — Appointment of receiver for block of flats — Application for appointment by treasurer on behalf of tenants belonging to residents’ association — Tenants mainly holders of long leases — Failure of freehold owners of flats to carry out repairs — There had been a lengthy history of disputes over repairs with previous landlords before the freehold was acquired in 1986 by the present defendants, a company registered in Liechtenstein — As the acquisition did not appear to result in an improved situation in regard to repairs, the residents’ association threatened to apply to the court for the appointment of a receiver and subsequently did so apply — The leases contained covenants by the landlords to repair the structure and common parts and provided for the payment of a service charge by the tenants — The previous freeholders had obtained planning permission for the erection of four penthouse flats on the top of the block, the leases reserving a right for the freeholders to build them — The new owners were interested in the penthouse project and in fact work on this construction had begun shortly before the hearing — Repairs under the landlords’ covenants had not yet started, but specifications for such work had been set in hand and notices given under section 20 of the Landlord and Tenant Act 1985 — One possible source of confusion or conflict was that the contractors for the construction of the penthouse flats were not the same as the contractors for the repairs, although there were possibilities for saving costs by the use in common of the scaffolding which had already been erected for the penthouse construction
for the judge was as to the balance of convenience — The view of the residents’
association was that the freeholders’ main interest was to build the penthouses
and make a speculative profit — The tenants had no confidence in the landlords’
will or ability to carry out repairs to the block — The defendants said that as
a result of the appointment of new managing agents there was no need for a receiver
and that in fact the involvement of two surveyors (the receiver and the
landlords’ surveyor) might cause difficulties — Held that the balance of
convenience lay in the appointment of a receiver — This would safeguard the
interests of the tenants without causing any particular difficulties for the
landlords — It would also, because the receiver’s accounts would have to be
maintained separately, avoid possible disputes as to the allocation of
expenditure between the repair work and the penthouse construction work, which
would be proceeding at the same time — After disposing of an objection to the
particular surveyor proposed as receiver, the judge made an order for the
appointment of a receiver in the terms of the plaintiff’s motion.
No cases are
referred to in this report.
This was a
motion by the plaintiff, Mr Blawdziewicz, treasurer of a residents’ association
of tenants of Cadogan Court, Draycott Avenue, London SW3, applying for an order
appointing a receiver in respect of the 32 flats let (except for the
caretaker’s flat) on long leases in the block. The defendants were the present
landlords, Diadon Establishment.
A G Dyer
(instructed by Joynson-Hicks) appeared on behalf of the plaintiff; E J Prince
(instructed by Hamlin Slowe) represented the defendants.
Giving
judgment, HOFFMANN J said: This is a motion for an order appointing a receiver
of a block of flats called Cadogan Court in Draycott Avenue, London SW3.
Cadogan Court is an Edwardian block of 32 flats which, apart from the
caretaker’s flat, have been let on long leases. Twenty-seven of the tenants
belong to a residents’ association. The plaintiff in this action is treasurer
of the residents’ association and also sues on behalf of all other members. The
leases include covenants by the landlord to keep the structure and common parts
of the building in repair and provisions for the levying of a service charge
upon the tenants to pay, among other things, for the cost to the landlord of
performing those obligations. The service charge provisions include the right
to require interim payments on account of future expenditure. The leases also
reserve to the landlord the right to erect additional structures on the
building. In 1984 the then owners obtained planning permission for the erection
of four penthouse flats. The residents’ association have never liked the idea
of these flats being constructed and did their best to persuade the planning
authority not to grant permission either in the first instance or more recently
when the present owners sought a variation of the permission. But they accept
that so far as their leases are concerned the landlords have the right to build
the penthouses.
The defendant
in this action is a Liechtenstein corporation which acquired the freehold in
January 1986. Before that date there had been something of a history of dispute
between the residents’ association and previous landlords over work of repair
which was required to be done to the premises. On two occasions the managing
agents of the flats had obtained, at the expense of the residents’ association,
a report and specification from a surveyor, Mr M Parsley [FRICS FSVA], but no
action had been taken.
On February
14, some two weeks after the defendant had completed its purchase, the
solicitors to the residents’ association wrote to the defendant’s solicitors in
the following terms:
As you will
be aware, there has been continual friction between the landlords of this block
and our clients over the past few years and we are writing to you in the hope
that the relationship with your client may start on a better footing. The
residents have had no direct contact with their landlords for many years and as
a consequence the running of the block has been lamentable. The residents are
obviously aware of the planning permission to permit the erection of four flats
on the top of the block and the construction of these flats may possibly lead
to substantial inconvenience and damage to our clients. We feel it is essential
at this stage that a meeting should be held between your client’s architects
and the surveyors representing the residents’ association to establish what
plans your clients have in mind and the most efficient way of implementing
these. Your client should be aware that there is a very strong residents’
association and it is in everybody’s interest that consultation should take
place prior to the commencement of building works to prevent the necessity of
litigation. The tenants’ association have also been obtaining estimates for the
renewing of various services and, again, if it be sensible for the plans that
the association have in mind to be dovetailed with your client’s own
anticipated works to achieve the overall best result.
The
defendant’s solicitor said that he was sending a copy of that letter to his
clients and would be taking their instructions.
By August 1986
nothing had been done about putting any repairs in hand and on August 1 the
residents’ association’s solicitors wrote again to the defendant’s solicitors
saying:
It is clear
that the condition of this block of flats is now becoming serious. Estimates
have been obtained by your client’s managing agent for repair and painting
contracts but the landlords have not put in hand any of these works and matters
get daily worse. We wish to place it on record that your client is not
discharging his obligations under the lease by carrying out the necessary
repair work and if necessary we will have to advise the tenants to apply to the
court for the appointment of a receiver so that the necessary works may be
carried out.
The
defendant’s solicitor replied on August 6 saying that his clients had proposals
to carry out the work but were hoping to do so at the same time as constructing
the flats, in order to minimise the expense and inconvenience to the tenants.
That, on the
face of it, was not an unreasonable suggestion. However, there had been no
further progress either in respect of the
residents’ association wrote again saying:
You stated in
your letter of August 6 that your clients had proposals to carry out the
necessary repair works to the outside of the building, but as yet the managing
agents have not been given instructions to proceed with the matter.
Accordingly, we are writing to let you know that our clients have now given us
formal instructions to apply to the court for the appointment of a receiver
unless your clients comply with their obligations under the lease within a
period of 14 days from todays date.
That produced
a reply on December 9 saying the 14 days was totally unreasonable. The
defendant’s solicitors said:
Although our
clients are well aware of the pressing need to carry out works to the property,
you have nowhere in your correspondence itemised what matters are of such
urgency as to require an application to the court to appoint a receiver.
In fact, on
December 18 1986 Mr Parsley wrote to the residents’ association saying that the
specification of works which he had prepared in 1985 was by and large urgently
required at that time. Since some time had elapsed and he understood that no
works had been carried out, there was some concern that the necessary works
were now long overdue. He added:
Before the
works are carried out, however, final updating of the specification will be
required to take account of the present situation but I cannot stress too
strongly the need to get these works under way at the earliest practical
opportunity.
On April 13
1987 the residents’ association’s solicitors told the defendant’s solicitor
that they had now been instructed to commence proceedings. They asked whether
he had authority to accept service on behalf of his clients. The answer was
that he had not. He wrote back to them on April 21 saying:
Our clients
ask us to point out that they have via the managing agents and ourselves,
repeatedly informed you and your clients that the instructions have been given
to the managing agents. Our clients therefore consider any proposed proceedings
as being frivolous and they have instructed us not to accept service thereof.
The result of
that was a further delay while the plaintiff had to obtain leave to serve the
defendant outside the jurisdiction and the rather complicated procedure for
serving a Liechtenstein corporation through diplomatic channels had to be gone
through.
In May of 1987
the defendant changed its solicitor and on August 10, without apparently any
prior consultation, scaffolding was erected around the block. This appeared to
be with a view to the penthouse works, because no notices had been given to the
tenants pursuant to section 20 of the Landlord and Tenant Act 1985 in order to
initiate the processes of consultation which that section requires before a
landlord is entitled to proceed with repairs which will be reimbursed by means
of a service charge.
In November
1987, that is to say some six months after the commencement of these
proceedings, the landlord’s managing agents, Messrs Realty, either resigned or
were dismissed. Realty say that they resigned because they were put in an
impossible position by the complaints of the tenants on the one hand and the
lack of instructions from their clients on the other. The defendant, on the
other hand, complains that Realty did not keep them fully informed about the
tenants’ complaints. It is obviously not possible on this motion for me to
express any view about which of these two is likely to be right, but from the
tenants’ point of view it was exactly the same, because nothing was getting
done.
Since the
disappearance of Realty from the scene new managing agents have been appointed,
namely Winkworths. They have taken some of the preliminary steps required
before repairs are put in hand. The previous agents had obtained a
specification of a kind from a surveyor. This has been subjected to
considerable criticism by Mr Parsley in the evidence in this case and it is
accepted by the defendant that the initial specification was inadequate. Within
the last month another specification has been prepared and, pursuant to section
20 of the Landlord and Tenant Act 1985, copies have been sent to the tenants
for their comments. In his evidence in reply, Mr Parsley made some comments
upon that specification, pointing out, for example, that it still includes work
to be done to the roof which, in view of the penthouse erection which is
presently taking place, will presumably be unnecessary. Again, the defendant
acknowledges that changes to that specification will be required.
Within the
last fortnight work on the construction of the penthouses has commenced. It is
being undertaken under the general control of Winkworths by a company called
Columbus Construction Ltd. The most recent specification for the repair works
has been put out for tender to three firms, which do not include Columbus
Construction, and the landlords have indicated that, subject to the comments of
the tenants, they would propose to accept the lowest tender, which is that from
John Mowlem Ltd.
That is the
general background to this application. The plaintiff says that the conduct of
the owner over the past two years shows that it has no real interest in
carrying out the works of repair. It regards Cadogan Court as nothing more than
a building site in the Chelsea sky on which it can construct its penthouses for
the purpose of realising a speculative profit. Once those penthouses are built
and sold it will have no further incentive to do anything in respect of its
obligations to the tenants under their leases.
Mr Prince, who
appeared for the defendant, accepted that the history showed that the tenants
had substantial grounds for complaint, but, he submitted, since the appointment
of Winkworths matters had improved and the actions of Winkworths in securing
the preparation of the new specification and having it submitted to tender
showed that it was now unnecessary to appoint a receiver in order to protect
the tenants’ interests. Winkworths are, however, only the agents of the
defendant and can do no more than the defendant authorises them to do. The
incident over the refusal to accept service of process in April 1987 shows that
the defendant is capable of instructing its agents to be as obstructive as
possible in dealing with the tenants’ complaints.
The power to
appoint a receiver under the Supreme Court Act 1981 is expressed in wide terms
and has been exercised in recent years on a number of occasions in order to
ensure that repairing obligations in blocks of flats such as this are carried
out to the satisfaction of the tenant. The position is indeed rather curious,
because usually the landlord has no substantial economic interest in having the
repairs carried out. He is only entitled to recover from the tenants the
expense to which he has been put and his reversion is, at any rate in this
case, so remote that the repair to the building is not likely to affect its
value in any substantial way. The tenants, on the other hand, have a very
considerable interest in ensuring that the building is kept in proper repair.
Prima facie, therefore, if the landlord has shown a disinclination to fulfil
its obligations under the repairing covenants, a court would be likely to
appoint a receiver because the balance of convenience would be in favour of
taking such a step. It would protect the interests of the tenants without
causing any loss to the landlord. The peculiar feature of this case is that the
landlord has a real interest in the erection of the penthouses, which is
something which is likely to overlap with the carrying out of the repairs. As I
have said, the work on the penthouses has already begun and there is no
evidence of how long it is likely to take. The landlord said early in 1986, as
I have already recited, that it would be advantageous for both parties for the
repairs and the penthouse construction to be carried on together. The present
position, however, is that the penthouse construction has begun — I do not know
when it will be completed — and the repairs have not yet been put in hand.
However, it is possible that the two may overlap and that it may, for example,
be possible for repair purposes to make use of the scaffolding which has been
erected in order to construct the penthouses.
In those circumstances,
I have to consider where the balance of convenience lies. It cannot be said
that the appointment of a receiver would result in there being two contractors
on the site at once when otherwise there would have been only one. Under the
landlord’s own proposals, there is to be a separate contractor to do the
repairs. That, therefore, cannot be prayed in aid as a reason for not
appointing a receiver. What is said by Mr Prince is that the appointment of a
receiver would result in there being two firms of surveyors, in effect, in
charge of different aspects of the work on the building and that, he said, was
likely to cause difficulties. Of course, it is true that there is the
possibility of difficulties if the two surveyors are unable to agree about the organisation
of the work where there is a possibility of its coming into conflict. On the
other hand, both the landlord’s surveyors and the firm of whom a partner is
proposed to be appointed as receiver are extremely reputable and experienced
firms and it would, I think, not be difficult for them between themselves to
agree upon the integration of the work which needs to be done. On the other
side, as a reason for the appointment of a receiver, there seems to me to be
the undoubted fact that the tenants, as a result of their experiences over past
years, have no confidence whatever in the landlord’s will and ability to carry
out the repairs. Furthermore, the situation in which the two sets of works are
being done at the same
to a potential conflict between the sums which the landlord is entitled to
charge the tenants in respect of the work attributable to them and the sums for
which it will be responsible in respect of the penthouses. That situation seems
to me pregnant with the possibility of a good deal of dispute hereafter when
the accounts have to be prepared and the tenants receive their service charges
in accordance with the leases. On the other hand, if a receiver were appointed
in respect of the rights and obligations of the landlord as to repairs, the
expenditure incurred by that receiver would be chargeable to the tenants
without there being any problem as to its allocation between them and the
landlord. In so far as there is to be use of common facilities or services, the
apportionment of those services could be a matter of negotiation in advance
between the receiver and the landlord’s surveyors rather than leaving it to be
sorted out afterwards.
Those seem to
me to be very considerable advantages and likely to prevent what might be a
good deal of rather nasty detailed dispute in the future. Consequently, I have
come to the conclusion that the balance of convenience lies in favour of
appointing a receiver. It will safeguard the interests of the tenants without,
as I see it, causing any particular difficulties to the landlord. It will be
necessary, however, to limit the order with some care so that the activities of
the receiver do not unreasonably interfere with the activities of the landlord
in constructing the penthouses and if there should be any dispute over whether
it does have this effect there will be liberty to apply to the court in order
to resolve that dispute. But, subject to that qualification, I think it right
to appoint a receiver of the landlord’s right to receive the service charges
and the landlord’s right to execute its obligations under the covenants in the
lease.
There is a
subsidiary question over the identity of the receiver. The defendant objects to
the receiver proposed by the tenants, in respect of whom there is a certificate
of fitness, on the ground that he may not be impartial. The basis for that
allegation, which Mr Prince assured me was not intended to be any personal
criticism of the gentleman in question, was that he had been requested by the
landlord to take over the management of the block before they went to
Winkworths and after apparently having had a word with the representative of
the tenants he declined to do so. One can make of that what one will, but it
does not seem to me to constitute any basis for alleging that the proposed
receiver as an officer of the court would not carry out his duties in a proper
manner. He has in fact acted as receiver in at least one similar case in the
past. I therefore do not see any ground for not appointing the proposed
surveyor and, subject to his giving security, I will do so.
After a
discussion on costs Hoffmann J concluded: This is a
case in which the interlocutory appointment of the receiver is likely in practice
to achieve almost everything that the plaintiff has sought and equally the
chances are that in practice an order of the usual kind, which is plaintiff’s
costs in the cause, will be equivalent to no order as to costs. I think that
whichever way things turn out it will appear that the plaintiff was justified
in bringing this motion and therefore the right order is that it should be
plaintiff’s costs in any event and that they be taxed and paid forthwith.
