If a landlord seeks to recover service charges from its tenant, it must first show that the tenant is obliged to make the payment sought. The authorities make it plain that the landlord’s ability to charge for the services provided must emerge clearly from the service charge provisions in the lease and, if expenditure falls outside the wording of the clause, the landlord will be unable to recover it from the tenant.
Paddington Basin Developments Ltd v Gritz [2013] UKUT 0338 (LC) illustrates this all too clearly. The dispute concerned the service charge payable by residential tenants in a mixed-use development in the Paddington Basin. The leases of flats within the development required the tenants to pay service charges for the management of their block and for the management of “the Estate”.
The Estate was described as being the land comprised within a specific title number, which formed part of the Paddington Basin development. However, clause J4 of the lease provided that the service charge would include “any payments to be made by the Landlord and/or by the relevant Management Company to the Superior Landlords and/or to the company authority or body which manages and maintains the whole area known as the Paddington Basin of which the Estate forms part whether under the provisions in the Headlease or otherwise including the maintenance of the Basin as set out in the Headlease”.
In due course, the estate management company entered into an estate management deed with Paddington Basin Management Ltd, obliging it to contribute to the costs of maintaining, lighting, controlling traffic and providing security and other services in the Paddington Basin. One of the tenants objected to the service charge expenses on the ground that it was being asked to contribute to the cost of providing services to land that was not within the Estate.
Was clause J4 of the tenant’s lease sufficiently broad to cover the cost of the work carried out in accordance with the estate management deed? The estate management company had no assets other than the management fund. However, the Lands Chamber of the Upper Tribunal refused to have any truck with the argument that it should interpret the service charge clause (insofar as was possible) to enable the company to recoup the full cost of the services that it was obliged or entitled to provide.
Nothing in the documents available to the tenant when the lease was signed would have alerted him to the possibility that he would have to contribute to costs incurred in relation to land outside the Estate, pursuant to an agreement that had not then been made. Clause J4 was not sufficiently specific. The reference to “the company authority or body which manages and maintains the whole area known as the Paddington Basin of which the Estate forms part” was to be interpreted as the body to which payment was to be made, while the reference to “the Basin” was not to be interpreted as extending the tenant’s obligation to pay out with the obligation to pay service charges for the block and the Estate as defined by the tenant’s lease.
Allyson Colby is a property law consultant