Landlord and tenant – Service charges – Claimants holding tenancies of premises owned by defendant landlord – Defendant publishing annual charging policies requiring tenants without written leases to pay service charges – Claimants seeking declarations that charging policies not altering terms of tenancies – Defendant counterclaiming for declarations as to scope of liability to provide services – Claim dismissed – Counterclaim allowed
In April 2013, some 3,600 properties, previously owned by primary care trusts, vested in the defendant, as part of a major reorganisation of the NHS. Many of those properties had been occupied by GPs, practising in partnerships, for many years with no written lease or other record of the terms of occupancy. Included in those properties were five sets of premises which were, respectively, occupied by the claimants.
From 2015 onwards, the defendant published annual “Charging Policies” which stated that GP practices without written leases were required to pay service charges.
In 2020, the claimants issued proceedings against the defendant seeking declarations that the charging policies did not alter the terms of their tenancies. The defendant counterclaimed for declarations as to the scope of its own liability to provide services and the claimants’ liability to pay service charges and a determination of each claimant’s accrued arrears of service charges.
The second, third and fifth claimants occupied their premises pursuant to implied periodic tenancies. In respect of the first and fourth claimants, there was a dispute whether the claimants occupied their premises pursuant to an implied periodic tenancy or pursuant to a tenancy at will.
Held: The claim was dismissed. The counterclaim was allowed.
(1) A tenancy was created by a consensual arrangement between the parties, and the extent of the rights thus created depended on their intention. Where parties were negotiating the terms of a proposed lease, and the prospective tenant was let into occupation in anticipation of terms being agreed, it was to be inferred in the absence of any other material factors that the parties intended to create a tenancy at will rather than a periodic tenancy pending the outcome of the negotiations. The parties could not be taken to have intended that the periodic payments of rent would create a periodic tenancy when they were not agreed as to the terms on which the prospective tenant would occupy. The fact that the parties had not yet agreed terms would be a relevant factor in ascertaining their intention. One had to look at all the circumstances of the case and determine what was a fair inference to be drawn: Javad v Aqil [1990] 2 EGLR 82 applied.
In the present case, the first claimant had occupied its premises from about 2007. Negotiations between the parties for the grant of a lease appeared to have proceeded very slowly, with lengthy gaps between communications. However, where the parties were in negotiations, there was no requirement for any particular intensity of negotiations. On the evidence, the occupation of the premises by the first claimant was correctly interpreted as having given rise to a tenancy at will, which was still continuing: Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2014] EWCA Civ 303; [2014] PLSCS 94 considered.
Until March 2019, the fourth claimant had occupied its premises under a written lease which was contracted out of the Landlord and Tenant Act 1954 and thereafter held over the premises paying rent. The payment of rent did not of itself preclude a tenancy at will and the principles applicable in a holding over situation were essentially the same as those set out in Javad. Looking at all the surrounding circumstances, the parties’ objective intention throughout was that there should be a formal grant, and it was therefore appropriate to infer a tenancy at will: Cardiothoracic v Shrewdcrest Ltd [1986] 2 EGLR 57 considered.
(2) It was common ground that the second and fifth claimants held under the terms of tenancies implied from conduct. Over the course of many years, landlord’s services had been provided and the claimants had made some payments towards those services.
Where a party occupied without having agreed terms of occupation, the law would imply, from what was agreed and all the surrounding circumstances, the terms that the parties were to be taken to have intended to apply.
The second and fifth claimants should be taken to have intended that their tenancies should contain an unqualified obligation on the part of the defendant to provide a specified list of services, but in terms which gave the defendant ultimate control over the particular services provided. Without such a qualification, the defendant could find itself subject to a contractual obligation to provide a particular service, in circumstances where the relevant service was not reasonably required or could not, for some good reason, be provided. There was no evidence from which to infer a service charge cap, nor any evidence that the parties intended that the rent payable would be all-inclusive.
(3) There was nothing inherently objectionable in the defendant seeking to recover its own internal management costs as part of the recoverable service charges (if any) for a particular set of premises. However, such recovery could only be made, subject to any other defences which might be available to the tenant, if the relevant lease or tenancy provided for the recovery of costs incurred in respect of the relevant set of premises which was sufficiently wide to include the landlord’s internal management costs as part of the recoverable costs.
In determining whether the relevant provision was sufficiently wide to encompass the recovery of internal management costs, it was legitimate to consider, as a question of fact, the nature of the relationship between the costs sought to be recovered and the services to which they were said to relate. If the relationship was distant, it might cause the relevant costs to fall outside the scope of the relevant provision. Subject to that, there was no prescribed method for the calculation and apportionment of management costs. In principle, different methods could be used to calculate and apportion such management costs. The central question remained whether the management costs fell within the scope of the provision, in the relevant lease or tenancy, which was said to permit their recovery: Waverley Borough Council v Arya [2013] UKUT 501 (LC) applied.
In the present case, the management fees were properly recoverable as service charges.
(4) The claimants’ claims for declaratory relief would be dismissed. There was no real and present dispute between the parties as to whether the charging policies altered the terms of the claimants’ tenancies. Since the court had determined, in principle, the contractual ability of the defendant to levy service charges under the terms of the tenancies, the charging policy declarations would serve no useful purpose as they were effectively superfluous: Rolls Royce v Unite the Union [2009] EWCA Civ 387 applied. Pavledes v Hadjisavva [2013] EWHC 124 (Ch); [2013] 2 EGLR 123; [2013] EGILR 1 distinguished.
Declaratory relief would be granted on the defendant’s counterclaim to the extent and in the terms set out in the court’s judgment.
John De Waal QC, Katrina Mather and William Golightly (instructed by Capital Law Ltd) appeared for the claimants; Jonathan Gaunt QC, Nathaniel Duckworth and Gavin Bennison (instructed by Bevan Brittan LLP) appeared for the defendant.
Eileen O’Grady, barrister
