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The lease
The lease
The private residential leases are in a standard form. The example I was shown was of Flat 705 in Block 3, which was let by Fitzroy Place Residential Ltd to Shiu Yin Yu Vivien (referred to in the Lease as “the Tenant”) on 6 January 2016 for a term of 990 years from 1 January 2015 (the Lease). The affordable housing component of the Estate is comprised in a single headlease to Octavia which is materially different and is not the subject of this appeal.
The expression “Service Charge” is defined in clause 1.1 of the Lease as “the Tenant’s Proportion of the amount of the Service Costs for each Accounting Period in providing the Services”.
The relevant provisions of the Lease are found in Schedule 6. Part 1 of that schedule contains general provisions and the machinery for calculating, claiming, and accounting for the Service Charge including the determination of the Tenant’s Proportion. Part 2 concerns “Service Costs” and lists expenditure which may be included in those costs. Part 3 lists the Services which the second appellant (referred to in the Lease as “the Company”) has covenanted to provide in respect of different parts of the Estate, divided between Block Services, Estate Services and Car Park Services.
Payment of the Service Charge is provided for at paragraph 1.1 of Part 1 of Schedule 6, as follows:
“The Tenant shall pay to the Landlord a Service Charge… in accordance with the provisions of this Schedule 6…, the purpose of which is to enable the Landlord to recover from the Tenant the Tenant’s due proportion of all expenditure overheads and liabilities which the Landlord or the Company or any Superior Landlord may incur in and in connection with providing and/or supplying the Services and/or complying with their respective obligations in the Superior Lease, this Lease and/or under any legal obligation binding on any of the Superior Landlord, the Landlord and/or the Company with the intention that the Superior Landlord, the Landlord and/or the Company should be able to recover all of the Service Costs incurred.”
Paragraph 2 defines the expressions “Block Service Charge” and “Estate Service Charge” by reference to the cost of providing the Services listed under those headings in Part 3 of Schedule 6. As might be expected the former relates to the cost of providing services to the block which contains the subject flat and the latter is concerned with the cost of services provided to the Estate as a whole.
Paragraph 6 of Part 1 of Schedule 6 is the source of the dispute. It is headed “Tenant’s Proportion”, an expression previously defined as “a fair and reasonable proportion from time to time fairly attributable to the Premises as conclusively determined from time to time by the Surveyor in accordance with paragraph 6 of Part 1 of Schedule 6”. It provides as follows:
Tenant’s Proportion
The following provisions apply to the determination of the Tenant’s Proportion:
in respect of the Block Service Charge it is (subject to paragraph 9 of this Schedule) to be calculated primarily on a comparison for the time being of the net internal area (as defined by the Measuring Code) of the Premises with the aggregate net internal area of the Lettable Areas of the Block (excluding the net internal area of any management accommodation); and
in respect of the Estate Service Charge it is (subject to paragraph 9 of this Schedule) to be calculated primarily on a comparison for the time being of the net internal area (as defined in the Measuring Code) of the Premises with the aggregate net internal area of the Lettable Areas of the Estate from time to time.
The Landlord and/or the Company may in its or their respective discretion having regard to the nature of any expenditure or item of expenditure incurred, or the premises in the Block or the Estate as the case may be which benefit from it or otherwise, the Landlord, the Superior Landlord and/or the Company may in its discretion:
adopt such other method of calculation of the proportion of the expenditure to be attributed to the Premises as is fair and reasonable in the circumstances;
if it is appropriate:
attribute the whole of the expenditure to the Premises;
attribute a fair proportion of any expenditure to another person which has benefitted from the relevant service before attributing the remainder of the expenditure to those who would otherwise be liable; and/or
allocate the whole or part of any expenditure to a different head of expenditure than that to which it would ordinarily be allocated as is fair and reasonable and proper in the circumstances.
The Landlord and/or the Company shall be entitled by giving written notice to the Tenant to vary the Tenant’s Proportion from time to time as a consequence of any alteration or addition to the Block(s) or the Estate or any alteration in the arrangements for provision of services therein or any other relevant circumstances.
Any variation in the Tenant’s Proportion shall take effect from such date as the Landlord and/or Company may specify in such written notice having regard to the date of occurrence of the reason for such variation.
The expression “Lettable Areas” used in paragraph 6.1 is defined in clause 1.1 of the Lease as including both “the Apartments in the Blocks” and “the Commercial Buildings and all associated areas designated from time to time by the Landlord as being exclusively for the use of such premises”, as well as car parking spaces, the health centre and the education accommodation.
It will be seen that both limbs of paragraph 6.1 are expressed to be “(subject to paragraph 9 of this Schedule)”. Paragraph 9 contains a number of acknowledgements by the parties concerning the treatment of contributions to the cost of services which might be made in future by the occupiers of the affordable housing, the health centre, the education accommodation and other parts of the Estate not falling within either the main commercial or residential blocks. The effect of those acknowledgements is a little obscure, but nobody has suggested that they make any significant difference to the apportionment of liability.