Landlord and tenant – Service charge – Construction of lease – Heating and hot water – Respondent landlord owning development of two buildings – Heating to one building supplied through common heating system – Appellant charging for heating to whole of that building through service charge levied on lessees of all apartments in development – Whether terms of leases permitting such recovery – Appeal dismissed
In 2009, the appellant acquired the freehold of a new development that comprised a refurbished building converted into 26 residential apartments and a new building containing a further 44 apartments. The respondents were the joint lessees of two apartments in the refurbished building and another two in the new building under 125-year leases. Heating and hot water to the refurbished building was supplied in a conventional manner through boilers in each apartment, pursuant to contracts between individual occupiers and a third-party utility supplier. In the new building, those services were instead provided by way of a common heating system (CHS) that passed through the entire building on a continuous loop, supplying heating and hot water to all the apartments and the common parts. Occupiers could control the supply of heating and hot water to their particular apartment by a thermostat and timer, and each apartment also had a meter that enabled the quantity of heat supplied to the apartment to be measured.
In practice, the appellant did not monitor the meters but instead sought to charge for heating to the new building through the service charge levied on all apartments in the development. On an application to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, the respondents contended that the appellant was not entitled to charge in that way; instead, the gas supplied to the CHS should be paid for only by the lessees of apartments in the new building and the cost to each apartment should be measured by the meter and billed directly from a third-party gas supplier.
The LVT held that that the leases contained no provision that enabled the appellant to recover for the cost of gas supplied to the CHS through the service charge. It rejected the appellant’s contention that such recovery was permitted by the service charge provisions so far as they referred to “any other services relating to the Building and the Common Parts” and to “the cost of the supply of electricity gas oil or other fuel and water for the provision of the Services and for all purposes in connection with the… Building and/or the Common Parts or any part thereof”.
On appeal from the LVT’s decision, the appellant further relied on a covenant by the lessees to pay a fair and proper proportion, to be determined by the landlord’s surveyor acting reasonably, of any outgoings assessed on the apartment including “the cost of all water electricity gas and telephone (including all meter rents) used or consumed in the Apartment”.
Held: The appeal was dismissed.
(1) The purpose of a service charge was to enable a lessor to recover the cost of works and services supplied for the benefit of more than one lessee where buildings or estates were in multiple occupation. When considering what meaning would be conveyed to a reasonable person by the service charge provisions of a 125-year lease of a residential apartment in a block of 68 apartments, it was relevant that the lessee would not normally expect to pay for the costs of services supplied to individual occupiers, as opposed to services supplied for the benefit of more than one lessee. Gas, water, electricity and other utilities consumed in individual apartments were normally supplied direct from a third-party provider with whom the occupier entered into an individual contract. Although leases commonly included in the demise the right to use service media in the building, they did not generally impose an obligation on the lessor to provide the gas, water or electricity itself. Although, the definition of the building in the respondents’ leases did not expressly exclude the apartments demised to individual lessees, the services were clearly not intended to include those provided within individual apartments but instead related to maintaining the main structure of the building, service media, the lift, alarms, CCTV, bins and other such matters. The reference to “any other services relating to the Building and Common Parts or any part of them” would not lead a reasonable person to conclude that it embraced the provision of heat to individual apartments through the CHS. That provision was a “sweeper clause” and, notwithstanding its apparently wide language, such a clause had to be construed in the context of the suite of provisions of which it formed part: Lloyds Bank plc v Bowker Orford [1992] 2 EGLR 44; [1992] 31 EG 68 applied.
(2) Although the service charge could not include the cost of heating individual apartments, it could include the provision of heat to the common parts in the new building. Those costs fell within the ambit of “the cost of the supply of electricity gas oil or other fuel and water for the provision of the Services and for all purposes in connection with the Estate and/or the Building and/or the Common Parts or any part thereof”; that provision was concerned with purposes connected to the management of the estate, building and common parts rather than with services to individual apartments. The heating of the common parts benefited all the lessees in the new building. Although the lessees of apartments in the refurbished building would also have to contribute towards those costs, while deriving no benefit from them, that was a common feature of a number of the services described in the leases and was an inevitable consequence of the decision to characterise the development as a single entity for the purpose of the lease. The service charge was calculated by aggregating the cost of providing services to the whole of the development and charging a fixed percentage to each apartment; accordingly, it did not differentiate between the cost of services provided for the benefit of apartments in the new building and those provided for the benefit of apartments in the refurbished building.
(3) Although the appellant was in principle entitled to recover the cost of providing heating to the common parts, that did not assist in circumstances where the service charge demands that it had issued did not purport to identify the cost of providing such heating. This was not a case where it would be possible for the LVT on a rehearing to form its own judgment as to the appropriate proportion of the heating costs.
(4) The covenant by lessees to pay “the cost of all water electricity gas and telephone (including meter rents) used or consumed in the Apartment” enabled the Landlord to recover the cost of gas supplied to the CHS to heat individual apartments. The covenant was not apt to embrace the cost of gas used or consumed in other apartments. Not only did it refer expressly to meters but, as a matter of fact, each apartment in the new building had a meter at the time when the lease was granted, making it possible to calculate precisely how much heat and therefore gas had been used or consumed in that apartment. Although the identification of a fair and proper proportion of the gas used or consumed in each apartment was a matter for the landlord’s surveyor, acting reasonably, as things currently stood there was no means of calculating such a fair and proper proportion other than by monitoring consumption through the meters. That was the method envisaged at the time of construction of the new building and the grant of the leases and, unless and until an alternative reasonable method of calculation was devised, the monitoring of the meters was the only method available.
Graeme Wood (instructed by JB Leitch Solicitors, of Liverpool) appeared for the appellant; the respondents appeared in person
Sally Dobson, barrister
