OAKFERN PROPERTIES LTD v DESMOND RUDDY LRX/93/2005

UPPER TRIBUNAL

LANDS CHAMBER

LRX/93/2005

Case No LRX/93/2005

Between

OAKFERN PROPERTIES LTDApplicant

DESMOND RUDDYRespondent

Before

His Honour Michael Rich QC

Venue Procession House, 110 New Bridge Street

Date 9 February 2006

Hearing 6 February 2006

Property: Flat 16, Kings Court Mansions, 729 Fulham Road, London SW6 5PB

Catchwords: Service charges – Procedure – Jurisdiction of Leasehold Valuation Tribunal to consider “reasonableness” of superior landlord’s expenditure – Recoverability of unreasonable expenditure from tenant of block of flats – Human Rights Act 1998 – Article 1 of First Protocol

[1]The Respondent (to whom I will refer as “the Tenant”) applied to the Leasehold Valuation Tribunal (“the LVT”) under s. 27A of the Landlord and Tenant Act 1985 for a determination that certain costs incurred by the Appellants (to whom I will refer as “the Freeholder”) in maintaining “the Building” at 709-739 Fulham Road had been unreasonably incurred. The Tenant is the underlessee of Flat 16 King’s Court Mansions, as the residential floors of the Building are called. He holds an underlease of the Flat dated 21st June 1996 for a term of 99 years less three days from 29th September 1977. It was granted by one Paul Kirby who was the assignee of a lease dated 14th June 1979, originally granted by the freeholder to a company called Clenplan Properties Limited for a term of 99 years from 29th September 1977. This demised “Premises” defined as comprising the “24 residential flats on the first to third floors of the Building together with the entrance halls staircases corridors and landings giving access thereto.” A non-profit making company formed by the sub-tenants of other flats in King’s Court Mansions now holds the lease of those floors and is Mr Ruddy’s landlord under the underlease. I shall refer to this company by its name “Publicshield”. The ground floor and basement of the Building comprises 8 shops. The Freeholder let them subject to occupation leases, to a company called Padmore Investments Limited for the same term and on the same date. Mr Ruddy told me that this company is an associate company of the Freeholder.

[2]The underlease is complicated by the involvement of a management company. By clause 3(2)(iii) of the underlease the Tenant covenants with the Lessor and with the Management Company “.. to pay to the Management Company as an annual service charge 1/24th of the cost .. of performing its obligations as set out in the Sixth Schedule .. These include in paragraph (4):

“To observe and perform the Lessees covenants contained in the Headlease [which is defined as the Lease dated 14th June 1979 made between Oakfern Limited and Clenplan Properties Limited]”

Amongst the Lessees’ covenants contained in the headlease are the obligations set out in paragraph 8 of the second schedule to pay “(i) .. 90% of aggregate expenses and outgoings incurred by the Landlord [that is the Freeholder] in the repair and maintenance and renewal of the Building and (ii) a sum equal to the proportion attributable to the [residential] premises .. of the costs [of insuring the Building].” The contemporaneous lease of the commercial part of the Building, requires the lessee of those premises to pay the rest of the Freeholder’s outgoings.

[3]The Tenant’s application to the LVT dated 14th February 2005, was expressed to be “to determine service charges of Freeholder”, and the Freeholder was named as Respondent to the application. It was accordingly served on the Freeholder in accordance with Regulation 5(1) of the Leasehold Valuation Tribunals (Procedure) (England) Regulations 2003. As I understand it 2 the LVT also gave notice of the application to Publicshield, but that company made no application to be joined, as it could have, under Regulation 6(1).

[4]The Freeholder, however, objected that the LVT had no jurisdiction to determine the reasonableness of its charges to Publicshield on the application of the Tenant of the Flat. The LVT therefore held a hearing into the following preliminary issues:(i) Whether the amounts which are the subject of the Applicant’s application are service charges within the meaning of section18 of the Act [of 1985]

(ii) Whether if the answer to question (i) is “yes”, the Tribunal has jurisdiction to entertain an application by the Applicant notwithstanding the absence of a relationship of landlord and tenant between the Applicant and the Respondents. A third issue was determined by the LVT which is not the subject of an appeal to this Tribunal. The LVT’s determination of the two issues set out above, favourably to the Tenant, is however the subject of the Freeholder’s appeal, which I have to determine.

[5]Section 18 of the Act of 1985 as amended (and all references to the Act will be as amended, unless I expressly state the contrary) defines “service charge” and “relevant costs” for the purposes of the Act, as follows:

“(1) .. ‘service charge’ means an amount payable by a tenant of a dwelling as part of or in addition to the rent – (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to relevant cost. (2) The relevant costs are the costs or estimated costs incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.” “Dwelling” is defined by s.38 of the Act to mean “.. a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it.”

The Freeholder submitted that Publicshield was not a tenant of a dwelling as so defined, but of 24 dwellings together with the common parts of the block of flats, and accordingly the maintenance charge payable by Publicshield to the Freeholder was not a service charge to which the Act applied. Nevertheless as between the Tenant and Publicshield, s.19(1) requires that “Relevant costs shall be taken into account in determining the amount of a service charge payable [by the Tenant under the underlease of Flat 16] .. only to the extent that they are reasonably incurred ..” 3 Since by reason of the definition in s.18(2) relevant costs may be incurred by “a superior landlord”, the effect of Mr Tanney’s submissions, on behalf of the Freeholder, would be that if the costs incurred by the Freeholder are unreasonably incurred, Publicshield is still bound to pay them but cannot, to the extent that they are unreasonably incurred, recover them from its sub-tenants.

[6]The LVT rejected that submission. It relied on the decision of His Honour Judge Roger Cooke, sitting in the Central London County Court, in Heron Maple House Ltd v Central Estates Ltd

[2002] 1EGLR 35

. In that case the freeholder (“Heron”) sued Central Estates Ltd (“Central”) for the cost of certain roof works, which were recoverable under the terms of the lease, which Central held from the Freeholder, of a mixture of office, commercial and residential accommodation in the form of a number of flats, separately underlet and occupied. Central maintained that the sums claimed were not recoverable because Heron had failed to comply with the requirements of s.20 of the Act as to consultation in respect of the “qualifying works”. The section applied only if the “relevant costs incurred on carrying out the works exceeded [an amount set by regulation]”. This would apply only if the “relevant costs” were incurred “in connection with the matters for which [a] service charge is payable” (see s.18(2)). Accordingly Judge Cooke had to determine whether sums payable by the head lessee were “service charges” within the meaning of s.18(1). He held that they were amounts “payable by a tenant” for the following reasons (see paragraph 38 of his judgement):

“ .. in relation to any individual flat/dwelling, Central .. is the tenant of that dwelling. It may be a tenant of other things as well, but of that dwelling, it is, under its lease, the tenant. I cannot for my part see why, where a lease contains a mixed estate of properties, you cannot properly call yourself the tenant of one of the properties if they can be individually identified (as here they can be). Thus, why can you not properly be defined under the same lease as the tenant of Wuthering Heights and the tenant of Wildfell Hall, if they are identifiably different parcels? Mr Peacock’s [counsel for Heron’s] counter to this is that it is absurd because the Act envisages the subject matter of the tenancy as a dwelling, not premises that include a dwelling. But this is not what the Act says; it says ‘tenant of a dwelling’ not ‘tenant of a dwelling and of nothing else’”

[7]Paradoxically whilst this construction of s.18 avoids the anomaly, which Mr Tanney for the Freeholder acknowledges would arise in the present case, namely that the mesne landlord is liable to pay the head landlord his unreasonably incurred costs, he cannot recover them from his underlessee, it creates an anomaly under that s.20, with which Judge Cooke was concerned. By s.20(5) “the appropriate amount” which is the threshold for requiring consultation in respect of “qualifying works” is to be determined by regulations which “may make provision for either or both of the following to be the appropriate amount-(a) an amount prescribed by, or determined in accordance with the regulations, and

(b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by or in accordance with the regulations.” 4 By regulation 6 of The Service Charges (Consultation Requirements) (England) Regulations 2003 the amount is fixed at £250 per tenant not per dwelling, so that the effect of treating the mesne landlord of 24 flats as a tenant for the purposes of s.20 is to require consultation in respect of expenditure of less than £10 per dwelling. I think that it would be within the power given by s.20(5) to set the amount by reference to the contribution of any tenant “in occupation of a dwelling”, and it is to be hoped that the Secretary of State may consider revising this regulation rather than leaving landlords who inadvertently fail to consult in regard to trivial sums dependent on the LVT’s exercising its dispensing power under s.20(1)(b) of the Act of 1985. I accept, however, that this regulatory provision can be taken as an indication of the understanding of the legislation, of the maker of the regulation. That does not, however, have any force in its proper construction by the courts. I do accept however that the anomalous results of one or another construction of the Section should equally not be treated as determinative of its proper construction.

[8]It is however at least arguable that the current form of s.20(5) set out above as substituted by s.151 of the Commonhold and Leasehold Reform Act 2002 for the original provision of s.20(3) that the appropriate amount should be “such other amount as may be prescribed multiplied by the number of dwellings let to tenants” (my underlining) effected a change of substance, and that I am wrong to suggest that the definition of the threshold for consultation could be made by reference to the contribution of particular classes of tenant (that is the occupying tenants) under s.20(5) as now in force. If that is right, then the change must be taken to show Parliament’s understanding of the legislation. Mr Tanney suggested that s.21(5A) as presently in force after amendment by the Landlord and Tenant Act 1987 may also be said to make a similar assumption that tenants of “relevant dwellings” will be tenants of single dwellings. If Parliament did, indeed, amend the Act on the basis of an erroneous understanding of the Act which it was amending, that would, I think, be a proper matter to take into account in construing the amendment. I do not however think that it is either conclusive as to the true meaning of the Act which is amended, still less does it have the effect of amending the original Act to accord with such misunderstanding. I do not therefore think that Judge Cooke’s reasoning is to be rejected as inconsistent with the wider context of the Act.

[9]Judge Cooke arrived at his justification of the construction of the Section, having rejected the arguments of counsel for both parties. At paragraph 33 he accepted the submission of counsel for Central (Mr Polli) that the singular word “dwelling” was to be construed in accordance with s.6 of the Interpretation Act 1978 to include the plural “dwellings”. But he pointed out that “.. this does not, of itself, get over the problem of the tenant being, as here, a tenant of something else in addition to the dwellings [namely the common parts]” Mr. Polli therefore submitted that the common parts were “appurtenances”. Judge Cooke rejected that argument for reasons which Mr Tanney has satisfied me, by reference to Altmann v Boatman [1983] EGD 494, were right. Judge Cooke’s reasoning did not therefore depend upon his acceptance of the first half of Mr. Polli’s submission, namely that “dwelling” is to be read as including “dwellings”. Judge Cooke’s reasoning in relation to the present case would be that the lease to Publicshield is of Flat 6 as well as 23 other flats and the common parts, therefore it is of a dwelling (in the singular) as well as other dwellings and other premises. 5

[10]Mr Tanney’s powerful and persuasive argument that Judge Cooke was wrong to accept that the Interpretation Act applied, does not therefore help him, although I think that he is right on this point. Judge Cooke did have his attention drawn to the decision of the Court of Appeal in Horford investments Ltd v Lambert

[1976] Ch 39

. In that case it was held that s.1 of the Rent Act 1968 which provides that “A tenancy under which a dwelling house (which may be a house or part of a house) is let as a separate dwelling is a protected tenancy for the purposes of this Act” could not be construed as including a dwelling house let as separate dwellings. Judge Cooke said of this and another case to which it is not necessary for me to refer:

“I think both authorities are more distant cousins than twins to this case. The overall policy of the Rent Acts is to give security of tenure to the occupant and not to anybody else. In the case of service charge provisions, the policy of the Rent [by which I think he meant the Housing] Act is undoubtedly to stop exploitation of residential tenants but (cf the Rent Acts where the occupier’s security need only be achieved by protecting him and nobody else) that object [of the Housing Act] does not have to be achieved by ignoring the practical problems that occur where there are chains of tenancies.”

[11]Judge Cooke did not have it drawn to his attention, as Mr Tanney has drawn to mine, that the definition “dwelling” in the Act of 1985, which falls to be construed, derives from s.104(1) of the Housing Finance Act 1972. The definition as it appeared in that Section of the 1972 Act, as can be seen from the citation of s.1 of the Rent Act 1968 did have its origins in the Rent Acts but in the 1972 Act it was applied equally to Parts IV and V of that Act, which amended the Rent Acts, and to s.90, which as Judge Cooke set out in paragraph 13 of his judgement took the first step to provide a regime which protected the residential tenant against overcharging for service charges. Section 90 required no more than the provision of information but s.124 of the Housing Act 1974 inserted s.91A into the Act of 1972. It is this Section which limited recoverable service charges by reference to reasonableness and compliance with requirements for consultation. Thus the provisions now contained separately in the Housing Act 1985, were first enacted to be part of an Act (that of 1972) which used a single definition of “dwelling” for both Rent Act and Housing Act purposes. If the Court of Appeal holds that the context of that definition excludes the singular from including the plural, then unless the contexts of the different parts of the 1972 Act lead to a difference of meaning in the one Act, I must conclude that Judge Cooke should have regarded himself as bound to reject that submission. As, on his reasoning it led nowhere, my reconsideration of the point is academic. Nevertheless, I set out my conclusions, because Mr Tanney addressed these arguments to me on the supposition, which only closer analysis shows to be mistaken, that Judge Cooke had based his on this construction of “dwelling”.

[12]Mr Tanney also drew my attention to the provisions of s.3 of the Act of 1985 which specifically requires notice of assignment of the reversion by the landlord “of premises which consist of or include a dwelling”. If a tenancy “of a dwelling” includes a tenancy of a dwelling together with other things, such specific provision is unnecessary. I can, however understand the desirability of spelling out fully the scope of a provision which gives rise to penal consequences under s.3(3). I do not think that it forces a construction of s.18, which would 6 have an effect which would be confiscatory of the mesne landlord’s right to be indemnified as to liability for costs incurred by his landlord, by reason not of his own unreasonable conduct but as a consequence of the unreasonable conduct of his superior landlord.

[13]Accordingly I would hold that the LVT answered the first question which it addressed, correctly. On that basis the suggestion that the paying undertenant should not be able to make an application against the superior landlord hardly bears examination. The mesne landlord, who merely passes on the liability to the superior landlord to be paid by the Tenant has no interest, as well as having knowledge only by procuring it from the superior landlord, to dispute the unreasonableness of the costs incurred. Clearly the superior landlord is, in such circumstances, the appropriate respondent to any application, although it might have been prudent to have joined Publicshield also, in order to make the LVT’s determination binding on them. This may, even now be possible.

[14]One therefore turns to s.27A to see whether there is anything in its wording which precludes an application by the person ultimately liable to pay the costs from seeking a determination as to their reasonableness and consequent recoverability, against the person who incurred them. As the LVT pointed out “the wording of section 27A does not include any restriction on who may apply to a LVT for a determination of service charges.” It provides that “An application may be made to a leasehold valuation tribunal”. Mr Tanney has therefore to submit that a restriction on the LVT’s jurisdiction arises by implication in order to exclude its determining an issue specifically within its jurisdiction between the persons most concerned. I see no basis for such implication. The interests of others who may be affected by the determination are protected by the rules to which I drew attention in paragraph 3 above. The risk of strangers to the issue seeking to invoke the LVT’s jurisdiction can be sufficiently protected against, by the LVT’s power to dismiss frivolous applications under Regulation 11 of the 2003 Procedure Regulations. I therefore hold that the LVT also answered the second question addressed to it correctly.

[15]The Respondent sought to uphold the LVT’s decision on an alternative ground, namely by reliance on

Article 8 of the Convention

Rights defined by s.1 of the Human Rights Act 1998. This is his right to respect for, particularly, his home. As the interpretation of the Act of 1985 for which the Freeholder contends does not prevent the Tenant from limiting the service charge which he has to pay to Publicshield to such sums as were reasonably incurred by the Freeholder, I can see no basis upon which this Article could be engaged, and do not therefore consider any further the impact of this Convention Right upon this case.

[16]Mr Tanney in furtherance of his duty to the Tribunal, having regard to the fact that the Tenant appeared in person, drew my attention also to Article 6, which might have had some relevance to the second question had the Freeholder’s argument had any basis, and to Article 1 of the First Protocol. This provides for the Protection of Property by providing that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions.”. Prima facie, it does appear to me that if Publicshield is deprived of its right to an indemnity in respect of what it has to pay the Freeholder in order to protect the Tenant against having to pay for costs unreasonably incurred by the Freeholder, this Article may well be engaged. In such case it may well be legitimate to invoke s.3 of the Act in order to interpret the Act of 1985 in a way which would be compatible with Publicshield’s Convention rights. On the construction of the 7 Act of 1985, at which I have arrived, the matter does not arise, and as I have not heard full argument I do not think it desirable to say more. It seemed to me however that, having had the benefit of Mr Tanney’s assistance on this aspect of the case, I should record my preliminary view, as well as my gratitude to him for his assistance, even if, on this point also, I am against him.

[17]Finally I record that at the end of the hearing it was agreed that neither party would have any application for costs on the limited grounds permitted under s.175(6) of the Act of 2002. Accordingly the order of the Tribunal will be to dismiss the appeal and the LVT will give further directions as to the continued hearing of the application. Dated 9 February 2006 His Honour Michael Rich QC 8