Landlord and tenant – Service charge – Respondent holding lease of ground-floor flat in development managed by appellant company – Respondent disputing liability to contribute through service charge to costs of lift maintenance and directors’ expenses – Whether those items falling within service charge provisions in lease – Whether relevant that respondent deriving no benefit from lift – Appeal allowed
The appellant was the management company for the private residential element of a development built in 2006. It was responsible for managing 25 private flats, which were let on long leases, and employed a managing agent on a full-time basis for that purpose. The leaseholders were all members of the appellant and were liable to pay a service charge representing a specified percentage of the costs that it incurred in performing its obligations under the leases. The respondent was the leaseholder of a private flat on the ground-floor of a building that otherwise contained social housing. He had no access to the rest of the social housing building or to the grounds serving it, but instead had the use of grounds belonging to the private residential building where most of the other private flats were located.
The respondent disputed the amount of service charge levied by the appellant, arguing that he was not liable to contribute to the cost of maintaining the lift in the private residential building or to the expenses of the appellant’s directors.
The appellant contended that the lift maintenance costs were recoverable under para 3 of the fourth schedule to the lease, entitling the appellant to “provide such other services and discharge such other obligations or functions as [it] shall reasonably from time to time consider necessary or expedient for the use and occupation of the flats in the buildings”, or para 9, referring to “such other services or functions as the [appellant] shall think fit for the upkeep and enhancement of the estate or for the benefit of the flats erected thereon”. It argued that the directors’ expenses were recoverable under clause 6.2 of the lease, which permitted it to employ a firm of managing agents and to “discharge all proper fees salaries charges and expenses payable to such agents or such other person who may be managing the estate”.
The first-tier tribunal determined that the appellant was not entitled to recover the disputed items. It held that paras 3 and 9 were not sufficiently specific to cover the maintenance of a lift that was not otherwise mentioned and from which the respondent derived no benefit. It also held that clause 6.2.1 was not wide enough to cover directors’ expenses since the directors managed the company, not the estate.
Held: The appeal was allowed.
(1) The respondent’s lease was remarkable for the brevity and apparent width of the appellant’s open-textured obligations as set out in paras 3 and 9 of the fourth schedule. At the same time, there was no specific adumbration of repairing, maintaining, renewal or other obligations relating to the buildings as a whole, or to any specific part or parts of them, or to the rest of the estate, such as were a usual and familiar part of service charge provisions. Viewed in that context, para 3 vested in the appellant a discretion, which was only be exercised “reasonably”, to do whatever it considered “necessary or expedient for the use and occupation of the flats in the Buildings and the landlord’s adjoining premises.” In principle, therefore, the appellant could do anything that it reasonably considered necessary or expedient for the use and occupation of the flats in the buildings, with the associated expenses being recoverable through the service charge. It was therefore irrelevant that the maintenance of the lift was not specifically adumbrated in para 3, because virtually nothing was adumbrated in that paragraph; instead, it was left for the discretion of the appellant. As a matter of common sense and good estate management, it would not be unreasonable for a management company to conclude that it was “necessary or expedient” to maintain a lift within a residential block of flats.
Moreover, the para 3 obligation was not confined to any particular flat or flats, or to any particular building or buildings or parts thereof. The “Buildings” referred to in para 3 encompassed both the private residential building and the private part of the social housing building. The obligation on the appellant was a single, global obligation to manage the whole. If the appellant reasonably considered it “necessary or expedient” to do certain works for the use and occupation of the flats, it was irrelevant whether those works benefited all or only some of the long lessees. Since the service charge was defined as a fixed percentage of the expenditure incurred by the appellant in performing its obligations in the lease, the respondent had to pay his share of the costs whether or not he directly or indirectly benefited from them. The fact that some tenants would not benefit from some aspects of the services provided by the appellant was reflected in the percentage apportionment of the global expenditure; the percentage payable by the respondent was less than that payable by the flats in the private building.
(2) The appellant was a not-for-profit, tenant-owned body with no source of income to defray its expenses other than that which could be recovered under the service charge. There was no suggestion that any of the costs incurred by the appellant’s directors were unreasonable. Although the appellant was empowered by clause 6.2 to appoint a firm of managing agents to manage the estate, that was not necessarily coterminous with, or exhaustive of, what was required to discharge the appellant’s obligations and functions under the lease. If the appellant were unable to discharge the costs of running itself and discharging those functions that could not be delegated to a managing agent, it would become insolvent and so be unable to discharge its contractual obligations imposed by the lease. Construed in that context, clause 6.2.1 did not draw any distinction between management of the estate and management of the management company. There was no sensible distinction between the two because one could not exist without the other; the obligations and functions overlapped and were all integral to the management of the estate. Likewise, where a firm of managing agents was appointed to manage the estate, that did not prevent the appellant from charging its administration costs of any retained functions or obligations. Those costs were recoverable under clause 6.2.1 or, if that were wrong, under either para 3 or 9 of the fourth schedule.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
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