Landlord and tenant — Maintenance charges payable by long leaseholders in block of flats in London — Originating summons raising a large number of questions for determination by the court, but most of them either were disposed of by agreement in the course of the hearing or for various reasons were not pursued — The flats were let on a standard form of lease which provided for a maintenance trustee to receive maintenance contributions from the leaseholders by way of an appropriate proportion for each flat of the sum required to maintain the building as a whole — The maintenance contributions from the leaseholders were paid into a maintenance fund which the maintenance trustee held in trust — The leases contained elaborate provisions as to the purposes for which the maintenance fund was to be held — One of these purposes was to carry out repairs to the structure of the block — The present litigation arose from the discovery of defects in the external walls of the block — Apparently the concrete in the building had contracted (giving rise to ‘creep’) whereas the brickwork had expanded, resulting in a distortion in the brickwork — Fan scaffolding followed by full scaffolding was erected and advice sought from a variety of experts, including civil engineers, consulting engineers and quantity surveyors — Widely different estimates were given of the cost of the works — An estimate obtained from engineers by the maintenance trustee produced a figure of £750,000,
The following
cases are referred to in this report.
Brew Bros
Ltd v Snax (Ross) Ltd [1970] 1 QB 612;
[1969] 3 WLR 657; [1970] 1 All ER 587; (1969) 20 P&CR 829; [1969] EGD 1012;
212 EG 281, CA
Finchbourne
Ltd v Rodrigues [1976] 3 All ER 581; (1976)
238 EG 717, [1976] 1 EGLR 51, CA
Post
Office v Aquarius Properties Ltd [1985] 2
EGLR 105; (1985) 276 EG 923 (Hoffmann J); [1987] 1 EGLR 40; (1987) 281 EG 798,
CA
Ravenseft
Properties Ltd v Davstone (Holdings) Ltd [1980]
QB 12; [1979] 2 WLR 897; [1979] 1 All ER 929; (1978) 37 P&CR 502; [1979]
EGD 316; 249 EG 51, [1979] 1 EGLR 54, DC
This was an
originating summons for the determination of a number of questions arising in
regard to maintenance charges payable by leaseholders in Block B at Kingston
House South, London SW7. The plaintiff was Holding & Management Ltd, the
maintenance trustee. The first defendants, the lessors, Property Holding &
Investment Trust plc, withdrew on the second day of the hearing, leaving the
contest to be between the plaintiff and the remaining defendants. The remaining
defendants (the second to the forty-seventh) were leaseholders in Block B.
J M Price QC
and V Chapman (instructed by J V Vobe & Co) appeared on behalf of the
plaintiff; D Parry (instructed by Cameron Markby) represented the first
defendants; Derek Wood QC and Miss S Prevezer (instructed by Masons)
represented the second to the forty-seventh defendants.
Giving
judgment, MERVYN DAVIES J said: This is an originating summons that has been
issued to determine some questions that have arisen concerning some maintenance
charges said to be payable by the leasehold flat owners of flats at Kingston
House South, SW7. Kingston House South comprises two blocks of flats: Block A
has flats 1-32; Block B has flats 40-90. The plaintiff is Holding &
Management Ltd (‘the maintenance trustee’). The first defendant, Property
Holding & Investment Trust plc (‘the lessor’), is the freeholder of Blocks
A and B. Defendants 2 to 47 are tenants in Block B. Defendants 48 to 81 are
tenants in Block A. By an order made in these proceedings defendants 48-81 (ie
the Block A tenants) were released from the application now before me. At the
same time it was ordered that questions 7 and 8 of the originating summons be
not dealt with before me now. Accordingly there appeared before me Mr Price for
the plaintiff maintenance trustee, Mr Parry for the lessor and Mr Wood for
defendants 2-47 (being tenants of Block B) for a hearing on all the paragraphs
of the originating summons save paragraphs 7 and 8. However, on the second day
Mr Parry withdrew, indicating that the lessor did not wish to take an
independent part, preferring to leave contending submissions to be made by Mr
Price and Mr Wood. He reserved his position as to costs.
The
originating summons itemises 20 questions. Some difficult questions have been
disposed of by compromise reached (during the hearing) between the maintenance
trustee and defendants 2-47, ie the residents. Other questions remain for
decision. Before explaining what those other questions are, it will, I think,
be necessary to set out or summarise the material parts of some documents that
give rise to the questions.
(1) The lease
Each flat in
Block B is let on a standard form of lease. The parties thereto are the lessor
(1), the tenant (2), and the maintenance trustee (3). It is recited that the
maintenance trustee will accept the trusts thereinafter contained. There follow
the operative parts of the lease. Clause 1 contains definitions, some of which
I will mention:
(viii) ‘The Perpetuity Date’ means March 24 2047
‘and the period from the commencement of the term hereby granted until the Perpetuity
Date shall be the perpetuity period for the purpose of this lease.’
(ix) ‘The Maintenance Date’ is defined but in fact
turns out to be June 26 1972.
(x) ‘The Maintenance Period’ shall mean ‘the
period beginning on the Maintenance Date and ending on the Perpetuity Date’ —
so the period is, as I understand, June 26 1972 to March 24 2047.
(xi) ‘Maintenance Year’ shall mean ‘every 12
monthly period ending on the 31st day of March the whole or any part of which
falls within the maintenance period.’
(xii) ‘The Maintenance Contribution’ means ‘a sum
equal to the percentage proportion appropriate to the flat (as specified in
Part 1 of the Fourth Schedule subject to the provisions of Part II of that
Schedule) of the aggregate annual maintenance provision for the whole of the
building for each Maintenance Year (as computed in accordance with the
provisions of Part III of the same Schedule).’
By clause 2
there is demised to the tenant in consideration of a capital sum a term of 75
years from March 25 1972 at a yearly rent specified in the eighth schedule to
the lease. Clause 3 contains covenants by the tenant with the lessor and with
the maintenance trustee to perform some obligations set out in the third
schedule, including an obligation to keep the flat in good repair. By clause 4
the tenant covenants with the maintenance trustee and with the lessor, in
respect of every maintenance year, to pay the maintenance contribution to the
maintenance trustee by two equal instalments, and also to pay a due proportion
of any maintenance adjustment pursuant to para 3 of part III of the fourth
schedule.
Clause 5
includes these provisions:
(A) The Maintenance Trustee shall retain out of
the sums received by it in respect of the annual maintenance provision
aforesaid and the maintenance adjustment its remuneration calculated in
accordance with paragraph 2(b) of Part III of the Fourth Schedule and adjusted
in accordance with paragraph 3 thereof and shall pay the balance into a bank
having the status of a trust corporation in an account named ‘the 40-90
Kingston House South Maintenance Fund’ and shall hold such balance (hereinafter
called ‘the Maintenance Fund’ which expression includes the assets in the hands
of the Maintenance Trustee for the time being representing such fund and the
income thereof) upon trust (subject to the provisions of sub-clause (B) hereof)
to apply the same until the Perpetuity Date for the purposes specified in the
Fifth Schedule and subject thereto upon the trust set forth in sub-clause (C)
hereof.
(C) Upon the Perpetuity Date the Maintenance Fund
shall stand charged with the payment to the Lessor of such amount (if any) as
may be required to put the Building (other than the flats) and its curtilage in
good complete and substantial repair and condition and subject as aforesaid
shall be held by the Maintenance Trustee upon trust absolutely for the persons
(including the Tenant) who on the Perpetuity Date shall be the tenants of the
flats in the Building in the same proportions (as between themselves) as the
percentages set opposite their respective flats in Part I of the Fourth
Schedule.
(D) The statutory power of appointing a new
Maintenance Trustee shall be vested in the Lessor who shall also have the power
to remove and replace the Maintenance Trustee provided always that the Lessor
shall not be entitled to appoint itself or any of its subsidiary companies as
Maintenance Trustee.
Clause 6
contains some covenants by the lessor to which I need not refer. There is then
clause 7, where there is a proviso for re-entry if the rent or the maintenance
contribution is unpaid. Subclauses (3), (7) and (9) of Clause 7 are as follows:
(3) In case of dispute between the Tenant and any
lessee tenant or occupier of any part of the Building not hereby demised or between
the Tenant and any owner or occupier of any adjoining or neighbouring property
relating to any part of the Building or such adjoining property such dispute
shall be referred (if the Maintenance Trustee or the Lessor so require) to the
Surveyor or to the Lessor’s surveyors for the time being as the case may be and
the decision of such surveyor (as between the Tenant and any other Lessee
tenant or occupier of any part of the Building) shall be final and binding.
(7) The Tenant accepts the obligations of the
Maintenance Trustee for the performance of the matters specified in the Fifth
Schedule in substitution for and to the entire exclusion of any implied
obligations on the part of the Lessor as respects any of the matters specified
in the Fifth Schedule.
(9) Wherever in this Lease there is any provision
for a Surveyor or other
extend only to matters of fact and shall not extend to any question of law but
subject thereto any such certificate or decision shall be final and binding.
(2) The schedules to the lease
I need not
refer to schedules 1, 2 and 3. Part I of the fourth schedule itemises the
flats, setting against each flat the percentage contribution required of that
flat, ie the amount of the flat’s ‘maintenance contribution’ is to be a
percentage of the sum required to maintain the building as a whole, such sum
being the ‘annual maintenance provision’ as specified in part III of the fourth
schedule. The percentage figure for nearly all the flats is either 2% or 2.1%.
Part III of
the fourth schedule specifies in para 2 thereof what is meant by ‘annual
maintenance provision’. It is sufficient for present purposes to quote the
following from para 2:
2 The Annual Maintenance Provision shall
consist of:
(a) A sum comprising:
(i) the expenditure estimated as likely to be
incurred in the Maintenance Year by the Maintenance Trustee for the purposes
mentioned in the Fifth Schedule together with
(ii) an appropriate amount as a reserve for or
towards those of the matters mentioned in the Fifth Schedule as are likely to
give rise to expenditure after such Maintenance Year being matters which are
likely to arise either only once during the then unexpired term of this Lease
or at intervals of more than one year during such unexpired term or under
Clause 4(B) including (without prejudice to the generality of the foregoing)
such matters as the painting of the common parts and the exterior of the
Building the repair of the structure thereof the repair of drains and the
overhaul renewal and modernisation of any plant or machinery (the said amount
to be computed in such manner as to ensure as far as is reasonably foreseeable
that the Maintenance Provision shall not unduly fluctuate from year to year)
together with . . .’
There are then
some refinements in (iii), (iv) and (v) of para 2(a), but I need not set them
out. Para 2(b) reads:
(b) The remuneration of the Maintenance Trustee
which shall be an amount equal to 2.35% of the sum calculated in accordance
with paragraph (a) hereof after deducting from the sum calculated in accordance
with the said paragraph (a) the remuneration of the surveyor.
Para 3 of part
III provides for ‘maintenance adjustment’, a process followed after the end of
each maintenance year, the notion being that the tenant is to be notified of a
plus or a minus in his maintenance contribution liability according as the
maintenance contribution (assessed on him in contemplation — see para 2(a)(ii))
— is proved to be inaccurate.
Para 4 of Part
III reads:
4 A certificate signed by the Surveyor and
purporting to show the amount of the annual Maintenance Provision or the amount
of any Maintenance Adjustment for any Maintenance Year shall be conclusive of
such amount and in giving such certificate the Surveyor shall be deemed to be
acting as an expert and not as an arbitrator.
It will be
recalled that clause 5(A) of the lease provides for the maintenance trustee
holding ‘the maintenance fund’ upon trust to apply the same for the purposes
specified in the fifth schedule. Reading the fifth schedule one sees that the
first purpose is to employ and pay the remuneration of a chartered surveyor to
manage the building and to collect the rents and maintenance contributions.
Para 2 of the fifth schedule is in these terms:
2 As often as may in the opinion of the
Surveyor be necessary to wash and paint in appropriate colours and in a
workmanlike manner or otherwise treat in an appropriate manner all the outside
wood iron cement and stucco work of the Building usually painted or treated as
the case may be including railings and the undersides of balconies AND ALSO at
all times during the Maintenance Period to keep the interior and exterior walls
and ceilings and floors of the Building and the whole of the structure roof
balconies foundations and main drains and boundary walls and fences of the
Building (but excluding such parts thereof as are included in the Flat by
virtue of the definition contained in Part I of the First Schedule and also the
corresponding parts of all other flats in the Building) in good repair and
condition AND ALSO properly to cultivate and preserve in good order and
condition the curtilage of the Building and to keep the entrance drive
forecourts road improvements and paths thereof properly maintained and
surfaced.
Para 23 of the
fifth schedule reads:
23 To carry out all repairs to any other part of
the Building for which the Maintenance Trustee may be liable and to provide and
supply such other services for the benefit of the Tenant and the other tenants
of flats in the Building and to carry out such other repairs and such
improvements works and additions and to defray such other costs (including the
modernisation or replacement of plant and machinery) as the Maintenance Trustee
shall consider necessary to maintain the Building as a block of first class
residential flats or otherwise desirable in the general interests of the
tenants.
The fifth
schedule specifies many other purposes, but the above are those material for
the consideration of questions relating to repair and maintenance of Block B.
Having read
the long lease and its eight schedules, it seems to me that for present
purposes one may regard the maintenance trustee (being a party to the lease) as
having the following functions:
(1) The trustee computes in advance the ‘annual
maintenance provision’ for the next ensuing year. See fourth schedule, part
III.
(2) The trustee requires payment of the various
maintenance contributions from the flat owners according to the fourth schedule
percentages.
(3) The trustee pays the maintenance contributions
received into a fund — ‘the maintenance fund’ — which he holds on trust. See
lease clause 5(A).
(4) The purposes for which the trustee holds the
maintenance fund are set out in the fifth schedule and include affording
repairs to the structure of Block B.
(3) The appointment agreement
This is an
agreement dated March 23 1973 made between the lessor and the maintenance
trustee. It recites inter alia that the lease, or form of lease, already
mentioned provides for the appointment of Holding & Management Ltd — ie the
maintenance trustee — as trustee of the maintenance fund referred to in the
lease. By clause 2 of the appointment agreement the maintenance trustee agrees
to apply all sums received by it as part of the maintenance fund (as defined in
clause 5(A) of the lease):
for the
purposes specified in the Fifth Schedule to the lease and subject thereto in
accordance with the trust contained in Clause 5(C) of the lease and will retain
as its remuneration the amount to which it is entitled as mentioned in the said
Clause 5(A) and in Part III of the Fourth Schedule to the lease.
It is not
necessary to refer for present purposes to the clause 5(C) there mentioned. The
agreement goes on to provide for the maintenance trustee being the agent of the
lessor in all respects to conduct the management of Block B including
collecting the rents and acting as the lessor’s attorney for many purposes.
As I have
indicated, it is against the background of those documents that certain
questions have arisen concerning the ‘maintenance contribution’ said to be
payable by the residents in Block B, each resident holding under a lease that
includes the provisions that I have set out above. By 1985 the plaintiffs had
become aware of defects in the external walls of Block B. Block B is a building
of 12 storeys constructed of reinforced concrete with an outer brick wall. Some
brick slips over windows in the upper storeys fell off. Fan scaffolding was put
up to guard against falling masonry and arrangements put in hand to remedy the
defective slip bricks and to redecorate at a cost of £185,927 plus VAT. Full
scaffolding was erected in September 1985 for redecoration purposes. It then
became apparent that the defects in the building were more serious than
originally supposed. It seems that the concrete in the building had contracted
— a phenomenon I am told is now called ‘creep’ — whereas the brickwork had
expanded resulting in a distortion in the brickwork.
The
maintenance trustee acting by its chartered surveyors — Wood Managements Ltd —
engaged consulting civil engineers to report. The engineers — McHallam &
Partners — reported on November 6 1985 and submitted an addendum report on
January 23 1986. These reports are exhibited to the affidavit of Mr B S E
Hindmarsh, of the firm of McHallams, sworn on June 10 1987. A second opinion
was sought from another firm of consulting engineers — Bylanders Waddell (Mr
Lightband). The second opinion confirmed the McHallam reports in essential
particulars. The next step was to instruct quantity surveyors to cost the works
recommended by the consulting engineers. The quantity surveyors were Cook &
Butler. Their approximate estimate of cost was in excess of £1.9m, as shown in
a document dated April 14 1986, exhibited to an affidavit of Mr Hudson, the managing
director of the plaintiffs sworn on May 26 1987. In the meantime the lessees
had been informed of the need for remedial works. A letter dated October 3 1985
addressed to all the residents had indicated that an additional charge of
£1,770 per flat would be levied as an ‘extraordinary item’ for the year ending
March 31 1986. The matter was taken up by the Block B residents’ association,
who instructed as their solicitors Masons.*
On January 27 1986 Masons by a letter contended that the residents were
not liable for the costs of the remedial works. Correspondence has ensued and I
will refer to it as necessary later. The next matter to mention is that there
was then issued a certificate dated May 30 1986
lease. Therein the amount of the annual maintenance provision for the year
ending March 31 1987 was said to be £1,866,656. The greater part of that sum
contemplated remedial work to the structure of Block B. On May 30 1986 each resident
was sent a copy of the certificate together with some explanatory notes. The
residents were also informed that since a number of the residents were not
prepared to contribute towards the remedying of the structural defects
application to the court was contemplated to determine the liabilities of the
various parties involved. I should say that the sum then asked of each resident
in respect of maintenance contribution was, as I understand, of the order of
£27,000 to £40,000. Not surprisingly, a number of the residents instructed
consulting engineers — S B Tietz & Partners. Engineer discussions ensued
with the result that McHallams recommended remedial work at a cost of about
£0.75m, with Tietz advising work at a cost of about £0.25m.
It is in these
circumstances that the originating summons was issued on May 8 1987. In
summary, questions 1, 2 and 3 are as follows:
1 Whether the execution of the remedial work
itemised in the McHallam report dated February 26 1987 constitutes one of the
purposes mentioned in the fifth schedule to the lease.
2 Further or alternatively whether the
execution of the remedial works itemised in the Tietz report dated October 1986
constitutes one of the purposes as aforesaid.
3 If the answers to paragraphs 1 and 2 hereof
are in the affirmative whether the plaintiff should apply the maintenance fund
referred to in the lease in execution of works itemised in the McHallam report
or in the execution of the works itemised in the Tietz report.
I am happy to
say that a compromise, in the course of the hearing, has disposed of these
three questions. On October 23 1987 I was handed a document (which I marked KK)
headed ‘Proposed Scheme of Works’. It is accepted that the works therein
specified are not now proposed but are agreed between the parties as the works
that ought to be carried out on the exterior structure of Block B and that such
works will be carried out by the maintenance trustee. I need not specify the
works in document KK. There are 11 items involving such matters as replacing
defective brickwork, inserting wall ties, inserting corbels, repairing nibs
etc. The works have an agreed approximate costing of £232,300. This figure may
be compared with the original estimate of Mr Tietz (for the residents) in
October 1986 at about £250,000, and with McHallams (for the maintenance
trustee) originally in a sum in excess of £1m and, later, in February 1987 in
the sum of about £750,000. (See Mr Hudson’s affidavit sworn on May 26 1987,
para 22, and Mr Hindmarsh’s affidavit sworn June 10 1987, paras 9, 23,
25.) There were, I believe, some
extraneous works included in the McHallam reports, but the point remains that
the Tietz estimate was always markedly below any McHallam estimate. The works
now agreed as in KK at £232,300 derive, as I understand, from the nine items of
works specified on pp 17 and 18 of the McHallam report dated February 26 1987
(items 1-8 and item 2.1.1.4).
The KK
agreement disposed of the most cumbersome questions in the originating summons,
ie questions 1 – 3 above. On then reviewing the other questions with counsel I
was told that:
(1) Questions 4 and 5 did not arise;
(2) As to question 6, it has been agreed that
maintenance demands for the years March 31 1987 and March 31 1988 will be
retrospectively amended. That for 1987 will be reissued without reference to
any sum for remedial works. That for 1988 will be reissued without reference to
any costing of works proposed in the McHallam report of February 1987; instead
there will be a demand for a first instalment based on the KK agreement, the
first instalment backdated to October 1 1987 with a second instalment payable
at some date in the future to be agreed.
(3) Questions 7 and 8 have not been before the
court (see above).
(4) No order was sought on questions 9 and 10,
save liberty to restore.
(5) I was not addressed on question 11 and no
order was sought.
(6) No order was sought on question 12 save
liberty to restore.
(7) Question 13 remained alive and is mentioned
below.
(8) I understand that the scaffolding is to be
removed by agreement and no order is sought.
(9) I was not asked to make any orders under
questions 15-19.
Accordingly,
there remains only question 13 and the matter of the costs of the proceedings.
Para 13 seeks
a declaration:
that the
plaintiff is entitled to discharge the following fees out of the maintenance
fund . . .
(a) Scaffolding fees
(b) Engineer’s fees
(c) Legal fees and disbursements
(d) Maintenance Trustee fees.
Question 13
arises in this way. The maintenance trustee in light of the exterior condition
of Block B has already incurred some expense. The scaffolding has been in
position since September 1985 to date; as well, the fees of engineers, quantity
surveyors and solicitors have been incurred. The expense has been incurred, it
is said, in seeking to administer the fifth schedule trust. Accordingly, the
maintenance trustee claims to be entitled to be indemnified in respect of such
expense. I was referred to section 30(2) of the Trustee Act 1925. The
residents’ view, however, is that much of the expense incurred to date has been
improperly or unnecessarily incurred, so that some of such expense ought not to
be borne by the residents; that is to say, they should not be required to pay
such excess expense through the medium of the maintenance fund. In short, as I
understand, Mr Wood for the residents submits there has been a waste of time
and money in consequence of the maintenance trustee seeking to enforce an
irregular maintenance scheme and that fact should be reflected in a
disallowance of some of the money owed for scaffold maintenance and
professional fees.
Mr Price, for
the maintenance trustee, submitted that the maintenance trustee was
administering a trust; so that as a trustee the maintenance trustee acting properly
and in good faith was entitled to an indemnity in respect of expense incurred.
No doubt the maintenance trustee in his capacity of trustee is entitled to an
indemnity out of the maintenance fund properly administered. But, as I see it,
the trustee is not here seeking to be allowed to reimburse itself out of the
maintenance fund. The maintenance trustee is seeking to enforce a covenant for
a money payment, that is to say, to enforce covenant 4(A) of the lease — the
covenant whereby a tenant agrees to pay a maintenance contribution. The
maintenance trustee is thus seeking to enforce a contractual liability. A
tenant is obliged contractually to pay only such a maintenance contribution as
can lawfully be demanded within the limits of the fourth and fifth schedules to
the lease in that the fifth schedule explains how the ‘annual maintenance
provision’ is to be computed with the fourth schedule then apportioning that
provision by percentages so as to specify an individual tenant’s maintenance
contribution.
I proceed to
consider Mr Wood’s submission in more detail. He accepted that when masonry
fell in 1985, with the maintenance trustee at about the same time contemplating
outside decoration, it was right to consult engineers and to put up
scaffolding. Scaffolding was necessary for redecoration and would be of use to
an inspecting engineer. Mr Wood also accepted that no complaint could be made
concerning the letter dated October 3 1985 (already mentioned) stating that
£1,770 would be required for extra work. But Mr Wood there stopped his
concessions. He referred to the McHallam reports dated November 6 1985 and
January 23 1986 already mentioned, which together embody what I will call
McHallam Scheme A. He contended that the maintenance trustee had throughout 1986
sought to levy a maintenance contribution by reference to McHallam Scheme A. At
any rate, on May 30 1986 the certificate I have mentioned was issued in a sum
in excess of £1.8m and individual contributions of £37,000 and upwards were
demanded. (See, for example, demands of Mr Vergottis in Flat 48 dated May 15
1986 and September 23 1986 asking for sums totalling £37,083.70.) Despite objection in the correspondence by
Masons, the solicitors acting for the residents, it is, I think, right to say
that throughout all or nearly all of 1986 the maintenance trustee did not cease
to regard McHallam Scheme A as a possible scheme. In this connection see the
affidavit of Mr Murphy, the solicitor for the plaintiffs, sworn on April 16
1987 and the correspondence in exhibit JFPM1 thereto. This correspondence
indicates, as I understand, that there were some without prejudice discussions.
However, as late as February 27 1987 Masons were writing to Mr Murphy in terms
which include these words:
Accordingly,
we had asked Mr Tietz after he had prepared his report to prepare a draft
costing of the works which he proposes. A copy of this, which you will
appreciate is a draft only, is enclosed from which you will see that the total
sum is £240,000 which compares with the apparent £1.6m costing of McHallam’s
works derived from your clients service charge demands.
Then there
came, following discussions between Mr Tietz and Mr Hindmarsh (for McHallams)
the McHallam report dated February
McHallam Scheme B. McHallam Scheme B was costed at about £0.75m as against the
£1.8m for McHallam Scheme A.
In this
context of events it is said that the maintenance trustee has spent time and
money in seeking to implement McHallam Scheme A. The argument then is that such
money should not have been spent because McHallam Scheme A involves the
carrying out of works that are (a) not contemplated by the fifth schedule
trusts, that is to say, ultra vires the fifth schedule or (b) are unreasonable
on lines suggested by the second holding in the headnote of Finchbourne Ltd v
Rodrigues [1976] 3 All ER 581 or section 19 of the Landlord and Tenant Act
1985. Finally, said Mr Wood, in so far as expense has been incurred in
promoting an ultra vires or unreasonable scheme, that expense should not
fall on the residents.
The question
whether or not the McHallam Scheme A contemplates work that is outside the
province of the fifth schedule is to be answered by considering whether the
work is either (a) repair work within para 2 of the fifth schedule or (b) work
or an improvement within para 23 of that schedule. In relation to (a) I was
referred to some of the authorities as to the meaning of ‘repair’ in the
context of a lease including Brew Brothers Ltd v Snax (Ross) Ltd [1970]
1 QB 612, Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980]
QB 12 and Post Office v Aquarius Properties Ltd [1985] 2 EGLR 105
and [1987] 1 EGLR 40 (CA). I am content to be guided by these words of Sachs LJ
at p 640E of the Snax case:
It seems to
me the correct approach is to look at the particular building, to look at the
state which it is in at the date of the lease, to look at the precise terms of
the lease, and then to come to a conclusion as to whether, on a fair interpretation
of those terms in relation to that state, the requisite work can fairly be
termed repair. However large the covenant it must not be looked at in vacuo.
Bearing in
mind that the McHallam Scheme A involves, as I understand, a reconstruction of
the outside brickwork of Block B from the second storey upwards, I cannot
regard McHallam Scheme A as contemplating work that will effect ‘repair’.
Turning to
para 23, this, in the context of the fifth schedule, seems to me to be a
supplemental or sweep-up provision that ought not to be liberally construed.
The material words are now:
. . . to
carry out such other repairs and such improvements works and additions . . . as
the Maintenance Trustee shall consider necessary to maintain the building as a
block of first class residential flats or otherwise desirable in the general
interests of the tenants.
Using those
words the maintenance trustee would have to say, as I see it, that the McHallam
Scheme A work is an ‘improvement’ which is ‘necessary to maintain the building
. . .’. However, to my mind, the McHallam Scheme A work will not effect an
improvement. It will merely render safe that which is unsound. To make safe is
not to make an improvement in the sense in which I understand improvement to be
used in para 23. A bystander asking what work was being done to Block B would
not receive the answer ‘we are effecting an improvement’. The answer would be
to the effect — ‘we are making good the defective brickwork’. It follows that
the McHallam Scheme A cannot be supported by para 23.
Having found
that McHallam Scheme A is ultra vires the fifth schedule, it is not
necessary for me to consider whether or not the scheme was an unreasonable
scheme to impose upon the residents. Had I to decide that question I would be
disposed to find the scheme unreasonable in that it was costed in a sum in
excess of £1m whereas we now know that a scheme estimated at £232,300 is, it
appears, acceptable by McHallams as satisfactory.
Since I regard
the McHallam Scheme A as ultra vires the fifth schedule, I must consider
what bearing that has on question 13. As to (b) — engineers’ fees and (c) legal
fees — it seems to me that my finding has no bearing in relation to the legal
and engineers’ expenses incurred in the matter of the following reports:
(i) The McHallam reports dated November 26 1985
and January 23 1986;
(ii) The confirmatory report of Bylanders Waddell;
and
(iii) The initial costings of McHallam Scheme A by
Cook & Butler.
However, fees
incurred after receiving those reports may have been incurred in advancing
McHallam Scheme A. Fees incurred in such advancement are not, in my view,
recoverable as part of the maintenance contribution. The difficulty then is, as
I mentioned to counsel, that I have not before me material that will enable me
to indicate with any precision the fees that should be disallowed. The best I
can do at this stage is to order some inquiries —
(1) as to the engineers’ and legal costs incurred
by the maintenance trustee since the date of the Cook & Butler report dated
April 14 1986 solely in promoting McHallam Scheme A;
(2) an inquiry as to the engineers’ and legal
costs incurred by the maintenance trustee since that date solely in promoting
either McHallam Scheme B or the KK agreement;
(3) an inquiry as to the engineers’ and legal
costs incurred by the maintenance trustee since that date that may fairly be
regarded as promoting either McHallam Scheme A or McHallam Scheme B or
agreement KK.
Fees found in
answer to inquiry (1) will be disallowed, leaving as allowable all engineers’
and legal fees incurred solely in promoting McHallam Scheme B or the KK
agreement or fees incurred that cannot be said to be solely referable to
McHallam Scheme A. I have my doubts about the efficacy of the inquiries I have
mentioned, and will consider the wording of the inquiries with counsel. It may
be necessary to refer the matter back to me at some future hearing.
I turn now to
question 13(a) — Scaffolding fees.
Mr Wood
accepted that the maintenance trustee ought to be allowed not only the expense
of putting up the original fan scaffolding but also the expense of the putting
up of full scaffolding on September 15 1985, when it was supposed that Messrs
Chitty were to redecorate. The full scaffolding has been in place since that
time at a cost of about £1,150 a week. Mr Wood submitted that the maintenance
trustee ought not to be allowed that cost over the whole period (since
September 1985) and that the maintenance trustee should be disallowed 12 months
of the cost of keeping up the full scaffolding, ie 52 x £1,150 or £59,800.
Throughout 1986, so the argument goes, the maintenance trustee was insisting on
McHallam Scheme A despite the residents’ justifiable resistance thereto. Then
in February 1987 there appeared McHallam Scheme B with its considerable
reduction in the estimated cost of work to be done. It was plain, says Mr Wood,
that in consequence time was wasted in that instead of getting on with a
reasonable scheme of work the maintenance trustee kept unused the scaffolding
throughout 1986. The waste of time was emphasised by the fact that the
maintenance trustee, having written in a letter to Masons dated May 19 1986
about the issue of proceedings for directions, in fact failed to issue an
originating summons until May 8 1987. In short, the residents say that it
cannot be right that they should have to pay scaffolding costs over the period
when the maintenance trustee was insisting on seeking to adopt McHallam Scheme
A. Mr Price takes the view that the maintenance trustee should be allowed the
scaffolding costs over the whole period since September 1985. He drew attention
to considerations bearing on the matter other than those mentioned by Mr Wood —
(A) Full scaffolding was necessary at all times
to enable proper inspections to be carried out. In this connection I note that
it was in April 1986 that Mr Tietz was instructed. He was, as I understand, on
the scaffolding on June 6 1986, September 15 1986, and February 26 1987.
(B) It would have been unreasonable to remove the
scaffolding when it was known that it would have to be re-erected. The cost of
taking down is estimated at £8,500, and the cost of re-erection is likely to
exceed £20,000. No doubt a breakeven point is reached and passed, but that was
difficult to calculate in 1986.
(C) Safety required the retention of full
scaffolding. Mr Hindmarsh had taken the view that fan scaffolding was not
sufficient for safety purposes in that fan scaffolding would not take the
weight of a collapse of a panel of brickwork, if that should occur.
(D) By 1987, if not before, Mr Hindmarsh was
agreeable to the removal of the scaffolding if first there were inserted some
wall ties: see Mr Hindmarsh’s letter dated June 22 1987 to Mr Murphy in exhibit
JFPM.8.
I must now
explain that in the course of the hearing it was agreed that the full
scaffolding be now removed but that fan scaffolding be left at first-floor
level and that additional wall ties be inserted at certain points specified in
an agreed paper handed to me on October 22 1987.
Weighing the
criticism of the maintenance trustee as advanced by Mr Wood against the
considerations mentioned by Mr Price, I find myself inclined to the view that
the maintenance trustee, while perhaps tardy and not as active as it ought to
have been in taking account of the Mason objections to McHallam Scheme A, was
in a very difficult position as to the scaffolding. To decide to take down with
a view to re-erecting was a decision involving £28,000 or more. It
was a serious step to be justified only if it were clear that thereby there
would be a saving of money without loss of safety. There is then the
consideration that both engineers now agree that the removal of the scaffolding
should take place only after wall ties have been, in the interests of safety,
inserted. In these circumstances I cannot find that the maintenance trustee
ought to be disallowed the cost of maintaining full scaffolding throughout the
period since September 1985.
There remains
question 13(d) — Maintenance trustee fees.
I see no
difficulty about this item. The remuneration of the maintenance trustee is
provided for in para 2(b), part III, of the fourth schedule to the lease. In
the events that have happened, remuneration for the years ending March 31 1987
and March 31 1988 will be a sum calculated in accordance with para 2(b) bearing
in mind that expenditure on which the sum is based will be (apart from ordinary
service costs such as porterage, insurance, etc) expenditure involved in
carrying out the works now agreed and specified in the KK agreement.
