Lease — Construction — Large shopping complex incorporating leisure areas — Defendant tenant acquiring lease for indoor leisure centre — Defendant disputing calculation of service charges — Plaintiff landlord seeking payment — Defendant claiming rectification — Judgment for plaintiff
The first plaintiff (“the landlord”) demised to the defendant tenant an indoor leisure centre known as Metroland, which formed part of the Metro Centre, Gateshead, Tyne and Wear. The lease was to run from December 1990 to March 2003; the rent was fixed at £100,000 for the first year and thereafter £150,000, plus 10% of the turnover subject to profit, as well as service charges. The tenant covenanted to pay, inter alia, a proportionate part of the service charge (clause 3(2)(a)) as well as a fair proportion of the charge attributable to the opening of the maintained areas (ie the common parts) outside retail trading hours. The sixth schedule was concerned with the components of the service charge, as well as its levying and apportionment. There was a preamble to the schedule the purpose of which was to give effect to the obligation undertaken by the landlord to the retail tenants and ensure that the leisure tenants made a reasonable contribution to the upkeep of the maintained areas and load on to them any exceptional demands on the services and facilities.
The landlord subsequently demised the property to the second plaintiff, CSC Properties Ltd, in October 1995, subject to the lease granted to the defendant, but retained the right to recover the service charge arrears of £360,000 plus interest, which were the subject of the present action. The Metro Centre covered an area of 115 acres and had been built in three phases, phases 1 and 2 consisting principally, if not wholly of shops. Phase 3 comprised the building of the leisure areas, which also included a cinema and bowling alley. Metroland was at the first-floor level and comprised about 70,0000 sq ft. Metroland disputed the claim for service charges and also claimed that the lease did not reflect the parties’ true intention. It claimed that the leisure user had to pay the amount properly attributable to the costs of repairing the structure of the demised premises, the costs for providing services or facilities exclusively for the demised premises, but did not have to pay anything in respect of the costs for repairing the structure of the development which did not include the demised premises or which were not maintained areas, ie a “stand-alone lease”.
Held Judgment for the landlord.
1. It was clear from the preamble to the sixth schedule that the retail tenants were not to be required to pay a service charge greater than that which they would have paid if the leisure units had not been built. Metroland’s argument — that the service charge was only to comprise that additional burden on the maintained areas which use of the leisure area entailed — was rejected.
2. On the issue of rectification, the court could not accept that there had been a prior agreement which the lease had failed to embody. The centre was a large complex with disparate uses and the terms of the leases of the retail units were expressly referred to in the sixth schedule.
3. The lease’s commercial object was not to separate the retail and other uses but to give effect to the landlord’s obligations already undertaken in the first two phases of the building of the project.
4. However, the landlord’s claim for indemnity costs in the action would be disallowed and costs were to be on the standard basis: Church Commissioners for England v Ibrahim [1996] EGCS 25 distinguished.
Paul Morgan QC and Jonathan Small (instructed by Waltons & Morse) appeared for the landlord; Alistair Norris QC (instructed by Alsop Wilkinson, of Manchester) appeared for the tenant.
