Landlord and tenant — Point on construction of lease — Retail Price Index — Lease for a term of 61 years from June 24 1960 provided that the service charge should be £100 per annum plus £1 per annum for each point or part of a point by which the Retail Price Index rose above the figure of 110.4 — If, however, the Retail Price Index should cease to be published or to be available to the public, increases in the service charge were to be based on a fair proportion of increases in the landlords’ costs, to be determined by an independent surveyor — The question, to be decided as a preliminary point in proceedings by the plaintiff landlords was whether, as the result of certain changes, the Retail Price Index had ceased to be published or available — The history of the index showed that since the date of the subject lease not only had there been changes in the commodities and services represented in the index, and in their weightings, but also in the bases, which had been brought back to a base of 100 on two occasions since 1960 — This meant inter alia that the direction in the lease about the addition of £1 per annum for each rise of a point in the index could not be literally applied — The plaintiffs accordingly submitted that the alternative machinery in the lease for ascertaining the service charge should be used — Held, rejecting this submission, that the revised index remained the index to which the lease referred and that it had neither ceased to be published nor ceased to be available — Changes in the basket of items and in their weightings merely reflected changes in habits and tastes and were made in the interests of greater accuracy — Changes in the bases posed an immediate literal difficulty, but by a simple mathematical formula even the less numerate could convert the new figures to increases on the old base — Declaration accordingly
No cases are
referred to in this report.
This was a
preliminary point heard by virtue of a consent order made by Sir Nicolas
Browne-Wilkinson V-C in proceedings by the plaintiff landlords, Cumshaw Ltd, by
originating summons seeking a determination of the court on a dispute as to the
amount of a service charge payable by the defendant tenants under leases of
flats in property at 15 Chelsea Embankment, London SW3. The defendants were
lessees of the flats, the leases of which were for all material purposes in the
same terms.
Jonathan Brock
(instructed by A Kramer & Co) appeared on behalf of the plaintiffs; David
Neuberger (instructed by Victor Mishcon & Co) represented the first, second
and third defendants; M Rosen (instructed by Tarlo Lyons Randall Rose)
represented the fourth defendant.
Giving
judgment, SCOTT LJ said: I have before me a short point of construction of a
lease. The point turns, as do all points of construction, on the language used
in the lease, and also on certain underlying facts, to which I must refer. The
demised property is 15 Chelsea Embankment. It seems that it is divided into 10
flats. The defendants in the case are the lessees of three of the flats. The
first defendant is the lessee of flat 9, the second and third defendants are
the lessees of flat 5, and they all appear by Mr Neuberger; the fourth
defendant is the lessee of flat 3, and she appears by Mr Rosen.
The plaintiff,
Cumshaw Ltd, acquired the reversion to the property in 1975. The plaintiff
appears by Mr Brock.
The leases
held by the defendants were granted on different dates in 1960. They are for
all material purposes in identical terms. Each contains a demise of the flat
comprised therein for a term of 61 years odd from June 24 1960. There is
provision for payment of a fairly small ground rent, a premium having been
charged, and for payment of a service charge. The provision for payment of a
service charge to the landlord is natural enough, because in the body of each
lease is to be found a covenant by the lessor to be responsible for
maintaining, repairing, decorating and renewing the structure, the roof, the
foundations, the exterior, party walls, chimney stacks, gutters and rainwater
pipes of 15 Chelsea Embankment.
I turn to the
service charge provision. I should read it in full. Following the reservation
of the ground rent the lease continues:
And second,
paying by way of additional or further rent (hereinafter called the service
charge) the sum of £100 per annum plus £1 per annum for each point or part of a
point Her Majesty’s Government Index of Retail Prices rises above the figure of
110.4
that figure is
not constant in all the leases, but the variation therein is not material for
any present purposes
being the figure
at which the Index stood on the 16th day of August 1960
that date is
not constant, but again, the difference is not material —
the service
charge to be paid quarterly on the usual Quarter Days, provided always (a) that
the figure of the said Index to be taken for this purpose shall be the figure
stated in such Index at the commencement of the relevant Quarter; (b) if at any
time during the term hereby created the said Index shall cease to be published
by Her Majesty’s Government, or for any reason is no longer available to the
public, the service charge shall be £100 per annum plus a fair proportion of
any increase from time to time in the cost incurred by the lessors in providing
the services and complying with the lessor’s obligations mentioned in clause
3(b) and of the fourth schedule hereto over and above the cost incurred by the
lessors in respect of the same as at the date hereof, such proportion to be
determined by an independent surveyor for the time being by reference to the
percentage increase in the cost of services at such time as the said Index
table shall cease to be published or made available to the public; (c) the
service charge shall not in any circumstances be less than £100 per annum
whether or not the said Index table falls below the said figure of 110.4 and
(d) in the case of any dispute the matter shall be referred to arbitration
under the Arbitration Act 1950.
A dispute has
arisen between the plaintiff and the defendants as to the amount of service
charge that the respective lessees ought to be paying.
On May 29 1985
the plaintiff issued the originating summons seeking, in effect, the
determination by the court of the issue between the parties as to the service
charge. The plaintiff contends that the Index of Retail Prices mentioned in the
leases has either ceased to be published by Her Majesty’s Government or is no
longer available to the public for the purposes of proviso (b) of the service
charge provisions. If that is so, it is common ground that the quantum of the
service charge falls to be determined under proviso (b), subject, however, to
an estoppel, which in that event the defendants seek to raise against the
plaintiff. If the plaintiff is wrong in contending that one or other of those
events has happened, then, subject to some
the service charge falls to be determined under the main part of the service
charge provision and under proviso (a) of the proviso. In that event the
plaintiff contends that an estoppel can be raised against the defendants.
The
originating summons came before the Vice-Chancellor, Sir Nicolas
Browne-Wilkinson, on May 16, when the case was opened and the question was
raised of an adjournment in order to enable the plaintiff to answer certain
evidence filed on behalf of the defendants relating to the estoppels. The
parties, after discussion, decided that it would be sensible to obtain a
preliminary ruling on the question whether one or other of the events specified
in proviso (b) had in fact happened, that is to say, whether the Index of
Retail Prices referred to in the leases had ceased to be published by Her
Majesty’s Government, or was no longer available to the public. The
Vice-Chancellor accordingly on May 16 made a consent order for the hearing as a
preliminary point of that question. That is the question which is now before
me, and any answer to it must, given the manner in which the point comes before
me, be without prejudice to the rights of the loser of the argument before me
to seek to cure the consequences of the loss by reliance on the alleged
estoppel. The question is whether within the meaning of the language used in
the leases the Index of Retail Prices there referred to has ceased to be
published or is no longer available to the public. First, I must endeavour to
describe the nature of the Index of Retail Prices to which the parties were in
the leases referring, a little of its background, and some of the changes that
have occurred in it since the date of the leases.
The Index of
Retail Prices is an index published by the government for the purpose of
recording changes in the level of retail prices. The purpose of the index was
usefully described in a paragraph in a report published in 1967. The report was
entitled ‘Method of Construction and Calculation of the Index of Retail
Prices.’ Under para 5 the report says
this:
It is
important to understand that the Index is an index of price changes and not a
cost of living index. It does not measure changes in the kinds and amounts of
goods and services people buy, or in the total amount spent in order to live,
nor does it measure differences in living costs between different localities.
However, one of the most important factors determining changes in the cost of
living is the extent to which retail prices of goods and services change from
month to month. It is this particular aspect of the cost of living which is
measured by the Index of Retail Prices.
As appears
from that paragraph, publication of new and up-to-date figures is made monthly.
The leases in adopting the Index of Retail Prices as the basis for calculating
rises in the service charge were, plainly enough, linking the cost to the
landlord of discharging its repairing and other obligations to the rises from
time to time in retail prices. Whether this link would provide an accurate
measure of the increase in the landlord’s costs is, to my mind, an irrelevance.
Whether there was a more accurate formula available is also an irrelevance. The
fact of the matter is that the parties chose to use the changes in the Index of
Retail Prices for the purpose of determining the size of the service charge to
be paid by the lessees.
The purpose of
the Index of Retail Prices was, and is, to identify changes in retail prices
over the country as a whole. The manner in which that is done is relevant. I
can best describe the manner in which the index is prepared by reading a
paragraph which seems to have been included in each of the monthly editions of
the Ministry of Labour Gazette in which the monthly retail prices
figures are set out. The paragraph is in these terms:
The Index of
Retail Prices measures the change from month to month in the average level of
prices of the commodities and services purchased by the great majority of
households in the United Kingdom, including practically all wage earners and
most small and medium salary earners. The Index is not calculated in terms of
money, but in percentage form, the average level of prices at the base date
being represented by 100. Some goods and services are relatively much more
important than others, and the percentage changes in the price levels of the
various items since the base date are combined by the use of weights. The index
figures for each month are first calculated as index numbers with prices at
January 16 1962 taken as 100, and the weights used have been computed from
information provided by the Family Expenditure Surveys made in 1958 to 1961
adjusted to correspond with the level of prices ruling in January 1962. Lists
of these weights are given on page 88 of this Gazette.
So, a basket
of commodities and services is taken, a relative weight is attached to each
commodity or service, depending upon the extent to which that commodity or
service is the object of expenditure in those households, the survey of which
produced the statistics on which the index was based. When in 1960 these leases
were executed there had been in existence since 1956 an index known as the
Index of Retail Prices. It had had a predecessor known as the Interim Index of
Retail Prices. That Interim Index had come into existence in June 1947.
According to a note to a report on the revision of the Index of Retail Prices
made by a committee in March 1962 the Interim Index ‘was regarded as a
temporary measure to cover a period of abnormal conditions of spending after
the war’. The note goes on to describe the basis on which the 1956 Index then
came into existence. It reads:
In the
Interim Report dated June 26 1951 the committee recommended that a new
large-scale budget inquiry should be held as soon as possible to provide
up-to-date information about the pattern of household expenditure to serve as a
basis for a new Index of Retail Prices. The committee also recommended that
there should in future be smaller-scale inquiries at frequent intervals in
order to keep a check on the weighting basis of the Index. The Interim Index
was re-weighted in January 1952 on a temporary basis, and a large-scale
inquiry, the Household Expenditure Inquiry, was held during 1953. A new Index,
the present Index of Retail Prices, was introduced in January 1956 with weights
based on the expenditure patterns derived from this inquiry. A continuous
inquiry on a smaller scale, the Family Expenditure Survey, was started in
January 1957. The main results obtained in this survey for 1957, 1958 and 1959
were published in October 1961, and some results for 1960 were published in
December 1961.
Accordingly,
in 1960 when the leases were executed, there was in existence the Index of
Retail Prices which had started in 1956 with a base of 100. It will be recalled
that in the service charge that I read, the figure of 110.4 was mentioned. That
figure was the figure at which the index stood on August 16 1960. The committee
whose report I have just mentioned was appointed to consider a revision of the
Index of Retail Prices. It undertook a re-examination of the basket of
commodities and services on which the index was based, and of the relative
weighting given to the various items comprised in that basket. It produced its
report in March 1962. Its report led to a revision of the Index of Retail
Prices. Alterations were made in three respects. There were changes made to the
commodities and services in the basket. These changes were relatively few.
There were some items added, but the categories under which the various items
were listed remained the same. Second, the weightings were revised. These
revisions were of course important, because it was on the selections of the
items in the basket and on their relative weightings that the accuracy of the
index depended. The intention of the revision was plainly to produce an index
which would more accurately reflect changes in retail prices than the
previously organised index had done. None the less, the extent of the changes
in the items in the basket and in their weighting, though important and though
changes of substance, did not, in my view, change the character of the index.
It was still an index which endeavoured to reflect changes in retail prices in
a broad band of commonly used household commodities or services. It is rightly
referred to in my view as a revision of the Index of Retail Prices.
The third
change was that the base reference on which subsequent changes in retail prices
would be based was brought back to the figure of 100. The reasons for this are
set out in the 1962 report. They are various in number. One reason was that
since changes were being made in the commodities and services included in the
basket and in their relative weighting, post-revision and pre-revision
comparisons would not be comparing like with like. Another reason for bringing
the base back to 100 as part of the process of revision was, it seems, a
somewhat cosmetic one. It was thought that unless that were done it would not
be properly recognised by the public at large that the index had been brought
up-to-date and rendered accurate by the process of revision to which I have
referred. These reasons seem to have been behind the decision to have a new
base reference of 100.
For a period
of a year the Index of Retail Prices, adjusted by the changes in the basket and
the weighting that I have mentioned, but based upon the original 1956 base
reference of 100, continued to be published monthly. The index thus based was
described for the year 1962 as the Official Index of Retail Prices. Side by
side with it for each month that year was published a figure based upon the new
1962 base reference of 100. The monthly publications containing both these
figures contained, for the assistance of those whose numerate skills might not
have been up to the task, a formula for converting the new retail prices figure
based upon the new 100 base into a figure which would be applicable to the old
1956 100 base. The formula involved taking the figure of 117.5, which was the
retail price figure current at the beginning of 1962 and based upon the 1956
100 figure, and
figure based upon the 1962 reference of 100, and the denominator was 100. The
figures were published in that manner for the year of 1962. As I have said, the
official figure was that which was based upon the 1956 100 base. From the
beginning of 1963, however, a figure based upon the old 1956 base of 100 was no
longer published. But the monthly publications continued to include a small
paragraph to enable those who needed the assistance to calculate what the
retail price figure would have been if still based on the 1956 base of 100.
In 1974 or
1975 (I am not clear what the exact date is, and it does not matter), there
having been a considerable rise in the Retail Price Index since 1962, and the
current figure based upon the 1962 base of 100 having risen to what might have
seemed to some to be an unacceptably high level, it was decided to start again
with a new 100 base figure on which future increases would be based. So from
1974 or 1975 the Index of Retail Prices was brought back to 100 and
subsequently shown as an increase on that base figure. There was no change in
the commodities or services in the basket, or in their relative weighting. The
adjustment was simply mathematical. One of the recommendations made by the
committee which had reported in 1962 was that for the future there should be
annual adjustments to the basket and to weighting. There was to be a continuous
process of inquiry in order to enable annual adjustments to be made. The
recommendation was adopted and annual adjustments were thereafter made. For
that reason a particular revision of the basket or of weighting in 1974 or 1975
was not to be expected.
One of the
consequences of the annual adjustments made since 1962 has been that over the
years fairly considerable changes in national spending habits have been
reflected in fairly considerable alterations in weighting. In particular, the
weighting given to transport costs and transport services has risen
considerably, so that by the 1970s the weighting attributed to those matters
was not far below twice the level at which those matters had been weighted in
the period 1956 to 1962. That increase in weighting was reflected by
corresponding reductions in weighting of other items; in particular, the
weighting in respect of food seems to have come down. Those are the facts. The
question then is how in the light of those facts the leases are to be
construed. Mr Brock has made a simple submission. He has submitted that the
reference in the lease to the Index of Retail Prices must be taken to be a
reference to that index as it was organised and as it was based on the dates in
1960 when the leases were executed. If he be right, it would follow that any
change in the base figure, whether or not accompanied by a change in the
commodities and services in the basket, or in the weighting of those
commodities and services, would require the conclusion that the index referred
to in the leases had ceased to be published, or was no longer available to the
public. The index referred to, he submitted, was the 1960 Index, with the 1956
base of 100, and any alteration, even if simply mathematical, meant that the
index referred to in the leases had gone. Second, he submitted that the changes
which there had been to the commodities and services in the basket, made first
by the 1962 revision and later by the annual revisions, had produced an index which
could no longer, as a matter of substance, be described as the same index as
that referred to in the leases.
I will deal
with the second point first. In my view the question whether changes in the
commodities and services in the basket, or changes in the relative weightings
given to the items in the basket, justify the conclusion that the index
referred to in the leases has gone is a question of degree. It is easy to see
that if the nature of the commodities and services were to suffer a sea-change
and were no longer intended to reflect the general household commodities and
services that people spend their money on, the conclusion might very well be
justified that the index referred to in the leases had gone. But the sort of
changes in the basket that have taken place are, in my judgment, a mile away
from that. The changes in the basket are minor, reflecting merely somewhat of a
change in styles and tastes. One of the changes that I observed was that jeans
came into the basket as an item of clothing used by the young. Other changes
are perhaps less notable but are not of dissimilar character. As to the changes
in weighting, the purpose of those was and is to make the index more accurate.
As spending habits change, weighting based on past spending habits will detract
from the accuracy of the index. A continuous inquiry, keeping under review
spending habits and, in consequence, the attribution to particular commodities
and services of particular weighting, is necessary in order to retain for the
index the maximum accuracy possible. The fact that changes have been made to
the basket and to the weighting in order that the index should remain accurate
cannot possibly, in my judgment, justify the conclusion that the revised index
is no longer the index to which the leases referred. I would therefore reject
Mr Brock’s submission based upon the changes since 1960 in the commodities and
services in the basket and in the relative weighting given to the items in the
basket. There remains his submission relating to the mathematical change to the
base by which changes in retail prices are to be measured – a change to 100 in
1962 from the 1956 base of 100 and a change again, for that matter, to 100 in
1974 or 1975.
Mr Brock has
relied heavily, and is entitled to rely heavily, on the references in each of
the leases to a particular figure of the index. One lease specifies 110.4 as
the figure at which the index stood on August 16 1960. The lease provides for
the service charge to increase by £1 per annum for each point or part of a
point above that figure that the index rises. Mr Brock’s point was that once
the base figure had been brought back to 100 in 1962, and again in 1974, the
terms of the lease providing for increases in service charge could no longer be
applied. No one could suppose when the figure came down to 100 in 1962, and
then rose, say, to 109 subsequently, that that rise would produce no rise in
the service charge. That 109 could, by the calculation to which I have
referred, be expressed as, say, 125 based on the 1956 base of 100 and, so
expressed, would justify a rise in the service charge accordingly. But if the
literal meaning of the language used in the lease is adhered to, a rise from
100 in 1962 to 109 subsequently would not be a rise above the figure of 110.4
and so, the argument went, would not justify any rise in the service charge. So
Mr Brock submitted that the index, once the base figure had been brought back
to 100, was no longer the index referred to in the leases, that the terms of
the leases could no longer be properly applied to the index, and that the
alternative machinery set out in the proviso (b) had to be used.
In my judgment
Mr Brock had adopted the wrong approach to the problem. The question is whether
the condition precedent to the coming into effect of the proviso (b) machinery
has been or has not been fulfilled. There are two limbs to that condition
precedent. One is that the index shall cease to be published; the other is that
the index shall no longer be available to the public. I must ask myself if
either of those events has happened. If they have happened, then the para (b)
machinery comes into effect. If they have not happened, then it does not. In my
judgment neither of those events has happened. The Index of Retail Prices is in
my view the same Index of Retail Prices to which the leases referred,
notwithstanding that the mathematical base has been altered. I think it obvious
that the parties to the leases did not contemplate the subsequent alteration of
the mathematical base on which the increase in retail prices was to be
calculated. But it does not follow that an alteration of the mathematical base
has produced a different index to that to which the leases referred. In my view
the present index is the same index. If it is the same index, then, as a matter
of construction of the terms of the leases, I have no difficulty in concluding
that the formula for the purpose of calculating rises in service charge and in
the events which have happened, the Retail Price Index figure current from time
to time must, by the simple calculation necessary, be expressed as a figure
based on the 1956 base of 100. That, as I have said, requires merely a simple
calculation, and, as a matter of construction of the lease in order to reflect
the parties’ evident intention, it is what, in my judgment, should be done. I
would answer the question before me by declaring that neither of the events
referred to in para (b) of the proviso has happened, subject of course to any
right of the plaintiff to hold the defendants estopped from denying that they
have happened. As to that, I have not heard the evidence and I say nothing at
all.
