Lease – Business premises – Appellant letting part of four floors to defendant – Four separate leases setting out procedures for payment of service charge – Respondent paying service charge under agreed procedure – Appellant issuing separate invoice for same service charge year – Court deciding preliminary issue – Whether respondent liable to pay service charge demanded outside specified procedure – Appeal dismissed
Until 17 January 2003, the appellant was the freeholder of an office block that comprised a ground floor and 12 upper floors. By four separate leases dated July 2000, which were on substantially the same terms, the appellant demised to the respondent the greater part of each of the ground, first, second and third floors, but retained some common parts.
Each of the leases provided for the payment of a service charge, which was defined as “the sum payable by the tenant in accordance with part 2 of the Schedule of Services”. Part 2 provided that the service charge should be a fair proportion of the actual or anticipated service costs for each service charge year, to be assessed by the landlord or its surveyor according to a reasonable and proper basis for apportionment applicable from time to time to the premises. Under para 2, the landlord was entitled to give the tenant a written notice of its estimate for the coming service charge year, requiring it to pay that estimate by equal quarterly instalments in advance. By para 3, the landlord, as soon as practicable after the end of each service charge year, was to provide the tenant with a statement of the actual service costs and service charge. At that point, any overpayment would be credited to, or any deficit demanded from, the tenant. The appellant elected to operate that mechanism in respect of the service charge year ending 24 December 2002.
On 15 January 2003, the respondent received an invoice for more than £260,000 for the redecoration of the common parts. In the course of proceedings brought by the appellant to recover that amount, the court directed that the question of whether, having regard to the service charge provisions in the four leases, the respondent had any liability to the appellant pursuant to the invoice should be tried as a preliminary issue.
The judge decided the preliminary issue in favour of the respondent, concluding that the tenant was liable to pays service charges only if the procedures in paras 2 or 3 of part 2 to the schedule were followed and the delivery of the invoice did not accord with those procedures: see [2008] EWHC 136 (QB); [2008] PLSCS 47. The appellant appealed.
Held: The appeal was dismissed.
The judge had been correct to decide that the landlord was not entitled to payment of the invoice because it had not followed the para 3 procedure and the requirement under that procedure for provision of the statement of service charge that triggered the obligation to pay. Although it might seem harsh or over-technical, that conclusion resulted from the proper construction of the leases.
The question was what the lease stated had to happen before the tenant was obliged to pay the service charge. Pursuant to para 3, at the end of the service charge year, the landlord was obliged to produce a statement and any balance due had to be paid within 14 days. The reference to the balance due must have been intended to refer to any amount due from the tenant whether or not it had made advance payments. The statement that it was entitled to receive would show what that amount was and how it had been calculated. It would make no sense to have one regime in para 3 for those who paid in advance and no regime for those who did not.
Furthermore, this was not a case in which the leases contained a condition precedent to the landlord’s right to recover. Rather, they prescribed the contractual route to be taken by the landlord to entitle it to payment. The statement would be of considerable importance to the tenant. It provided information concerning the actual service costs for the past year, of which only the landlord would ne aware, and how they had been apportioned. Thus, the tenant could make an informed decision as to whether to pay in the knowledge that the landlord might acquire a right to forfeit if it did not do so.
Jonathan Seitler QC and David Holland (instructed by Speechly Bircham LLP) appeared for the appellant; Nicholas Dowding QC and Mark Warwick (instructed by Asb Law, of Crawley) appeared for the respondent.
Eileen O’Grady, barrister