Local authority — Grant of long lease — Inclusion of service charge in lease — Whether service charge was valid and enforceable — County court holding that charge was valid — Court of Appeal upholding decision
In 1988 the lessees were tenants of a first-floor flat at 2 Deal House, Dunhill Avenue, Coventry. The council were the landlords and the lessees secure tenants. The lessees exercised their right to take a long lease in accordance with the provisions of the Housing Act 1985; and by a lease dated July 4 1988 the council demised the flat to the lessees for a term of 125 years in consideration of the sum of £5,175. The lease was at a fixed rent payable annually on October 1 throughout the term at the rate of £10.
The council made a claim against the lessees for a service charge expressed to be payable in accordance with clause 5(2) of the lease. The lessees failed to pay the sum claimed and the council issued a summons in the county court. A deputy district judge dismissed the claim on the basis that the council were not authorised to recover the sum claimed by reason of the provisions of the Housing Act 1985 relating to service charges. The council appealed successfully and the order was set aside. The lessees appealed.
Held The appeal was dismissed.
1. Para 16B of Schedule 6 to the 1985 Act had no application because the restrictions on liability imposed by that paragraph during the initial period of a lease only applied “where a lease of a flat required the tenant to pay service charges in respect of repairs”. The sum payable under clause 5(2) was not a “service charge” within the meaning of the 1985 Act.
2. The implied covenant contained in para 14(2) of Schedule 6 obliged the landlord, inter alia, to keep in repair the structure and exterior of the dwelling-house and of the building in which it was situated to ensure, so far as practicable, that services which were to be provided by the landlord were maintained at a reasonable level. Clause 16A entitled the landlord to include in the lease a provision that the tenant should pay a reasonable part of the cost incurred by the landlord in discharging the obligations imposed by the covenants implied by virtue of para 14(2).
3. The council were bound by the implied covenants in para 14(2). They did not seek however to recover any contribution from the lessees by way of a charge authorised by para 16A. The sum claimed was not “a reasonable part of the costs incurred by the landlord” within the meaning of para 16A, but a fixed charge payable without any reference to the actual costs incurred or to be incurred in the future.
4. Clause 5(2) was a term which was permissible under Schedule 6, para 5, which authorised the inclusion in the grant of a lease of “such covenants and conditions as are reasonable in the circumstances”.
5. Schedule 6 and the protection which it conferred on a tenant had to be looked at in the context of the statutory control relating to variable charges. The reasonableness of a fixed charge could be examined at the time when the long lease was being negotiated. Assuming the fixed charge was reasonable the tenant was protected over the whole period of the lease from fluctuating and unpredictable costs. The judge was right to uphold the clause and to treat clause 5(2) as falling outside para 16A and therefore outside the scope of para 18 (under which it would otherwise be void).
Lance Ashworth (instructed by Field Overell, of Coventry) appeared for the lessees; Michael Briggs (instructed by the solicitor to Coventry City Council) appeared for the council.
