Landlord and tenant — Counterclaim by maintenance company in an action for an account of rents by the freehold owners, landlords of a block of flats — Question raised by counterclaim was whether maintenance company was entitled to reimbursement by the landlords of part of the cost of repairs — Block consisted of flats and penthouses let on long leases — Leases contained covenants by tenants to pay, in addition to rent and rates, a maintenance contribution to the maintenance company — These contributions went into a trust fund which the company applied, in accordance with a schedule in the lease, in keeping the interior and exterior walls and ceilings and floors of the building and the whole of the structure, foundations and boundary walls and fences in repair — There were no repairing obligations, express or implied, on the landlords — The obligation on the maintenance company was not a repairing covenant as such, but an obligation to apply the trust fund for the specified purposes, which included necessary repairs — There was a shortfall between the amounts collected from the tenants and the whole cost of the repairs — It was submitted on behalf of the management company that they would accordingly be out of pocket and that there was an implied term that the landlords would make good this shortfall to the company — The company argued that section 19(1)(a) of the Landlord and Tenant Act 1985 provided a basis for such a claim — Held, rejecting the company’s case, that there was no obligation on the maintenance company to do repairs at their own expense; their only obligation was to spend the maintenance fund on repairs and other objects — As there was no obligation on the company to put their hands in their own coffers, there could be no implied covenant by the landlords to fill up the coffers again — Counterclaim dismissed
No cases are
referred to in this report.
This was a
counterclaim by the defendants, Calflane (Management) Ltd, in an action by the
plaintiffs, Alton House Holdings Ltd, for an account of rents collected by the
defendants from tenants of a block of flats, Cavendish House, Wellington Road,
London NW8, of which the plaintiffs were the freehold owners.
A G Steinfeld
(instructed by Crellins, of Walton on Thames) appeared on behalf of the
plaintiffs; L Schaffer (instructed by Bennetts & Partners) represented the
defendants.
Giving
judgment, MR JOHN MOWBRAY QC said: Before me for decision is a counterclaim by
the defendant, Calflane (Management) Ltd, against the plaintiffs, Alton House
Holdings Ltd. The defendant is a management company of a block of flats in
Wellington Road, London NW8, which also has garage accommodation in the
basement, some offices and a showroom and a petrol filling station. I shall call
it ‘the maintenance company’. The plaintiff is the present freeholder of the
block. It bought from the previous freeholder, which was a company with common
directorships and shareholdings with the maintenance company; I shall call it
‘the landlord’.
In about 1984,
1985 or 1986, serious defects appeared in the basement of the block and they
cost a great deal to put right, which the maintenance company has paid or
incurred. The maintenance company has been setting off that cost, or some of
it, against the rents it has been collecting from the tenants, and the claim in
this action was for an account of the rents. Such an account has been ordered
but the payments stayed until after the decision of this counterclaim.
The question
on the counterclaim is whether the maintenance company is entitled to
reimbursement by the landlord of part of the cost of the repairs.
I should say
at once that none of the tenants are before me and nothing I say is intended
to, or indeed could, affect their rights. Because I have no tenant before me, I
shall attempt to say as little as I need about their rights. I was invited to
give a preliminary ruling or to dispose of the case, so far as possible, on
agreed and assumed facts, with any questions of quantum to be left for an
account or something of that nature.
The position
about the leases is this. There are 55 flats and penthouses. They are all let
on leases in a printed form. Indeed, in each lease the landlord or its
predecessor covenanted to ensure that all the leases were in the same form. A
specimen lease is before me. It is between the landlord’s predecessor, a
company tenant of the second part and the maintenance company of the third
part.
It recites
that the lessor is the registered proprietor of the land, including the site
(which is called ‘the property’) and the building (defined as ‘the building’).
It is a 120-year lease and it contains covenants by the tenant with the lessor
and the maintenance company to observe obligations set out in the third
schedule. Those obligations include covenants to pay rent, rates and so forth
and, in respect of every maintenance year (which is defined) to pay a
maintenance contribution to the maintenance company by specified instalments
and also to pay a due proportion of any maintenance adjustment, which is also
provided for.
The result of
the provisions is that payments are made on account, subsequently adjusted to
the actual expenditure by the maintenance company in any particular year, and
in this particular lease the tenant agrees to pay a specified percentage of
2.62% of the total expenditure.
Under the
lease the maintenance contribution goes into a trust fund and the lease
provides that the maintenance company is to retain its own remuneration out of
the trust fund, pay the rest into a bank and apply it in the ways that are set
out in the schedule. They include keeping the interior and exterior walls and
ceilings and floors of the building and the whole of the structure, foundations
and boundary walls and fences in repair.
The
maintenance company covenants with the lessor and with the tenant that it will,
during the maintenance period, apply the maintenance fund for the purposes
specified in the schedule, subject to certain provisos.
The tenant
accepts the obligations of the maintenance company for the performance of those
matters to which the trust fund can be applied in substitution for and to the
entire exclusion of any implied obligations on the part of the lessor as
respects any of those matters or otherwise whatsoever. Those are some of the
words of clause 7.7 of the body of the lease.
It will be
observed that the last provision absolves the landlord from any repairing
covenants, express or implied, and there is no repairing covenant properly so
called on behalf of the maintenance company. The only obligation laid on the
maintenance company with regard to repairs is to apply the trust fund for the
purposes specified, which include repairs of the kind which have become
necessary.
The
percentages of the maintenance costs which have to be paid by the tenants of
the flats and garages and garage spaces add up to 100% and they add up to 100%
of the cost of repairing the building as a
building, also a lease of a petrol filling station and of an office and
showroom and the lease of the medical centre also contains a similar provision
for contributions to maintenance. The tenants of the medical centre, though, do
not have to contribute more than £2,000 for the years ending April 30 1984,
1985 and 1986.
The leases of
the other two commercial parts of the building contain no provision for
contribution to a maintenance fund of any conventional kind.
Mr Schaffer on
behalf of the maintenance company claims a declaration that, putting it
broadly, the landlord is bound to contribute part of the cost of the repairs
which have become necessary. He argues that, under section 19 of the Landlord
and Tenant Act 1985 and its predecessors which were in existence at the time
the leases on the flats were granted, the whole cost of repairs cannot be
collected from the tenants of the flats and garages. He says that, as a result,
there is a shortfall, that his client is not a party to the lease of the
filling station or showroom and offices and that, as a result, his client will
be left out of pocket and that there is an implied term in the leases of the
flats that in such circumstances the landlord will make good the shortfall to
the maintenance company.
On the view I
take of other matters, I do not have to decide whether section 19(1)(a) of the
Landlord and Tenant Act 1985 has the wide effect for which Mr Schaffer argues.
I very much doubt whether it has. I had better read it.
19(1)
Relevant costs shall be taken into account in determining the amount of the
service charge payable for a period — (a) only to the extent that they are
reasonably incurred.
And then
reading at the end of the subsection:
And the
amount payable shall be limited accordingly.
I do not find
anything in the Act to say how reasonable costs should be apportioned between
different tenants. However, I assume for the moment that the Act has some such
effect and that, as a result, the maintenance company is unable to collect the
whole of the cost of the repairs to the basement from the tenants of the flats.
On that basis,
I turn to consider whether any term should be implied into the leases of the
flats under which the landlords would be obliged to reimburse the maintenance
company for the shortfall.
The leases
other than leases of flats cannot be relevant on this question because they
came after the flat leases were granted, or at any rate after the printed form
was prepared and the landlord agreed to ensure that all the leases were in the
same form.
I am unable to
see how, on the true reading of the form of lease of a flat, the maintenance
company could be obliged to put its hand into its own coffers for the purpose
of carrying out repairs. As I said, the only obligation on the maintenance
company was to spend the maintenance fund on repairs and other things. There is
no covenant by the maintenance company to do repairs at its own expense. In
those circumstances, there being no obligation on the maintenance company to
put its hand into its own coffers, there can be no implied covenant by the
landlord to fill up the coffer again. For that short reason, I conclude that
the implied term for which Mr Schaffer so ably argued should not be implied.
I should add
that I have not been referred at all to the lease of a garage or garage space,
but I am told that the leases are in similar form and I think I can take it
that the same conclusion would apply to such a lease.
For those
reasons, I would dismiss the counterclaim as far as it claims a declaration.
There is an alternative claim based on an implied term that the landlord would
enforce repairing obligations under the commercial leases. That must fail for
the same reason.
The
counterclaim was dismissed with costs.