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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Phillips & Ors v Francis & Anor [2012] EWHC 3650 (Ch) (21 December 2012) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2012/3650.html Cite as: [2013] 1 WLR 2343, [2013] WLR 2343, [2013] 1 EGLR 47, [2013] WLR(D) 7, [2013] 13 EG 76, [2013] L &TR 19, [2012] EWHC 3650 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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DENNIS PHILLIPS and ROYNA GODDARD (suing on behalf of themselves and other owners of 97 Holiday Chalets at Point Curlew, St Merryn, Padstow, Cornwall) |
Appellants |
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- and - |
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(1) MARTIN FRANCIS (2) REBEKAH KATHERINE FRANCIS |
Respondents |
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Jonathan Seitler QC and Jonathan Chew (instructed by Foot Anstey) for the Respondents
Hearing date: 11 December 2012
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Crown Copyright ©
The Chancellor :
(1)
"(5) That on the construction of Schedule 3 clause 8 of the leases:-
(i) the lessor is entitled to charge and recover the reasonable costs (net of VAT) of agents for the management of the estate.
(ii) recovery of such costs is not confined to a "management charge of five per centum (5%) of the total cost of the items referred to in this Schedule", and such 5% charge is therefore recoverable on all items of expenditure properly recoverable under Schedule 3 paragraphs 1 to 7."
(2)
"(10) Save for the items declared in paragraph 6 above to not be recoverable under the lease provisions in any event (removal and dispersal of earth banks; and construction of office/shop and launderette/staff buildings), no items for which service charge is claimed relating to expenditure in 2008 and 2009 amounts or amount, individually or cumulatively, to a single set of "qualifying works" for the purposes of sections 20 and 20ZA of the Landlord and Tenant Act 1985."
The judge refused permission to appeal.
"Pay to the Lessor by way of additional rent the service rent hereinafter defined in Clause 4 within fourteen days of written demand after the accounting date as hereinafter defined in each and every year of the term PROVIDED ALWAYS that the tenant shall pay to the Lessor on each of the accounting dates in every year during the term such sum or sums as the Lessor may reasonably require on account of the said service charge and any such payment to be credited to the tenant against payment of the services as certified to be due from it (as hereinafter provided) by the certificate issued next after the making of such demand and in default of such payment by the Lessee…"
"To carry out and provide the services as set out and numbered 1-7 in Schedule 3 hereto unless prevented from so doing by
(i) act of God
(ii) force majeure
(iii) strikes lock-outs or trade disputes
(iv) civil commotion"
"The service rent hereinbefore covenanted to be paid by the Lessee shall be a fair and equitable proportion determined from time to time by the Lessor and such sum shall be ascertained by a certificate given by the Lessor or its managing agents and certified by them to be the aggregate of the sums actually expended on the liabilities incurred by the Lessor in any period ending on the thirty first day of December or such other date as the Lessor may in its discretion determine (hereinafter called "the accounting date") during the term hereby created in connection with the management and maintenance of the Estate and the provisions of such services as herein described and in particular without limiting the generality of the foregoing shall include the cost of the matters referred to in the Schedule 3 hereto."
"(iii) As soon as practicable after the accounting date in each year throughout the term the Lessor will submit to the Lessee a statement certified by the Lessor's agent to show the computation of the said sums expended and the liabilities incurred (hereinafter called "the annual service cost") for the preceding year and the Lessee shall be entitled within fourteen days of receipt of such statement to inspect the vouchers and receipts of all items included in such statement."
"SCHEDULE 3
1. To pay all rates and other charges upon the Estate or any part thereof other than those properties specifically demised to third parties.
2. The erection and maintenance of suitable notice boards on the Estate.
3. The maintenance operation and cleaning of soil and drainage pipes and other conducting media conduits and channels and pumps in relation thereto.
4. The provision and maintenance of fire fighting equipment.
5. The cutting and mowing of grass lopping pruning and felling of trees on the Estate.
6. Management of the Estate and its appurtenances including where applicable the charges wages pensions contributions insurance and provision of uniforms and working clothes of any staff employed by the Lessee and the provision of telephones (if any) and also the cost of providing tools appliances cleaning and other materials bins receptacles together with any amounts of fees paid to architects agents surveyors and solicitors employed by the Lessor in regard to the management of the Estate.
7. Repairing renewing rebuilding decorating cleaning and maintaining those parts of the Estate (which include an amenity centre if any) used in common with other lessees including without prejudice to the generality of the foregoing the footpaths roadways and car park on the Estate.
8. A management charge of five per centum (5%) of the total cost of the items referred to in this Schedule."
"152. Further, [counsel for the Lessors] submitted that the Claimants' submission that the recovery of any such costs is wholly limited and confined to the paragraph 8 "management charge of...5% of the total cost of the items referred to in this Schedule" is simply an untenable reading of Schedule 3. Paragraph 6 could not be clearer. Paragraph 8 is a "management charge of 5% of the total cost of the items referred to in this Schedule", and so is on top of the items referred to in e.g. paragraph 6.
153. I accept [counsel for the Lessors] argument as correct and in my judgment [counsel for the Lessees] submission cannot be correct given the clear and extensive wording of paragraph 6, one of the very paragraphs of services expenditure in Schedule 3 to which the 5% in clause 8 is expressed to be applied.
154. This paragraph authorises not just the employment of "staff", but also a wide range of professionals and "agents" for the "management of the Estate". So costs and charges can be incurred and recovered under this provision whether someone is an employed member of staff, or a self-employed or external professional or agent; of the specific types stated or the general category of "agent".
155. On the plain wording, the Defendants can instruct an "agent" for "the management of the estate", and recover the cost under that provision.
156. As I have set out [counsel for the Lessors] relied in part on the fact that the old company paid the managing director Mr. Drummond a substantial salary and provided him with a flat. However, I do not take into account past conduct; the terms of the lease are plain and simple. The 5% recoverable in clause 8 does not in someway negate the clear content of paragraph 6. In my judgment 5% is recoverable on all of the items of expenditure of themselves properly recoverable, in Schedule 3 paragraphs 1 to 7."
"sums actually expended on the liabilities incurred by the Lessor…in connection with the management and maintenance of the Estate…including the cost of the matters referred to in the Schedule 3 hereto".
Though Schedule 3 is referred to generally, in its context, it must be limited to paragraphs 1 – 7 in Schedule 3 because paragraph 8 does not identify any additional obligation or liability of the Lessors.
"In section 20 and this section—
"qualifying works" means works on a building or any other premises, …"
Subsection (4) defines "consultation requirements" as the requirements prescribed by regulations made by the Secretary of State.
"20. Limitation of service charges: consultation requirements
(1) Where this section applies to any qualifying works…, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either —
(a) complied with in relation to the works…, or
(b) dispensed with in relation to the works … by (or on appeal from) a leasehold valuation tribunal.
(2) In this section "relevant contribution", in relation to a tenant and any works…, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works….
(3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.
[(4)..]
(5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an 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 determined in accordance with, the regulations.
(6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works…which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount.
(7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined."
"For the purposes of subsection (3) of section 20 the appropriate amount is an amount which results in the relevant contribution of any tenant being more than £250."
Regulation 7(4) prescribes the relevant consultation requirements in this case to be those specified in Part 2 of Schedule 4.
"1. - (1) The landlord shall give notice in writing of his intention to carry out qualifying works -
(a) to each tenant; and
(b) where a recognised tenants' association represents some or all of the tenants, to the association.
(2) The notice shall -
(a) describe, in general terms, the works proposed to be carried out or specify the place and hours at which a description of the proposed works may be inspected;
(b) state the landlord's reasons for considering it necessary to carry out the proposed works;
(c) invite the making, in writing, of observations in relation to the proposed works; and
(d) specify -
(i) the address to which such observations may be sent;
(ii) that they must be delivered within the relevant period; and
(iii) the date on which the relevant period ends.
(3) The notice shall also invite each tenant and the association (if any) to propose, within the relevant period, the name of a person from whom the landlord should try to obtain an estimate for the carrying out of the proposed works."
"In my judgment a commonsense approach to construction needs to be taken and in view of the fact that it acts as a trigger for the protection afforded by consultation. If the threshold were too low and all minor or non permanent works covered the result would be commercially unmanageable to the detriment of both lessor and lessee. The phrase building works is used to describe significant works with a permanent effect by way of modification of what was there before. Whether works are indeed qualifying works, is a question of fact having regard to the nature and extent of the works in question."
"[Counsel for the Lessees] submitted that if works are on their face qualifying works the next issue is whether they represent one set of Qualifying Works for the application of what is sometimes called the "triviality threshold". He submitted that landlords often seek to "double dip" by arguing that various individual elements of work are each separate "Qualifying Works" so the triviality threshold above which consultation is required is not triggered, which obviously erodes the consultation requirements. He referred to Martin v Maryland Estates [1999] 2 EGLR 53 in which Robert Walker LJ concluded:
(a) A commonsense approach was necessary as Parliament has not made it clear how to make a division, if at all, between works being undertaken.
(b) Extreme fragmentation of works in a major scheme of development "plainly would be absurd".
(c) The fact all the works were covered by one contract is not a decisive factor.
(d) The legislative purpose of the limit on recovery in the absence of consultation is to provide a triviality threshold rather than to build into every contract a margin of error."
I shall refer to the judgment of Walker LJ in Martin v Maryland Estates greater detail later; for present purposes it is sufficient to note that it was given by reference to the 1985 Act before amendment.
"347. In my judgment as, with the issue referred to [by counsel for the Lessees] it appears to me that the question of aggregation is a question of fact on the circumstances of each individual case.
348. Taking the steps together the task in the present case is to identify whether there are any particular items or tasks within the overall year's expenditure which constitute "qualifying works", and if so what they are. Secondly, it is necessary to consider whether such works constitute one or more sets of qualifying works. Thirdly, the triviality threshold must be applied to any relevant set of qualifying works. In the present case the sum of £250 per tenant produces figures of £41,000 (2008) or £41,500 (2009) as a limit to the cost of those works, before they become subject to any consultation requirement."
"357. It was the Defendant's vision that the site should be the subject of an extensive upgrading exercise. As progression of this there have been certain specific defined and separate programmes of work, such as to the banks and, as proposed, to the amenity centre and also range of very different tranches/pieces of work to different parts of the site undertaken at different times and as the need or idea arose. I cannot accept, as a matter of fact that they were ever one scheme, or could properly ever be viewed objectively using a commonsense test as such. It is to be remembered that the aim is protection through consultation. That requires a clearly identified set of works which can be set out and considered. Apart from certain aspects of the work, which were in fact mentioned in advance, I find as fact that Mr and Mrs Francis did not themselves ever plan or in any way tie all the disparate pieces of work together. It was not until the beginning of 2009 that there was any structure to the planning of the revision of the site, that being to the extent referred to at paragraph 237 above.
358. Having heard Mr Francis and considered the nature of the works I was never at any stage attracted to [counsel for the Lessees]' primary submission. It was simply not the way that Mr Francis operated. Although [counsel for the Lessees] said that he relied upon what they said in evidence, neither Mr nor Mrs Francis gave evidence that it was a single set of works. The only acceptance of any coordinated approach was in 2009. Before that and contrary to [counsel]'s submission it was Mr Francis' evidence that, in effect, "one job creates another"."
The judge then considered the oral evidence as to specific works and identified certain works as qualifying works leaving others to fall under the costs threshold.
(1) which of the works fell within the definition of 'qualifying works' contained in s.20ZA(2)?
(2) Did those works constitute one or more 'sets of qualifying works'?
(3) Did any of those sets fall below the triviality threshold set by the limit on the cost of those works?
I accept that the first of those questions is correct. If the works do not fall within the statutory definition then there is no statutory limit on their recoverability. But the second and third questions are not reflected in the terms of the 1985 Act.
"Finally, there is a short but not an easy point of construction as to the £1,000 limit under section 20(3) as amended. The judge held at the end of his judgment:
"The service charge bill was presented as a whole, as a complete bill in relation to all the works. Thus the excess relates to the cost above £1,000 and does not arise for separate consideration in relation to the additional works."
In other words, the £1,000 was a limit covering the entire works carried out between 21 March and late May 1995, and was not separately available for the additional works."
"I readily agree that a common-sense approach is appropriate and necessary upon this point. I would also agree, if such were Mr Lewison's submission, that parliament has not made it entirely clear how one batch of qualifying works is to be divided from another. The definition of "qualifying works" indicates what their quality is but not how one batch is to be divided from another.
It seems to me, on what is I hope is a common-sense approach, that it is significant that the surveyor and the builder evidently regarded the additional work as a variation of the original contract. The judge himself found that some of the "Variation Order No 1" works were in fact covered by the original section 20 notice.
Mr Lewison submitted that the judge's approach on this point was inconsistent. He suggested that if the further works were seen as part of the original batch of works, then the case was truly one of non-compliance with section 20 as regards the entirety of the works, which was not how the judge had seen it. If, on the other hand, the further works were regarded as a new batch, then there was complete non-compliance with section 20 as regards that new batch, but a further £1,000 limit should be available. That is a subtle argument, but I am not persuaded by it.
It seems to me that since parliament has not attempted to spell out any precise test, a common-sense approach is necessary. The judge was influenced by the fact that all the works were covered by one contract. That would not, to my mind, always be a decisive factor, but, on the particular facts of this case, that was the right approach. The legislative purpose of the limit is to provide a triviality threshold rather than to build into every contract a margin of error, which may in some cases, including this case, simply duplicate a contingency sum that has already been provided for."