Long leases of residential units – Service charges – First appellant management company holding lease of common parts under which market rent payable – Respondent lessees of units required to contribute to expenses incurred by first appellant in performing obligations – First appellant charging respondents rent payable under common parts lease – Whether a service charge – Whether recoverable under terms of leases – Whether limitation period applying to respondents’ application for determination of leasehold valuation tribunal under section 27A of Landlord and Tenant Act 1985 – Appeal dismissed
The respondents held long leases, granted in 1987, of self-contained residential units in a development of which the second appellant landlord was the freeholder. The respondents were required, under the terms of their leases, to contribute to the “maintenance expenses” incurred by the first appellant management company in carrying out its obligations; those obligations included the payment of “all… outgoings whatsoever” save those for which the responsibility of the tenants of individual units were responsible. The first appellant held a long lease, granted by the second appellant in 1985, of the common parts of the development, including gardens, parking areas, an office, a resident’s flat warden and a guest room. An open market rent was payable under that lease.
The maintenance expenses that the first appellant levied on the respondents included a contribution to the rent payable under its lease of the common parts. In 2007, the respondents applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, to challenge the recoverability of that item. The appellants disputed the LVT’s jurisdiction to determine the matter, arguing that the disputed item was not a “service charge” within sections 18 and 27A of the 1985 Act. They further contended that, on the proper construction of the respondents’ leases, the rent under the common parts lease was recoverable as part of the maintenance expenses.
The LVT found that it had jurisdiction and held that the maintenance expenses did not include the rent for the common parts. It further held that its decision applied for all years going back to 1987 since the application was equivalent to a claim by a beneficiary to recover trust property converted to the use of the trustee, to which, by section 21(1)(b) of the Limitation Act 1980, no relevant limitation period applied. The LVT further found that the doctrine of laches did not apply. The appellants appealed.
Held: The appeal was dismissed.
(1) The maintenance expenses were a “service charge” within the meaning of sections 18 and 27A of the 1985 Act. They comprised an amount payable by the tenant of a dwelling in addition to the rent, within section 18(1). They were payable directly or indirectly for services, repairs, maintenance, improvements or insurance or the landlord’s cost of management, within section 18(10)(a). It was not necessary, when considering jurisdiction, to subdivide the maintenance expenses into each and every separate ingredient in order to consider whether each ingredient individually was an amount falling within section 18. Since first appellant could recover the common parts rent only through the maintenance expenses, which were a service charge within section 18, there was jurisdiction, under section 27A, to determine whether that item was payable and in what amount. Moreover, the common parts rent could be regarded as part of the costs to the first appellant of providing the relevant services because, if it did not pay that rent, its lease could be forfeited and it would be unable to provide the services.
(2) On a proper construction of the respondents’ leases, the rent on the common parts was not recoverable as part of the maintenance expenses. Since the respondents’ leases contained express rights to use the common parts, without referring to any additional payment for such use, it would be surprising if there were an obligation to pay a market rent for such items. Although the obligations of the first appellant, to which the respondents were required to contribute, included all outgoings “whatsoever”, and although that word was often used to show that the greatest width was intended, when construed in the context of the lease as a whole the relevant outgoings did not include the rent payable on the common parts.
(3) The first appellant held the moneys that the respondents had paid to it by way of service charge on the statutory trust imposed by section 42 of the Landlord and Tenant Act 1987. The respondents were effectively arguing that those moneys had not been used for the purpose for which they were held, namely to provide services that could properly form the subject of the maintenance expenses, but had instead been expended to pay off the trustee’s personal debt to the freeholder, a connected company, in respect of the rent under the common parts lease. The case was analogous to an action to recover from a trustee the proceeds of trust property converted by him to his own use. Section 21(1)(b) applied to such an action and, accordingly, there was no limitation period barring the respondents from recovering overpaid maintenance expenses going back to 1987. The doctrine of laches did not prevent such a claim since that doctrine applied only to claims for equitable relief where no limitation period was prescribed by statute, whereas the respondents’ application was made under a statutory provision, namely section 27A of the 1985 Act.
Patrick Darby (instructed by Allsopp & Co, of Birmingham) appeared for the appellants; Peter Steele, of Steele’s Estate Agents & Valuers, appeared for the respondents.
Sally Dobson, barrister
