Buckley v Bowerbeck Properties Ltd

  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 18th 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 3 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 231° 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 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 on periodic references to Part II of the Landlord and Tenant Act 1954 in that correspondence as evidence that in their dealings both parties 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 sub-clause 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 sub-clause 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 sub-clause 3(22)(e) of the 1997 lease which makes reference to the exclusion of sections 24 to 28 of the Landlord and Tenant Act 1954, seemingly in the context of underlettings of whole (although the drafting of that sub-clause 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 paragraph 3 of the First Schedule), there is a reference to section 34(1) of the Landlord and Tenant Act 1954 (also part of the business tenancy regime) in identifying the matters to be disregarded on review. 9.       In relation to the user clause (sub-clause 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 sub-clause 3(14)(b) referred to “the front entrance door” of the Premises being kept closed “in the manner of a private dwelling house” 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 the case of re: 63 Alphabet Square (L VT/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 whole of the property could be used for business purposes. Whilst 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 whether a property which 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 and another v Sitkowski (2007) JEGLR 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 Landlord and Tenant Act 1954 relating to business tenancies and that therefore (with the accommodation above the shop continuing to be used for residential purposes) the tenancy attracted the protection of the Rent Act 1977 instead. It was held that premises let for a mixed-use purpose are not “let as a dwelling” within the meaning of the Rent Act 1977 (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 paragraphs 59 and 77 of Neuberger LJ’s judgment. In paragraph 59, Neuberger LJ comments that “the terms of the lease must be scrutinised to decide whether the premises were ‘let as a separate dwelling” and in paragraph 77 he concludes “having been let for mixed business and residential use, the premises were not ‘let as a separate dwelling’ within section 1 of the Rent Act 1977”. 13.  Mr Loveday then referred to the County Court decision in Heron Maple House Ltd v Central Estates Ltd (2002) JEGLR 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 then 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 headtenant 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 on the Court of Appeal case of Ruddy v Oakfern (2006) EWCA Civ 1389. The facts of Ruddy v 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 only residential parts and Mr Ruddy himself had a separate self-contained residential unit. 15.   Mr Loveday also briefly referred to the case of Amalgamated Investment & Property v Texas Commerce Bank (1982) IQB 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 Clarke for the Applicant began with an analysis of Ruddy v 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 twenty-fourth 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 Ruddy v 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 Ruddy v Oakfern  were different from the facts in the case before this Tribunal but argued that the Court of Appeal decision in Ruddy v Oakfern was wide enough to cover our case as well. Mr Clarke noted that the premises demised under the headlease in Ruddy v 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 judgement 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 (paragraph 73 of the judgement):- “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 (paragraph 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 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 U 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 paragraph 78 of the judgement). This confirmed, in Mr Clarke’s view, that the case of Tan v Sitkowski 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 paragraph 80 of the judgement). 19.   As regards the case of 63 Alphabet Square, Mr Clarke said that it was a decision made prior to Ruddy v Oakfen 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 (7.189 and 7.190) citing Heron Maple House and Ruddy v 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 relation to 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 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 relation to 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. Whilst 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. As regards the doorbell, the Respondent’s contention was that there was just one doorbell which (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 of 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 Ruddy v Oakfern, whilst the point at issue is very different from that in Tan v Sitkowski. 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 11 of the Landlord and Tenant Act 1954 (relating to business tenants) indicate that the 1997 lease was regarded as a business lease and not a residential lease and that therefore the Applicant was effectively estopped from claiming rights as a residential tenant under the 1985 Act. Whilst 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 Landlord and Tenant Act 1954 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.   As regards the case of re: 63 Alphabet Square, it is not binding on this Tribunal and was decided prior to the Court of Appeal case of Ruddy v Oakfern. If the present case can be distinguished from Ruddy v Oakfern in the Respondent’s favour based on an analysis of the facts of our case then the case of re: 63 Alphabet Square could be of some interest, although it does not contain a detailed analysis of the issues. 29.   As regards the case of Tan v Sitkowski, we note the analysis contained in the judgement of Jonathan Parker LJ in Ruddy v Oakfern, who observed that Tan v Sitkowski was a case concerning Rent Act protection rather than ability to challenge service charges and rejected the suggestion that there was any significant relationship between the two. Whilst Tan v Sitkowski contains an interesting analysis of mixed use premises in the context of that case, in this Tribunal’s view we are bound by Ruddy v 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 himself in the context of Tan v Sitkowski). 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 Ruddy v Oakfern and that it is clear that a tenant can hold a lease which 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 Ruddy v Oakfern. 32.   In Ruddy v Oakfern, the relevant holding consisted of more than one private dwelling; there were 24 separate residential flats. The holding 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 only formed 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 Ruddy v Oakfern, as (a) the holding in Ruddy v Oakfern only comprised 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 Ruddy v Oakfern were not. How significant is this? In Ruddy v 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).” As the case of Ruddy v Oakfern related to a solely residential holding, the comments about 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 about 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 whilst 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 the case of Ruddy v 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, whilst 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 Ruddy v Oakfern was wholly residential, the factual position in that case was significantly different from that in the present case. Whilst one cannot know for certain how the Court of Appeal in Ruddy v Oakfern would have decided the present case, the starting point in Ruddy v 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” (i.e. an assumption of one door for the two parts of the Premises). On a practical level, whilst there was some disagreement on the facts, it was common ground between the parties that there was an outside doorbell which 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 Ruddy v Oakfern are significant. The decision in Ruddy v 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 Ruddy v 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 (e.g. 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 therefore the Applicant is not ‘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. Whilst 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 Ruddy v 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 Landlord and Tenant Act 1985. 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 (i.e. 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. CHAIRMAN…………………………… Mr P Korn Date: 7th October 2008