Underleases – Service charge – Lessees paying service charge to estate management company – Estate forming part of wider development – Estate management company itself liable to pay service charge to manager of wider development – Whether that cost recoverable from lessees – Whether lessees’ liability confined to cost of services provided to their particular estate – Appeal dismissed
On an application under section 27A of the Landlord and Tenant Act 1985, the leasehold valuation tribunal (LVT) was asked to make a determination as to the service charge liability of the first respondent and other lessees of flats in the West End Quay area of the Paddington Basin development in London. The relevant service charge provisions were contained in long underleases of the flats, which provided for the lessees to pay a service charge to an estate management company, the second respondent, in respect of its costs incurred in relation to “the estate”. The estate was defined by reference to the title number for West End Quay, which the lessees’ landlord held on a headlease carved, by a 1997 deed of assignment, out of a 999-year lease of the entire development site. By clause J4 of the service charge provisions in the underleases, the service charge was to 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.”
The second respondent was itself liable, under the terms of a 2005 estate management deed (EMD), to pay a service charge to the third appellant as the company responsible for the maintenance and management of the entire development. That liability gave rise to a High Court claim by the appellants against the second respondent for arrears of service charge under the EMD; in those proceedings, the EMD was held to be a qualifying long-term agreement for the purposes of the Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements)(England) Regulations 2003: see Paddington Basin Developments Ltd v West End Quay Ltd [2010] EWHC 833 (Ch); [2010] 2 EGLR 35; [2010] 27 EG 86.
In the LVT proceedings, the second respondent contended that it was entitled to recover from the lessees in respect of its liability to the third appellant under the EMD. On a preliminary issue, the LVT held that the terms of the underlease did not entitle the second respondent to recover the costs of maintaining those parts of the development that had been retained on the 1997 assignment. The appellants appealed. They contended that those costs were recoverable under clause J4 of the underlease, which in their submission, was sufficiently wide to include any payments made in respect of the maintenance of the whole of the Paddington Basin estate. Meanwhile, in December 2010, the appellants terminated the EMD.
Held: The appeal was dismissed.
The provisions of the underleases, properly construed, did not entitle the second respondent to recover the costs of maintaining the land and premises that were retained on the 1997 assignment. The underleases had to be construed by reference to the meaning that they would convey to a reasonable person having all the background knowledge that would have reasonably been available to the parties in the situation they were in at the time of the contracts. The background knowledge reasonably available to the lessees when entering into the underleases would have been limited. The EMD was not a necessary consequence of the development and the tenant would not have been aware, when entering into the underleases, that there would in the future be a document such as the EMD.
The underleases provided for the lessees to pay an estate service charge to the second respondent as the estate management company. The definition of the estate by reference to the registration of the land at HM Land Registry made it clear that the estate in the underlease was limited to West End Quay and did not include any of the retained land. The charges payable under clause J4, read in context, were for services provided to the estate under the terms of the underleases. The underleases contained no requirement for services to be provided to the retained land.
Clause J4 set out the matters to be included in the service charge but did not extend the services that were to be provided or for which the tenants were required to pay. The reference in that clause 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 not identifying the area for which a service charge was to be paid, but was merely identifying the body to which payment was to be made. Consequently, it did not require that services were to be provided, or service charges paid, for the retained land as well as the West End Quay land. The words “or otherwise” in clause J4 allowed for a wide interpretation and thereby includes the possibility of payments that being made pursuant to an unspecified document other than the headlease; they did not, however, widen the obligation to provide services so as to include services to the retained land.
In order to bind the tenant to pay for services for the retained land, the wording of clause J4 would need to be very specific. Its wording was too generalised to achieve that result. A reasonable person, having all the background knowledge which would have reasonably been available to the parties at the time of contracting, would not have recognised that the underlease would obliged them to make a contribution to works and services provided on the retained land pursuant to an agreement not yet entered into.
Katharine Holland QC (instructed by Speechly Bircham LLP) appeared for the appellants; Daniel Dovar (instructed by direct access) appeared for the first respondent; James Fieldsend (instructed by Barker Gillett LLP) appeared for the second respondent; the third respondent did not appear and was not represented; the fourth respondent, Mr D Mosselson, appeared in person for the fourth to eighth respondents.
Sally Dobson, barrister