Leases containing clause in respect of managing agents’ fees – Fees to be calculated in accordance with relevant scale laid down by the RICS – RICS periodically revising scale – RICS subsequently abrogating relevant scale – Whether fee to be determined by scale in force at date of grant of leases – Whether fee to be determined by scale in force at date of abrogation – Whether alternative term of reasonable fees could be implied – Judgment for tenants
The plaintiff was the tenant of various floors and parts of a building in Croydon under three underleases dated respectively June 30 1969, June 24 1970 and March 22 1971. The defendant, the landlord, had acquired the reversion upon the leases in 1993. The leases contained a clause for payment by the tenant in respect of the landlord’s managing agents’ fees for managing the building which were to be "an annual sum calculated in accordance with the appropriate scale laid down by the Royal Institute of Chartered Surveyors (the RICS) upon the rent payable by the lessees at any time under the terms of the Underlease". The scale was periodically revised by the RICS and at the dates of the grants of the leases was 5% of the gross rental. On March 1 1982 the RICS abrogated the scales relating to the functions of valuation, management, sales and lettings.
A dispute arose between the parties in relation to the scale of fees. The defendant had engaged a subsidiary as the managing agent and therefore it was in its interest that the fee was as high, and accordingly profitable, as possible. The defendant claimed that the plaintiff was liable for the scale fee of 5% of the gross rental for the duration of the leases. The plaintiff claimed that the scale fee of 5% produced a figure which was well in excess of the reasonable fee for such services and that the fee should be limited to the proper market or reasonable cost of such services.
Held Judgment was given for the plaintiff.
1. The words of the clause did not expressly provide that the fee was to be calculated by the appropriate scale laid down at the time of the grant of the leases or by the revised scale in force at the time the fee was calculated. However, the purpose of the scale, which was to provide a reasonable fee for management services, the long length of the leases, and the fact that the scale was obviously liable to be amended from time to time to reflect the going rate for managing agents, demonstrated that it must have been anticipated that the RICS scale would go up or down over the substantial number of years as and when the going rate varied. Therefore, the clause required that the fee was to be calculated by the scale which was currently in force: see Mitsui OSK Lines Ltd v AGIP Spa [1978] 1 Lloyd’s Rep 263.
2. The clause could not be read as providing that the scale fee in force at the date of abrogation was to continue in force for the remainder of the terms of the leases because the clause provided that only the scale from time to time in force was payable. Since the purpose of the clause and the scale was to entitle the landlord to reimbursement of the reasonable cost of management agents’ fees, a clause could be implied whereby the tenant was required to pay a fee which was equal to a percentage of gross rent which would have been agreed after arm’s length negotiations between the landlord and a prospective managing agent. Since the leases required any dispute to be referred to arbitration, the duly appointed arbitrator was to fix the quantum of payment for which the plaintiff was liable.
Kim Lewison QC (instructed by Rowe & Maw) appeared for the plaintiff; Paul Morgan QC (instructed by Lovell White Durrant) appeared for the defendant.
