Landlord and tenant – Service charge – Compromise agreement – Construction – Unpaid service charge arrears – Section 27A of Landlord and Tenant Act 1985 – Leaseholders applying to leasehold valuation tribunal for determination of service charge due – Parties reaching compromise agreement and withdrawing application – Whether appellant landlord thereafter confined to recovering service charge arrears as defined in agreement – Whether still able to claim further sums in reliance on terms of leases
In 2010, the appellant company acquired the freehold of a development of flats in a converted former factory in London SE1. All the flats were let on long leases under which a service charge was payable. Some leaseholders were withholding service charges owing to ongoing problems with the management of the development.
The respondent and other leaseholders applied to the valuation tribunal (LVT) for a determination, under section 27A of the Landlord and Tenant Act 1985, as to the reasonableness of the service charges for 2006 to 2011; they also sought an order under section 20C of the 1985 Act disallowing the appellant, as landlord, from recovering its costs of the proceedings through the service charge. In addition to challenging the amount of the charge, the respondent asserted a right to set off against his share of it the amount of a judgment that he had obtained against the original developer for more than £16,000. Another leaseholder (M) sought to set off the amount of a counterclaim for more than £90,000 that she had advance against the developer in county court proceedings which had been stayed.
A further application for the appointment of a manager in respect of the development, under section 24 of the Landlord and Tenant Act 1987, was dismissed, although a section 20C order was made in respect of part of the appellant’s costs of that application: see Conway v Jam Factory Freehold Ltd [2013] UKUT 592 (LC); [2014] PLSCS 15.
Thereafter, the parties entered into a compromise agreement in respect of the section 27A and section 20C applications, setting out terms of settlement by which the leaseholders agreed to withdraw those applications and to pay the service charge arrears as defined in that agreement; these excluded the respondent’s and M’s share of the arrears. The appellant agreed to remedy the deficit in the reserve fund, save to the extent of those two leaseholders’ shares, and to carry out certain works to remedy breaches of the lease terms.
The appellant then brought a claim against the respondent for service charge arrears in respect of the same period dealt with by the compromise agreement. On a further application by the respondent, the LVT held on a preliminary issue that the compromise agreement absolved the respondent from any further liability to pay service charge arrears for that period. The appellant appealed.
Held: The appeal was dismissed.
A compromise agreement fell to be construed in the same way as any other contract, in the context of its surroundings as known to the parties, so as to give effect to the intention of the parties. When the compromise agreement was read as a whole and in context, it was apparent that the parties intended to reach a permanent resolution of all matters relating to the reasonableness of the amount of the service charge arrears in dispute and liability to pay those sums, without any further litigation between the parties in relation to them. That construction accorded both with common sense and with the actual wording of the agreement.
By reciting that the parties had agreed terms of settlement, and that the applications would be withdrawn in consideration of the agreements set out therein, the compromise agreement indicated that the parties had resolved the matters that were in issue between them in those applications on the terms set out in the agreement. The leaseholders who had been party to the LVT applications withdrew their challenges to the reasonableness of the service charges arrears in return for the agreements set out in the compromise agreement. They thereby gave up the statutory right to challenge the service charge arrears and were not entitled to issue any new applications covering the very same ground as those which had been withdrawn; to do so would be contrary to what they had agreed and an abuse of process. The LVT ceased to have jurisdiction to determine those issues once the agreement was concluded. No sensible distinction could be drawn in that respect between the respondent and the other leaseholders. In the absence of an express statement to that effect, it could not have been intended that the appellant could, the next day, sue the respondent or M under the lease, when the respondent and M had given up their statutory defences.
The compromise agreement did not merely deal with the disposal of the section 27A and 20C applications. Had that been intended, the agreement would have taken a different form. Instead, the parties had adopted a more comprehensive agreement, extending to matters that were not, and jurisdictionally could not have been, the subject of determination by the LVT. The appellant had agreed to replenish the deficit in the reserve funds, save to the extent of the respondent’s and M’s service charge arrears, and the leaseholders had agreed to pay the service charge arrears as defined. There was symmetry between the obligation of the appellant to replenish the deficit caused by the service charge arrears and the leaseholders’ obligation to pay them. The obligations were co-extensive and reciprocal. No one was obligated to replenish, pay or recover the deficit caused by the respondent’s or M’s service charge arrears.
The compromise agreement therefore formed a new contractual arrangement between the parties, by which they compromised or settled not only the matters in dispute in the applications before the LVT but also various other matters. Neither the respondent nor M, nor any of the other leaseholders who had been party to the LVT applications, remained liable under the leases for the arrears after execution of the compromise agreement. That liability had been replaced or substituted by the liabilities set out in the compromise agreement, which was, in respect of the arrears in dispute, the sole and exclusive legal foundation of liability and hence title to sue.
Although that result meant that the appellant gave up the right to claim the respondent’s and M’s arrears, the tribunal should not speculate as to the subjective intentions or rationale behind that agreement to control the meaning of what had, in clear and unambiguous language, been agreed by the parties. In any event, there might be many reasons, such as a disinclination to incur further costs on an uncertain outcome, why the appellant might have agreed to abandon that claim.
Nathaniel Duckworth (instructed by Bishop & Sewell LLP) appeared for the appellant; the respondent appeared in person.
Sally Dobson, barrister
Click here to download the transcript of The Jam Factory Freehold Ltd v Bond
