Lease – Business premises – Claimant letting part of four floors to defendant – Four separate leases setting out procedures for payment of service charge – Defendant paying service charge under agreed procedure – Claimant issuing separate invoice for same service charge year – Court deciding preliminary issue – Whether defendant liable to pay service charge demanded outside specified procedure – Preliminary issue determined in favour of defendant
Until 17 January 2003, the claimant was the freeholder of an office block that comprised a ground floor and 12 upper floors. By four separate leases dated 7 July 2000, which were on substantially the same terms, the claimant demised to the defendant the greater part of each of the ground, first, second and third floors, but retained some common parts.
Each of the leases provided for the payment of a service charge, which was defined as “the sum payable by the tenant in accordance with part 2 of the Schedule of Services”. Part 2 provided that the service charge should be a fair proportion of the actual or anticipated service costs for each service charge year, to be assessed by the landlord or its surveyor according to a reasonable and proper basis for apportionment applicable from time to time to the premises. Under para 2, the landlord was entitled to give the tenant a written notice of its estimate for the coming service charge year, requiring the tenant to pay that estimate by equal quarterly instalments in advance. By para 3, the landlord, as soon as practicable after the end of each service charge year, was to provide the tenant with a statement of the actual service costs and service charge. At that point, any overpayment would be credited to, or any deficit demanded from, the tenant. The claimant elected to operate that mechanism in respect of the service charge year ending 24 December 2002.
On 15 January 2003, the defendant received an invoice for more than £260,000 for the redecoration of the common parts. In the course of proceedings brought by the claimant to recover that amount, the court directed that the question of whether, having regard to the service charge provisions in the four leases, the defendant had any liability to the claimant pursuant to the invoice should be tried as a preliminary issue.
Held: The preliminary issue was determined in favour of the defendant.
The obligation to pay sums in advance on a quarterly basis depended upon the claimant exercising the option in para 2 of the schedule of services. If the option was not exercised, an obligation to pay in advance did not arise.
So far as the scheme, context and language of service charge provisions allowed, they had to be given an effect that fulfilled rather than defeated their purpose. However, it should not be assumed that a lessee under any lease would pay service charges. Whether or not the lessee was bound to pay service charges would depend upon the terms of the relevant lease: Universities Superannuation Scheme Ltd v Marks & Spencer plc [1999] 1 EGLR 13; [1999] 04 EG 158 considered.
If a condition precedent had be satisfied before a service charge was payable, it had to be complied with; such a condition precedent could not be avoided by appealing to the purpose of the service charge. Although it was correct to have regard to that purpose, it might be of little assistance in construing provisions that amounted to conditions precedent to the liability to pay or specifying the circumstances in which such a liability arose: Finchbourne Ltd v Rodrigues [1976] 1 EGLR 51; (1976) 238 EG 717, CIN Properties Ltd v Barclays Bank plc [1986] 1 EGLR 59; (1985) 277 EG 973 and Northways Flats Management Co (Camden) Ltd v Wimpey Pension Trustees [1992] 2 EGLR 42; [1992] 31 EG 65 considered.
On the proper construction of the ground-floor lease, the defendant was liable to pay service charges only if the procedure in paras 2 or 3 had been followed, bearing in mind that it had been contemplated that: (i) at some point it might not be fair to require the payment of any service charge; (ii) the assessment of a fair proportion of service costs would be undertaken by the claimant on a basis that might change from time to time; and (iii) without information as to the actual service costs and the proportion being demanded, the defendant could not evaluate whether the proportion was fair and had been assessed on a reasonable and proper basis.
David Holland (instructed by Speechly Bircham LLP) appeared for the claimant; Mark Warwick (instructed by asb law, of Crawley) appeared for the defendant.
Eileen O’Grady, barrister
