Landlord and tenant — Construction of leases — Preliminary points — Identical leases relating to different parts of same building — Liability at the end of lease — Whether tenants were liable to contribute under a service charge a proportion of the cost of repairs and decorations to the exterior parts and common parts which the landlords had contracted with builders before the end of the term to be carried out but no part of which had in fact been carried out by the end of the term — Tenants had covenanted in the lease to contribute a proportion of costs and expenses ‘which may from time to time during the said term be expended or incurred or become payable’ by the landlords in respect of matters set out in a schedule, which included repair and decoration of common parts and the exterior of the office building, of which parts had been let to the defendant tenants — It was suggested by the plaintiff landlords that the word ‘incurred’, in contrast to ‘expended’ and ‘become payable’, covered the situation where the landlords had entered into a contract under which a liability to make a payment would arise even though it had not done so before the end of the term — Held, rejecting this submission, that ‘incurred’ in the context was synonymous with ‘expended’ or ‘become payable’ — The suggested construction would have surprising results, allowing a landlord who had entered into a building contract to charge his tenants before any work whatever was done — On the true construction only services which were provided during the term were chargeable — Declarations accordingly
No cases are
referred to in this report.
In these
proceedings, the plaintiff landlords, Capital & Counties Freehold Equity
Trust Ltd, sought declarations as to the true construction of provisions in two
identical leases of the third and fourth, and the fifth and sixth, floors
respectively of an office building in Portman Square, London W1. The defendants
were B L plc, later known as the Rover Group plc.
David
Neuberger (instructed by Berwin Leighton) appeared on behalf of the plaintiffs;
J Dyson QC and P Boulding (instructed by H B Beake, legal controller of the
Rover Group plc) represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: There come before me a number of
preliminary points which in the course of argument have been reduced from three
to two. They turn on the construction of two leases made between B L Holdings
Ltd as landlords and Marathon International Petroleum (GB) Ltd as tenants. Both
the lease and the reversion have been assigned and the present landlord and
tenant are the plaintiffs and defendants respectively, save that I am told that
since the proceedings were issued the tenant has changed the name of the
company. It is now the Rover Group plc.
There are two
leases, but the identical questions arise in respect of each, one lease being
of the third and fourth floors and the other of the fifth and sixth floors of
an office building in Portman Square. They were granted for a term in each case
which expired on June 19 1984.
The short
question is whether the tenant is liable to contribute a due proportion of the
cost of the repairs and decorations to the exterior parts and the common parts
which the landlord had contracted with builders before the end of the term to
have carried out but no part of which at the end of the term had been carried
out. All that has happened is that the landlords have entered into the
appropriate building contracts. There are in fact two contracts dealing with
different aspects of the work, by which the landlord has bound himself to pay
certain sums to the builders as and when the works are carried out, or maybe in
stages as the works are carried out. There has been no question of any payment
on the making of the contracts or before the works are carried out. That
essentially is the question, whether the former tenant can be required to
contribute to those anticipated payments.
The questions
as preliminary issues have been formulated in two ways. The first way is this,
whether upon their true construction, the leases
contained a
term to give effect to the intentions of the parties thereto alternatively an
implied term to give the leases business efficacy, that the defendants were
only obliged to pay the plaintiffs the service charge referred to in clauses 2
(26) therein in respect of the services specified in the Fourth Schedules which
were provided by the plaintiffs during the terms of the leases.
That is the
first question.
The second
question is this:
Whether the
plaintiffs incurred expenses within the meaning of clause 2(26) of the leases
in respect of the matters set out in clause 2 of the Fourth Schedule upon
acceptance
putting it
shortly, of the two contracts I have mentioned for the carrying out of the work
notwithstanding
that during the terms created by the said leases no such work was carried out
and no sums became payable in respect thereof.
The questions
refer to clause 2(26), and I think I can now go to the leases. I just need to
take one of them. There are the normal repairing covenants on the part of the
tenant in respect of the interior. There is a painting covenant, inter alia,
for the interior to be painted in the last year of the term, and general
repairing covenants, clause 2 (5), and a covenant at the expiration of the term
to yield up to the landlords the premises so painted, repaired and amended in
accordance with the covenants, clause 2(7) — common form covenants.
Now I come to
the tenant’s covenant, clause 2 (26):
To pay to the
Landlord on demand in writing being made by the Landlord by way of additional
rent an amount (hereinafter referred to as ‘the Service Charge’) equal to 27.59
per centum of all amounts sums costs and expenses of each and every kind
whatsoever which may from time to time during the said term be expended or
incurred or become payable by the Landlord (as certified by the Landlords’
Accountant as hereinafter provided) in respect of the matters set out in the
Fourth Schedule hereto the Service Charge to be payable in accordance with the
provisions contained in the Fifth Schedule hereto.
The landlords
under clause 3 (3) covenant that:
The Landlords
will use their best endeavours to provide the services specified in the Fourth
Schedule hereto provided that the Landlords shall not be liable,
and so forth,
in respect of circumstances outside their control.
Turning to the
Fourth Schedule, under the first paragraph it says:
All
reasonable costs fees outgoings and expenses incurred by the Landlords for
providing the following services.
Then there are
a number of what I might call day-to-day services, like cleaning and lighting,
hot and cold water, and so forth, but there are others which would involve
heavier expense than day-to-day running of the block, such as the lift service
and the fire and alarm equipment.
Then the
second paragraph, which is the particular clause at which the landlords are
looking in this case:
The
reasonable cost of periodically inspecting examining maintaining repairing
amending renewing cleansing painting decorating overhauling and where necessary
replacing any common part of the building and the exterior and structure
thereof and the courtyards access roads ramps pavements ways and garage areas
and the lifts boilers plant machinery apparatus fixtures fittings and the
appurtenances thereof.
Then there are
other paragraphs which deal with the cost of employing the staff, the rates,
the cost of professional fees and certain other matters.
The Fifth
Schedule deals with the machinery for the collection of charge and it is, as in
many of these cases, to be an amount which is ascertained and certified
annually by a certificate of the landlords’ accountant as soon after the end of
the landlords’ financial year as may be practicable. Then there is a definition
of the financial year. It is from April 1 to March 31, although it can be
varied. Then 4:
The
Certificate shall contain a fair summary of the Landlords’ said expenses and
outgoings incurred by the Landlords during the financial year to which it
related;
and 5:
The annual
amount of the Service Charge . . . shall be a sum of money equal to the
proportions hereinbefore provided of the aggregate of the said costs
fees outgoings and expenses contained in the said Fourth Schedule incurred by
the Landlords in the year to which the said Certificate relates.
Then as soon
as practicable after the end of the financial year the landlords shall furnish
to the tenants an account of the service charges. Then there is a proviso in
relation to the first payment, and (b)
that the
provisions of this clause shall continue to apply notwithstanding the
expiration or sooner determination of the term granted by the Lease so far as
it relates to the demised premises but only in respect of the period down to
such expiration or sooner determination.
I think that
is all of the lease that I need specifically refer to. I have been shown, and
they are in the bundle, the documents constituting the contract, but I do not
think I need refer further to them.
The landlords
say that they are entitled to charge the tenant the appropriate proportion of
the sums in the contracts, or such sum, as I understand it, that may ultimately
be payable thereunder by virtue of the word ‘incurred’ in clause 2(26), to
which I must now return.
It is pointed
out that what the tenant has obliged himself to do is to pay the sums, costs
and expenses, or the due proportion of them, ‘of each and every kind whatsoever
which may from time to time during the said term be expended or incurred or
become payable by the Landlord in respect of the matters set out in the Fourth
Schedule’.
It is pointed
out that there are three expressions there, ‘expended or incurred or become
payable’, and that as ‘expended’ obviously means money having been laid out and
‘become payable’ means money which the landlords have come under a liability to
pay but have not yet paid, therefore those matters having been taken care of,
‘incurred’ means where the landlords have entered into a contract under which a
liability to make a payment will arise even though at the particular time it
has not yet done so. The way Mr Neuberger puts it is that one has to construe
the contract to give a meaning to each expression; ‘expended’ means paid,
‘become payable’ means fallen due, so ‘incurred’ means something else. The
liability will be an obligation to pay in the future. If it does not mean that,
his argument is, then it is just surplusage and is covered by one or other or
both of the other two expressions. When you look at the practicalities of the
matter, one knows, he says, there are always some repair works to be done at
the end of the lease, and the tenants’ covenants really proceed on the same
sort of basis.
Of course, one
does not consider this entirely in isolation and it does lead to some very
surprising results. If the landlord merely had to enter into a contract with
the builder in order to be able to charge his tenants, and thereby could charge
them before any work whatever was done, which is I think what this submission
in the result comes to, it would then follow that the landlord either could
choose to charge as soon as he had entered into the contract or could forget it
and then charge when he had actually made payments under the contract, and it
would mean that there would have to be adjustments because the work contracted
for might not be done, there might be more work done or less work done, or
indeed there might even be no work done under the contract in the events which
occurred.
That is
something which occurs to one on looking at the clause in isolation, but when
one looks at other provisions it seems even more difficult to sustain. The
lease, like so many leases, is very wordy and I do not think one starts on a
presumption that every word in the lease has to give a precise meaning, not
overlapping with any other word that occurs in the clause. Just to look for a
moment at what was in the Fifth Schedule, which gives what the certificate
shall contain in para 4: it says: ‘The Certificate shall contain a fair summary
of the Landlords’ said expenses and outgoings incurred by the Landlords during
the financial year’; and then looking at para 5: ‘The annual amount of the
Service Charge payable by the Tenants aforesaid shall be . . . the aggregate of
the said costs fees outgoings and expenses . . . incurred by the
Landlords.’ The word ‘incurred’ there
clearly includes both the other matters, the relevant amounts that have been
expended or become payable. So that I do not see that in the context of this
lease one should give ‘incurred’ a special meaning, and indeed I would construe
it simply as synonymous with ‘expended’ or ‘become payable’. ‘Become payable’
would be a phrase where the landlord is obliged to make payment though by the
end of the financial year he has not in fact done so, but, of course, obliged
to become payable because the services have been rendered. On the other hand,
‘expended’ is work during the relevant year he has actually expended.
I would put it
on that simple ground, but Mr Dyson calls attention to the corresponding obligation
of the landlord. The landlord is bound to provide services, and although that
obligation does not say ‘during the term’ as clause 2(26) does, nevertheless
the obligation must be limited to the period of the term. The landlord is not
bound to provide services to the tenant before the term has begun or after it
has ended. That obligation is also defined by reference to the Fourth Schedule.
The argument runs that the services referred to in the Fourth Schedule are
those, and only those, which the landlord is bound to provide under clause 3
(3). It is not too happily married in, and Mr Neuberger has pointed out that
while under para 1 of the Fourth Schedule the services are specifically
referred to, in the other paragraphs it talks only about the costs of doing
this, that and the other. As far as that point goes, I see that as a verbal
point, but it seems to me that the landlord has obliged himself to provide all
these matters which are referred to in the Fourth Schedule. He has obliged
himself to maintain and paint the exterior of the common parts, he has obliged
himself to engage suitable staff and pay the rates and effect the insurance on
the property and to provide the services of caretakers and porters which are
also referred to in a later paragraph of the schedule.
So I would see
these two as linked: the landlord is obliged to provide the services in the
Fourth Schedule and it is only those services which the tenant is obliged to
pay for or contribute towards which are referred to in clause 2 (26).
There were a
number of detailed points, but I think I have expressed it sufficiently. As I
say, I reject the submission that ‘incurred’ means simply contractually
incurred. If one does have to provide a meaning — I do not think one does — it
refers to future or contingent payments, but I put it on the ground that
‘incurred’ does not add anything to the two expressions ‘expended’ or ‘become
payable’. Then looking at the scheme of the lease as a whole, the obligation of
the landlord to provide the services and the tenant’s obligation to pay for
them or contribute towards them are coterminous, and therefore it is only
services which are provided during the lease which are chargeable. Accordingly,
I shall answer the first question in the affirmative and the second question in
the negative.
The action
was dismissed with costs.