Landlords neglecting block of flats – Lessee obtaining court appointment of H as receiver and manager – H letting vacant flat on short lease at rack-rent – Landlords objecting to management fees and other expenditure relating to letting – Landlords’ objections dismissed
The defendants were the freehold owners of a block of seven flats in London N12, six of which, including one held by the plaintiff company, were let on long leases which obliged the defendants to keep the building and common parts in repair, the cost being recoverable by way of service charge. No such lease had been granted over flat 7, which, having been placed on an additional floor built without planning permission, was at all material times subject to enforcement proceedings requiring removal of that floor. In April 1994 the plaintiff, having established, inter alia, various failures by the defendants to comply with their repairing and insurance obligations, obtained a county court order, made under section 24 of the Landlord and Tenant Act 1987, appointing H to be receiver and manager of the block. Under para 2 of the order the receiver and manager was appointed to receive the rents and other moneys payable by the tenants of the block and to remedy breaches of repairing and other covenants contained in the lease of the plaintiff’s flat.
In or about November 1994 flat 7 became vacant, whereupon H relet it on a short lease at a full market rent. In 1997 the district judge ordered that an inquiry be conducted in the Chancery Division under RSC Ord 30 r 5. At the subsequent hearing before the master the defendants objected, inter alia, to: (i) a sum of £2,089 claimed by H as a finding and management fee for the renting of no 7: (ii) the expenditure by H of £1,587 on preparing the same flat for renting; (iii) the intended payment by H of £3,233 to the plaintiff’s solicitors in respect of legal costs incurred in seeking the appointment of H; and (iv) the retention by H of the balance of moneys received as provision for works likely to be necessitated by the removal of the unauthorised floor. These objections were allowed by the master, the first two on the basis that H had no power to let no 7 without the consent of the court. The plaintiff appealed.
Held The appeal was allowed.
1. While it was well established that a receiver had no power to grant leases, no authority had been cited to deny such a power to a person appointed under section 24 as receiver and manager where he deemed it appropriate to let, at a rack-rent, in discharge of his duty properly to manage the premises. Nor could such a restriction be spelled out of para 2 of the county court order, as such a construction would be manifestly inconsistent with the wide terms of the appointment made in the previous paragraph. Accordingly, the first two objections could not be sustained.
2. Although the legal costs were incurred by the plaintiff, who had a costs order against the defendants, it was open to the court to direct the manager to pay these: see Kerr on Receivers 17th ed, at pp37 and 148. Since the solicitors had been instrumental in recovering the funds in question, further support could be derived from Ridd v Thorne [1902] 2 Ch 344, which recognised the right of such solicitors to a apply for a charging order over receivership assets.
3. In the light of the defendants’ flagrant disregard of the planning laws, it was proper to direct retention of any surplus by the manager, the jurisdiction to do so being given both by the terms of the county court order and by the power to give directions contained in RSC Ord 30 r 8.
David Schmitz (instructed by A Marcou & Co) appeared for the plaintiff; Stephen Boyd (instructed by Kohn & Co) appeared for the defendants.