Landlord and tenant – Service charges – Recoverability – Leasehold valuation tribunal determining amount of service charges payable by appellant tenant – Amount including cost of engaging accountant to prepare annual accounts and certificate – Whether such costs properly recoverable under terms of lease – Appeal allowed
The appellant held a 120-year lease of a flat. Clause 2 of the lease provided for the payment of a service charge, which was to be calculated by reference to the amount expended by the respondent landlords in performing the covenants set out in clause 4(3)(a) and (b), plus an additional 15% management fee. The covenants in clause 4(3)(a) concerned matters of repair, maintenance and payment of taxes and outgoings on the building, plus, by clause 4(3)(iv), “any other services and… any other works of whatever nature as the Lessor may from time to time deem necessary or expedient for the efficient management of the Building and the garden areas forecourt and footpaths belonging thereto”.
The leasehold valuation tribunal (LVT) was asked to determine the reasonableness of the service charges charged to the appellant for two consecutive years. One issue was whether the service charge could properly include the costs incurred by the respondents in engaging a chartered accountant to prepare the annual service charge accounts and certificate as required by the lease. The LVT decided that it could and that those costs were reasonable.
On appeal, the appellant challenged the LVT’s conclusion as to the proper construction of the lease. He contended that the only functions in respect of which the respondents could recover their costs were those in clause 4(3)(a) and (b) and that these could not properly be construed as including the preparation of the annual accounts and certificate; instead, the management fee was the means through which the respondents were to be paid for their costs of administering the lease. The respondents contended that the provision of the accounts and certificate fell within the “sweeping up” provisions of clause 4(3)(iv) and were chargeable as service charge.
Held: The appeal was allowed.
The lease required the appellant to pay, as service charge, a proportion of the total amount expended by the lessors in carrying out the requirements in clauses 4(3)(a) and (b). Although the respondents had other obligations that did not fall within clauses 4(3)(a) and (b), the lease contemplated that they would perform those obligations at their own expense in return for the management fee. One of those obligations was the preparation of the accounts and certificate.
Given that the lease expressly provided for a management fee, clause 4(3)(a)(iv) could not be construed as permitting recovery through service charges for the services of managing agents, however sensible or desirable their retention might be for the efficient management of the building. By the same reasoning, para (iv) did not include the cost of the services of an accountant, in so far as the lessors employed one to perform a function that they would otherwise have to perform themselves in managing the building. Para (iv) was directed towards services that the lessees enjoyed as the fruits of “the efficient management of the Building and the garden areas, forecourts and footpaths belonging thereto”. Dealing with the respondents’ accounting problems was not such a service. Accordingly, the engagement of an accountant to prepare and certify the accounts was not for the provision of “any other services” for the efficient management of the building, within clause 4(3)(a)(iv). The lease did not provide for the engagement of an accountant and, although the respondents could use one, they had to pay from their own pockets, as part of the costs of managing the building for which they were entitled to their management fee: Broadwater Court Management Co Ltd v Jackson-Mann [1997] EGCS 145 distinguished.
The appellant appeared in person; Jennifer Lee (instructed by pdc legal, of Hoddesdon) appeared for the respondents.
Sally Dobson, barrister
