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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> BDW Trading Ltd & Anor v South Anglia Housing Ltd  EWHC 2169 (Ch) (15 July 2013)
Cite as:  3 EGLR 139,  WLR 920,  1 WLR 920,  L &TR 25,  30 EG 78,  HLR 2,  EWHC 2169 (Ch)
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B e f o r e :
(sitting as a deputy judge)
| (1) BDW Trading Limited
(2) Comet Square Phase 2 Block Management Co Ltd
|South Anglia Housing Ltd
Mr. Ranjit Bhose Q.C., instructed by Devonshires, appeared for the defendant.
Hearing date: 21st June 2013
Crown Copyright ©
"2. The Development was constructed by the First Claimant.
3. The Development comprises of a mixed use estate. There are 4 residential blocks on the Development. The structure of ownership of each block is set out in paragraphs 5 to 16 of the Claimants' Details of Claim and can be summarised as follows:
a) The freehold title to Blocks 1-3 is held by a company known as Frontier Key (Hatfield) Limited; it was formerly held by the First Claimant.
b) The freehold interest in Block 4 is held by the First Claimant.
c) Each of Blocks 1, 2 and 3 are held on a long lease granted to the First Claimant, these were granted by way of a leaseback on the sole of the freehold to Frontier Key (Hatfield) Limited.
d) There are 79 long underleases of the flats in Block 1 granted by the First Claimant and to which the Second Claimant is a party.
e) Each of Blocks 2 and 3 are held on an underlease granted to the Defendant and the Second Claimant is a party to each lease.
f) In Block 2 there are 31 long sub-underleases with the remaining flats held on assured shorthold tenancies.
g) In Block 3 there is 1 long sub-underlease with the remaining flats held on assured shorthold tenancies.
h) In Block 4 there are 92 long leases granted by the First Claimant and to which the Second Claimant is a party.
4. The material agreement that is the subject of the claim is dated the 20 June 2005 ("the Agreement"). The parties to the Agreement are the First Claimant and Utilicom Ltd (now known as Colley-GFF Suez). The term of the Agreement is 25yrs. Under the Agreement Utilicom agree to provide hot water (for space heating and domestic water services) and electricity to each of the residential flats on the Development and the First Claimant agrees to pay a monthly charge. It is a term of the Agreement that throughout the 25yrs Utilicom will be the sole supplier of heat and power.
5. Under the terms of the underleases of Blocks 1-4 and the sub-underleases of Blocks 2 and 3, the lessees (which include the Defendant) agree to pay a proportion of the cost of providing and maintaining the plant for the supply of the heat and power to the flats and the cost of the domestic electricity, hot water and central heating consumed at the flat (that is the subject of the lease) with all associated costs. Where the Second Claimant is a party to a lease it is that company that covenants to provide and maintain the plant for the supply of energy and to provide the energy itself, and to those circumstances the costs payable by the lessee are to be paid to the Second Claimant (should the Second Claimant fall into liquidation then the First Claimant covenants to provide the services). Where the Second Claimant is not a party to a lease (e.g. in the case of the sub-underleases of Blocks 2 and 3) the Defendant covenants to procure the same services from the Second Claimant and the costs are payable to the Defendant. Each of the Defendant's assured shorthold tenants pays a service charge and a heating charge to the Defendant. It is said by the de that these charges reflect the benefit the tenant receives from the services provided under the Agreement.
6. In order that the Second Claimant can comply with its covenants, it purchases from the First Claimant (at cost) the energy supplied by Utilicom under the Agreement. There is no written documentation recording this arrangement.
7. The costs chargeable under the Agreement are invoiced to the First Claimant. In turn, the First Claimant invoices the managing agent for the Development (Ian Gibbs Estate Management) who in turn invoices the lessees.
8. At the time the Agreement was entered into there were no lessees of Blocks 1- 4 and so agreements for a lease of those blocks or any of the flats in them." (my emphasis)
18 Meaning of "service charge" and "relevant costs"(1) In the following provisions of this Act "service-charge" means an amount payable by a tenant of a [dwelling] as part of or in addition to the rent -(a) which is payable, directly or indirectly, for services, repairs, maintenance[, improvements] or insurance or the landlord's costs of management; and(b) the whole or part of which varies or may vary according to the relevant costs.(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.
(3) For this purpose -(a) "costs" includes overheads, and(b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period.
19 Limitation of service charges: reasonableness(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period -(a) only to the extent that they are reasonably incurred, and(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;and the amount payable shall be limited accordingly.(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequently charges or otherwise. ...
20 Limitation of services charges: consultation requirements(1) Where this section applies to any qualifying works or qualifying long term agreement, 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 agreement; or(b) dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal.(2) In this action "relevant contribution", in relation to a tenant and any works or agreement, 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 or under the agreement.(3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.(4) The Secretary of State may by regulations provide that this section applies to a qualifying long term agreement -(a) if relevant costs incurred under the agreement exceed any appropriate amount; or(b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount.(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 or under the agreement which may be taken into account in determining the relevant contribution 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.]20ZA Consultation requirements: supplementary(1) Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.
(2) In section 20 and this section -"qualifying works" means works on a building or any other premises, and "qualifying long term agreement" means (subject to subsection (3)) an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months.(3) The Secretary of State may be regulation provide that an agreement is not a qualifying long term agreement -(a) if it is an agreement of a description prescribed by the regulations or(b) in any circumstances so prescribed.(4) In section 20 and this section ("the consultation requirements" means requirements prescribed by regulations made by Secretary of State.(5) Regulations under subsection (4) may in particular include provision requiring the landlord -(a) to provide details of proposed works or agreements to tenants or the recognised tenants' association representing them,(b) to obtain estimates for proposed works or agreements,(c) to invite tenants or the recognised tenants' association to propose the names of persons from whom the landlord should try to obtain other estimates,(d) to have regard to observations made by tenants or the recognised tenants' association in relation to proposed works or agreements and estimates, and(e) to give reasons in prescribed circumstances for carrying out works or entering into agreements.(6) Regulations under section 20 or this section -(a) may make provisions generally or only in relation to specific cases and(b) may make different provision for different purposes.(7) Regulations under section 20 or this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament....
30 Meaning of "flat", "landlord" and "tenant"In the provisions of this Act relating to service charges -"landlord" includes any person who has a right to enforce payment of a services charge;"tenant" includes -(a) a summary tenant, and(b) where the [dwelling] or part of it is sub-let, the sub-tenant ......
36 meaning of "lease" and "tenancy" and related expressions(1) In this Act "lease" and "tenancy" have the same meaning.(2) Both expressions include -(a) a sub-lease or sub-tenancy; and(b) an agreement for a lease or tenancy for (or sub-lease or sub-tenancy).(3) The expressions "lessor" and "lessee" and "landlord" and "tenant", and references to letting, to the grant of a lease or to covenants or terms, shall be construed accordingly...."
"The First Secretary of State, in exercise of the powers conferred by sections 20(4) and (5) and 20ZA(3) to (6) of the Landlord and Tenant Act 1985(a) hereby makes the following Regulations:
Citation, commencement and application1. - (1) These regulations may be cited as the Service Charges (Consultation Requirements) (England) Regulations 2003 and shall come into force on 31st October 2003.
(2) These Regulations apply in relation to England only.
(3) These Regulations apply where a landlord -(a) intends to enter into a qualifying long term agreement in which section 20 of the Landlord and Tenant Act 1985 applies (b) on or after the date on which these Regulations come into force; or(b) intends to carry out qualifying works to which that section (c) applies on or after that date.
2. - (1) In these Regulations -"the 1985 Act" means the Landlord and Tenant Act 1985;
Agreements that are not qualifying long term agreements
3. - (1) An agreement is not a qualifying long term agreement (i) and -(a) it if is a contract of employment; or(b) if it is a management agreement made by a local housing authority (j) and -(i) a tenant management organisation; or(ii) a body established under section 2 of the Local Government Act 2000 (k);(c) if the parties to the agreement are -(i) a holding company and one or more of its subsidiaries; or(ii) two or more subsidiaries of the same holding company;(d) if -(i) when the agreement is entered into, there are no tenants of the building or other premises to which the agreement relates; and(ii) the agreement is for a term not exceeding five years.
(2) An agreement entered into, by or on behalf of the landlord or a superior landlord -(a) before the coming into force of these Regulations; and(b) for a term of more than twelve months,
is not a qualifying long term agreement, notwithstanding that more than twelve months of the term remain unexpired on the coming into force of these Regulations. ...
Application of section 20 to qualifying long term agreements
4. - (1) Section 20 shall apply to a qualifying long term agreement if relevant costs(s) incurred under the agreement in any accounting period exceed an amount which results in the relevant contribution of any tenant, in respect of that period, being more than £100.
"41. Next Ms. Holland says that if the state management deed is held to be a qualifying long term agreement that would produce an unworkable result. The unworkability (if that is a word) of the result is said to stem from the difficulty of applying the consultation requirements. Assuming (without deciding) that it is difficult to apply the consultation requirements, that would lead to the conclusion that it would be reasonable to dispense with them. The leasehold valuation tribunal has power to dispense with all or any of the requirements. It may do so either prospectively or retrospectively: see Auger v. Camden London Borough Council (unreported) 14 March 2008, BAILII:  EWLands LRX_81_2007 , a decision of the Lands Tribunal. The very fact that Parliament provided for the dispensation of the consultation requirements shows, in my judgment, that it contemplated that agreements might well fall within the definition of qualifying long term agreements even though the consultation requirements might be difficult, or even impossible to apply.
42. However, I do not consider that the fact that a landlord proposes to enter into a long term agreement with a monopolist (e.g. water company) is a reason for excluding such an agreement from the definition of qualifying long term agreements or necessarily excluding it from all the consultation requirements..." (emphasis added)
"My Lords, when these regulatory provisions are so clearly relevant, it is pertinent to ask how far they are admissible for the purpose of construing section 9(6).
A study of the cases and of the leading textbooks (Craies on Statute Law, 7th ed. (1971), p.158, Maxwell on Interpretation of Statutes, 12th ed. (1969), pp.74-75, Halsbury's Laws of England, 3rd ed., vol. 36 (1961), para. 606) appears to me to warrant the formulation of the following propositions:
(1) Subordinate legislation may be used in order to construe the parent Act, but only where power is given to amend the Act by regulations or where the meaning of the Act is ambiguous.
(2) Regulations made under the Act provide a Parliamentary or administrative contemporanea expositio of the Act but do not decide or control its meaning: to allow this would be to substitute the rule-making authority for the judges as interpreter and would disregard the possibility that the regulation relied on was misconceived or ultra vires.
(3) Regulations which are consistent with a certain interpretation of the Act tend to confirm that interpretation.
(4) Where the Act provides a framework built on by contemporaneously prepared regulations, the latter may be a reliable guide to the meaning of the former.
(5) The regulations are a clear guide, and may be decisive, when they are made in pursuance of a power to modify the Act, particularly if they come into operation on the same day as the Acct which they modify.
(6) Clear guidance may also be obtained from regulations which are to have effect as if enacted in the parent Act."
"The question is how far, on a contextual reading of a statute, the language is capable of stretching".
"2. Qualifying long term agreement' is defined in section 20ZA of the 1985 Act (as amended by section 151 of the 2002 Act) as an agreement for a period of more than twelve months. A contract with an initial period of 12 months or less with an option for renewal with the agreement of both parties is not considered to be a qualifying long term agreement for the purposes of section 20ZA. Indefinite contracts that can be terminated by either party on service of a notice are also not considered to be qualifying long term agreements for those purposes. However, if such contracts stipulate a minimum contract period of more than 12 months then they would be caught by the definition.
3. Under the draft Regulations the consultation requirements applicable to qualifying long term agreements would be triggered if any leaseholder would have to pay more than £25 per year (see regulation 5 of the draft Regulations). A wide variety of situations would be covered, from the simple to the complex, ranging from a two year contract for the provision of cleaning materials to a thirty year PFI arrangement for the refurbishment and maintenance of a substantial part of a local authority's housing stock."
"3. Concerns have been expressed about the consultation requirements in relation to new developments or conversions. For example, situations where a landlord enters into a long term agreement with a managing agent as soon as a new development is completed but no properties have been sold. Obviously no consultation could have taken place. We are of the view that service charge payers will buy such properties in the knowledge of what the charges will be and as such will not be able to resist payment on grounds of non- consultation. They will still be able to challenge the reasonableness of the charges under section 9 of the 1985 Act. We therefore propose to exempt contracts where there are no service charge payers to consult (see regulation 4(1)(d) of the draft Regulations).
Q.8. DO YOU AGREE WITH THE EXEMPTION WHERE NO SERVICE CHARGE PAYERS ARE AVAILABLE FOR CONSULTATION?
(Q.8. refers to the passage above it).