Precise drafting is needed where leases provide for unequal service charge contributions. The dispute in Daejan Properties Ltd v Campbell [2012] EWCA Civ 5103 concerned the scope of a landlord’s repairing obligation and the extent of the tenant’s obligation to contribute to the cost of those repairs.
The tenant lived on the third and fourth floors of a house, which now comprised business premises on the ground and first floors, with a flat in between. Her lease included an unusually diverse set of provisions requiring her to contribute 31.25% of the rates and 40% of the cost of insuring the house (although this last figure was subsequently reduced, by agreement, to 33.3%). The tenant also covenanted to pay 33.3% of the cost of the door entry system, 42.1% of the cost of providing heating and hot water to the house and 40% of the cost of repairing the roof and exterior walls of the premises.
Was the obligation to contribute to the cost of repairing the exterior of “the premises” erroneous? The landlord persuaded the high court to interpret the provision as requiring the tenant to contribute 40% of the cost of repairing the roof and walls of the house instead, because the lease would be deficient if the tenant were correct. The tenant would not have the benefit of a covenant from the landlord to keep the whole building in repair and it would make no sense to require the tenant to pay 40% of the cost of maintaining the roof and exterior walls of the maisonette, and nothing at all for the other floors.
The Court of Appeal has overturned the decision. It agreed that the court can correct a mistake in a document by interpretation if there is an obvious error on the face of the document and it is clear what needs to be done to correct the mistake. However, it was not convinced that something had gone wrong with the language or that it was obvious what correction was needed.
The tenant paid different contributions for different services. The floor area of the maisonette represented only 29.2% of the total floor area of the house and the tenant did not derive any benefit from the flat roofs over the lower floors at the rear of the property. Consequently, it could not be sure that the parties had intended to set the tenant’s repairing contribution at 40% of the whole.
The court agreed that this interpretation would restrict the landlord’s liability to the tenant. However, the landlord was itself a tenant under a lease that required it to repair and rebuild the whole. The court also noted that the parties had previously adopted the tenant’s interpretation of the lease and had extended the term in 1999 without making any changes to the relevant provisions.
It might be unusual to confine the tenant’s liability to the walls and roofs of the maisonette. However, this was far from absurd. The important lesson that we can learn from this case is that the courts will not presume, when construing leases, that tenants’ service charge contributions must add up to 100%.
Allyson Colby is a property law consultant