Schilling and another v Canary Riverside Developments PTE Ltd and others

Leasehold valuation tribunal — Tenants applying for appointment of manager — Landlords incurring costs opposing application — Whether landlords entitled to recover costs as a service charge — Application allowed The applicants were tenants of a flat in a residential block on a mixed-use estate. In 2003, they applied, under section 34 of the Landlord and Tenant Act 1987, for the appointment of a manager of the entire estate or of the four residential blocks at the property on grounds involving various allegations about services and service charge. The leasehold valuation tribunal (LVT) refused the application on the basis that it could not be just and convenient, as the respondent landlords contended, to split the management of the estate or to appoint a manager to a mixed use estate with services that were shared by commercial and residential tenants. The respondents subsequently claimed their costs of the proceedings as a service charge issued to the applicants and to the other tenants. The applicants sought a determination under section 27A of the Landlord and Tenant Act 1985 (as amended) as to whether the respondents were entitled to add such costs to the residential service charge under the terms of the underlease and in the light of para 10(4) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002. Held: The application was allowed. The respondents had not established a contractual right under the applicants’ underleases to have their tribunal costs paid as a service charge. Service charge provisions in a lease had to be construed restrictively. In order for a landlord to be entitled to recover money from a tenant, it was necessary for the contractual provisions to contain clear terms entitling it to do so: Gilje v Charlegrove Securities Ltd [2001] EWCA Civ 1777; [2002] 1 EGLR 41; [2002] 16 EG 182 applied and St Mary’s Mansions Ltd v Limegate Investment Co Ltd [2002] EWCA Civ 1491; [2003] 1 EGLR 41; [2003] 05 EG 146 considered. The LVT proceedings were not concerned with management as such, but were essentially about who should undertake the management function. In addition, an application under Part II of the 1987 Act, in substance, initiated hostile litigation. Just as a landlord’s costs of defending, even successfully, a tenant’s action for damages for breach of management covenants could not be recovered from tenants generally as a service charge incurred in connection with management, proceedings to replace a landlord’s defaulting manager with another manager were also not so connected. The provisions in the underlease as to liability to pay service charges should not be dismissed as mere formalities. They required the landlord to take steps that afforded protection for a tenant. In any event, the respondents were precluded from recovering the costs by para 10(4) of Schedule 12 to the 2002 Act (whereby one person would not pay costs incurred by another except by an order of the LVT), which effectively overrode any contractual entitlement that might otherwise be established. Furthermore, any term that entitled a landlord to recover from tenants its costs of proceedings against those tenants, without any reciprocal rights, would be unfair under regulation 5(2) of the Unfair Terms in Consumer Contracts Regulations 1999. Jonathan Gavaghan (instructed by Bowling & Co) appeared for the applicants; Timothy Fancourt QC and Mark Sefton (instructed by Eversheds) appeared for the respondents. Eileen O’Grady, barrister