Buckley v Bowerbeck Properties Ltd

Landlord and Tenant Act 1985 — Service charges — Dwelling — Premises above ground-floor and basement level — User covenant in lease requiring use of ground floor as medical consulting rooms and basement as residential flat — Application for determination of section charges under section 27A of 1985 Act — Whether LVT having jurisdiction to determine application — Whether service charges payable by tenant of a “dwelling” within sections 18 and 38 of 1985 Act The applicant was the tenant of premises let by the respondent landlord, first under a three-year lease granted in 1994 and then under a 10-year term granted in 1997. The 1997 lease specified the permitted uses of the premises as consulting suites for medical or dental practitioners on the ground floor with a private residential flat or maisonette at basement level. A covenant prohibited assigning, underletting or sharing occupation of the whole or any part of the demised premises. The basement flat could be accessed through a connecting door from the ground-floor accommodation, but other means of access were available. The applicant applied, under section 27A of the Landlord and Tenant Act 1985, for a determination of his liability to pay certain charges under the lease. The respondent disputed the jurisdiction of the leasehold valuation tribunal (LVT) to determine the issue, arguing that the charges were not “service charges” within the meaning of section 18 of the Act since they were not payable by a tenant of a “dwelling” as defined in section 38. That issue was tried as a preliminary matter. The respondent argued that the appellant was estopped from claiming rights as a residential tenant under the 1985 Act since the parties had at all times acted on the basis that the lease created a business tenancy and that the residential element was not a separate dwelling. Decision: The application was refused. The fact that the applicant had not previously sought protection of his rights under the 1985 Act did not estop him from doing so now. However, on a proper analysis, he had no such rights. Although a tenant can hold a lease that includes a “dwelling” but also includes other property and still fall within section 18 of the 1985 Act, the applicant’s lease did not qualify because the residential part of the premises was not sufficiently separate from the commercial part as to be a “separate dwelling” within section 38. It was significant that the residential and business parts of the premises were connected internally and had a common doorbell and that they were connected in a number of ways under the lease; for instance they could not be occupied separately. Since the residential part of the premises was not “separate” for the purposes of section 38, the applicant was not a “tenant of a dwelling” within the meaning of section 18. The following cases are referred to in this report. Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565; [1981] 3 All ER 577; [1982] 1 Lloyd’s Rep 27, CA Heron Maple House Ltd v Central Estates Ltd [2002] 1 EGLR 35; [2002] 13 EG 102 Oakfern Properties Ltd v Ruddy; sub nom Ruddy v Oakfern Properties Ltd [2006] EWCA Civ 1389; [2007] Ch 335; [2007] 1 All ER 337; [2006] 3 EGLR 30; [2006] 49 EG 96 Re 63 Alphabet Square (LVT/SC/CR/012/054/02) unreported Tan v Sitkowski; sub nom Phaik Seang Tan v Sitkowski [2007] EWCA Civ 30; [2007] 1 WLR 1628; [2007] 1 EGLR 113 This was a determination of a preliminary issue on an application by the applicant, Professor RJ Buckley, under section 27A of the Landlord and Tenant Act 1985, for a determination of his liability to pay service charges to the respondent, Bowerbeck Properties Ltd, under a lease. Mr Paul Clarke (instructed by K&L Gates) appeared for the applicant; Mr Mark Loveday (instructed by Collyer Bristol LLP) represented the respondent. Giving the tribunal’s decision, Mr Peter Korn, chairman, said: Introduction [1] This hearing arises out of an application under section 27A of the Landlord and Tenant Act 1985 as amended (the 1985 Act) for a determination of liability to pay service charges. [2] A pre-trial review took place on 18 June 2008, at which it was agreed that there was a preliminary issue to be determined as follows: Whether the charges challenged in the application are properly regarded as “service charges” within the meaning of Section 27A of the Landlord and Tenant Act 1985. [3] This hearing is concerned only with the above-mentioned preliminary issue. Background [4] The applicant is a former tenant of the premises. The respondent granted him a three-year lease of the premises on 29 July 1994 and then, in September 1997, granted him a further 10-year lease with a contractual expiry date of 23 March 2007. Part of the premises is on the ground floor of the building and its permitted use under the 1997 lease was (briefly) as consulting rooms or suites for medical or dental practitioners; the other part of the premises is in the basement and its permitted use under the 1997 lease was (briefly) as a private residential flat or maisonette. [5] Mr Mark Loveday, on behalf of the respondent, confirmed that it was accepted that each amount being challenged by the applicant would be a “service charge” (as defined in section 18 of the 1985 Act) if the premises constituted a “dwelling” within the meaning of section 18 as defined in section 38 of the 1985 Act. The disputed jurisdictional issue was solely whether the premises did indeed constitute a “dwelling”. Respondent’s analysis of documentation [6] Mr Loveday referred to correspondence between the parties spanning several months, and he focused upon periodic references to Part II of the Landlord and Tenant Act 1954 (the 1954 Act) in that correspondence as evidence that, in their dealings, both parties |page:44| had always treated the tenancy as a business tenancy, not as a residential tenancy. [7] Mr Loveday also took the tribunal through various elements of the 1997 lease. In clause 2, the premises are described as “the self contained suite situate on the ground floor and part of the basement…”. In subclause 3(22)(b), there is a covenant “not at any time during the said term to assign any part of the demised premises (here meaning a portion only and not the whole thereof) or to share occupation of the whole or any part thereof for all or any part of the said term”, and, in subclause 3(22)(c), there is a covenant “not to underlet or otherwise part with possession of any part of the demised premises as distinct from the whole”. Therefore, the alienation provisions envisaged no possibility of a separate demise or even separate occupation or possession of the residential and business parts. [8] Mr Loveday also referred to subclause 3(22)(e) of the 1997 lease, which makes reference to the exclusion of sections 24 to 28 of the 1954 Act, seemingly in the context of underlettings of whole (although the drafting of that subclause is unclear, in the tribunal’s view). Mr Loveday commented that this reference to sections 24 to 28 assumes a business tenancy. Similarly, in the rent review provisions (in para 3 of the first schedule), there is a reference to section 34(1) of the 1954 Act (also part of the business tenancy regime) in identifying the matters to be disregarded on review. [9] In respect of the user clause (subclause 3(13)), Mr Loveday submitted that the proviso as to, inter alia, who could use the premises, which might appear to govern just the user of the ground-floor consulting rooms, actually governed both elements, including the basement residential part. He also referred to the fact that subclause 3(14)(b) referred to “the front entrance door” of the premises being kept closed “in the manner of a private dwellinghouse” and suggested that the words “in the manner of” indicated that the premises were not regarded as being a private dwelling-house either in whole or in part and that the words “the front entrance door” assumed a single front entrance. Respondent’s analysis of statute and case law [10] Mr Loveday referred to the first part of section 18(1) of the 1985 Act, which defines “service charge” for the purposes of the following provisions of the 1985 Act (including section 27A) as “an amount payable by a tenant of a dwelling as part of or in addition to the rent”. Section 38 of the 1985 Act defines “dwelling” as “a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it”. [11] Mr Loveday, in characterising the premises as “mixed use”, expressed the view that the question of whether a mixed-use property could constitute a “dwelling” had not come up for consideration by a court before. However, it had come up for consideration by the leasehold valuation tribunal in Re 63 Alphabet Square (LVT/SC/CR/012/054/02), in which it was held that a property did not fit within the definition of “dwelling” under section 18 of the 1985 Act where, under the lease, at least 50% of the property had to be used for business purposes and potentially the entirety of the property could be used for business purposes. Although he conceded that this decision was not binding on the tribunal, Mr Loveday offered it as being helpful to the respondent’s position as the only case of which he was aware in which it fell for determination as to whether a property that could be used partly for business purposes and partly for residential purposes constituted a “dwelling” for the purposes of section 18 of the 1985 Act. [12] Mr Loveday also referred to the Court of Appeal decision in Tan v Sitkowski [2007] EWCA Civ 30; [2007] 1 EGLR 113. This case concerned premises consisting of a shop with residential accommodation above. At a certain point in time, the tenant ceased the business use of the shop. He argued that this cessation of use meant that the tenancy ceased to be subject to the provisions of the 1954 Act relating to business tenancies and that therefore (with the accommodation above the shop continuing to be used for residential purposes) the tenancy instead attracted the protection of the Rent Act 1977 (the 1977 Act). It was held that premises let for a mixed-use purpose are not “let as a dwelling” within the meaning of the 1977 Act (even if the business use subsequently ceases) and that premises should not be treated as let as a dwelling unless let for purely residential purposes. Mr Loveday conceded that the case before this tribunal was not one concerned with the relationship between business tenancy protection and Rent Act protection, but he drew the tribunal’s attention in particular to [59] and [77] of Neuberger LJ’s judgment. In [59], Neuberger LJ commented that “the terms of the lease must be scrutinised to decide whether the premises were ‘let as a separate dwelling'” and, in [77], he concluded “having been let for mixed business and residential use, the premises were not ‘let as a separate dwelling’ within section 1 of that Act”. [13] Mr Loveday then referred to the county court decision in Heron Maple House Ltd v Central Estates Ltd [2002] 1 EGLR 35, which concerned a building containing a mix of offices, flats and commercial premises. There was a headlease of the flats, hallways, staircases and roof and an underlease of substantially the same premises, and the undertenant sub-underlet the flats to individual occupiers. It was held that section 20 of the 1985 Act applied to the tenancies created by the headlease and the underlease because each individual flat was a “dwelling” under section 18 of the 1985 Act (as defined in section 38) even from the perspective of the head tenant and undertenant (whose leases were of much more than one individual flat). This was because section 18 refers to “a tenant of a dwelling” and not to the “tenant of [the] dwelling and nothing else”. However, according to Mr Loveday, that case could be distinguished from the present case because the premises held under the headlease and underlease in Heron Maple House were entirely residential and each unit could be separately identified. [14] Mr Loveday noted that the applicant, in written submissions, had placed considerable reliance upon the Court of Appeal case of Oakfern Properties Ltd v Ruddy [2006] EWCA Civ 1389*. The facts of Oakfern will be referred to in more detail later, but this is a convenient point at which to note that Mr Loveday considered the facts to be similar to those in Heron Maple House, in that the lease in question was of residential parts only and Mr Ruddy himself had a separate self-contained residential unit. ————————————————————————— * Editor’s note: Reported at [2006] 3 EGLR 30 ————————————————————————— [15] Mr Loveday also briefly referred to Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84, which was a case concerning estoppel by convention. In his view, the parties had acted at all material times on the basis of an assumption that the premises were business premises and that the residential element was not a separate dwelling, and the applicant had not raised the 1985 Act until making this application, and it would therefore be unconscionable to go back on that assumption. Applicant’s case [16] Mr Paul Clarke, for the applicant, began with an analysis of Oakfern. The facts (briefly) were that the building was divided into units for commercial and residential use. The upper floors, comprising 24 separate residential flats, were let to the head tenant, who sublet the flats to individual tenants. The head tenant was obliged to pay a maintenance/service charge to the freeholder and each subtenant was obliged to pay one 24th of that charge to the head tenant. One of the subtenants applied to the leasehold valuation tribunal, under section 27A of the 1985 Act, for a determination as to the amount of maintenance/service charge payable on the ground that the amount charged by the freeholder to the head tenant was unreasonable. The tribunal had to decide whether the subtenant had locus standi to make the application (notwithstanding the fact that the obligation to pay the charge rested with the head tenant) but, more relevant to the present case, it also had to decide whether the charge was a “service charge” within the meaning of section 18(1) of the 1985 Act. [17] The tribunal in Oakfern determined that the charge was a service charge within the meaning of section 18(1), and this decision was upheld by the Lands Tribunal and the Court of Appeal. Mr Clarke acknowledged that the facts in Oakfern were different from the facts |page:45| in the case before this tribunal, but argued that the Court of Appeal decision in Oakfern was wide enough to cover our case as well. Mr Clarke noted that the premises demised under the headlease in Oakfern included many individual flats and not just one dwelling, in the same way as the premises in the present case do not just comprise one dwelling. He drew the tribunal’s attention to the following passage of Jonathan Parker LJ’s judgment on the question of whether the head tenant (mesne landlord) was a tenant of a building or part of a building occupied or intended to be occupied as a separate dwelling: see [73] of the judgment: the question arises whether a mesne landlord who, like PPM, is tenant of a building comprising a number of dwellings together with common parts falls within the definition. Such a mesne landlord is plainly a tenant of “a building” but not of “a building… occupied or intended to be occupied as a separate dwelling”. Can it then be said that, notwithstanding that he owns the entire building, he is nevertheless a tenant of “part of a building occupied or intended to be occupied as a separate dwelling” (my emphasis)? I have come to the conclusion that the answer to that question is yes. [18] Jonathan Parker LJ then went on to say, in [74]: I can find no satisfactory reason for construing the definition of “dwelling” in section 38 so as to exclude a tenant from the definition merely because whilst he is the tenant of a dwelling which extends only to part of a building, he is also the tenant of other parts of the building, be such other parts dwellings or common parts or some other type of property altogether (eg commercial property). Jonathan Parker LJ also rejected the suggestion that there was any significant relationship between the service charge provisions and the Rent Acts. The emphasis of the policy underlying the service charge provisions in the 1985 Act was not so much on protecting the tenant in his home as on providing him with a way of challenging unreasonable service charges: see [78] of the judgment. This confirmed, in Mr Clarke’s view, that Tan was not relevant to the present case. Neither was Jonathan Parker LJ persuaded that the potential anomalies identified in argument before the Court of Appeal were such as to compel a conclusion that the subject premises should not be treated as a “dwelling” for the purposes of section 18(1) of the 1985 Act: see [80] of the judgment. [19] With regard to 63 Alphabet Square, Mr Clarke said that it was a decision made prior to Oakfern and must now be considered to have been wrongly decided. In any event, it was not binding on this tribunal. [20] Mr Clarke also made reference to a passage in Woodfall’s Law of Landlord and Tenant (in para 7.189 and 7.190) citing Heron Maple House and Oakfern as authorities for the proposition that a person may be “the tenant of a dwelling” even though his tenancy includes other property. [21] In respect of the layout of the premises, Mr Clarke acknowledged that there was an internal staircase linking the residential and commercial parts, but said that this did not prevent the residential part from being considered separate. For the two sections not to be separate there would need to be a mix of functions, for example the waiting room forming part of the basement premises. [22] Mr Clarke also made a brief reference to the Housing Act 1988 concept of separate accommodation possibly assisting in an understanding of what constitutes a dwelling or dwelling-house. [23] In respect of the estoppel argument, Mr Clarke did not accept that the applicant was estopped from asserting his 1985 Act rights simply because he had not previously had cause to assert them. Factual disagreement [24] There were some points of disagreement between the parties on the facts. Although it was agreed that there were three possible methods of access to the basement, the respondent’s contention was that the main access was through the ground-floor accommodation, whereas the applicant’s contention was that this was the least significant method of access. There was also a disagreement as to whether the door giving access between the ground-floor and basement parts was routinely locked. With regard to the doorbell, the respondent’s contention was that there was just one doorbell that (when rung) sounded simultaneously in the basement and ground-floor premises, whereas the applicant’s contention was that there was also a separate buzzer for the basement outside the kitchen. No inspection [25] There was a discussion as to whether it was necessary for the tribunal members to inspect the property prior to the hearing. Neither party expressed the view that it was necessary, and the tribunal members after deliberating on the matter also concluded that it was not necessary to do so on the basis that the areas of factual disagreement between the parties were not considered to be pivotal to the case. Tribunal’s analysis of application of law to facts [26] On hearing the arguments presented by both sides and considering the terms of the 1997 lease, the case law and the other written evidence supplied on behalf of the parties, it seems to this tribunal that the factual matrix of this case is at least on the surface significantly different from all the cases referred to in submissions, with the possible exception of the (non-binding) LVT decision in Re 63 Alphabet Square. For example, the facts are significantly different from those in Oakfern, although the point at issue is very different from that in Tan. [27] We will deal first of all with what this tribunal considers to be the less compelling arguments advanced in submissions. It has been suggested that the lack of previous references by the applicant (prior to the present application) to his rights under the 1985 Act, coupled with periodic references in correspondence and the 1997 lease to Part II of the 1954 Act (relating to business tenants) indicate that the 1997 lease was regarded as a business lease and not a residential lease and that the applicant was therefore effectively estopped from claiming rights as a residential tenant under the 1985 Act. Although this argument has some superficial attraction, no evidence was brought to support the argument or implication that a tenancy cannot simultaneously: (i) attract 1985 Act protection; and (ii) be subject to Part II of the 1954 Act by virtue of its being occupied partly for business purposes. This tribunal also does not accept that the fact that the applicant has not previously sought protection of his rights (if any) under the 1985 Act should “estop” him from doing so now. [28] With regard to Re 63 Alphabet Square, it is not binding on this tribunal and was decided prior to the Court of Appeal case of Oakfern. If the present case can be distinguished from Oakfern in the respondent’s favour, based upon an analysis of the facts of our case, Re 63 Alphabet Square could be of some interest, although it does not contain a detailed analysis of the issues. [29] With regard to Tan, we note the analysis contained in the judgment of Jonathan Parker LJ in Oakfern, who observed that Tan was a case concerning Rent Act protection rather than the ability to challenge service charges and rejected the suggestion that there was any significant relationship between the two. Although Tan contains an interesting analysis of mixed-use premises in the context of that case, in this tribunal’s view we are bound by Oakfern on the issue of whether it is relevant to the ability to challenge service charges under the 1985 Act. [30] We also do not consider that the Housing Act concept of separate accommodation raised by Mr Clarke is of much assistance, given the different legislative context in which it arises (indeed, the problem with importing Housing Act concepts is arguably not very different from the problem with importing Rent Act concepts highlighted by Mr Clarke in the context of Tan). [31] Mr Clarke has argued very strongly that the meaning of “dwelling” and “occupied as a separate dwelling” has been clarified by the Court of Appeal in Oakfern, and that it is clear that a tenant can hold a lease that includes a dwelling but also includes other property (even commercial property) and still fall within section 18 of the 1985 Act, and it seems to this tribunal that the key question is whether the facts of this case can and should be distinguished from Oakfern. [32] In Oakfern, the relevant holding consisted of more than one private dwelling; there were 24 separate residential flats. The holding |page:46| itself constituted part only of the building. The Court of Appeal held that the holding could fall within the definition of section 38 even though it formed only part of a building as the definition of a tenant of a dwelling included a tenant of “part of a building occupied or intended to be occupied as a separate dwelling”. It was also, in the court’s view, possible for the tenant to be the tenant of a dwelling as well as being the tenant of another part of the building. [33] As has been pointed out, the facts in the present case are different from those in Oakfern because: (a) the holding in Oakfern comprised only residential units; and (b) it can be argued that the two parts of the premises in the present case are linked in a way that the units in Oakfern were not. How significant is this? In Oakfern, Jonathan Parker LJ commented that he could find no satisfactory reason for construing the definition of “dwelling” so as to exclude a tenant “merely because whilst he is the tenant of a dwelling which extends to part of a building he is also the tenant of other parts of the building, be such other parts dwellings or common parts or some other type of property altogether (eg commercial property)”. Since Oakfern related to a solely residential holding, the comments concerning commercial property do not provide clear authority for this tribunal. It is also unclear what sort of scenario Jonathan Parker LJ was envisaging when he made his comments concerning commercial property and whether the Court of Appeal’s decision would necessarily have been the same on the facts of the present case. [34] One noteworthy element of the Court of Appeal’s decision, in this tribunal’s view, is that although there was a detailed analysis of the meaning of the word “dwelling” (and its legislative context), there was less analysis of the precise meaning of the word “separate” The reason for this seems straightforward; it was presumably clear in Oakfern that each individual unit was indeed completely separate, in the sense that it was self-contained, self-sufficient and could not be accessed save through its own front door via the common parts. Therefore, although in analysing the meaning of “dwelling” Jonathan Parker LJ quoted the definition in section 38 (including the word “separate”), the focus of his reasoning would seem to be that it is possible for part of a holding to constitute a dwelling. The focus does not seem to be on what characteristics a residential part of a holding would need to have in order to be “separate” for the purposes of section 38. [35] Given that the holding in Oakfern was wholly residential, the factual position in that case was significantly different from that in the present case. Although one cannot know for certain how the Court of Appeal in Oakfern would have decided the present case, the starting point in Oakfern may have been a presumption that it would be perverse to deny the tenant the protection of being able to challenge the reasonableness of the service charge simply on the basis that the holding constituted more than one residential unit. [36] Mr Loveday has referred the tribunal to various aspects of the lease of the premises. It is noted that the premises are described as “the self contained suite situate on the ground floor and part of the basement…” and that there is a covenant not to assign any part of the premises or to share occupation of the whole or any part and another covenant not to underlet or otherwise part with possession of any part of the premises (as distinct from the whole). There is also a reference to “the front entrance door” (that is, an assumption of one door for the two parts of the premises). On a practical level, although there was some disagreement on the facts, it was common ground between the parties that there was an outside doorbell that rang in both the basement and the ground-floor premises and that there was an internal staircase linking the basement and ground-floor sections of the premises. Other points were raised, but the above points are regarded as the most pertinent. [37] In this tribunal’s view, the differences between the premises in our case and the holding in Oakfern are significant. The decision in Oakfern allowed for the possibility that it could apply to premises that were part commercial, but it was not a case in which any part of the holding was commercial. In addition, it seems clear that each unit in Oakfern was separate from the others. It is far less clear that the two parts of the premises in our case are “separate” for the purposes of section 38 of the 1985 Act. It is arguable that they are separate, in the sense that each part is separately identifiable, but given that the two parts are connected internally and have a common doorbell and are connected in a number of ways under the lease (for example, cannot be occupied separately), on balance, this tribunal’s view is that the residential part of the premises is not “separate” for the purposes of section 38 and that the applicant is not therefore “a tenant of a dwelling” within the meaning of section 18. To decide otherwise would not, in this tribunal’s view, do justice to the word “separate” in the legislative context of section 38. Although it is noted that the Court of Appeal addressed the question of possible anomalies when applying its decision to different situations, in this tribunal’s view, the facts of the present case are such that it can properly be distinguished from Oakfern. Determination [38] For the reasons stated above, the tribunal determines that the charges challenged by the applicant in his application are not properly to be regarded as “service charges” within the meaning of section 27A of the 1985 Act. [39] Conscious that it might prove not to be relevant, Mr Loveday and Mr Clarke both made fairly tentative comments on the question of whether an order under section 20C of the 1985 Act (that is, one relating to recovery by the respondent of costs incurred in connection with these proceedings as service charge) should be applied for. In view of the determination by the tribunal on the substantive issue, the section 20C question does not fall to be determined. Application refused.