by Delyth Williams
The question of the content and implementation of the clause providing for a landlord to recover a service charge can often pose several problems for the practitioner. The subject abounds with technical rules both in the landlord and tenant and taxation fields and regard must also be had to the continuing development of case law. This article considers the question of service charges in relation to commercial premises from the viewpoint of the decided authorities on the matter, although it is to be noted that some of the cases establishing points of principle concern residential premises.
General considerations
A service charge clause in a lease of commercial premises may refer to any costs or expenses incurred by the landlord in the performance of his covenants and may do so in relation to specified covenants. Another possibility, of course, is that the service charge provisions refer to specific items for which the landlord is entitled to levy a service charge. In some circumstances, the landlord may incur costs in respect of which there is no provision for recovery. In Rapid Results College Ltd v Angell [6] 1 EGLR 53, the tenants were demised the second floor of the building (which was in fact the top floor) and they had the use of other parts of the building such as the entrance hall, staircase, landing and various passages. The roof of the premises was flat and, on the roof and going round the perimeter of the building, there was a brick parapet wall. The parapet had to be rebuilt after the bricks had become saturated with damp. In the fourth schedule, the lease contained provisions for the calculation of the services rent which provided that the amount of the services rent was to be ascertained and certified annually by a certificate signed by the landlord’s surveyor whose decision was to be binding on the parties.
The relevant parts of the schedule were as follows:
The certificate shall contain a fair summary of expenses and outgoings incurred by the Landlords under the heads of expenditure specified in subparagraph (v) hereof in compliance with the covenants by the Landlords contained in any lease of any part of the building during the Landlords’ financial year to which it relates.
The annual amount of the services rent payable by the Tenants as aforesaid shall be calculated as:
(a) Fifty per centum of the aggregate of the following expenses and outgoings incurred by the Landlords in respect of the premises being the offices on the First and Second Floors forming part of the building and shown bounded by the red line on the said plan annexed hereto (hereinafter called “the first and second floor offices”):
1. Insurance
2. Heating
3. Electricity
4. Maintenance of the exterior
5. Any other expenses or outgoings which in the opinion of the Landlords’ surveyor (whose decision shall be binding on the parties) are attributable wholly to the first and second floor offices
(b) Twenty-five per centum of the aggregate of the following expenses and outgoings incurred by the Landlords in respect of all other parts of the building specified in the First Schedule hereto of which the Tenants have the use in common with the Landlords and tenants and occupiers of other portions of the building:
1. Cleaning
2. Towels
3. Electricity not falling within subparagraph 3 of paragraph (a) above
4. Repairs and maintenance
5. Any other expenses and outgoings incurred by the Landlords in respect of the said common parts of the building
and
(c) Fifteen per centum of the aggregate of the expenses and outgoings incurred by the Landlords in respect of the car park and boundary walls thereof.
The claim for a contribution was based mainly on an item headed “maintenance of the exterior” which was included in a list of items of expenditure in respect of the offices on the first and second floors. The landlords argued that, as the tenants’ second-floor offices were on the top floor, maintenance of the roof was part of the maintenance of the exterior of the tenants’ offices. The Court of Appeal held that the roof could not be regarded as part of the exterior of the second-floor offices nor could the claim succeed under the heading of (i) expenses attributable wholly to the first- and second-floor offices or (ii) repairs and maintenance in respect of parts of the building used in common by the respondents with the landlords and tenants of other portions of the building.
In considering whether any item justifiably falls within the service charge provisions, the provisions of the clause form the initial source of reference. In Embassy Court Residents’ Association Ltd v Lipman [4] EGD 447; (1984) 271 EG 545, L was granted a 99-year lease under which he covenanted to pay a due proportion of the costs incurred by the landlord in carrying out works of maintenance, repair and renewal to the main structure, painting to exterior parts of the building and so forth. In 1972, the landlord’s interest was transferred to the residents’ association but all rents were directed on to the head landlord. L’s lease contained obligations, inter alia, (i) to pay all maintenance contributions as a due proportion of the expenses incurred by the landlord; (ii) to apply for, and accept, membership of the management company and to observe and perform its regulations. It is to be noted that the management company was a company limited by guarantee whose members were the residents of Embassy Court. L contended that he was not under any obligation to pay a management fee to the professional managing agents appointed by the residents’ association nor was he liable to pay for the cleaning of windows other than those of the common parts. The Court of Appeal was of the opinion that the common interest of the tenants was enhanced by the transfer of the landlord’s obligations to the residents’ association. In order to give business efficacy to this arrangement, it was correct to imply into the lease that the residents’ association could incur necessary administrative expenses and the reasonableness of the appointment of the managing agents could be challenged under the Housing Act 1980 (now Landlord and Tenant Act 1985 (as amended)). Finally, the obligation as to the cleaning of windows encompassed all the windows.
The importance of the wording of the service charge clause was stressed in Capital & Counties Freehold Equity Trust Ltd v BL plc [7] 2 EGLR 49; (1987) 283 EG 563. In this case, there were two leases; one lease being of the third and fourth floors and the other of the fifth and sixth floors of an office building. The question before the court was whether the tenant was liable to contribute a due proportion of the costs of the repairs and decorations to the exterior parts and the common parts which the landlord had contracted with the builders before the end of the term to have carried out but no part of which at the end of the term had been carried out. The tenants had covenanted, inter alia:
To pay to the Landlord on demand in writing being made by the Landlord by way of additional rent an amount (hereinafter referred to as “the Service Charge”) equal to 27.59 per centum of all amounts sums costs and expenses of each and every kind whatsoever which may from time to time during the said term be expended or incurred or become payable by the Landlord (as certified by the Landlords’ Accountant as hereinafter provided) in respect of the matters set out in the Fourth Schedule hereto the Service Charge to be payable in accordance with the provisions contained in the Fifth Schedule hereto.
Judge Paul Baker QC (sitting as a judge of the High Court) held that the word “incurred” was synonymous with “expended” or “become payable”, so that, on a true construction, only services which were provided during the term were chargeable.
In Sutton (Hastoe) Housing Association v Williams [8] 1 EGLR 56; [1988] 16 EG 75, the appellants were tenants of a flat who had acquired a long lease of 125 years’ duration under the “right to buy” provisions in Part I of the Housing Act 1980. The window frames in the flats in question had been constructed of wood and, over the years, there had been trouble with wet rot in the woodwork and the housing association landlords had decided to replace the windows by double-glazed UPVC windows. The lease provided for a service charge to be payable by the tenants covering contributions to the costs of the landlords in carrying out repairs under their covenants and also for “… carrying out such additional works and providing such additional services as may be considered necessary by the Lessor in its absolute discretion from time to time”. The lease conformed with Schedule 2 to the Housing Act 1980 in that it excluded payments by the tenants for making good structural defects unless their existence had been notified to the tenants before the grant of the lease. The appellant-tenants objected to the replacement of the windows and refused to pay the consequent increase in the service charge. The Court of Appeal held that there was no need for a sharp distinction between repairs and improvements in this case and, in any event, some of the works involved both repair and improvement. Further, the lease complied with Schedules 2 and 19 to the Housing Act 1980 and that, in so far as the service charge related to the making good of structural defects, the lease had given express warning of the need to replace the old wooden windows. Schedule 19 to the 1980 Act did not prohibit a service charge from covering improvements if the parties agreed to it and the lease gave the landlords discretion to carry out additional works and provide additional services.
The question of whether expenditure incurred was recoverable was the matter in Holding & Management Ltd v Property Holding & Investment Trust plc [9] EGCS 121. In this case, the appellant was the “maintenance trustee” responsible for the repair, decoration and maintenance of a block of flats and the respondents were the landlord and tenants of the flats in the building. The flats were let on a 75-year lease with provisions for the recovery of expenditure by the “maintenance trustee” on, inter alia, “repairs”. In the year in question, the “maintenance trustee” sought to recover a sum to cover the costs of a scheme for remedying defects to the external brick skin of the building in question which involved the complete replacement of the brick skin at an estimated cost of £1.9m. The tenants’ consultants recommended a partial replacement of the brickwork at a cost of about £250,000 but, in the event, the two consultants agreed a scheme at an estimated cost of £232,300. At first instance, [1988] 2 EGLR 99, Mervyn Davies J held that the appellant’s expenditure on the consultant’s fees in relation to the external brick skin scheme were irrecoverable as the scheme would not have been a “repair” within the meaning of the service charge provisions. The Court of Appeal held that the original external brick skin scheme did not amount to a “repair” within the meaning of the lease and there was also a substantial difference between the works envisaged by this scheme and the scheme eventually agreed such as to suggest, as a question of fact and degree, that the more extensive works went beyond the meaning of repair. Also, the additional right to recover expenditure on “… works as the maintenance trustee shall consider necessary to maintain the building as a block of first-class residential flats” was directed not to maintaining the exterior walls of the building but to other improvements within it. On the question of the various other matters before it, the Court of Appeal held, inter alia, that: (i) it was reasonable to incur engineering consultancy fees in relation to the original scheme up to the date when its expense was known, but the appellant was not acting within its powers in incurring costs thereafter in promoting that scheme; (ii) the appellant was entitled to recover scaffolding fees notwithstanding that there had been a delay due, in part, to the objections of the tenants.
“Sweeping-up” or “catch-all” clauses
Some leases deal with the question of the service charge arrangements by way of a “sweeping-up” clause at the end of the service charge provisions. Such clauses are usually construed narrowly as was the case in Jacob Isbicki & Co Ltd v Goulding & Bird Ltd [9] 1 EGLR 236. In this case, a dispute arose as to the tenants’ liability in respect of works including the sand-blasting of the external walls and the court had to construe two provisions in the lease. Under the first provision, the tenant had to pay, by way of additional rent, a proportion of the expenses and outgoings reasonably incurred by the landlord in the repair, maintenance and renewal and insurance of the building and the provision of services therein (as delineated in a schedule), with such an additional rent being termed a “service charge”. Under a further provision, heads of expenditure were set out in a schedule “in respect of which the tenant is to pay a proportionate part by way of service charge”. The schedule delineated various heads of expenditure in detail but did not cover work on the external walls. A further proviso stipulated that:
… the landlord may at his reasonable discretion hold, add to, extend, vary or make any alteration in the rendering of the said services or any of them from time to time if the landlord at his like discretion deems it desirable so to do for more efficient conduct and management of the building.
Mervyn Davies J held that the two clauses must be read together. The service charge was a payment by way of additional rent for expenditure incurred when the landlord carried out the repairs or provided the services mentioned in the schedule. The power given to the landlord to vary or make any alteration in the rendering of the services was a limited one within the range of the matters of works mentioned in the schedule and was not a right to impose a liability on the tenant in respect of different kinds of works. Accordingly, the landlord was not at liberty to use the clause to impose any liability on the tenant in respect of the works done to the external walls of the demised premises.
In Mullaney v Maybourne Grange (Croydon) Management Co Ltd [6] 1 EGLR 70; (1986) 277 EG 1350, the defendant landlords undertook, in a lease and a deed of covenant, to repair and maintain and otherwise provide services and amenities to the structure and common parts of the modern tower block of flats in question. The tenant covenanted as follows:
The Lessee for himself and his personal representatives hereby covenants with the Company and the other Lessees in Maybourne Grange that so long as the Lease remains vested in him or them he or they will (a) pay to the Company from time to time on demand 2 1/2% of the costs and expenses incurred by the Company in the observance and performance of the covenant on its parts hereinbefore contained; and (b) such further or additional costs which the Company shall properly incur in providing and maintaining additional services or amenities …
The tower block was constructed originally with wooden-framed windows which leaked and required painting every four years in accordance with the terms of the lease and the landlords replaced these windows with the double-glazed variety. The landlords claimed contributions from the tenant on the ground that the replacement of the wooden-framed by double-glazed windows amounted to a “repair” or, alternatively, that the expenditure was properly incurred in “… providing and maintaining additional services or amenities to Maybourne Grange”. Mr J Jeffs QC (sitting as a deputy judge of the Chancery Division) held that the replacement of the windows went beyond what was necessary for the purpose of effecting a repair and was by way of a long-term improvement. Further, the provision of the double-glazed windows could not be considered as the provision of an “amenity” within the relevant clause.
Service charges and loans
In Frobisher (Second Investments) Ltd v Kiloran Trust Co Ltd [9] EGD 325; (1979) 253 EG 1231, the tenants held the long lease of a flat under which the landlords covenanted “from time to time and at all times during the said term to observe and perform each and every of the obligations on the lessors’ part set out in the Seventh Schedule”. The tenants covenanted to pay the rent and “the contribution” and the interim sums on the days and in the manner stipulated in the lease. In essence, the general scheme of the matters was that the tenants had covenanted to pay interim sums on account of prospective liability for annual contributions towards the landlords’ expenditure in carrying out its obligations under the lease. In effect, on March 25 and September 29 every year, the tenants were required to pay interim sums certified by the managing agents as being reasonable. At the end of the year, at the next March 25 or shortly thereafter, the sum of the proper contribution was calculated. The sums which had been paid on account were set against that and then either the lessee had to pay the balance, if there were a balance against him, or, if it were a balance in his favour, he received the balance back. The problem that arose in the instant case was that section 91A of the Housing Finance Act 1972 provided (now see Landlord and Tenant Act 1985):
A service charge shall only be recoverable from the tenant of a flat —
(a) in respect of the provision of chargeable items to a reasonable standard; and
(b) to the extent that the liability incurred or amount defrayed by the landlord in respect of the provision of such items is reasonable …
This provision had the effect that the landlord must have defrayed the cost, or at any rate incurred liability to pay the cost, before it could be recovered from the tenant. Walton J was of the opinion that the interim sums payable were part of the service charge and, therefore, being payments in advance were not recoverable by the landlord.
Further, the learned judge held that there was nothing in the lease to authorise the landlords to recover from the tenants the cost of borrowing money to meet the expenditure required by the lease.
A similar conclusion was reached in Boldmark Ltd v Cohen [6] 1 EGLR 47; (1986) 277 EG 745, where the tenants held a 99-year lease of a flat under which, in addition to an annual rent and a contribution to the cost of insurance, they were liable to pay a percentage of the costs, expenses and outgoings incurred by the landlords in carrying out the maintenance of the block of flats and in supplying certain designated services. In addition, the lease provided:
There shall be added to the costs expenses and outgoings and matters referred to in the preceding paragraphs of this Schedule such sums as the Lessors may from time to time expend in respect to the general administration and management of the Block.
Several disputes arose between the parties and the county court judge had to consider several matters. Of importance for present purposes is the fact that the landlords had, from time to time, to borrow money temporarily (before receipts from service charges accrued) in order to undertake any maintenance or provide services in accordance with their obligations in the lease. The county court judge was of the opinion that the tenants could be charged their due proportion of the interest payable in respect of such borrowings as they fell within the heading of sums expended “in respect of the general administration and management of the Block”. The Court of Appeal held that, although in some circumstances an express provision in a lease enabling tenants to be charged with such interest might be sensible, the present lease did not authorise such a contribution.
“Reasonableness” and the landlord
In the construction of the service charge clause, the question that sometimes arises is whether a landlord must act reasonably in exercising the rights, and carrying out the works, under the clause. This matter has been considered on several occasions by the courts. In Finchbourne Ltd v Rodrigues [6] 3 All ER 581; (1976) 238 EG 717 the defendant was the tenant of a flat in a block of flats which he held on a lease for 125 years from March 17 1967. Under the provisions of the lease, the tenant had to contribute:
A yearly sum equal to 4 per centum of the amount which the Lessors shall from time to time have expended during the year immediately preceding the date … in (a) meeting the outgoing costs expenses and liabilities incurred by them in carrying out their obligations under the provisions of the Seventh Schedule … and (b) in paying from time to time the costs and expenses of and incidental to making repairing … amending … gutters sewers …walls party walls [etc] [of the block of flats as a whole].
The beneficial ownership of the flat was alleged by the defendant to be in Mr Pinto and the certificates of the amount of the contribution to the service charge were made by D Pinto & Co purporting to be the managing agents. In fact, Mr Pinto was the sole proprietor of that business. The Court of Appeal held that, as the lease stipulated that the managing agents were to be persons other than the landlords, it followed that no valid certificates of contribution had been issued. Further, the parties could not have intended that the landlords should have an unfettered discretion to adopt the highest conceivable standard of maintenance etc and to charge the tenant for it. In order to give business efficacy to the lease, a term was to be implied that the costs recoverable from the tenant should be “fair and reasonable”.
The decision in Finchbourne was considered by Forbes J in the context of a covenant by a tenant to reimburse the landlord for insuring the full cost of reinstatement of the demised premises in Gleniffer Finance Corporation Ltd v Bamar Wood & Products Ltd (1979) 37 P & CR 208. In this case, the tenants covenanted, inter alia:
To pay to the lessor in each year during the term a sum (or in the event that the demised premises shall be insured with other premises belonging to the lessor a proportionate part of the total sum such proportion being conclusively determined by the lessor) equivalent to the amount which the lessor shall from time to time pay by way of premium for keeping the demised premises (including architects’ surveyors’ and engineers’ reinstatement fees) insured for the full cost of reinstatement against loss or damage by fire and such other risks as the lessor may from time to time in its absolute discretion deem expedient together with the whole of the premium payable for the insurance of a minimum of three years’ loss of rent of the demised premises…
The landlords covenanted to keep the premises insured at all times, but a dispute arose as to the meaning of the phrase “full cost of reinstatement”. The tenant contended that it meant the cost as calculated at the date of payment of the annual insurance renewal premium, but the landlords argued that the proper method was to project into the future a date by which reinstatement could reasonably be expected to be completed and consider what would have been the cost at that date. Forbes J held, inter alia, that the phrase “full cost of reinstatement” must have been intended by the parties to cover the cost that might properly be expected to be incurred at the time when reinstatement took place. In considering the decision in Finchbourne, Forbes J was of the opinion that there were two ways of considering the matter in the sense that it could be that the landlord’s duty was only that he should exercise his power to insure bona fide or, in the alternative, he should do what was fair and reasonable.
Several complex issues were considered by McNeill J in Firstcross Ltd v Teasdale [3] EGD 411; (1982) 265 EG 305, the facts of which are particularly complicated but concern statutory appeals against the decisions of a rent assessment committee. The case concerned the decisions of the rent assessment committee with regard to furnished and unfurnished flats. In the case of unfurnished flats, the rent assessment committee refused to direct that the rents in question should be registered as variable, relying on the right to exercise a “residual discretion” under section 71(4) of the Rent Act 1977, which provides:
Where, under a regulated tenancy, the sums payable by the tenant to the landlord include any sums varying according to the cost from time to time of
(a) any services provided by the landlord or a superior landlord, or
(b) any works of maintenance or repair carried out by the landlord or a superior landlord, the amount to be registered under this Part of this Act as rent may, if the rent officer is satisfied, or, as the case may be, the rent assessment committee are satisfied, that the terms as to the variation are reasonable, be entered as an amount variable in accordance with those terms.
The rent assessment committee considered that the variation provisions would result in unfairness as between tenants of different flats and that tenants could be called upon in a single year to contribute to heavy capital expenditure such as rewiring and replacement of lifts, boilers and other major items. McNeill J held that the rent assessment committee were wrong in claiming a residual discretion to look beyond the contract between a particular landlord and tenant and, further, it was incorrect to regard the list of items which might give rise to variable contributions as part of the “terms as to the variation”. All that the committee had power to do was to determine whether or not the terms as to the variation were reasonable and, in considering whether the terms as to variation were reasonable, the provisions of Schedule 19 to the Housing Act 1980 (now the Landlord and Tenant Act 1985) were relevant On the question of reasonableness, the learned judge said:
…I am, as I understand it, bound as a matter of law to accept, on the authority of the decision of the Court of Appeal in Finchbourne Ltd v Rodrigues [6] 3 All ER 581, that the operation of a variable contribution clause is, in any event and as a matter of law, limited by a “fair and reasonable” condition. It follows from this that a necessary assumption in the landlord’s favour is that the variable contribution clause will not be operated otherwise than fairly and reasonably.
The problems of the interpretation of the reasonableness test in the context of the variable rent provisions in the lease were considered in Wigglesworth v Property Holding & Investment Trust plc (1984) 270 EG 555, where the lease was originally for a period of five years at a rent of £555 pa from 1962 with a further rent calculated on the following basis:
0.80% of any increase in the costs incurred by the landlord in respect of the items of expenditure hereinafter specified for the purpose of the management and of supplying services for the mansion over the costs incurred by the landlord in respect of the same items of expenditure during the twelve months ended on the 31st day of March 1959 (hereinafter called “the basic year”).
In 1982, the rent officer registered a rent of £2,295 inclusive of services for the flat, but the matter was referred to the rent assessment committee, which determined a rent of £2,350 pa to be registered as a variable rent. The rent assessment committee did not detail the practical working of the variable rent, but McCullough J was of the opinion that the result of the committee’s decision was to enable the landlord to recover a large sum in excess of what the committee intended. The calculation meant that the rent would be £2,350 plus 0.8% of the difference between the cost of services for the block in 1959 and the current cost (although the figure of £2,350 in fact already reflected the value of the services supplied at the effective date). McCullough J went on to add:
The correct approach is to consider the terms as to variability which are to be found in the lease. If the result which the committee wish to achieve can be effected by grafting their determination on to these terms, all well and good. Terms inconsistent with their determination will, of course, be overridden. It is as if they were notionally crossed out. But what the rent assessment committee cannot do is to write additional terms into the lease. In Firstcross Ltd v Teasdale McNeill J in effect held that the terms of the relevant lease were such that a variable rent could be fixed. However, those terms differed from the terms of Mr Wigglesworth’s lease. If, as I believe may be the case (and I emphasise the word “may”, because I express no concluded opinion about that), it proves impossible for the committee to determine a variable rent without controverting the principle which I have endeavoured to explain, then they will have to determine a rent which contains a fixed service element.
Certification of service charge
In Re Davstone Estates Ltd’s Leases (1969) 20 P & CR 395, the main question before Ungoed-Thomas J was whether the provision in a lease which provided that a certificate from the landlord’s surveyor as to the tenant’s contribution to the landlord’s expenses in complying with his covenants was to be final and conclusive.
In this case, 10 flats were each held on leases for 99 years at a yearly rent of £15 and each tenant covenanted, inter alia, to pay £15 pa to the landlord:
as a contribution towards the expenses incurred by the lessor in performing the covenants on the part of the lessor set forth in clause 3 … provided nevertheless that if one [tenth] part of the said expenses reasonably and properly incurred by the lessor in any year (as certified by the surveyor for the time being of the lessor (hereinafter called “the surveyor”) whose certificate shall be final and not subject to challenge in any manner whatsoever) shall exceed fifteen pounds then the lessee shall pay to the lessor the amount of the excess such sum to be paid within twenty-eight days after the service on the lessee of a copy of the certificate of the surveyor.
The landlord covenanted, inter alia, to keep the interior and exterior walls, ceilings and floors (other than that demised) and the roof and main drains in good and substantial repair and condition. The landlord undertook some of the works and the landlord’s surveyor made a certificate and served it on the tenants. Ungoed-Thomas J was of the opinion that the proviso that the landlord’s surveyor’s certificate should be final and conclusive on a matter which was a question of law was contrary to public policy as ousting the jurisdiction of the courts on a point of law.
The question of the standing of a landlord’s surveyor’s certificate which was to be “final and binding” was considered by Vinelott J in Concorde Graphics Ltd v Andromeda Investments SA [3] EGD 436; (1983) 265 EG 386, where the clause in question provided that the tenant had to pay a rateable or due proportion of the costs, charges and expenses of, inter alia, maintaining, decorating and cleaning the walls, roofs, entrance halls and lifts and the external roads and pavements. Any difference between the landlord and tenant on this matter was to be settled by the landlord’s surveyor, whose decision was to be “final and binding”, and such a charge was to be paid by the tenant on demand and recoverable as rent in arrear.
The tenant contended that the service charge was not a rent in respect of which the landlord was entitled to levy distress, but Vinelott J disagreed. He thought that when the amount of service charge properly payable by the tenant has been agreed and the amount chargeable is recoverable as rent in arrear, then it can properly be the subject-matter of distraint. However, in the particular circumstances of the case, it was clear that the service charge had not been decided, with the result that the landlord was not entitled to distrain for the amount in dispute. Vinelott J went on to consider whether the landlord’s managing agent could reach a “final and binding” decision on a disputed matter and analysed the position by stating that the landlord’s surveyor’s function was essentially an arbitral one. Both parties had agreed to refer such a dispute to the landlord’s surveyor because they hoped that, in the course of performing his duties as surveyor, he would acquire some familiarity with the property which would enable him to reach a decision on the dispute more cheaply and expeditiously than if he came to the matter entirely afresh. The judge was of the opinion that it did not follow from the fact that the landlord’s surveyor was chosen to perform the duty that his function could not be an arbitral one. However, the position was one of some delicacy and in such a situation the surveyor must act impartially and hold the balance between the landlord and the tenant, notwithstanding that the landlord is his paymaster; he cannot simply obey the instructions of the landlord.
The court proceeded to consider this duty in the light of the particular facts. It concluded that in the present case the firm of surveyors concerned could not perform this arbitral duty because it was they, as managing agents, who made the claim which the tenant disputed. The answer was for the landlord to appoint new surveyors for the arbitral role. Finally, the court was of the opinion that a payment made under a threat of (and to avoid) a seizure of goods is not made voluntarily and can be recovered; there was not sufficient evidence in the present case that the payment by the tenant was made under a threat and to avoid distress. Moreover, the payment was not made under a mistake of fact; the mistake, if any, was one of law, and such a mistake does not impose on the landlord any liability to repay.
Miscellaneous matters
In Pole Properties Ltd v Feinberg [1] EGD 396; (1981) 259 EG 417, the tenant’s lease provided that the tenant should contribute two-sevenths of any increased costs of heating for the demised premises, with the two-sevenths figure being based on the floor-area calculation. The history of the matter commenced in 1958 when no 17 was converted into four flats and maisonettes, and F’s lease contained a clause which provided for increases in the cost of fuel, with F to pay two-sevenths of the increase (based on the floorspace). However, in 1967, the landlords acquired the next-door property (no 13) and built a new block of flats on that site and heated it by means of an oil-fired system. In addition, the landlords scrapped the original solid-fuel boiler for no 17 and ran the heating for both nos 13 and 17 from the new boiler and such system was more expensive and covered internal passages and common parts. When the landlords sought to apply the two-sevenths rule to the new conditions, the tenant resisted and argued that he would be subsidising tenants in the new building. The Court of Appeal held that there had been a radical change in the circumstances and that the court had to do what was fair and reasonable in the circumstances. In the circumstances, it was fair and reasonable that the tenant should contribute to the heating costs on a “directly heated volume basis”.
It may be that the commercial service charge clause requires the landlord to consult the tenant(s) on the works to be undertaken and so forth and if such a clause is present it may act as a condition precedent. In CIN Properties Ltd v Barclays Bank plc [6] 1 EGLR 59; (1986) 277 EG 973, the agreement in question (which was not itself a lease) provided, inter alia, for the tenants to pay the proportionate cost of repairs or other works to parts of the structure of the building but subject to the proviso that the landlords would not accept any estimates or place any orders for the repairs without first submitting them to the tenants for approval. When extensive repairs became necessary, the landlords gave instructions to contractors to carry out the works without consulting the tenants or showing them any estimates or tenders as required by the agreement. The Court of Appeal held that the proviso was an unequivocal condition precedent to the tenants’ liability.
Whether the payment of maintenance contributions by the tenant was a condition precedent of the landlord’s providing certain services was one of the matters at issue in Yorkbrook Investments Ltd v Batten [5] 2 EGLR 100; (1985) 276 EG 545, where the defendant was the subtenant of a flat in a development comprising some 280 units. The headlease provided that the landlords were, inter alia, to repair, to redecorate externally every four years and to provide certain services in return for quarterly contributions. Several tenants became dissatisfied with both the performance and the costs of the services. The Court of Appeal held, inter alia, that the parties did not intend that the landlords’ covenant to provide certain services should be subject to the condition precedent of the tenant’s paying the maintenance contributions. It is to be noted that this case contains a detailed discussion of many issues concerning service charges of residential premises and the reader is advised to consult the report in full.
In Cumshaw Ltd v Bowen [7] 1 EGLR 30; (1986) 281 EG 68, a lease of a flat for a term of 61 years from June 24 1960 provided that the service charge be £100 pa plus £1 pa for each point or part of a point by which the Retail Price Index rose above the figure of 110.4. The clause further provided that, if the RPI should cease to be published, increases in the service charge were to be based on a fair proportion of increases in the landlord’s costs to be determined by an independent surveyor. Since 1960, not only had there been changes in the contents of the RPI but also it had been brought back to 100 on two occasions and the landlords agreed that the second method of determining the service charge was appropriate.
Scott J held that the revised index remained the index to which the lease referred and it had not ceased to be published or to be made available. Although changes in the bases posed difficulties, these could be overcome by the use of a mathematical formula.
Residential premises
The practitioner should note that in the case of a dwelling the relevant service charge provisions are contained in sections 18-30 of the Landlord and Tenant Act 1985 as amended by the Landlord and Tenant Act 1987. Such matters are outside the scope of this work but will be dealt with in a subsequent article. Some of the relevant authorities discussed ante are also appropriate in the case of the statutory provisions.
