Landlord and tenant — Appointment of managing agents — Landlords a tenants’ association with tenants who were also shareholders in the association — Lease, which had originally been granted by a development company, provided for the appointment and duties of managing agents, who were to act as experts and not as arbitrators — Issue as to whether association acted correctly in appointing as managing agents a committee of tenant shareholders — Appeal by a tenant from decision of county court judge — The leases provided for a service charge and for contributions from the tenants towards the expenses of repairs and services to be carried out by the landlords — Accounts were to be kept by the managing agents and audited, and the agents were responsible for making adjustments according to whether tenants had paid too much or too little by way of contributions — The main question was whether the appointment of the management committee of tenant shareholders was a proper appointment from the point of view of independence and expertise — The county court judge, after considering and distinguishing the case of Finchbourne v Rodrigues, held that the appointment was proper in both respects — Although not professional surveyors or estate agents, the members of the committee had experience of worldly affairs and in some cases of actual property management, including the bursar of a Cambridge college — They were people who might be expected to have some independence of mind and had sufficient expertise to discharge their duties — The Court of Appeal agreed and rejected a suggestion that their independence was open to challenge on the ground that the managers were themselves tenants — They were separate legal persons from the landlords and the kind of abuse which existed in the Finchbourne case was not present — As regards expertise, no formal professional qualification was required and the judge was justified in holding that they possessed sufficient expertise to carry out their duties — There was a subsidiary point in the case — The appellant tenant objected to pay as part of the service charge the cost of thermostatic radiator valves installed in some of the flats on the estate — The appellant did not want to have them fitted in her flat and they never were fitted — The county court judge held that as the landlords were required by covenant ‘to use their best endeavours to keep the radiators in the flats efficiently and adquately heated’, they were entitled to decide that the most efficient and cheapest way of doing so was not merely to install new boilers but also to install the thermostatic heating valves — The Court of Appeal agreed with the judge on this issue also — Appeal dismissed
The following
case is referred to in this report.
Finchbourne
Ltd v Rodrigues [1976] 3 All ER 581; (1976)
238 EG 717, CA
This was an
appeal by Mrs Bertha St Alban Silow from the decision of Judge McDonnell at
Westminster County Court in favour of her landlords, the New Pinehurst
Residents Association, a tenants’ association of which Mrs Silow was herself a
tenant and shareholder. The premises in question were in Westbury Court, Grange
Road, Cambridge, one of three blocks owned and administered by the respondents.
Philip Mott
(instructed by Coles & Stevenson) appeared on behalf of the appellant;
Robert Lamb (instructed by Clarke Willmott & Clarke) represented the
respondents.
Giving
judgment, KERR LJ said: This is an appeal from part of a judgment given by His
Honour Judge McDonnell OBE in the Westminster County Court on March 5 1986. He
had before him three separate actions, but we are concerned with only two
issues, which are common to all of them, though it appears that there were also
numerous other matters of dispute.
The appeal is
by the defendant, Mrs Bertha Silow, against her present landlords, the New
Pinehurst Residents Association (Cambridge) Ltd, who are, as their name
indicates, a tenants’ association, she herself being one of the tenants and a
shareholder in the association.
The premises
in question, owned and administered by the plaintiffs, comprise three blocks of
flats in Cambridge — Westbury Court, Marlborough Court and Amhurst Court. Mrs
Silow is the tenant of two flats in Westbury Court in Grange Road. Nothing
turns on the fact that she is the tenant of two flats; although two leases and
two shares are involved, the issues are the same.
The original
lease — I can refer to it in the singular — was by a developer, Contemporary
Homes Ltd, in 1978. Then, in 1981, the freehold became vested in the
respondents/plaintiffs and, as I have said, each of the tenants has one share
per flat, which he or she is bound to assign to a successor if the lease is
sold.
The first
issue can be summarised as follows. Upon becoming the freeholders, the
plaintiff residents’ association appointed as managing agents, who were to act
as experts and not as arbitrators in the management of the three blocks of
flats, a committee of tenants/shareholders, who were no doubt appointed in
general meeting after the plaintiff company had been established. The issue in
that regard is whether that appointment, having regard to the composition of
the committee and the qualifications of the persons involved, falls within a
term of the lease dealing with managing agents, to which I shall come in a
moment.
The second,
and less important, issue concerns one particular item of expense which formed
part of the total service charge which the defendant was obliged to pay under
the lease, the cost of thermostatic radiator valves which were installed in
many of the flats on the estate.
I turn first
to the relevant provisions of the original lease. It was concluded on January 1
1968 for a term of 99 years; for present purposes I can go straight to clause
4(2)(a):
THE Lessee
hereby covenants with the Lessor and with the owners and the Lessees for the
time being of the other flats carports and garages comprised in the property
that the Lessee will at all times hereafter . . . (2)(a) contribute and pay to
the Lessor a due proportion (as hereinafter defined) of the costs expenses
outgoings and matters mentioned in the Fourth Schedule hereto. The annual
amount of such contribution (hereafter called ‘the service charge’) shall be
estimated and certified by the Lessor’s managing agents acting as experts and
not as arbitrators for each year commencing from the
figures relating to all the component elements comprised therein . . . .
Then there are
provisions for the payment by the lessee of the service charge so computed in
certain instalments annually, to which it is unnecessary to refer.
Subclause (d)
provides that:
the Lessor
will procure that the Lessor’s Managing Agents will keep proper accounts of the
amount of the Service Charge paid by each Lessee,
and then it
goes on, as well as subclause (e), to provide that the accounts so kept by the
managing agents are to be audited, and it also provides for the subsequent
adjustment of the accounts, according to whether each tenant has paid too much
or too little or the correct amount.
Although
relating to the second issue, I then come to the provisions of the lease which
deal with the components of the service charge. Clause 6 provides as follows:
THE Lessor
Hereby Covenants with the Lessee that subject to the Lessee paying the
contribution referred to in Clause 4(2) hereof the Lessor will
— and then one
can go to subclause (5) —
maintain
repair redecorate and renew as and when necessary:
(a) the main structure and in particular the main
walls roofs gutters and rainwater pipes ventilation plant and machinery central
heating apparatus and boilers in the property.
The subsequent
subclauses deal with other common parts and services in each of the blocks of
flats. Then subclause (9), read with the beginning of clause 6, provides as
follows:
THE Lessor
Hereby Covenants with the Lessee that subject to the Lessee paying the
contribution referred to in Clause 4(2) hereof the Lessor will . . . use its
best endeavours to keep the radiators in the flat sufficiently and adequately
heated between the 1st October and the 30th April in each year.
Finally in
that connection I turn to the fourth schedule. I need only read 1(a) of the
first provision, which is in the following terms:
The expenses
of maintaining repairing redecorating and renewing:
and it then
repeats verbatim the wording of clause 6(5)(a), which I have read and which
refers to the central heating apparatus and boilers in the property, but it adds
the words ‘and lifts’. That had escaped attention until now, but I am not
attaching any importance to it, though it is a little mysterious why it should
come in there and not elsewhere.
Two other
provisions of the fourth schedule to which I should refer are clauses 4 and 5;
these are also among the items comprised within the service charge referred to
in clause 4(2)(a). Para 4 of the fourth schedule reads:
The cost to
the Lessor of performing its covenants contained in clause 6 . . . (5) . . .
and (9) of this Lease . . . ;
and para 5:
The cost of
employing managing agents and accountants and auditors in connection with the
Lessor’s obligations under this Lease including the claims accounts and
certificates referred to in clause 4(2)(a)
and I need not
read the rest. Those were the relevant provisions of the original lease, to
which the defendant became a party when her landlords were the developers,
Contemporary Homes Ltd.
In 1981,
however, the position changed. By a supplemental deed of February 5 1981 the
new arrangements were brought into force as between the present plaintiffs and
the various tenants including the defendant. It is unnecessary to refer to any
of the provisions of this short supplemental deed in detail. Its effect was
that in consideration of an additional payment of £304 Mrs Silow became a
tenant of this new company, the residents’ association, and a shareholder on
the basis to which I have already referred.
What then
happened — and the documents show that these matters had been discussed quite
openly and agreed upon well before February 1981 — is that the new landlords,
the present plaintiffs, had to deal with the question whom they should appoint
as managing agents pursuant to clause 4(2)(a). We know nothing about the
identity or nature of whoever acted as managing agents before February 1981.
They decided to appoint six of the tenants/shareholders as managing agents, two
from Westbury Court, two from Marlborough Court and the chairman and the sixth
member from Amhurst Court. The formalities of the appointment are not in issue;
only the identity of the appointees. The judge referred to the six persons who
appear to have been in office when these disputes arose, although one has to
bear in mind that presumably from time to time there were changes in the
composition of what I shall call ‘the management committee’. He said:
Now the first
question which arises is whether the certificates given annually by the
managing agents of the Plaintiffs are void through lack of independence or
expertise. The way in which that question arises is this: that when the
Plaintiff Company came into existence it was in a sense a co-operative
organisation with an incorporated persona and the shareholders were the tenants
and the tenants were the shareholders, and what the Plaintiffs did was to
appoint as managing agents some half dozen or so people whom they thought,
rightly or wrongly, wisely or foolishly, would perform that function
satisfactorily. It appears that none of the managing agents were professional
estate agents or surveyors but at all material times I am satisfied that the
managing agents so appointed, each of whom was a tenant of a flat on the
property, included persons who had experience of worldly affairs and in some
cases experience of actual property management. I need only mention that at the
material times with which I am concerned the secretary of the managing agents
was a Mr Abbot who had been for a number of years, Bursar of a Cambridge
College and I should have thought had the knowledge and experience ideally
suited for this task. There was also a lady who is now the chairman who, it
appears, took some part in the management of the property of another college.
That was Lady Platt, a person who had had some experience in the academic
field.
Lady Platt
appears as the chairman, who signed one of the reports of this committee, which
is included in the bundle before us. It is extremely detailed and shows a very
considerable interest, as one would expect, in the property and considerable
care in the consideration which was clearly given to its management. It
concludes with an expression of thanks to the committee, and in particular to
Mr Abbot with a reference to the sense of security which could be placed upon
his knowledge and experience.
What is said
in relation to the first issue is that, having regard to the fact that its
members were themselves tenants and shareholders, and in some cases directors,
of the residents’ association company, this management committee was not
qualified to act as managing agents within the terms of clause 4(2)(a) of the
lease. It will be remembered that the relevant words are that the annual amount
of the service charge ‘shall be estimated and certified by the Lessor’s
managing agents acting as experts and not as arbitrators’. What is said in
regard to the management committee is, first, that it did not have the
necessary degree of independence and, second, the necessary degree of expertise
which is required by those words.
Before dealing
with what the judge said in rejecting that submission I should refer to the
only authority to which he and we were referred, a decision of this court in Finchbourne
Ltd v Rodrigues, reported in [1976] 3 All ER 581. The judge took the
view that the facts of that case were quite different from the present one, and
I entirely agree. I therefore deal with it before I come to those parts of the
judgment in which he dealt with the facts of the present case. In that case
Finchbourne Ltd were the owners of a block of flats and the leases in question
comprised precisely the same provision concerning the appointment of managing
agents for the purposes of ascertaining the service charge as in the present
case. It was found as a fact that the plaintiff company were merely a ‘front’
for a Mr Pinto, who carried on business as a developer, or estate agent, under
the firm name of Pinto & Co. The plaintiff company purported to appoint
Pinto & Co as the managing agents. It was held that that appointment could
not stand, because the managing agents necessarily had to be agents of the
landlord in the position of a principal, and therefore separate legal
personalities from the landlord. The county court judge found as a fact that Mr
Pinto was a principal and that the company was his mere nominee. In those
circumstances it is not surprising that it was held that the appointment of
Pinto & Co as managing agents could not stand.
I should read
one or two passages from the judgments. Cairns LJ said at p 586:
Undoubtedly
under this lease the managing agents were to act as experts and not as
arbitrators.
I can then
omit a passage before Cairns LJ went on as follows:
I express no
opinion whether the function of the managing agents here went no further than
to ascertain whether the sum said to have been spent had actually been spent.
Even assuming that that is so, the managing agents were not a mere calculating
machine. I note that they were to ‘certify as experts.’ Though the certificate, in contrast to the
report of the surveyors referred to elsewhere, was not declared to be binding,
the tenant is entitled to assume that an expert mind has been applied to the
figures, and that unless there is something glaringly wrong with them he can
rely on the certificate. It is said that if the lessor were a company the
managing agents might be a subsidiary of that company. However that may be, I
am quite satisfied that the managing agents are intended to be somebody
different from the lessor.
Once it is
found that the real lessor here was Mr Pinto, it follows that the managing
agent must, according to the terms of the lease, be somebody
misdescription to describe Pinto & Co as agents at all.
Orr LJ agreed
and said:
Where, as
here, the managing agent is an estate agent, two matters very much within his
expertise are what work is reasonably required to be done in order to comply
with the terms of the lessor’s obligations under the lease, and what is the
reasonable cost of such work, but merely to add up the figures of expenses
incurred on the work done does not call for expertise.
Counsel for
the plaintiffs’ answer to this point, as I understand it, was that the wording
of the eighth schedule, ‘acting as experts and not as arbitrators’, which I
agree with him is a phrase commonly used in legal documents, is designed to do
no more than to make it clear that the agent is not to act as an arbitrator,
but this ignores the words ‘acting as experts’ and I decline to construe the
passage as if it read ‘acting neither as experts nor as arbitrators’.
Browne LJ also
agreed and said:
The intention
clearly was that the tenant should be entitled to rely on the expertise of such
a third person.
On the judge’s
findings of fact here, which are not challenged, the managing agents and the
lessor were in fact the same person.
I think that
two principles are to be derived from that case. First, it is quite clear that
the managing agents must be legally distinct from the lessors. Second, since
they are to act as experts and not as arbitrators, I must accept from the
judgments that a measure of expertise is to be required from them; but I would
not accept that they have to be professional persons with professional qualifications.
I think I can
best deal with these points in relation to the present case by resuming
quotations from the judgment. It contains a number of findings of fact, and Mr
Mott, who argued this appeal with great lucidity on behalf of the appellant, rightly
conceded that he could not challenge any of them. The judge continued as
follows:
The first
issue that I have to decide is whether these managing agents, one or two of
whom were directors of the Plaintiff Company, (indeed at one time —
and I correct
a small error here; it should read ‘three out of six of them and the spouse of
one of them’ —
were
directors of the Plaintiff Company and there were only six directors) could
properly fulfil the functions of managing agents for the purpose of the leases.
Mr King who has argued this matter very fully on behalf of the Defendant, has
submitted that those persons could not properly act and could not therefore
properly give certificates of expenditure to be incurred because they were too
closely identified with the Plaintiff Company.
The judge then
referred to Finchbourne, with which I have already dealt, and concluded
that it did not govern the present case. He said, in regard to that decision:
Now the
reasoning is simple and that is because it is clearly outside the contemplation
of the parties to that lease that the managing agent should be in effect the
lessor himself because he would then be in a position to expend what money he
liked as lavishly as he liked upon the property and to certify that it was reasonable
and necessary.
He then turned
to the facts of the present case, and he said:
Now I accept
entirely the reasoning in that case and I have to consider what is the
application to this case. There seem to me to be very special circumstances in
this case. At the time of the lease of course, the reversioners were a Company
—
meaning
Contemporary Homes Ltd.
I suppose I
do not know whether they were trustees for anyone or who they were or what they
were, but at the time of the supplemental deed the situation was that the
reversion was held and to be held by the Plaintiff Company, that the Plaintiff
Company was I suppose a private Company and all tenants were members and there
were no outside members and the persons appointed by the Company, I suppose by
the Board of Directors who would have the management of the affairs of the
Company were all themselves tenants and in my judgment they were all people who
I think might be expected to have some independence of mind. But they were all
people who had a direct interest in keeping the amount of expenditure within
reasonable bounds whilst at the same time not neglecting items of necessary
expenditure and I also bear in mind that it appears from the accounts that were
shown to me that they made no charge for their services although there is a
provision in schedule 4, I think it is paragraph 5, that the costs of employing
the managing agents could be included in the service charge. And so I hold that
the managing agents actually appointed in this case were not disqualified
because they were to be identified with the Plaintiffs themselves.
That deals with
the issues of independence.
Then he went
on as follows:
But it is
submitted that the lease contemplates that they will act as experts and that
involves their having some expertise —
and he then
cited the short passage from the end of the judgment of Orr LJ which I have
already read.
He went on as
follows:
Bearing in
mind what I said about the persons who were actually empowered by the Plaintiff
Company to act as managing agents, in my judgment they had ample expertise to
discharge their duties and I have no reason to suppose that any tenant has
suffered anything from lack of expertise on their part. In these circumstances,
I have come to the conclusion that the first issue must be decided in favour of
the Plaintiffs.
In my judgment
that decision is correct, on the aspects of both independence and expertise.
Dealing first with independence, the word ‘independent’ has naturally crept
into the argument because it is settled law, both as the result of Finchbourne
and indeed by necessary implication from the concept of principal and agent,
that the managing agent must be somebody who is distinct from the lessor
himself and must therefore be somebody independent in that sense. Second, he
must possess some degree of expertise. There again the concept of some
independence of mind is implicit in this provision, because an expert is
somebody who will exercise his judgment in an expert manner. He will do so in
accordance with the merits of what he has to judge, and to that extent
independently from whoever appoints him and also independently from what may be
the wishes or interests of those who are affected by his decision. However, in
my view the decision in Finchbourne in no way precluded the appointment
of this managing committee. Its six individual members were clearly separate
legal persons from the lessors, the company. Second, on the judge’s finding
they were persons selected on the basis that they could and would exercise an
independent judgment in relation to the management of these three blocks of
flats.
In this court
it was also suggested that their independence could be challenged on the ground
that they themselves were tenants. That does not appear to have been argued
below. I would only say that I do not see that this provides a valid objection.
Leaving aside the question of expertise, what they have to be is agents
appointed by the landlords. Therefore they must be separate legal persons from
the landlords. I can see no other limitation upon the identity of the persons
who can be appointed as managing agents, provided that they are, in fact and in
law, distinct from the landlords. It may well be that relationships can be
called into question as providing grounds for disqualification where there is a
sufficiently close connection between the landlord’s interests and those whom
he had appointed as managing agents, even without the facts being as stark as
in the Finchbourne case. But I do not see why that has any relevance to
a situation such as the present, which the judge recognised to be sensible,
likely to operate for the benefit of the tenants themselves, and in no way
liable to cause any mischief.
I therefore
hold that so far as the words ‘managing agents’ are concerned, and the degree
of ‘independence’ which they required, this management committee was not
disqualified from being appointed.
That leaves
the question of the level of expertise required by the words ‘acting as
experts’. I have read the relevant passages from the judgment in that regard.
There is a finding that this management committee had, to use the judge’s
words, ‘ample expertise to discharge their duties’. Since no professional
qualification is required where the words are quite general, as they are here —
there is no reference, for instance, to accountants, surveyors, estate agents
etc — it follows that on the judge’s findings this management committee could
also comply with the requirement that they were to act as experts. Accordingly
I agree with the judge in his conclusion on this issue.
The second
issue is quite separate. It was the fourth issue before the judge, and it is
convenient to begin by reading what he says about it and the facts which he
finds in that regard. He says:
Now the
fourth issue relates to the fitting of thermostatic radiator valves. What
happened was this: that in, I think, about 1981, the boilers which provided the
water for the central heating were renewed. Thereafter, it was found, possibly
because they were of larger capacity or more efficient, that some of the flats
became rather too hot and the managing agents thought that it would be sensible
and an efficient use of gas to fit thermostatic radiator valves. They were not
fitted because the existing radiator valves were worn out or unserviceable,
they were fitted as a matter of deliberate policy and were, in my judgment, an
improvement rather than a repair. The question I have to consider is whether
the cost of fitting them can be included in the service charge. I shall deal in
a moment with the fact that the Plaintiff decided that she did not want those
valves fitted in her flat and they never were fitted. That is a separate issue.
Pausing there,
that is not an issue which is raised on this appeal.
The judge went
on as follows:
Mr King based
his argument that the cost of fitting these valves was outside the scope of the
service charge upon clause 6 of the lease, paragraph 5 of which was a lessor’s
covenant to maintain, repair, redecorate and renew as and when necessary the
main structure etc, and central heating apparatus in the property. His
submission was the word ‘renew’ should be construed ejusdem generis with
the words maintain, repair and redecorate and that renewal in the landlord’s
repairing covenant only covered such renewal as was necessary to replace that
which had either worn out or had become unserviceable and I think that
submission is well-founded.
Pausing again,
we were referred to a passage in Woodfall: Landlord and Tenant, vol 1 at
p 599, under the heading ‘Repair to be distinguished from renewal’, which bears
that out, as well as to the paragraph on p 598, headed ‘Repair distinguished
from improvement’. No doubt the judge had those distinctions in mind.
He went on to
say:
One also has
to look at clause 6(9) in which the landlord contracted to use its best
endeavours to keep the radiators in the flats sufficiently and adequately
heated between October 1 and April 30. Now in my judgment it is not right
simply to look at what the lessor’s obligations were, one has to look at what
was the expenditure which was set out in the fourth schedule because it was a
share of that expenditure which could be recovered from the lessee and Schedule
4 refers to the expenses of maintaining, repairing, redecorating and renewing
the main structure etc and central heating apparatus and it is not without
significance that the words ‘as necessary’ do not appear there. Furthermore,
the service charge includes by paragraph 4 the costs to the lessor of
performing its covenants as contained in clause 6(9) inter alia and I
have come to the conclusion that there is a deliberate contrast between these
provisions, that the landlord was only obliged to maintain, repair, redecorate
or renew as necessary and therefore the lessor would not be liable for breach
of covenant if he failed to do so. But if he chose to do some renewal which was
not necessary, then in my judgment they — that is, the landlords — were
entitled to include the cost of so doing in the service charge, provided, and
provided only, that it was something which was reasonable and here, bearing in
mind their obligation to provide central heating — that is a reference to
clause 6(9) — I am satisfied that the most efficient and cheapest way of doing
so was not merely to install the new boilers but to install the thermostatic
radiator valves. I have come to the conclusion, after giving the matter
considerable thought, that the Plaintiffs were entitled to recover the cost of
the installation of these valves by way of including it in the service charge.
Mr Mott
criticises those passages on two grounds. First, he says that in the earlier
paragraph the judge found as a fact that these thermostatic valves were ‘an
improvement rather than a repair’. I am not convinced that the judge was there
considering the supply of thermostatic valves to the blocks of flats served by
the newly installed boilers as a whole. I think he was referring to the
radiator valves in the defendant’s flat, which he mentions in the next two
sentences. Viewed on their own, it would of course be right to say that their
replacement would be an improvement rather than a repair. However that may be,
one also has to consider what follows. In regard to that, Mr Mott’s second
objection to the judge’s reasoning is that he attached undue importance to the
absence of the words ‘as and when necessary’ in the fourth schedule, when they
were present in clause 6(5).
I agree with
that submission. I am not convinced that the draftsman of the lease, by the
omission of those words, intended to produce a distinction between the
landlord’s obligations under clause 6(5) and his rights to charge the tenant
with the cost of providing renewals, or possibly improvements, under the fourth
schedule. It may be that that was the intention, but I would be very doubtful
about placing any reliance on the absence of those words in the fourth
schedule. It seems to me much more likely that it was merely intended to
itemise the components which could fall within the service charge as derived
from the body of the lease as a whole. But the judge based only part of his
reasoning upon the absence of those words. His main point was that one has to
bear in mind the landlord’s covenant ‘to use its best endeavours to keep the
radiators in the flats efficiently and adequately heated’. He refers to that
three times in the course of that paragraph. I agree with the sentence in which
he says:
. . . bearing
in mind their obligation to provide central heating, I am satisfied that the
most efficient and the cheapest way of doing so was not merely to install the
new boilers but to install the thermostatic radiator valves.
I think that
that finding is quite sufficient to bring the expenditure on the thermostatic
radiator valves within the provisions of clause 6 of the lease as well as within
the fourth schedule. Looked at in that way, I cannot regard the installation of
these valves, in the context of the perfectly proper renewal of the boilers, as
an independent improvement which fell outside the words ‘repair and renewal’.
That, I think, was the crucial element in the judge’s reasoning, and on that
basis I would agree with it.
Accordingly, I
agree with the learned judge’s conclusion on the second issue as well, and
would dismiss this appeal.
PURCHAS LJ
agreed and did not add anything.
The appeal
was dismissed with costs, such costs to include costs of application for leave
to appeal; application by appellant for leave to appeal to House of Lords
refused.
