Landlord and tenant – Service charges – Qualifying long term agreement – Appellant freeholder engaging managing agents for block of flats – Whether agreement for one year which “will continue thereafter until terminated by notice” being agreement for not more than 12 months – Whether cost of employing porters and incidental costs being recoverable through service charge – Appeal allowed in part
The appellant owned the freehold interest in Clive Court, Maida Vale, London, W9, a substantial residential building comprising three interconnected blocks on eight floors containing 154 flats. The respondent occupied a flat under a long lease which included conventionally drafted service charge provisions requiring the respondent to contribute towards expenses incurred by the appellant in the provision of services including repair, maintenance and insurance of the building and other heads of specified expenditure.
A management agreement between the appellant and the managing agents provided: “The contract period will be for a period of one year from the date of signature hereof and will continue thereafter until terminated upon three months’ notice by either party”. Section 20ZA of the Landlord and Tenant Act 1985 provided that a qualifying long-term agreement was an agreement entered into, by or on behalf of, the landlord for a term of more than 12 months.
A dispute arose in respect of service charges totalling £24,420.83 claimed by the appellant which included a contribution towards the fees of managing agents, the cost of employing a team of porters and a charge for payroll preparation. The First-tier Tribunal (FTT) disallowed part of the fees of both managing agents on the grounds that the management agreement between the appellant and the managing agents was a long term qualifying agreement to which the consultation requirements of section 20 of the 1985 Act applied and had not been observed. The FTT also allowed costs claimed in respect of the services of the porters but refused to allow the cost of payroll preparation.
The appellant appealed and the respondent cross-appealed. Issues arose: (i) whether the management agreement was a long term qualifying agreement; (ii) whether, properly construed, the lease permitted the appellant to recover the costs of porterage; and (iii) whether the appellant was permitted to recover the costs of payroll preparation as a service charge expense.
Held: The appeal was allowed in part.
(1) The statement that the agreement was to continue thereafter “until terminated upon three months notice” was ambiguous; the word “terminated” might be taken to signify either the act of giving the notice which would terminate the agreement three months later or the termination itself, on the expiry of the notice period. Depending on which meaning was selected, the language might either permit a notice to be given during the first 12 months but terminate the agreement after the end of that period, or require that notice could not be given until after the 12 months had elapsed. However, it was reasonably clear that the agreement was intended to continue until after the end of the initial period of one year. That continuation, for whatever further period, was not conditional on the absence of notice: it was a continuation “until terminated” not “unless terminated”. Thus, whether a notice might be given during the initial 12 month period, or only after it had expired, the notice might not bring the agreement to an end until a period of continuation after the end of the 12 months had first commenced. On that construction, the agreement was for a period of at least a year and a day, and was therefore for a term of more than 12 months: Paddington Walk Management Ltd v Peabody Trust [2009] 2 EGLR 123 and Poynders Court Ltd v GLS Property Management Ltd [2012] UKUT 339 (LC) considered.
The authorities relied on by the appellant all concerned different types of agreement couched in different language and were not of direct assistance. Nor was there any room for implying a term that the agreement might be terminated at the end of the initial 12 months by notice of reasonable duration. That would be inconsistent with the intention that the agreement was to continue after that date and would be a surprising term for the parties to have left unexpressed in a clause dealing explicitly with duration and termination by notice. Accordingly, the agreement between the appellant and the managing agents was a long term qualifying agreement: Brown v Symons (1860) 8 CB (NS) 208, Langton v Carleton (1873) LR 9 Ex 57 and Costigan v Gray Bovier Engines Ltd (The Times, 27 March 1925) distinguished.
(2) The FTT had not dealt with the scope of the porters’ duties in its decision, but only with the question of whether the cost of employing them was reasonable. That issue was of considerable monetary value, and affected the practical arrangements at the building and the service provided to all of its residents. Although it was understandable why the FTT might not have felt it necessary to tackle the issue of principle and make specific findings of fact on the duties which the porters performed and the contribution they made to the performance by the appellant of its own duties, the recoverability of the costs of porterage remained a live issue. There had been an inadvertent but nonetheless significant omission in the fact finding necessary to enable a proper conclusion to be reached on that issue. The appeal had proceeded as a review of the decision of the FTT, and it would be neither fair nor possible for the Upper Tribunal to make satisfactory findings of fact based on the incomplete and fragmented record of the evidence given to the FTT. Therefore, the respondent’s cross appeal on the issue of the costs of porterage would be allowed and the matter remitted to the FTT for further consideration, on the basis of such additional evidence and argument as the parties might wish to adduce.
(3) The appellant had produced insufficient evidence to the FTT to explain and justify the expenditure on payroll preparation. If the cost of employing porters was found not to be recoverable at all, nor would the cost of preparing their payroll. The issue would also be remitted for further consideration.
James Sandham (instructed by Northover Law) appeared for the appellant; Nicola Muir (instructed by Direct Access) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read transcript: Corvan (Properties) Ltd v Abdel-Mahmoud