[2023] UKUT 243 (LC)

Dr Braganza’s lease (or rather, his underlease, as it was granted out of a headlease) is in the standard form used for all 50 flats on the development. I understand that the leases of the 29 houses on the development are slightly different (in particular, whereas Riverside is responsible for maintaining the structure of the blocks of flats, the individual leaseholders of the houses are responsible for their own repairs and maintenance).

In the Particulars which appear at the start of the lease the whole of St Georges Place II, including both flats and houses, is referred to as “the Development”. Among the obligations assumed by the landlord is a covenant to maintain the buildings in the Development, except to the extent that one of the leaseholders is liable to do so. The effect of that exception is that Riverside is not required to incur expenditure on repairing the structure of the houses, which are the responsibility of their own leaseholders.

The leaseholder covenants to pay a service charge calculated in accordance with clause 7 of the lease, which begins with a number of definitions. The “Service Charge” is a sum of money equal to “the Specified Proportion of the Service Provision” (clause 7(1)(d)).

So far as relevant, the “Service Provision” is an annual sum comprising the expenditure estimated by the landlord’s surveyor as likely to be incurred in the provision of services for the Development in the forthcoming account year, plus a contribution towards a cyclical repair fund (clause 7(5)).

The “Specified Proportion” means “the proportion specified in the Particulars as amended from time to time under sub-clause 7(7) hereof”.

The definitions in clause 7(1) might cause the reader to expect that the Specified Proportion would be expressed as a proportion or percentage which would be applied every year to the Service Provision in order to ascertain the Service Charge. That is how I assume the drafter of the lease intended the arrangement to operate. But the “Specified Proportion of Service Provision” defined in the Particulars at the start of the lease is not a percentage at all, but rather is a sum of money, £35.68 per month.

The Landlord’s Surveyor (who must be professionally qualified, but who may be an employee of the Landlord) is given power to amend the Specified Proportion. In clause 7(1) the relevant power is said to be in clause 7(7), but in fact it is in clause 7(8) (clause 7(7) is about certifying annual expenditure). The power to change the Specified Proportion is in these terms:

“(a)

If in the reasonable opinion of the Surveyor it shall at any time become necessary or equitable to do so he may increase or decrease the Specified Proportion

(b)

The Specified Proportion increased or decreased in accordance with sub-clause 7(7) hereof shall be endorsed on this Underlease and shall be substituted for the Specified Proportion set out in the Particulars of this Underlease.”

Clause 7(8) confirms the impression that the lease was drafted in the expectation that the Specified Proportion would be a proportion or percentage rather than a quantified sum of money. But, whether consciously or inadvertently, the original parties adopted a different approach when they completed the Particulars and executed the lease. Rather than agreeing a percentage which would be applied to all of the Service Provision to arrive at the Service Charge, and which would be variable by the Surveyor only if it became “necessary or equitable to do so”, they agreed that the Specified Proportion would be £35.68 per month, a sum which must have related to the Service Provision in the year the lease was granted. Since it was unlikely that exactly the same expenditure would be incurred in the following year, this approach effectively guaranteed that the Specified Proportion would have to be amended each year. As a result, the role of the Riverside’s Surveyor is rather different from what might have been anticipated by the original drafter of the lease; rather than being called upon infrequently, perhaps because of some change of circumstances, the Surveyor is required to determine a new Specified Proportion every year. That Specified Proportion is, in effect, the Service Charge itself.

Under the draft lease, before the Particulars were filled in and the document was executed, a single proportion would have been applied to the whole of the Service Provision to arrive at the Service Charge. As between the leasehold flats and the leasehold houses different proportions might have been agreed to reflect the different obligations, but that single relevant proportion would then have been applied to the same expenditure in each case. But in the lease as agreed and executed the Specified Proportion for the first year was the Service Charge for that year and in each subsequent year the Specified Proportion determined by the Surveyor becomes the Service Charge. The Surveyor is given no guidance on how the Specified Proportion should be calculated.

The approach adopted by the Surveyor in practice, apparently for at least the last 13 years, has been to apportion the various heads of expenditure incurred by Riverside between the leaseholders of the flats and the houses in the Development having regard to whether they derive any benefit from that expenditure. Thus, the cost of insurance is apportioned to all 79 properties, since all benefit from the cover obtained by Riverside; so too is the cost of management. But only the flat owners contribute to the cost of cleaning the common parts, carpets and windows of the buildings containing the flats.

Although the parties appear not to have followed the scheme for which the template they were using was originally designed, it is of course the form of lease which they executed which determines their rights and obligations, and not the incomplete draft.