Landlord and tenant — Dispute as to liability of tenants of premises forming part of an industrial estate to contribute under service charge provisions in their lease to expenses incurred by landlord in maintaining and repairing the common parts of the estate — After appointment of new managing agents the amount of the service charge contributions demanded increased substantially and tenant challenged both specific items and the service charge as a whole — Lease contained a provision that in case of a ‘difference’ as to the contribution the matter was to be settled ‘by the landlord’s surveyor’, whose decision was to be ‘final and binding’ on the parties — Tenant sought various declarations to clarify the extent of their liabilities — In a judgment of some general landlord-and-tenant interest, the following points were decided — Where a lease provides for the amount of a service charge to be ‘recoverable as rent in arrear’, it will be properly the subject of distraint, but only if the amount payable has been agreed or otherwise ascertained — In the present case the demands for contributions were made by a firm who were both the landlord’s managing agents and the landlord’s surveyors — As the function of deciding a ‘difference’ as to the amount of tenant’s contribution was ‘essentially arbitral’, involving an impartial holding of the balance between landlord and tenant, the landlord’s managing agents who had made the disputed claim could not, in their capacity as the landlord’s surveyors, make a ‘final and binding’ decision on such a ‘difference’ — The landlord would have to appoint other surveyors for that purpose — Landlord could not in the present circumstances distrain — Among other matters the judge decided that any overpayments made by tenant in respect of items not properly chargeable were made under a mistake of law, not a mistake of fact, and were not recoverable either directly or by set-off — A decision with implications for residential premises also
This was an application by the tenant, Concorde Graphics Ltd, by originating summons for declarations relating to its liabilities under a lease of premises on the third floor of a building in an industrial estate in Deptford Bridge, London SE8, known as Seager Buildings. The defendants to the summons were the landlord, Andromeda Investments SA, a Liberian company. The declarations sought are set out in the judgment of Vinelott J.
Benjamin Levy (instructed by Craymer & Co) appeared on behalf of the plaintiff company; N Primost (instructed by David Lewis & Co) represented the defendant company.
Giving judgment, VINELOTT J said: In this application the plaintiff, Concorde Graphics Ltd, the tenant of premises which form part of an industrial estate known as Seager Buildings at 4-20 Deptford Bridge, seeks detailed declarations as to the extent of its liability under the terms of its lease to contribute to certain expenses incurred by its landlord in maintaining and repairing the common parts of the estate. The defendant landlord, Andromeda Investments SA, is a Liberian company. It has no place of business in the United Kingdom and has not been registered under the Companies Act 1948. The lease to the tenant is dated July 31 1979. At the date of the lease the landlord had recently acquired Seager Buildings from the liquidator of its immediate predecessor, Crowne Estates Ltd. The tenant had previously occupied part of Seager Buildings under a lease from Crowne Estates Ltd and had remained in occupation after that lease had expired. Seager Buildings were sold to the present landlord while the terms of the new lease were being negotiated.
By the lease the landlord demised to the tenant premises described as ‘on the Third Floor of Unit No 6 for the purposes of identification only shown edged red’ on a plan annexed thereto together with the rights and privileges described in the Second Schedule for a term from June 24 1978 until September 29 1998 at a fixed rent subject to review on September 29 1983 and thereafter at five-yearly intervals. The tenant’s covenants in clause 2 include a covenant (2(3)) in the following terms:
At all times to contribute and pay a rateable or due proportion of the costs charges and expenses, except damage by the insured risks, or making repairing decorating maintaining the building cleansing and lighting hallways roads, pavements, sewers, drains, pipes, watercourses, party walls, party structures, party fences, walls, roofs, entrance halls, stairs, lifts and passages or other conveniences which may belong to or be enjoyed with or be used for the demised premises in common with other premises such proportion in case of difference to be settled by the landlord’s surveyor whose decision shall be final and binding on the parties hereto and to be paid by the tenant on demand and recoverable as rent in arrear and to keep the landlord indemnified in such proportion for such costs and expenses as aforesaid.
The landlord’s covenants in clause 3 comprise the usual covenant for quiet enjoyment and a covenant to insure and in the event of damage by the insured risks to rebuild and reinstate the demised premises. There is no covenant to maintain the roads, pavements and other structures, part of the cost of maintaining which is to be borne by the tenant under the covenant in clause 2(3). However, the rights and privileges included in the demise include rights of way over the entrance hall, staircase, passages and lifts in the building of which the demised premises are part and over a specified roadway leading to that building and a right to park one vehicle in the area shown edged green on an annexed plan.
There are two other provisions which I should mention. They contain a reference of disputed question as to an independent surveyor. Clause 4(5) of the lease provides that if the demised premises are destroyed or so damaged as to make them unfit for occupation then pending reinstatement payment of rent by the tenant shall in certain circumstances be suspended. The subclause contains a provision that any dispute ‘shall be determined by an independent surveyor to be appointed by the President or Vice-President for the time being of the Royal Institute (sic) of Chartered Surveyors acting as an expert and not as an arbitrator’. Clause 5 provides for the quinquennial review of the rent. It is provided that in default of agreement the rent ‘shall be assessed at the joint expense of the Landlord and Tenant by a surveyor to be appointed by the President for the time being of the Royal Institute (sic) of Chartered Surveyors. The decision of the surveyor to be appointed under the provisions of this subclause shall be final and binding on the parties hereto’.
The landlord’s predecessors, Crowne Estates Ltd, employed a firm of chartered surveyors, Winbourne Martin French & Co, to manage the estate. They regularly supplied the tenant with accounts supported by a schedule setting out the proportion of the amounts expended by the landlord pursuant to clause 2(3) of the lease which they claimed to be due from the tenant. The expenses so incurred included (among other things) an amount attributed to caretaker’s wages and an amount attributed to ‘management’. This last|page:54| amount was calculated as a percentage (10%) of the total expenditure by the then landlord pursuant to clause 2(3) and was clearly included on the footing that the cost to the landlord of employing agents to ensure that the common parts were properly repaired and maintained and kept clean and of supervising any necessary work was itself part of the expenses chargeable under clause 2(3). The accounts rendered by Winbourne Martin French & Co were duly paid by the tenant. At some time between the date of the lease and January 1980 the landlord instructed a new firm of surveyors, Grant & Partners, as managing agents. On January 15 1980 they sent to all tenants of the estate a demand for a service charge in respect of the period from June 24 1979 to December 25 1979. The demand for the service charge was divided into three parts. The first related to the maintenance of the yard and roads and expenditure on services provided for all the tenants of the estate. It included a statement under various headings of all the items of expenditure and the proportion (4.99%) claimed from the tenant. The second part related to the maintenance of and provision of services exclusively for unit 6. The tenant was charged 9.91% of this expenditure. The third related to insurance against public and employer’s liabilities. The tenant was charged 18.75% of the expenditure under this head. These proportions were arrived at as the proportion which the floor area of the demised premises bore to the floor area of the whole of the estate, of unit 6 and of the part of unit 6 in which the demised premises were situate respectively. The charges relating to the maintenance of the yard and services provided for all the tenants included a charge for management which was very much higher than had previously been charged. It was nearly five times as large.
On February 14 1980 the tenant wrote querying the basis of the management fee and also raised a query as to why the service charge included an item for public liability and employer’s liability insurance which had not previously been included. Grant & Partners replied on February 21 1980 explaining these two items. As regards the management fee they explained that it was 7 1/2% of the rental income from the estate, which figure had been agreed with the landlord. On February 25 1980 the tenant sent Grant & Partners a cheque for an amount which included part of the service charge which had been claimed; it was reduced by (among other things) reducing the management fee to 10% of the other items in the service charge. Further correspondence followed, in particular in regard to the insurance in respect of public liability and employer’s liability and the management fee. Further claims were made by Grant & Partners for service charges for the periods to March 25 1980 and June 24 1980. They were in the same form as the earlier claim save that in regard to the period to June 24 1980 the second head (expenditure on the maintenance of and services provided exclusively for unit 6) was replaced by a charge for expenditure relating to that part of unit 6 where the demised premises were situate, the proportion charged to the tenant being the 18.75% previously charged in relation to public and employer’s liability insurance. On August 7 the tenant wrote to Grant & Partners objecting not only to the specific items which it had previously questioned but to the size of the service charge as a whole. It had apparently increased to nearly three times that made for the corresponding period in the preceding year. It also objected to the basis of the apportionment between the tenants on the estate. The tenant enclosed a cheque for a sum equal to the service charge for the period December 25 to June 24 of the preceding year with a 20% increase to take account of inflation. Grant & Partners replied on August 13 1980 explaining that on their appointment as managing agents they had put in hand substantial works to bring the estate up to a proper standard and that they hoped that the level of expenditure would be substantially less when the backlog of repairs had been cleared. They went on to say in reference to clause 2(3):
The proportion is to be settled by the landlord’s surveyor and the decision shall be final and binding and the payment is to be made by the tenant on demand and recoverable in arrear.
They went on to advance the view that it would be in the interests of tenants as well as the landlord if all tenants were to agree to make a payment towards the service charge in advance on estimates prepared by them. The letter concludes with the following paragraph:
I have been instructed to inform you by my clients that unless payment is made within the next 7 to 10 days, we will have no option, to instruct bailiffs or solicitors to obtain recovery. I am aware that you may have valid queries against your service charge and trust we can settle this matter as quickly as possible.
The next thing that happened was that the tenant received a printed notice from Grant & Partners. It was headed in large red lettering ‘Notice Before Proceedings’. It went on to state that despite previous reminders they had not received the service charge due on July 25 1980 and that unless payment was made by 12 noon on August 26 1980, again in large red letters, ‘legal proceedings will be entered into without further notice’.
Following receipt of that notice the tenant attempted to arrange a meeting with the landlord. A meeting was arranged for November 17. It was cancelled at short notice. The tenant issued its originating summons on December 23 1980. The first paragraph of the originating summons asks for a declaration that the service charge is not a rent in respect of which the landlord is entitled to levy distress. Mrs Irene Francis, a director of the tenant, explains in her affidavit in support of the originating summons that the landlord had, to her knowledge, ‘threatened to levy or commence levying distress on tenants at Seager Buildings in respect of their claims for service charges on several occasions. In each case the tenants so threatened have paid the sum demanded in order to avoid distraint’.
In para 2 of the originating summons the tenant seeks a declaration that it is not liable under clause 2(3) to pay any sum in respect of specified items of expenditure, in particular the wages of a caretaker and other expenses in relation to the employment of a caretaker, the provision of a security guard, the management fee, the provision of facilities for the removal of refuse from the premises of other tenants of the estate and premiums under the landlord’s public liability insurance and employer’s liability insurance. In paras 3, 4 and 5 of the originating summons the tenant seeks declarations that payments demanded for the year to June 24 1980 in respect of these items of expenditure are payments which the landlord was not entitled to demand and are either irrecoverable or in the case of some items constitute overpayments by the tenant. Under para 6 the tenant asks in the alternative for an account of the sums paid by it to the landlord for the year to June 24 1980 in respect of items which were not properly included in the service charge. At the hearing Mr Levy, who appeared for the tenants, sought only an inquiry under para 6. Under paras 7 and 8 the tenant asks for an order that the landlord pay to the tenant any sums which are found to have been paid in respect of items not properly included in the service charge or, alternatively, a declaration that the tenant is entitled to withhold overpayments from future rent. Lastly, the tenant seeks a declaration that the proportions of the total service charges charged to it are excessive.
Three points can, I think, be shortly disposed of:
First, it is clear that when the amount of the service charge properly payable by the tenant has been agreed or otherwise ascertained (that is when both the due proportion of the costs, charges and expenses incurred by the landlord and properly chargeable to the tenant and the amount of those costs, charges and expenses have been agreed or otherwise finally ascertained) the amount chargeable to the tenant will be ‘recoverable as rent in arrear’ and will then properly be the subject-matter of distraint.
Secondly, it is to my mind equally clear that neither the due proportion of these costs, charges and expenses nor the amount of the costs, charges and expenses have been either agreed or finally ascertained and that the landlord is not entitled to distrain for the amount now in dispute. Grant & Partners are employed as managing agents by the landlord. They have made demands of the tenant in their capacity as managing agents. It is to my mind impossible on the facts which I have briefly summarised to say that Grant & Partners as the landlord’s surveyors have made a decision which is (in the terms of clause 2(3), ‘final and binding on’ the tenant as to the amount of the service charge payable by it. The landlord is not therefore entitled to distrain for the balance claimed from the tenant, the amount of which is bona fide disputed by it.
Thirdly, it is well settled that a payment made under a threat of and to avoid a seizure of goods is not made voluntarily and can be recovered (see Maskell v Horner [1915] 3 KB 106). However, I do not think there is sufficient evidence that any payment by the tenant was made under the threat of and to avoid distress. No threat of any kind was made by Grant & Partners to the tenant until August 13 1980. Even then the threat was ‘to instruct bailiffs or solicitors to obtain recovery.’ Mr Levy on behalf of the tenant submitted that if that|page:55| letter is read in conjunction with the passage in the affidavit of Mrs Francis which I have read it amounts to a threat to levy distress. He stressed that the landlord is a Panamanian company with no place of business in the United Kingdom and could be expected to use the remedy of distress if available to avoid the necessity of instructing solicitors to institute proceedings here. I find this submission far from convincing but I do not need to decide whether the letter of August 13, construed in the light of Mrs Francis’ evidence as to the conduct of the landlord in relation to other tenants (which evidence is not specifically answered in the landlord’s affidavit evidence), is capable of being understood as a threat. Indeed it would be difficult if not impossible on affidavit evidence to come to any conclusion on what is I think the material question, which is the effect which the letter had on the mind of Mrs Francis and whether in all the circumstances any subsequent payment was made by her voluntarily. Mr Levy’s submission is open to a more fundamental objection. No payment has been made by the tenant in respect of any disputed item of charge since August 13 1980. There is no indication in the correspondence between the tenant and Grant & Partners before August 13 1980 that the payments made by the tenant were made under protest and to avoid distress. Moreover, the payments were not made under any mistake of fact. The items of expenditure in respect of which the charge was made were clearly set out in the demand sent by Grant & Partners. If the tenant was mistaken and paid a sum which included items of expenditure which were not properly charged under clause 2(3), the mistake it made was a mistake of law and that mistake cannot impose on the landlord any liability to repay that part of the payment relating to items of expenditure which were not properly charged or to set off such part against future payments of rent. In the absence of any improper pressure or mistake of fact the landlord is entitled to rely upon a payment made in response to a claim for a service charge as a final settlement in relation to the items on which that charge was based.
The real issue in this case is whether the tenant is entitled to the declarations sought as to the nature of the expenditure a due proportion of which can properly be charged to it under clause 2(3) and to challenge the basis on which a proportion of that expenditure has been charged.
Mr Levy submitted that under clause 2(3) the only ‘difference’ which can be referred to and settled by the landlord’s surveyor is a difference as to the ‘rateable or due proportion of the costs, charges and expenses’ of the works there specified. It is said that the proportion properly attributable to the part of the estate comprised in the lease is a matter peculiarly within the province of the surveyor. So it is said, if the amount of the costs, charges and expenses which the landlord claims to have expended on matters within clause 2(3) is challenged the landlord must establish by action that those costs, charges and expenses are within clause 2(3); if the due proportion of the expenditure attributable to the premises comprised in the lease is disputed, that question alone must be referred to the landlord’s surveyor. I accept that, on a literal construction of clause 2(3), all that is referred to the landlord’s surveyor is the rateable or due proportion of the costs, charges and expenses falling within clause 2(3). But it is to my mind impossible to suppose that the parties intended that the reference to the landlord’s surveyor should be so limited. The words ‘such proportion’ can be read as an elliptical reference to the amount of the total expenditure on matters within clause 2(3) which is fairly proportionate to the demised premises. The ascertainment of that total expenditure is, I think, just as much within the special province and expertise of a surveyor as the ascertainment of the proportion which ought to be borne by the demised premises.
Mr Primost pointed out that in clauses 4(5) and 5 of the lease the surveyor to be appointed to decide a dispute whether payment of rent by the tenant should be suspended or to assess the rent payable on a review is to be an independent surveyor whereas the surveyor who is to settle a difference arising under clause 2(3) is to be the landlord’s surveyor. He submitted that the inference to be drawn from the fact that the surveyor who is to decide the amount of the contribution to be paid by the tenant under clause 2(3) is to be the landlord’s surveyor is that he is to act as the landlord’s agent in ascertaining the amount to be charged to and paid by the tenant. I do not think that that submission is well founded. The function of the landlord’s surveyor under clause 2(3) is to decide a difference as to the amount of the contribution payable by the tenant. That function is essentially an arbitral one. The reason for choosing the landlord’s surveyor to perform this duty is I think that the parties envisaged that the landlord would retain surveyors with general authority to keep the estate under proper supervision and to advise as to the state of the premises and any need for repair and on matters of that kind. They agreed to refer a difference arising out of clause 2(3) to the landlord’s surveyor because in the course of performing his duties as surveyor he would acquire some familiarity with the property which would enable him to reach a decision more cheaply and expeditiously than if he came to the matter entirely afresh. It does not follow from the fact that the landlord’s surveyor is chosen to perform this duty that his function cannot be an arbitral one. His position will be one of some delicacy. Although he is the landlord’s agent he must act impartially and hold the balance equally between the landlord and the tenant notwithstanding that the landlord is his principal and paymaster. He must not simply obey the instructions of the landlord. But his position is no more delicate than the position of an architect required to issue certificates under the standard RIBA contract. As in the case of the architect the parties to the lease are entitled to rely upon him as a professional man to exercise an independent judgment.
In the present case Grant & Partners clearly cannot perform the duty of deciding the difference that has arisen between the landlord and the tenant as to the contribution payable by the tenant under clause 2(3). As managing agents they, on behalf of the landlord, have made the claim which the tenant disputes. Mr Levy submitted that as a result the whole scheme of clause 2(3) has broken down and that both the aggregate amount of the costs, charges and expenses within clause 2(3) and the proportion attributable to the demised premises should now be ascertained by the court. I think that submission goes too far. Although the parties to the lease envisaged that the landlord would retain surveyors in the way I have indicated there is nothing in the lease which requires them to do so. If the landlord had never instructed surveyors or had instructed surveyors ad hoc to deal with specific matters as they arose it could not be said that the machinery of clause 2(3) had broken down. It would be the duty of the landlord to appoint surveyors at their expense to decide any difference arising under clause 2(3). Similarly, as the landlord has appointed a firm of surveyors to act both as surveyors and as managing agents with the result that as surveyors they cannot perform the task required to be performed by the landlord’s surveyor under clause 2(3) the landlord must now appoint other surveyors who can resolve the dispute. Whether the court would have jurisdiction to decide the amount of the costs, charges and expenses recoverable by the landlord under clause 2(3) or the proportion thereof which ought to be borne by the tenant or whether the decision of a surveyor appointed by the landlord is a condition precedent to the liability of the tenant if they dispute the amount of the charge made by the landlord is a question which I do not find it necessary to decide. If the court has jurisdiction it would, I think, be appropriate to exercise it by directing an inquiry. The matters in dispute are eminently matters for the exercise of the judgment of an expert. For instance, while the costs, charges and expenses recoverable under clause 2(3) clearly do not extend to the whole fee paid to managing agents for managing the estate and collecting rents, a fee may be justifiable in so far as the managing agents are called on to arrange and supervise works and services the costs of which do fall within clause 2(3). Similarly, part of the expense of providing a full-time caretaker may be attributable to work done by the caretaker in attending to matters within clause 2(3).
I propose therefore to declare first, that the landlord will not be entitled to distrain for the part of the service charge claimed by it which has not been paid by the tenant unless and until it has been established by the decision of a surveyor appointed pursuant to clause 2(3) that the proportion of the costs, charges and expenses properly chargeable as a whole under clause 2(3) which is attributable to the demised premises exceeds the amounts paid by the tenant on account; and to declare, secondly, that if that amount is less than the sums paid by the tenant on account the tenant will not be entitled to recover the balance either directly or by set-off against future rent.
The defendant landlord company was ordered to pay two-thirds of the plaintiff tenant company’s costs.|page:56|
