Service charge – Recovery fund – Mansion block owned by appellant company — Shares in appellant held by leaseholders of flats – Articles of association amended to include provision for establishing capital reserves and sinking funds and contribution to them by company members – Appellant establishing fund and seeking contribution by members – Respondent refusing to pay – Whether contribution recoverable from respondent pursuant to resolution – Whether properly a service charge in respect of which section 18 of Landlord and Tenant Act 1985 applying – Appeal allowed
The respondent was the leaseholder of a flat in a mansion block. The building was managed and owned by the appellant company, in which the leaseholders of the flats each held one share. The terms of the respondent’s lease provided for the payment of a service charge to the appellant. In 1994, by a special resolution, the appellant’s articles of association were amended to include article 16, which entitled the appellant to establish and maintain capital reserves, management funds and sinking funds in respect of the expenses incurred by it in implementing the objects of the company. It also required members to contribute in the amounts and in the manner approved by ordinary resolution from time to time.
Between 1997 ands 2003, the appellant established a number of such funds. In 2006, two resolutions were passed authorising the: (i) establishment of a “recovery fund” of £400,000, to be paid by the leaseholders in proportion to their shareholdings, in two instalments in January and April 2007; and (ii) recovery of interest upon the late payment of contributions. The respondent’s contribution was £4,000.
The respondent failed to pay his instalments on the due dates and the appellant brought proceedings against him claiming payment of those sums together with interest. The respondent contended that the recovery fund amounted to a service charge as defined in section 18 of the Landlord and Tenant Act 1985, and as such attracted the protection of that Act with regard to the limitation of liability to costs reasonably incurred and the requirements of consultation and the provision of financial information by the landlord. He submitted that the appellant was not entitled to collect the service charges in the way it had when they could be recovered under the lease by other means.
Ruling in favour of the respondent, the recorder held that although article 16 was valid, the sums claimed fell within the ambit of section 18 of the 1985 Act and were an attempt to seek payment of an interim payment of items that would normally fall within a service charge provision. The appellant appealed.
Held: The appeal was allowed.
There was a legal distinction between, on the one hand, the tenant’s liability to the landlord under a lease containing service charge provisions, and, on the other, the liability of company members, in which all tenants were shareholders, to that company under separate contracts made under the articles of association to establish and recover contributions to a recovery fund. Although the two types of relationship could co-exist between the same parties, they were different relationships, incurred in different capacities and giving rise to different legal obligations. The instant case was solely concerned with whether, under article 16 and pursuant to the 2006 resolutions, the appellant was entitled to recover the sums it sought from the respondent in his capacity as a company member. Whether the appellant, as landlord, was entitled to levy charges against the respondent as tenant was a separate matter with which the court was not concerned on the appeal. Nor did the issue arise as to whether the appellant’s directors or its managing agent could properly use money raised from the respondent pursuant to the article 16 resolutions to pay sums alleged to be due from him as a member if they were not due from him as a tenant. Article 16 was a valid provision and the appellant was entitled, pursuant to the resolutions passed thereunder, to recover the sums, including interest, claimed from the respondent as a member of the company.
Grant Crawford (instructed by Wismayers, of Guildford) appeared for the appellant; the respondent appeared in person.
Sally Dobson, barrister
