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Be careful what you leave open to interpretation![/caption]
Where such failings do arise, to what extent will a court or tribunal will be willing (or able) to “rescue” a party from their consequences? The answer, as ever, largely turns on the individual facts of each case. In this post, I look
at three interesting cases where varying approaches were taken.
In Mark Skelton v DBS Homes (Kings Hill), the Upper Tribunal (Lands Chamber) (UT) came to the landlord’s rescue despite a catalogue of ‘errors and curiosities’ in the drafting of the lease.
The service charge provisions were variously described by the UT as ‘unusual’, ill-drafted’ or and ‘curiously drafted’.
This case, unusually in service charge disputes, was not about whether the service charge had been reasonably incurred but rather whether it was payable at all.
Whether the on account demands for payment of service charge based on an estimate (not actual expenditure) served a couple of years after the close of the relevant accounting period- were in fact valid demands.
The UT held that the service charge was payable.
Check; check; (and re-check) documents to make sure that clauses are not missed, ambiguous - or indeed curious! A tool like LexisDraft can take off some of the strain and help you
get the job done quicker.
The Gateway Leeds Management v Naghash concerned the interpretation of service charge provisions in lease and whether or not costs of providing the gym, the concierge office and the state of the art CCTV system in the building could be classed
as service charges within the meaning of the Landlord and Tenant Act 1985, s 18 (LTA 1985).
Section 18 of the LTA 1985 limits the amount that may be recovered from residential tenants of long leases by way either of service or administration charges. In both cases the landlord may recover no more than is 'reasonable', as the amount is:
Were the rent payments made by a Management Co. (Manco) in connection with providing the gym, concierge office and the CCTV system services, costs within the meaning of section 18 of the LTA – even though they were not services or repairs and did
not vary in accordance with expenditure but were set and only escalated in accordance with the retail prices index?
If they weren’t service charge costs the first tier tribunal had no jurisdiction to determine the dispute.
The Manco was not obliged to provide the gym but if it did the costs associated with providing the facility would be recoverable as service charge
The fact that part of this cost was renting the facility for the gym did not convert the payment from service charge to rent- it was enough that the cost to the tenant could vary as indeed they might when the current lease of the gym premises comes to
an end and the Manco, to continue to provide the facility, may then be required to pay an additional rent.
The same reasoning could be applied to the fixed charges for the CCTV equipment at that point the cost could no matter be capable of being varied from time to time.
Where services which are likely to require the landlord or Manco to make fixed payments- such as rent or financing costs- service charge provisions should make it clear that these fixed payments are part of the recoverable costs of providing the service.
Arnold v Britton concerned 99 year leases of 'modest' holiday chalets entered into in the 1970s onwards. The lease made provision for service charge starting at £90 in the first year (or first three years) which were then increased by
10% per annum compounded. In the last year of term, on current rates, the service charge would be in excess of £1m.
The lessees applied to court to cap remedy this 'absurd' result arguing that the service charge clause was supposed to mean that the charge was capped at £90 in the first year and thereafter to a cap rising by the rate of 10% per annum.
Whilst recognizing that a service charge of £1m for a chalet occupied for 8 months of the year is somewhat extreme, the Court of Appeal (CA) refused to imply such a cap holding it was not the court’s function to rewrite the lessees
out of a bad bargain. The lessees ought to be right- but in order to hold that they were, the meaning of the lease would need to be subverted.
The case is a good example of the application of the law to interpreting the facts-finding for the tenants would mean:
Consider carefully the implications of referring particular market forces or practice at the time of drafting escalation clauses as these may become out of date or, as in this case, have absurd consequences. Consider rather providing for increases
by reference to recognized and adjustable economic indices.
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