Landlord and tenant — Questions as to power of a residents’ association to incur expenses, levy contributions and employ managing agents — Problems arose because the answers had to be sought in two separate leases and in the memorandum
and articles of association — Present appeal was by lessee of a flat who contested a claim by the association, allowed in the county court, to a contribution by him in respect of a management fee due to managing agents — The appellant’s flat had been leased to him for a term of 99 years by an individual lessor who subsequently transferred his rights and obligations to the residents’ association, which, however, passed on the whole of the rent to the lessor — The issue before the court was whether, on the proper construction of the two leases and in the events which had happened, there was an obligation on the appellant lessee to pay the sum demanded in respect of the management fee — There was a subsidiary issue as to liability to pay for the cleaning of windows — Held, affirming the decision of the assistant recorder in the court below, that, in order to give business efficacy to the transactions, there should be implied in the leases to the individual lessees, including the appellant’s lease, a term that the residents’ association could incur proper expenditure to carry out the functions imposed on it and could recover contributions from the lessees — The implied term extended to power to employ managing agents and recover the management fee — Lessee’s appeal dismissed
This was an
appeal by Mr Hilliel Lipman, the lessee of Flat 11 at Embassy Court, Woodford
Road, London E18, from a decision of Mr Assistant Recorder Lewis at Bow County
Court ordering the appellant to pay a sum claimed by the respondents, Embassy
Court Residents’ Association Ltd, as due in respect of his contribution to a
management fee and for the cleaning of windows. The assistant recorder allowed
both claims.
Stuart S
Stevens (instructed by Dibb Clegg Beynon & Co) appeared on behalf of the
appellant; Robert W Kirk (instructed by Piper, Padfield & Derby)
represented the respondents.
Giving
judgment, CUMMING-BRUCE LJ said: This is an appeal against the whole of the
judgment and order of Mr Assistant Recorder Lewis given on November 24 1982
whereby he adjudged and ordered the forfeiture claim be dismissed, that there
be judgment for the plaintiff for the sum of £226.96 to be paid by the
defendant to the court on or before December 10 1982, and that there be no
order for costs. What is sought in this court is an order that the judgment and
order may be set aside and that the plaintiff be ordered to pay to the
defendant his costs of the action.
The
proceedings in the county court were pursuant to particulars of claim dated
June 23 1981 in which the Embassy Court Residents’ Association Ltd pleaded that
they were the leasehold owners and entitled to possession of Flat 11, Embassy
Court. They relied upon a lease dated August 16 1971 made between Manfred
Kasner of one part and the defendant of the second part whereby the said Kasner
demised the premises to the defendant for a term of 99 years from June 24 1965
at an annual rent of £50. That is only a half truth because the transaction was
the purchase of an interest in the flat together with a covenant to pay an
annual rent of £50.
Then it is
pleaded that: ‘By a lease under seal dated February 29 1972 the said Manfred
Kasner demised the whole of Embassy Court aforesaid to the plaintiffs for a
term of 99 years from June 24 1965’; and then the terms of the lease are
pleaded in this form:
. . . the
defendant covenanted with his landlord to pay and contribute to the landlord on
demand a due proportion of the cost and expenses incurred or to be incurred by
the landlord in carrying out works of maintenance, repair and renewal to the
main structure, painting to exterior parts of the building, keeping the grounds
lawns, gardens . . .
etc
and cleaning
the outside windows by employing window cleaners as often as the Landlord
should think fit.
The right of
re-entry was then pleaded. It is alleged:
In breach of
the said term as to payment of contribution for maintenance, repair,
redecoration, lighting and window cleaning, the defendant has failed and
refused to pay the sums as and when due.
The claim at
that date is £226.96.
The defence
joined issue on the liability of the defendant to pay any of the sums claimed
and at the hearing before the learned judge it emerged that there were two live
issues. One was whether, on a proper construction of the lease, being the lease
of August 16 1971 followed by the lease of 1972 whereby Kasner demised his
interest to the Embassy Court Residents’ Association Ltd so that from that date
the Embassy Court Residents’ Association Ltd were in privity with the defendant
as the defendant’s landlord, there was any obligation assumed by the defendant
to pay for certain charges, to wit a management fee due to professional
managing agents, Bailey & Co, pursuant to a contract by the plaintiffs
entered into with those managing agents, and secondly whether there was any
liability, on a proper construction of the lease of August 16 1971, to pay for
the cleaning of windows other than windows of the common parts. Of those two
issues it is the first which is manifestly the most important, having regard to
the history of the controversy between the plaintiffs and the defendant.
The learned
judge in his judgment made his findings as to the background of the formation
of the contracts and their completion by the leases which I have described, and
the circumstances which led to the decision by the plaintiffs to employ Baileys
as managing agents. Those facts are to be found in the note of the learned
judge’s judgment:
The employment
of Baileys took place in this way. That for a considerable period residents
performed the duties of the plaintiffs free of charge. Mr Rosen was Secretary,
I think, until December, 1979 and after two months he was Chairman. In the
interim Mr Ettinger was chairman and the two minutes of December 2 and December
16 1979 make it clear what happened.
Mr J Rosen
said that he was resigning. Mr D Rosen suggested the employment of professional
management services and he and Mr Senker promised to obtain information on
them. Then a notice, convening the next meeting of December 16, was served and
it is clear that the 14 days required under section 14 of the Companies Act was
not given and it was not clear that at the meeting 95% of those entitled to
vote did not give their consent. Therefore, I find that this meeting, within
the meaning of the Act, was not ‘duly called’. But at that meeting it was
agreed after lengthy discussion that B Bailey & Co — I have heard from Mr
Gunby of that firm — be employed as management agents for the block, and the
second dispute centres around the attempt by the plaintiffs to require the
defendant to pay a contribution towards the plaintiffs administrative charges.
A
considerable amount of time was spent by Mr Stevens to show that Bailey’s work
merely duplicated Mr Rosen’s and other members of the plaintiff company and/or
that Bailey’s charges were excessive. I don’t accept that for one minute. I
quite accept that Bailey’s charges were in line with what is normal and proper
for this work. I am also sure that Bailey taking over the administrative
management of the block took a load off the shoulders of Mr Rosen and anybody
else who was associated with the management of the flats, but the question
still remains, had Mr Lipman ever assumed the obligation to pay for the administration
of the block. Had he ever agreed to pay management expenses.
This issue
falls to be determined on a proper construction of the two leases to which I
have referred and, in order to understand the provisions of those leases, it is
also necessary to have regard to the memorandum and articles of the Embassy
Court Residents’ Association Ltd, which is a company limited by guarantee, not
having share capital, providing that, upon winding up, the limit upon the
liability of the members shall be £5, and the members of that company limited
by guarantee were contemplated as and became the residents of the several flats
in the block known as Embassy Court, being 14 in number, who acquired their
interests at various times up to and about 1971.
I turn to the
lease dated August 16 1971. The recitals are important. The first recital is to
the effect that the lessor is the proprietor of the land known as Embassy Court
comprising a block of 14 flats, 14 garages and gardens, lawns, roads and
footpaths. By the second recital the lessor has granted or intends hereafter to
grant leases of each of the flats for a term of 99 years from June 24 1965
and has
imposed or intends to impose in every such lease the covenants stipulations and
conditions set forth in the third Schedule . . . to the intent that the lessee
for the time being of any of the said flats may be able to enforce the
performance and observance of the said covenants stipulations and conditions by
the lessees or occupiers for the time being of such other flats.
When one turns
to the Third Schedule one finds in the first paragraph that the
lessee shall
so soon as is practicable apply to accept membership of the management company
in accordance with the provisions of the articles of association of such
company and shall remain a member of such company (subject to the said
provisions) until he shall have parted with all interest in such flat or
garage.
By the second
paragraph:
The lessee in
respect of each of the said flats and garages shall from time to time pay to the
lessor his due maintenance contribution as herein provided and the
amount of such maintenance contribution shall be recoverable as a debt from
such lessee and shall also be a charge on and deemed to arise out of his flat
or garage as the case may be.
By paragraph
4:
Each lessee .
. . shall at all times observe and perform all regulations from time to time
made by the lessor or the management company for the orderly management and
conduct of Embassy Court.
The
explanation of that schedule is that it is clearly designed to bring into
existence in conjunction with the operative words of the lease a legal
arrangement whereby each of the residents in the flats would have a common
interest in those matters at Embassy Court in which, having regard to the fact
that the Court was divided into 14 separate flats, together with common parts
in the building and gardens without, each resident should have the right to
enjoy the rights and privileges which are only capable of enjoyment so long as
each of the residents in the 14 flats participated in their common interest and
in the scheme which depended for its efficacy upon the functions performed by
the Management Association Ltd of which they had covenanted to become members.
By the third
recital it is recited that:
The Management
Company is a company incorporated under the Companies Act 1948 being a company
limited by guarantee with the object among others of acquiring from the lessor
the lease hereinafter mentioned and of providing certain services to and for
the owners and occupiers from time to time of the said flats and garages.
By the fourth
recital:
The lessor
has agreed to grant to the Management Company and the Management Company has
agreed to accept on completion of the leases . . . and on completion by the
lessor of the layout and construction of the gardens lawns and footpaths a
lease of Embassy Court for a term of ninety-nine years from June 24 1965 at an
annual rent of a sum equal to £1,432 or such total sum as is reserved by and
subject to the said leases (including this lease) of each of the fourteen flats
and fourteen garages before referred to and with the benefit of the covenants
on the part of the respective lessees therein contained to the intent that
subject as hereinafter provided the management company will on completion of
the lease so to be granted to the management company and throughout the term
thereof maintain the garden grounds and other communal parts of Embassy Court
and carry out the repairs and decorations to the main structure of the building
of which the demised premises form part as hereinafter mentioned.
By the fifth
recital:
The lessor
with the consent of the management company has agreed with the lessee for the
demise hereinafter contained for the consideration and at the rent and on the
terms and conditions hereinafter appearing.
The recital
then refers to the Fourth Schedule.
So one comes
to the operative words of the deed. By the first clause the parcels in flat 11
are let to the lessee. Clause 2 sets out the lessee’s covenants and by
subclause (11) of that clause the lessee covenants:
To pay and
contribute to the lessor on demand a due proportion of the cost and expense
(hereinafter called ‘the Maintenance Contribution’ incurred or to be incurred
by the lessor in carrying out the works referred to in clause 5 subclauses (4)
to (7) hereof or in clause 8 of the Fourth Schedule hereto such sums or sum of
money to be ascertained as provided by such Fourth Schedule hereto.
So, in order to
determine the content of the obligations in subclause (11), one has to turn
back to subclauses (4) to (7) in order to see what was provided by those
clauses and then one turns to the Fourth Schedule in order to ascertain the
content of the obligation therein set out for the maintenance contribution.
By para 8 of
the Fourth Schedule:
The
expression ‘maintenance contribution’ shall mean the proportion of the cost and
expense incurred or to be incurred by the lessor in carrying out the works
referred to in clause 5 subclauses (4) to (7) . . .
and insurance
. . . and of
providing any other services hereinafter mentioned and shall be computed
as follows;
and then there
are set out specific obligations in respect of the gardens, footpaths, grounds,
insurance and many other of the usual kind of functions.
Throughout,
the submission of the appellant has been that the totality of his obligations
additional to his obligation for rent are to be collected from the obligations
specifically referred to in the Fourth Schedule without any addition
whatsoever. On the other hand the contention of the plaintiff is that the lease
of August 16 1971 has to be read also with the lease of 1972 which was
contemplated by the lease of August 1971, being the lease by which Kasner, the
grantor of the 1971 lease, conveyed the whole of his interests in the land and
buildings at Embassy Court to the Embassy Court Residents’ Association Ltd so
that they came into the picture not only as a residents’ association performing
functions in which the members, being the residents in the flats, had a common
interest, but also became the landlord of the individual residents in privity
with those residents for the purpose of the mutual obligations to be collected
from their leases — in this case of Mr Lipman, the lease of August 16 1971.
I do not find
it necessary to refer in detail to the terms of the lease of 1972. It
sufficiently transfers the rights and obligations of the lessor, vis-a-vis
the tenants, to the Management Association Company Ltd, as landlord thereafter
of the individual lessees.
In that
situation the learned judge held that the provisions of the Fourth Schedule,
having regard to the proper construction of the tripartite agreement in the
lease of August 16 1971, taken together with the lease of 1972, were not to be
collected simply and only from the provisions of the Fourth Schedule. The
learned judge took the view that, in order to give business efficacy to the
transaction contemplated and agreed by the three parties to the lease of 1971,
it was necessary to imply into the lease of 1971 an implied term that the
Management Association Company Ltd should have the power to incur necessary
expense necessary for the performance of the administration of the obligations
that the parties contemplated as being obligations undertaken by the Management
Company. The learned judge held that it was also necessary, in order to give
business efficacy to the transaction contemplated and intended by the agreement
of 1971, for the Management Company, in so far as it had incurred necessary
expenses, to be able to recover pro rata from individual lessees a
sufficient proportion of such expenses so as to meet the financial obligations
of the Management Company. The learned judge arrived at that conclusion against
the background of fact that the Residents’ Association Ltd had no funds at all.
In respect of
rent, the Embassy Court Residents’ Association Ltd, when they became landlords
of the individual lessees, had a right to receive rent as provided in the
individual leases from the individual lessees, but that rent was not for the
enjoyment of the Residents’ Association Ltd because they were under an
obligation to pass on the whole of that rent to Kasner pursuant to the terms of
the lease of 1972. In relation to rent, therefore, the Embassy Court Residents’
Association Ltd were no more than a conduit pipe whereby the rent passed from
the individual lessees into the hands of the Residents’ Association Ltd for
onward transfer to Kasner. And in relation to the obligations contemplated by
the lease of 1971 as being obligations undertaken or to be undertaken and
functions to be performed by the Management Company, there was no express
provision for the financial organisation of the Management Company’s affairs,
save in so far as such a right is properly to be inferred from the power of the
Residents’ Association Ltd to do such things as are incidental to the
performance of the functions that the lease of 1971 contemplates. When one
looks at the memorandum and articles of the Residents’ Association Ltd one
finds at clause 3(B) (the clause that states the objects of the Association)
the second object is the object to ‘manage Embassy Court, collect the rents and
income thereof and to supply to the lessees and occupiers of the flats
comprised therein central heating, hot water and other services, and (E) ‘To do
such things as are incidental or conducive to the attainment of the above
object or as are calculated to enhance the value and beneficial advantage of
Embassy Court, Woodford Road aforesaid and the flats comprised therein’.
When one turns
to the articles one finds the machinery for the management of the company in
clauses 31 to 34 under the general heading ‘Council of Management’:
31. Until
otherwise determined by a General Meeting, the number of the members of the
Council shall not be less than three.
32. The first
members of the Council shall be the subscribers to the Memorandum of
Association.
33. The
Council may from time to time and at any time appoint any member of the
Association as a member of the Council, either to fill a casual vacancy or by
way of addition to the Council. Any member so appointed shall retain his office
only until the next Annual General Meeting, but he shall then be eligible for
re-election.
34. No person
who is not a member of the Association shall in any circumstances be eligible
to hold office as a member of the Council.
It is
perfectly clear that the common intention of the parties to the tripartite
agreement of August 1971 and of the parties of all other
Ltd and the individual lessees of the 14 individual flats and garages was that
the common interest of the individual lessees would be promoted by a scheme
whereby, in the place of Mr Kasner who, in 1971, had all the landlord’s
obligations of management — the common parts and obligations in respect of
repair, and so on — those obligations and functions should be transferred and
vested in the Residents’ Association Ltd which had been incorporated as a
corporate body. It was in pursuance of that common intention that the second
step in the contemplated machinery took place in 1972 when Mr Kasner
transferred his interest in Embassy Court to the Residents’ Association Ltd.
It is clear,
in my view, that for a proper understanding and construction of the lease of
August 16 1971, it is right to take into account that the background and matrix
of that transaction was the intention of each of the individual residents who
became signatories to similar leases, to obtain a situation in which they, the
residents, acting through the machinery of their corporate body, the Residents’
Association Ltd, would be able to take their own decisions as to the management
of the building in so far as management had obligations in respect of the
common parts and garages and for the due performance of the landlord’s
covenants of repair. One can see, in a case of a small block such as this with
14 residents, that great advantages are likely to be derived by individual
lessees, because each of them, by becoming a member of the Residents’
Association Ltd, is by the machinery of these two leases put in the position of
being able to take part and have a personal right in the performance of the
landlord’s covenants for the benefit not only of each individual lessee but of
all individual lessees. It is also quite plain that parties who enter into the
kind of transaction contemplated by that of August 16 1971 must realise that
such a scheme, for its efficacy, will be workable only if a certain modicum of
good neighbourliness and commonsense is afforded by each of the individual
members of the Residents’ Association Ltd, and provided that each of the
residents is prepared to act with ordinary commonsense and courtesy, it is
likely that the costs of the Residents’ Association Ltd may be restricted to a
negligible amount. But it is also clear that, if by reason of awkwardness and
difficulty on the part of any lessee to reconcile himself or herself to
co-operation in an ordinary civilised way with the Residents’ Association Ltd,
in that situation the work that may have to be undertaken by the Association
may become such a burden that it is necessary to spend quite a lot of money by
procuring the performance of the functions which the Residents’ Association Ltd
is by its articles and memorandum under an obligation to perform. That is
exactly, on the judge’s findings, what happened in this case. For many years
all was sweetness and light and the work which had to be done by the Residents’
Association Ltd was readily performed by one or two members who undertook the
necessary labour. That labour was concisely stated in the evidence called by
the plaintiffs in the county court, in particular Mr Rosen and Mr Ettinger.
They described that it was practicable for individual members to do all the
work for some seven years, but then the situation changed because far more work
rather suddenly appears to have devolved on the members who were voluntarily
undertaking it. It is described thus by a witness:
I found it a
headache sending out letters and chasing up money. None of the tenants wanted
to get involved. I was spending all Sunday morning chasing round. It was
getting ridiculous. All the defendant’s queries were our biggest headache.
The evidence
disclosed that when the managing agents came on to the scene their duties were
collecting the rents, paying the bills, electricity and rates, and dealing with
problems, repairs, lift, window cleaners, and the witness said:
they do hard
work which I used to sit up until 12 o’clock at night doing. They pay
insurances and see to the ground rent. I deal with the caretaker. Baileys send
me a cheque and I pass it on — he is the biggest single expenditure. The time
and effort justifies the payment to Baileys. I used to spend many hours every
week, no one willing to take job over. Some years ago the defendant was asked
if he would become a member of the committee.
But, on the
findings of the judge, the defendant had ceased to co-operate with the
committee and had not attended its meetings and, on the findings of the judge
on the evidence before him, it was to a significant degree the work stimulated
by the defendant that led to the situation that it was impracticable any longer
for the members voluntarily to do the work which was necessary for the
performance of the function of the Residents’ Association Ltd.
On that
history and with that understanding of the transaction contemplated, first by
the lease of August 1971 to Lipman and other leases in similar terms to other
lessees, followed by the transfer of Kasner’s interest and obligations to the
Residents’ Association Ltd, it appears to me manifest that the parties to the
tripartite lease in 1971, upon the lessee’s becoming a member of the Residents’
Association Ltd and having thereby notice of the memorandum and articles of
that company, must have contemplated that in so far as the Residents’
Association Ltd had to undertake necessary administrative expenses for the
performance of the functions contemplated by the tripartite agreement as a necessary
function of the Residents’ Association Ltd, (a) the company should take such
steps as were reasonably necessary and conducive to the performance of their
administrative functions, and (b) the lessees on each of the leases accepted as
a necessary implication of the transaction entered into on August 16 1971 an
obligation to pay pro rata such sums as were necessary for the discharge
by the Residents’ Association Ltd of its necessary administrative expenditure.
The problem
may be illustrated in two ways. It seems clear, and, as I understand it, has
not been seriously challenged, that it was necessary to employ a caretaker, and
when one looks at the accounts one finds that the most substantial single item
in the accounts of the Residents’ Association Ltd was the salary of the
caretaker. There was necessary expenditure on printing, stationery and postage
and various other administrative expenses. It was necessary in order to comply
with the Companies Act to give an annual return accompanied by audited accounts
for which purpose it is necessary to employ a professional auditor and there
were manifestly innumerable small items which were liable to arise in any year
pursuant to and necessary to the due performance by the Residents’ Association
Ltd of the obligations that it had undertaken. If there is no power pursuant to
a proper understanding of the lease of 1971 and the subsequent lease of 1972
for the Residents’ Association Ltd to recover pro rata from lessees a
share of such administrative expenses, the whole scheme of the tripartite
agreement becomes completely unworkable after such point of time as it is
impracticable for all the work to be done by the individual members of the
Association. On ordinary principles of construction of contract, I would have
thought that the judge was clearly right in holding that it was necessary, in
order to give business efficacy to this transaction, to imply a term that the
reasonable necessary administrative expenses of the Management Association (a)
should be incurred by the Association, and (b) should be recovered from
individual lessees pro rata pursuant to an implied covenant so to do.
The next
illustration is this. It is submitted by Mr Stevens that even if that is right,
that does not apply in the case of a decision of the Residents’ Association Ltd
to employ managing agents at an annual fee which, on the findings of the judge,
was a reasonable fee. That, submits Mr Stevens, cannot be collected from any
provision of the lease of 1971 or the lease of 1972, and it is the lease of
1971 which spells out the financial obligations of the lessee.
In development
of that submission Mr Stevens relied upon conveyancing precedents which no
doubt are appropriate in the case of what I would call the ‘ordinary lease’
between a landlord and tenant without any tripartite agreement.
No doubt in
the case of leases entered into between a landlord and a tenant it is necessary
for the landlord to spell out specifically in the terms of the lease, and in
some detail, a sufficient description of every financial obligation imposed
upon the tenant in addition to the tenant’s obligation for rent and we were
shown one or two such forms of precedents which I have no doubt are appropriate
for the agreements contemplated in such a case. We were not invited to consider
any of the usual authoritative conveyancing textbooks or books of precedents,
but we were asked to look at a very useful guide for conveyancing solicitors
for the purpose of giving them assistance in deciding how to draft simple
conveyances between landlord and tenant. But we were not referred to any
passage in that useful book which, in my view, had any relevance to the
particular agreement with which these proceedings were concerned. It may be
that the explanation of the whole of this litigation is that the tenant has
access to professional advice from a conveyancer with whom he has a personal
connection and has been given advice which unfortunately is inappropriate to a
proper understanding of the construction of the agreement of August 16 1971.
For the purpose of the construction of that agreement, followed by the lease of
1972, it is necessary to decide, having regard to the words of the agreement,
what the intentions of the parties were with reference to the administrative
expenses of the
the Association has no funds.
To my mind it
is sufficiently clear, as the judge thought, that any lessee entering into a
lease such as the lease of August 16 1971 would, on consideration of the fact
that the whole transaction contemplated transferred the obligation of the
landlord to the co-operative functions of the residents, assume that the
Residents’ Association Ltd would in discharge of its function necessarily have
some administrative expenses and that the members would necessarily pro rata
have to share the financial burden of such expenses. The alternative is wholly
unreal. Mr Stevens, on behalf of the appellant, submitted to this court that
the intention of the parties, on considerations to be collected from the words
of the lease of August 16 1971, was that as soon as any administrative expenses
were incurred by the Association, the Association should be wound up and on
winding up, sure enough, having regard to the memorandum and articles of
association, the limit of the financial obligation of the members, including Mr
Lipman, is £5. So, it was submitted, as soon as any member refused to
contribute, because the contributions by members to the administrative expenses
are purely voluntary, the whole machinery must crash to the ground; the
Management Company must be wound up and the consequential results would (it was
submitted) be that Mr Kasner would be restored to his position as landlord of
each lessee and further that Mr Kasner would, on becoming the landlord in
privity with the lessees, then be under the obligation to undertake all the
landlord’s obligations set forth in the covenants in the lessees’ leases; and
that, by operation of law and in spite of the fact that it was expressly
provided by the 1972 lease that upon the transfer of Kasner’s interest to the
Residents’ Association Ltd, Kasner’s obligations under the landlord’s covenants
would cease to be binding upon him.
It is not
necessary, in my view, to decide what the consequential situation would be upon
the wind-up of the company. I wholly reject the submission of Mr Stevens that,
on a proper construction of the lease of 1971, followed by the lease of 1972,
there is disclosed an intention that the administrative expenses of the
Residents’ Association Ltd shall, for the purposes of their discharge, be
regarded as voluntary. The only way to give business efficacy to this
tripartite construction is, as the judge found, to hold that it is implied that
the Association shall have the power to incur necessary administrative expenses
and to recover the same from the lessees.
I derive no
assistance from the submission of Mr Stevens that the right analysis is to look
at Kasner’s personal obligations and the obligations of lessees owed to Kasner
personally when they were in privity with Kasner as the measure of the
obligations accepted by the lessees after they had agreed that management
should be a function of their co-operative association and that that
co-operative association should become their landlord in the place of Kasner.
Of course it is right that when Kasner was the landlord he was not entitled to
try to recover from the tenants anything in respect of the expense to which he
was put in recovering rent from the tenants. That, to my mind, is nihil ad
rem when one comes to consider the necessary implications of the tripartite
agreement dated August 1971 followed by the agreement of February 1972 between
Kasner and the Embassy Residents’ Association Ltd.
The next matter
is this. If I am right in holding that the judge was correct in his view, as a
matter of construction, that it was open to the Residents’ Association Ltd to
incur administrative expenditure and to recover it, is there any difficulty
arising from the fact that, when the work reached the peak that it did in 1980
or 1981, the Association should decide to employ managing agents? Again, it is perfectly clear that if an
individual landlord wants to do that and to recover the costs from the lessee,
he must include explicit provisions in his lease. But here the transaction
contemplated management by the Residents Association Ltd, which had no funds,
and somebody had to do the administrative work. It might have been sensible for
the Management Association to take one or more people on their staff for the
purpose of doing the administrative work. But it was likely to be more
economical to employ managing agents, such as Baileys, which is what they did:
and if the decision to employ managing agents was excessive and sought to be
recovered pursuant to the obligations of the lessee under the Fourth Schedule,
so far it might be open to the lessee to challenge the reasonableness of the
expenditure under the appropriate section of the Housing Act 1980.
For those
reasons I would hold that the judge was right in relation to the principal
question of construction that arose for his consideration.
The second
question is a very narrow question on the extent of the obligation to clean the
windows. Having regard to the relevant clause, are the windows in question only
the windows of the common parts, or is it the intention of the parties that the
windows to be cleaned by the landlord are all the windows in the block? It is unnecessary to elaborate on my reasons.
I have no hesitation in holding, on a consideration of the relevant clause,
that the judge was right in holding that the obligation imposed on the landlord
was to clean all the windows and not only the windows of the common parts.
For those
reasons I would dismiss the appeal.
Agreeing,
PARKER LJ said: This is a familiar scheme. It is a scheme which, whether the
test of business efficacy as laid down in The Moorcock [1889] 14 PD 64,
or the ‘innocent bystander’ test of Reigate v Union Manufacturing
(Ramsbottom) Co Ltd [1918] 1 KB 592 or any other test be applied, makes it
abundantly apparent that an implied term must be incorporated in the lease
providing for the tenants to pay any managing agents’ fees if the company
decides to employ managing agents. The contrary is simply unarguable. Having
set up a company, that company is composed of a number of individuals, none of
whom may have the slightest ability to do accounts, to inspect properties, to
manage properties, or anything else, but this scheme contemplated that the
company would do all those things and it is simply out of touch with reality to
suggest that, if they decide to employ a managing agent, they are not entitled
to recover from the tenants on the same basis as they recover in respect of the
direct charges of fulfilling the landlord’s obligations.
The appeal
must be dismissed.
The appeal
was dismissed with costs, but no application for enforcement against the
appellant without the leave of the court, such application to be applied for
within six weeks. Upon application, an order against the legal aid fund to pay
the respondents’ costs, but order not to be drawn up pending receipt of any
representations from the Law Society.
