[2024] UKUT 193 (LC)

Fecha: 11-Jul-2024

The terms of the leases and the FTT’s decision

The terms of the leases and the FTT’s decision

15.

So the appeal is from the FTT’s determination that the terms of the lease do not allow the landlord to recover the cost of the work as part of the service charge, and it is therefore about the construction of the respondents’ leases.

16.

They all contain covenants by the landlord as follows:

“(5)

Subject to and conditional upon payment being made by the Lessee of the Interim Charge and the Service Charge at the times and in the manner hereinbefore provided:-

(a)

To maintain and keep in good and substantial repair and condition:

(i)

The main structure of the Building including the principal internal timbers and the exterior walls and the foundations and the roof thereof with its main water tanks main drains gutters and rain water pipes (other than those included in this demise or in the demise of any other flat in the Building)

…

(j)

(ii)

To employ direct or enter into contracts with all such surveyors builders architects engineers tradesmen accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building…

…

(o)

Without prejudice to the foregoing to do or cause to be done all such works installations acts matters and things as in the absolute discretion of the Lessors may be considered necessary or advisable for the proper management maintenance safety amenity or administration of the Building

17.

They all contain a covenant by the lessee to “pay the Interim Charge and the Service Charge at the times and in the manner provided in the Fifth Schedule hereto”. The Fifth Schedule is as follows in all the leases except that only the leases of 7 Malting House and 44 Brewster House (the two earliest of the nine leases, granted in 1989 and 1990) contain the words in italics:

“THE FIFTH SCHEDULE

The Service Charge

In this Schedule the following expressions have the following meanings respectively:-

(1)

“Total Expenditure” means the total expenditure incurred by the Lessors in any Accounting Period in carrying out their obligations under Clause 5(5) of this Lease less sums expended from the monies set aside under Clause 5(5)(p) of this Lease and save such repairs as amount to the making good of structural defects other than structural defects already notified to the Lessee and which are specified in the Sixth Schedule hereto or of which the Lessor does not become aware earlier than 5 years from the date of this Lease and a reasonable proportion of the cost of insuring against risks involving such repairs not amounting to structural defects (except for structural defects notified as aforesaid) of which the Lessor does not become aware earlier than 5 years from the date of this Lease and also of insuring against the making good of structural defects and any other costs and expenses reasonably and properly incurred in connection with the Building …

(2)

“the Service Charge” means such reasonable proportion of Total Expenditure as is attributable to the Demised Premises …”

18.

The two leases that contain the italicised proviso also contain a Sixth Schedule, and it is blank. The lease of 17 Malting House also contains a blank Sixth Schedule, but there is no reference to that Schedule elsewhere in the lease.

19.

Before the FTT the appellant argued that the cost of the proposed works was payable as part of the service charge either because they amounted to maintenance under clause 5(5)(a), or because they fell within the landlord’s obligations under clause 5(5)(o), or because they fell within the definition of “Total Expenditure” in the Fifth Schedule.

20.

The FTT recorded the parties’ agreement that “the proposed works do not involve repair in that they are not aimed, either in whole or in part, at remedying a deterioration in the buildings from some previous physical condition (Quick v Taff-Ely Borough Council [1986] QB 809 and Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055)”.

21.

Turning to clause 5(5)(a), the FTT explained that the appellant relied upon the obligation to “maintain”. It discussed the cases cited by the respondents (which we shall have to look at again in the argument in the appeal so I will not set them out here); it noted the appellant’s reliance on the Tribunal’s decision in Assethold Limited v Watts [2014] UKUT 537 but disagreed with Mr Bates’ reading of the decision. It concluded:

“Remedying a major structural defect absent of some degree of physical damage or deterioration does not come within the term. Clause 5(5)(j) does not expand on the Respondent’s obligations to maintain or repair rather than simply permitting the employment of suitable professionals in support of those obligations.”

22.

As to clause 5(5)(o) the FTT said:

“36.

Clause 5(5)(o) of the lease is what is commonly known as a “sweeper” clause in that it aims to “sweep up” or include management functions not expressly addressed in other clauses. Of course, giving a clause such a label does not define its meaning or extent. Interpreting a contractual term requires ascertaining the objective meaning of the language in the context of the contract as a whole: Wood v Capita Insurance Services Ltd [2017] UKSC 24.”

23.

Nevertheless the FTT was wary of a literal construction of the clause because, taken literally, it was hard to see what it could not cover. The FTT devoted some paragraphs to a discussion of the provisions of the Housing Act 1985 in their original form, in view of the echo of those provisions in the two earliest of the respondents’ leases (see paragraph 17 above). It said that the policy of those provisions was that if landlords wanted to pass on to the lessee the costs of making good structural defects, they had to provide notice of those defects. It concluded:

“46.

… It would be entirely contrary to the purposes of the statutory right to buy scheme if such works could be caught within a sweeper clause rather than being addressed expressly and specifically.

47.

Even looking at the words of the lease as a whole in isolation from the

statutory scheme and its purposes, it is clear that clause 5(5)(o) is not

intended for works so extensive that the costs would vastly exceed those

likely in any category expressly mentioned.”

24.

For the same reasons the FTT found that the definition of Total Expenditure in the Fifth Schedule did not enable the appellant to charge for the work. “It is a definitional section and is not intended to provide for liabilities found nowhere else in the lease.”

25.

Accordingly the FTT found that the cost of the work could not be charged to the service charge under any provision of the respondents’ leases.

26.

On appeal the appellant maintains that the cost of the works is chargeable under those same provisions, and it is convenient to look at the arguments about each provision in turn. Before I do so I should like to clear away two red herrings, by which I mean issues that at first glance might appear significant but are in fact irrelevant.