Landlord and tenant — Maintenance charges in leases — Central heating — Payment of additional rent by lessees for supply of central heating — Construction of relevant clauses — Questions in originating summonses — First question common to all lessees including Secretary of State for the Environment — Second question concerned Secretary of State only and related to the provisions of his lease and of a deed of variation
arose out of provisions in 21-year leases of premises at 249-289 Cricklewood
Broadway, London NW2 — Apart from the additional matter raised by the Secretary
of State, the terms to be construed were substantially the same in all the
leases — The clause in question provided for an additional rent (not being less
than a stated amount per sq ft), based on a floor-area formula, for the supply
of central heating, but with a provision that the sum payable might be
increased proportionately by the lessor if the cost of fuel for heating should
at any time exceed the cost at the date of the lease — Another clause provided
for a contribution by the lessee, again based on a floor-area formula, to the
repair and maintenance of the central heating system — In fact the landlords
had over the years obtained payment on the basis of a calculation which enabled
them to recover from the lessees substantially more than the total cost of
providing central heating — The lessees contended that the intention of the
lease provisions was to reimburse the landlords only for the actual cost of
providing the heating — The judge did not find the provisions easy to interpret
but came to the conclusion that the sums for which the lessees were liable must
be based on actual costs and that the landlords’ calculations were wrong in law
— He accordingly answered this question on the summons in favour of the lessees
question, which arose only in the case of the Secretary of State, was as
follows — The Secretary of State’s lease provided for the lessee to contribute
a fair proportion, calculated according to a floor-area formula, of the
landlords’ expenses in maintaining and repairing the central heating
installation — At the date of the lease there were only two boilers but
subsequently a third was installed and a deed of variation was entered into
between the Secretary of State and the landlords — The deed of variation
provided for an additional rent of £2,000 pa in respect of the new boilers —
The question on which a difference between the parties arose was whether the
rent of £2,000 under the deed of variation was to be paid instead of, or in
addition to, a fair proportion of the maintenance expenses in accordance with
the clause in the lease — The judge decided in favour of the landlords on this
question — His decision was that the landlords were entitled to charge the
Secretary of State a contribution by way of rent towards the cost of
maintenance of all three boilers in addition to the rent of £2,000 pa
the first question was answered in favour of the lessees on the summonses — The
second question, which concerned only the Secretary of State, was answered in
favour of the defendant landlords
No cases are
referred to in this report.
These were
originating summonses for the construction of matters arising on leases of
parts of 249-289 Cricklewood Broadway, London NW2. The plaintiff in the first
action was the Secretary of State for the Environment and the plaintiffs in the
second action were Jollybird Ltd, Mansukhlal Narshi Malde, Poolmark Ltd and
Original Products (Marylebone) Ltd. The plaintiffs were the lessees and the
defendants, Fairzone Ltd, in each action were the lessors.
Arthur Charles
(instructed by the Treasury Solicitor) appeared on behalf of the plaintiff in
the first action; Alastair Norris (instructed by Fremont & Co) appeared for
the plaintiffs in the second action; David Oliver QC and Michael Nield
(instructed by D M Landsman & Co) represented the defendants in both
actions.
Giving
judgment, MORRITT J said: These originating summonses, so far as before
me, raise two points of construction on leases of parts of 249-289 Cricklewood
Broadway, London. The defendant, Fairzone Ltd, is entitled to the reversion to
each of the leases. The leases in question, which are all for 21 years, are to
Mr Malde dated May 27 1967, Jollybird Ltd dated April 9 1968, Poolmark Ltd
dated November 17 1969, the Secretary of State for the Environment dated
February 25 1971, and Original Products (Marylebone) Ltd dated September 21
1977.
The first
question is common to all the leases and relates to the proper construction and
application of a covenant to pay by way of additional rent sums relating to the
cost of the supply of central heating by the landlord. The second question
arises only in the case of the lease to the Secretary of State and a deed of
variation thereof. This concerns the proper construction and application of a
covenant to contribute to the cost of the maintenance of the central heating
system.
There are
minor variations in the provisions of the respective leases relevant to the
first question. But in my judgment these variations are immaterial to the point
I have to decide. Accordingly, I will consider the terms of the lease to the
Secretary of State before the amendment made by the deed of variation. Clause
2(ii) is a covenant by the lessee:
To pay to the
Lessor as further rent and so in proportion for any part of a year calculated
from the date of these presents on such one of the four usual quarter days in
every year as shall next follow the expenditure by the lessor
— (a) relates
to a fair proportion of the expense incurred by the landlord in effecting
insurance. The material provision is (b), which reads:
a fair
proportion (being not less in any event than the rate of one shilling and
threepence per square foot on the floor area of the first demised premises) of
the costs of supplying central heating to units 2, 3 and 4 of the building such
proportion to be calculated in accordance with the ratio of the floor area of
the first demised premises to the total lettable floor area comprised in units 2,
3 and 4 and which are supplied with central heating by the Lessor from the same
source regard being had to the working hours of the Lessee of each unit
supplied from the same source Provided that the sum payable may be increased
proportionately at any time by the Lessor if the cost of fuel for supplying
such heating shall at any time exceed the cost thereof at the date of this
lease . . .
Para (c) refers
to the sums of money to be contributed by the lessee under clause 4(c) of the
lease. Clause 4(c) of the lease provides that the lessor will repair and
maintain the central heating system and will keep the demised premises properly
heated to the satisfaction of the lessee, the lessee contributing a fair
proportion of the expenses incurred, including the lessor’s administration
charge and 10 per cent of the costs of the said repairs and maintenance or
cleansing, such fair proportion to be calculated in accordance with the ratio
of the floor area of the first demised premises to the total lettable floor
areas comprised in the building and which are supplied with central heating by
the lessor from the same source.
Over the years
the landlord has demanded and been paid sums calculated on the basis — not
always properly applied — that the proviso to clause 2(ii)(b) required that the
sum of 1s 3d per sq ft referred to in the parenthesis (to which I shall refer
as the minimum sum) be increased by a fraction of which the numerator is the
unit cost of heating oil averaged over the year in question and the denominator
is the unit cost of heating oil at the date of the lease. The result has been,
as the evidence shows, that the landlord has recovered from the tenants
substantially more than the total cost of providing central heating. One reason
for this result is that to apply such a formula takes no account of any
variation in the volume of heating oil consumed.
There was no
evidence to show how the sum of 1s 3d had been calculated. If it was intended
to reflect the cost of oil required to heat the premises as at the date of the
lease, then it assumed a volume consumed over six times more than the average
consumed in the years 1980 to 1985 inclusive. If the sum of 1s 3d included
items other than the cost of oil then it would seem to be irrational to apply
to the whole of the sum of 1s 3d the fraction referred to in the proviso, for
that would be to apply to the non-oil element an irrelevant indexation. With
this possible exception, there are no surrounding circumstances at the date of
the lease which throw any light on the question of construction. Thus I must
seek the answer from the words used in the lease in the context in which they
are used.
The tenants
contend that the context shows that the purpose of clause 2(ii)(b) was to
reimburse the landlord for his actual costs in providing central heating. The
landlord claims that the calculation of the effect of specifying the sum of 1s
3d shows that by operating the proviso a profit was always intended and that
the other provisions on which the tenants rely should be contrasted with para
(b). In the absence of any evidence of how the sum of 1s 3d was calculated I do
not accept that submission. Moreover, it begs the very question I have to
decide. In my judgment, the opening words of clause 2(ii) and the reference to
expense in para (a) and in clause 4(c) referred to in para (c) do support the
tenants’ submissions. Moreover, in para (b) itself cost is referred to both in
relation to the fair proportion and in the proviso. The problem arises from the
words at the beginning of the proviso ‘the sum payable’. The landlord contends
that there are two alternatives: either it refers to the minimum sum or it
refers to whichever is the greater of the fair proportion or the minimum sum.
He contends that the second alternative is absurd because if the fair
proportion was the greater the proviso would give rise to a second indexation
for an increase in the cost of oil.
The tenants
submit that the proviso cannot apply to the sum of 1s 3d both because of the
words used and because it is not sensible to apply to a unit cost, which may or
may not consist only of oil costs, a fraction which requires unit cost and
volume to be taken into account. They suggest that the proviso is merely a
statement of the obvious result of the fair proportion calculation or is an
indication that increased fuel costs may be used to offset any alteration in
the fair proportion due to the regard to be had to the tenants’ working hours.
One point on
which all parties are agreed is that the lease is not happily drafted. What
then does ‘the sum payable’ refer to?
The landlord argued that the only sum previously referred to was 1s 3d,
but that is manifestly not the sum payable; it is a figure from which with
other data the sum payable may be calculated. But in this respect it is no
different from the fair proportion. In my judgment, the sum payable has to be
whichever is the greater of the fair proportion and the minimum sum. Given the
order of calculations to be made as prescribed by para (b), whichever is the
greater of the fair proportion or the minimum sum must be ascertained before
the proviso can operate.
I find it
significant that the proviso contains the word ‘may’ and not the word ‘shall’.
In appropriate contexts ‘may’ means ‘shall’. But this covenant and this lease
do not provide such a context. The word ‘may’ shows at the least that the
absurdity of uplifting the fair proportion to take account of current fuel
costs alone when the fair proportion calculation has already taken current
costs into account does not arise. The power to increase implicit in the word
‘may’ would not be exercisable in respect of a sum which alone already took the
same increase into account.
Equally the
use of the word ‘may’ rather than ‘shall’ suggests that the proviso is
applicable only when some element of judgment rather than strict arithmetical
calculation is involved. Such an element could arise, as the tenants submitted,
if the fair proportion based on costs and floor area required some modification
having regard to the working hours of the lessee. It is not easy to see how the
proviso would be operated in practice. But the position of the proviso
immediately following the unusual reference to working hours suggests strongly
that this is the effect the proviso was intended to have.
Accordingly,
in my judgment both the context and the words used show that the sums for which
the tenants are liable must be based on actual costs and that the landlord’s
calculations are wrong in law. I will, therefore, answer question 1(1) in the
Secretary of State’s originating summons affirmatively in sense (a) and
question 1 in the other tenants’ originating summons affirmatively in sense
(1)*.
*Editor’s
note: The relevant part of the Secretary of State’s originating summons reads:
‘(1) in respect of the sums payable by the Plaintiff
in respect of the supply of central heating to the Demised Premises:
(a) whether such sums are the proportion of the
costs actually expended by it or on its behalf in respect of the supply of
central heating to the parts of the building of which the Demised Premises form
part referred to in clause 2(ii)(b) of the Lease: or
(b) whether such sums are to be calculated from
the sum of one shilling and threepence per square foot referred to in clause
2(ii)(b) of the Lease and, if so, how that calculation is to be made; and
further or alternatively
(c) how such sums are to be calculated.’
The relevant
part of the tenants’ originating summons reads:
‘(1) A fair proportion of the cost of fuel for
supplying central heating to the respective demised premises (such proportion
to be calculated in accordance with the ratio of the floor area of the demised
premises to the total lettable floor areas which are supplied with central
heating by the Landlords from the same source) but subject to a minimum charge
at the rate per square foot stated in the respective Leases:’
I turn now to
the second question, which arises only in the case of the lease to the
Secretary of State. Clause 4 of the lease provided that the lessor will at the
cost of the lessee:
(v) repair
and maintain the central heating installation in the building including all
pipes and radiators forming part thereof upon the demised premises or elsewhere
in the building . . . the lessee contributing a fair proportion of the expenses
incurred (including the lessor’s administration charge of ten per cent of the
cost of the said repairs maintenance or cleansing) such fair proportion . . .
to be calculated according to the ratio of the floor area of the first demised
premises to the total lettable floor areas comprised in the building and which
are supplied with central heating by the lessor from the same source
By clause
2(ii)(c) this sum was to be paid by way of additional rent.
At the time of
the lease there were two boilers. In 1976 the landlord installed a third
boiler. Partly for that reason, on June 13 1976 the plaintiffs entered into a
deed. At that time the lease had approximately 15 years to run.
Clause 4 of
the deed provides:
In pursuance
of the said agreement and in consideration of the Lessee paying a rental of Two
thousand pounds per annum in addition to the rent payable under the Lease the
Lessor (who has installed in accordance with plans and specifications already
agreed with the Lessee a new boiler in addition to the existing two boilers
serving the demised premises) Hereby Agrees to maintain the same so as to
comply effectively with the provisions of clause 4(c)
— then it is
stated (vi), which ought to be (v) —
(v) of the
Lease And such additional rent shall be calculated so as to run from the
twentyfourth day of June one thousand ninehundred and seventyfive.
The reference
to the said agreement seems to refer back to the recitals to the deed, which do
not in fact refer to any agreement.
Clause 5 then
provides:
It Is Hereby
Mutually Agreed as follows: (i) The terms of the Lease shall be varied as
follows . . . (c) the addition of the following words at the end of Clause 1
‘And also paying and yielding by way of further or additional rent the yearly
rent of Two thousand pounds for the installation of the additional boiler such
sum to be paid at all times in addition to the rent payable for the demised
premises hereunder or any increased rent arising out of the rent review such
additional rent to be paid by equal quarterly payments in arrear on the usual
quarter days — the first of such payments (in respect of the period from the
Twentyfourth day of June onethousand ninehundred and seventyfive) to be paid on
the date hereof’.
It can readily
be seen that there is an apparent inconsistency between clause 4 and clause
5(i)(c) of the deed.
The Secretary
of State contends that clause 4 of the deed supersedes clause 4(c) of the
lease, so that the landlord has to accept the additional rent of £2,000 instead
of a fair proportion of maintenance expenses under clause 4(c) of the lease.
Alternatively, he claims that the additional rent covered maintenance of the
new boiler, so that contributions demanded pursuant to clause 4(c) of the lease
should be limited to the two old boilers.
The landlord
has been charging a contribution for the maintenance of all three boilers in
addition to the rent of £2,000. He claims to be entitled to do so pursuant to
the terms of the lease as amended by clause 5(i)(c) of the deed. He contends
that clause 4 of the deed merely extended the maintenance obligation in clause 4(c)
of the lease to the new boiler and was not intended to exclude the Secretary of
State’s consequential liability to contribute to the cost.
In my
judgment, I must construe the deed as a whole against the background of the
lease as a whole. That background shows, in my judgment, that the Secretary of
State’s obligation to pay a contribution to maintenance costs arose under
clause 4(c), which dealt with the specific subject of maintenance rather than
under clause 2(ii)(b), which by itself might have covered maintenance charges.
Thus under
clause 4 of the deed the landlord agreed to maintain the new boiler as well as
the old. There is nothing in clause 4 of the deed which expressly excludes the
consequential obligation of the Secretary of State to contribute to the cost.
But the sum of £2,000 additional rent is linked to the landlord’s obligation to
maintain and clause 4 leaves it uncertain whether it was also to exclude the
Secretary of State’s obligation to contribute to its maintenance.
It seems to me
that that uncertainty is clarified by clause 5(c) of the deed, which makes it
plain that the additional rent of £2,000 was for the installation and, I would
infer, subsequent depreciation of the new boiler and was to be paid in addition
to the rent payable for the demised premises under the lease. The latter rent
included the obligation to contribute to the maintenance of the system which
was by clause 2(ii) treated as rent.
Accordingly,
in my judgment, the landlord is entitled to charge the Secretary of State by
way of rent a contribution towards the cost of maintenance of all three boilers
in addition to the additional rent of £2,000. Thus I answer question 1(2)(a) of
the Secretary of State’s originating summons in the affirmative. In answer to
(b) I will declare that the obligation arises under clause 4(c) of the lease
and is in respect of all three boilers*.
*Editor’s
note: The relevant part of the Secretary of State’s summons reads:
‘(2) in respect of the sums payable by the Plaintiff
in respect of the maintenance of the boilers used in connection with the supply
of central heating to the Demised Premises:
(a) whether the Plaintiff has to make any
payment in addition to the additional rent of £2,000 referred to in clauses 4
and 5 of the Deed; and
(b) if the answer to the question posed in
(2)(a) is in the affirmative whether such payment is to be made under clause
2(ii)(b) or clause 4(c)(vi) of the Lease and the boiler or boilers in respect
of which it is to be made;’
The judge
ordered that the defendants should pay one-half of the Secretary of State’s
costs of his summons and shall pay the costs of the other plaintiffs.
[As this
volume goes to press an appeal against this decision has been heard in the Court
of Appeal. In a reserved judgment given on July 3 1990 the appeal has been
dismissed.]
