Landlord and tenant – Service charge – Liability – Construction of lease – Respondent having lease of flat on residential estate – Estate comprising main development carried out by lessor and further part developed by a different party – Whether service charge payable to appellant management company under lease to be calculated by reference to costs incurred in relation to entire estate or just main development – Proportion of such costs for which respondent liable – Appeal allowed in part
The respondent was the long leaseholder of a flat on a residential estate in Beckenham, Kent. The appellant was the management company for the estate under a management agreement made with the main developer of that estate.
In addition to the main development, which comprised 218 new dwellings including the respondent’s flat, there was also a further area which the main developer had sold on and which the purchaser (F) had developed as 13 dwellings by the refurbishment of existing properties. The main developer and F had entered into an agreement to co-operate over the development of their respective parts of the land and over the establishment of a management company for the common areas of the estate; that agreement provided that F and/or its successors in title would contribute 6.8% towards the ongoing administration and/or service charge of the management company. The management scheme which the appellant prepared for the developer reflected that intention but, in the event, F was not made a party to the management agreement and, in practice, the estate costs were not shared in that way.
The appellant was unsuccessful in its attempts to recover a contribution from F, with the result that, from 2009, residents of properties on the main development paid all the estate costs through their service charge payments to the appellant. However, the respondent then applied to the first-tier tribunal (FTT), under section 27A of the Landlord and Tenant Act 1985, for a determination of her liability for the years 2009 to 2014. She contended that it was unreasonable for the freehold and leasehold owners of the dwellings on the main development to pay all the estate costs when the owners of the 13 refurbished dwellings, who enjoyed the same communal facilities, made no contribution. An issue arose as to the proper meaning of the formula for calculation of “the Part A Proportion” which, under the service charge provisions in the respondent’s lease, she was required to contribute towards the estate costs.
The FTT held that, construing the service charge provisions against the factual matrix, the estate costs were to be divided between all 231 dwellings on the estate, including the refurbished properties. The appellant appealed.
Held: The appeal was allowed in part.
(1) There was ambiguity in the wording of the definition of the “Part A Proportion” in the respondent’s lease. Several terms were undefined and some, including a reference to “the Transferor” and “Variable Rentcharge Costs” were associated with freehold rather than leasehold disposals. On the evidence, and taking into account the proper approach to the legal principles applicable to the construction of documents, the reference to “the Transferor” in the definition of the Part A Proportion in the lease was an error which could only sensibly be interpreted, given the background and facts known to the parties at the time, as meaning “the Lessor”, namely the main developer; and the “Development” as defined in the lease did not include the site of the refurbished properties: Arnold v Britton [2015] UKSC 36 applied.
(2) That meant that the “Part A Proportion” which the respondent was to pay had to be calculated by reference to the 218 properties on the main development and not the 231 properties on the estate as a whole. Based on the evidence and the factual context, the transfers and leases from the main developer required each lessee and transferee to pay 1/218th of the total estate costs as defined in the transfer and lease.
(3) The appellant’s covenants as set out in the respondent’s lease related only to the “Development” and thus did not include any obligation in respect of F’s site where the refurbished properties were located; nor was the respondent under any obligation to pay for any such works that the appellant might have carried out. However, there was a difference between work carried out by the appellant solely on F’s site and work that it had carried out on the main development but which benefited transferees and lessees on both the main development and F’s site. The cost of works that were of mutual benefit to both sites were properly chargeable to the transferees and lessees on the main development.
It followed that the 1/218th fraction that the respondent was obliged to pay was not to be applied to the total costs of managing the external common parts of the whole of the estate but should instead be applied to the total estate costs excluding any such costs which were referable only to F’s site.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
Click here to read transcript: Firstport Property Services Ltd v Ahmet
