[2023] UKUT 137 (LC)

The management order of 15 August 2016 (the Order) is a poorly drafted document, repetitious, grammatically incoherent and peppered with second thoughts and qualifications. It has been amended from time to time and the version I was shown is dated 12 April 2019, but I was told that the key provisions for this appeal have remained unaltered.

The original manager was appointed by the FTT at the request of a group of residential tenants because of breaches by the landlords of their obligations under the leases of residential units on the estate. In a decision of 5 August 2016 the FTT explained that it was satisfied that the landlords had failed to provide copies of service charge accounts, had misallocated funds, had failed to provide access to accounting records, had not followed the RICS Code of Practice on Residential Service Charge Management, had not provided service charge credits in a timely manner, had no planned maintenance programme or adequate reserve fund, had mismanaged the maintenance of service installations, had failed to keep the common parts in a condition appropriate to a high class residential estate, and had acted through managing agents who employed too few staff and had insufficient experience.

The manager was appointed principally to manage the provision of services to the residential parts of the estate and the FTT did not require him to be responsible for the commercial premises (which include a hotel, restaurants, a health club and retail units). Those areas remained largely under the control of the landlords. But the supply of electricity and the other utilities to the estate is through service installations which serve both the commercial and the residential parts. The FTT put the manager in charge of those shared services and authorised him to collect services charges from the commercial tenants as their contribution towards the cost.

The Order contained the terms on which the manager would discharge his responsibilities for five years (subsequently extended and now the subject of an application to the FTT for renewal). It must be interpreted with that purpose in mind and against the background of the many years of dispute between the landlords and the residential tenants of the estate which preceded it.

The Order is in four parts, beginning with recitals and definitions, then substantive terms appointing the manager and giving him certain powers and requiring certain steps to be taken by the landlords, a schedule of “functions and services”, and finally an annex listing 15 commercial tenants. In the main body of the Order clause 1 appointed Mr Coates to fulfil the functions of manager of the residential leasehold properties and common parts and any “Shared Services”, an expression defined as including conduits and service media on the estate which benefit two or more residential units, or which benefit both commercial and residential tenants.

Clause 4 then conferred on the manager “all such powers and rights as may be necessary and convenient in accordance with the Leases to carry out the management functions of the Landlord under the Leases” (meaning only the residential leases). After the words “and in particular” 14 sub-clauses then listed specific powers which the manager was to have. These included, at clause 4(a), the power to receive all service charges payable under the residential leases and under the commercial leases where they are required to contribute to the cost of Shared Services.

The expression “Service Charges” is defined in paragraph (n) in the preamble to the Order as meaning:

“the service charges paid by the residential occupiers; the shared service charges payable in relation to the Shared Services, including the reserve fund collections in relation to both the residential units and the Shared Services …”

The power to collect service charges is matched, at clause 4(e), by the power and duty to carry out the obligations of the Landlords contained in the residential and commercial leases in relation to Shared Services.

It was explained to me that, in practice, the services are divided into residential services which are paid for only by the residential tenants, and estate services, to which both residential and commercial tenants contribute in the proportion 72 to 28. The Shared Services are part of the estate services.

Clause 4(g) authorised the appointment of solicitors and other professionals to assist the manager in the performance of his functions.

Clauses 4(i), (j) and (k) then conferred on the manager a general power to conduct litigation and ancillary rights, as follows:

“(i)

The power in his own name, …, to bring, defend or continue any legal action or other legal proceedings (other than those in connection with any requests for licences or other permissions …), in connection with:

(i)

This Management Order;

(ii)

The Leases;

(iii)

The Commercial Leases and/or

(iv)

Any Occupational Agreement,

in relation to any services shared by the foregoing with the Lessees.”

(j)

The Manager shall be entitled to an indemnity for his own costs reasonably incurred and for any adverse costs order out of the service charge account;

(k)

In the event that the Landlord or Lessees shall be in breach of their covenants in the Leases, or, in the case of the Commercial Leases or Occupational Agreements, in breach of their covenants in relation to any Shared Service Charges or services shared with the Lessees and/or their obligations as provided in the Management Order, the Manager shall be entitled to recover from the Landlord or any such Lessee, Commercial Tenant or other occupier on a full indemnity basis any costs, fees, charges, expenses and/or disbursements reasonably incurred or occasioned by him in the appointment of any solicitors, counsel, surveyors or any other professional reasonably retained by the Manager for the purposes of enforcing such covenants or obligations whether or not the manager brings any proceedings in court or before any tribunal.

PROVIDED THAT in default of recovery of the same from the Landlord, Lessee, Commercial Tenant or other occupier in breach of the covenants in the Lease, or, in the case of the Commercial Leases and/or any other Occupational Agreement, in relation to services shared with the Lessees and/or obligations as provide in this Management Order, the Manager shall be entitled to recover the same through the service charges”

By clause 18 the manager was given the right to apply to the FTT for further directions in accordance with section 24(4) of the 1987 Act. These proceedings are one of a number of examples of the manager exercising that right.

The Order required the manager to manage “the Premises” (an expression meaning the whole Canary Riverside estate) in accordance with the directions of the FTT, the schedule of functions and services forming part of the Order, the obligations of all parties under the residential leases and “under the Commercial Leases … where services are shared …”, and the RICS Code (clause 5).

The schedule of functions and services ran originally to 34 paragraphs (more were added later). Paragraphs 20 to 26 concern the manager’s remuneration. Paragraph 27 then deals with the reimbursement of litigation costs, as follows:

“The Manager is entitled to be reimbursed in respect of reasonable costs, disbursements and expenses (including for the avoidance of doubt, the fees of Counsel, solicitors and expert witnesses) of and incidental to any application or proceedings (including these proceedings) whether in Court or First-tier Tribunal, to enforce the terms of the Leases, the Commercial Leases and/or any Occupational Agreement of the Premises. For the avoidance of doubt, the manager is directed to use reasonable efforts to recover any such costs etc directly from the party concerned in the first instance and will only be entitled to recover the same as part of the service charges in default of recovery thereof.”

It can be seen that paragraph 27 of the schedule of functions and services covers much the same subject matter as clauses 4(j) and (k) in the main body of the Order. Nothing in the Order explains the intended relationship between the different provisions nor what is to be done in the event of any inconsistency between them, but as far as possible a sensible meaning must be found for them all.