Bdw Trading Ltd and Another v South Anglia Housing Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. N. Strauss |
| Judgment Date | 17 July 2013 |
| Neutral Citation | [2013] EWHC B10 Ch |
| Court | Chancery Division |
| Date | 17 July 2013 |
| Docket Number | Case No.: HC12E04517 |
[2013] EWHC B10 (Ch)
In the High Court of Justice
Chancery Division
Mr. N. Strauss
(sitting as a deputy judge)
Case No.: HC12E04517
Mr. Philip Rainey Q.C. and Mr. James Fieldsend, instructed by Osborne Clarke, appeared for the claimant;
Mr. Ranjit Bhose Q.C., instructed by Devonshires, appeared for the defendant.
Hearing date: 21 st June 2013
Introduction
Section 19 of the Landlord and Tenant Act 1985 provides that no more than reasonable service charges are payable by a tenant to a landlord. Section 20 provides for consultation requirements to apply to "qualifying long term agreements" ("QLTA"), (under which costs would be incurred which would form the basis of service charges) to be designated by the Secretary of State. A QLTA is defined by section 20 ZA as "an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than 12 months".
The issue in this case is whether this applies to a long term agreement entered into in relation to buildings which have not yet been constructed, or which are not let at the time of the agreement. If it does then, since in the absence of any tenant, consultation is impossible, the owner must seek a dispensation from the Leasehold Valuation Tribunal ("LVT") under section 20(1), failing which it cannot recover more than the "appropriate amount" (currently £100) from any later tenant. If correct, this would be likely to apply in many cases. On 1 st July 2013, the LVT's functions were transferred, for England but not for Wales, to the Property Chamber, First-Tier Tribunal, but I will continue to refer to the LVT.
Mr. Rainey Q.C. on behalf of the claimant submits that the section cannot apply, because it refers to "the landlord", denoting an existing tenancy, and because it would not be a sensible construction of the provisions that the owner of the land or building should be required to consult, when there would be nobody with whom to consult.
Mr. Bhose Q.C. on behalf of the defendant submits that there is no requirement for an identifiable tenant or sub-tenant at the time the agreement is entered into. He submits that "the landlord" must include future or prospective landlords, since otherwise there would be a major gap in the legislation, that there is provision, if consultation is impossible, for the LVT to dispense with it on application, that the regulations passed under the Act assume that it does apply to buildings not yet in existence or not yet let, and that the Act is to be construed consistently with them.
For the reasons set out below, I hold that the claimant's submissions are correct, and accordingly that the QLTA definition does not apply to the agreement that is the subject matter of this action. The section does not say that "the landlord" is someone who may in the future become a landlord, and there is no proper basis for stretching its meaning. The regulations passed under the Act do assume that it does have this meaning but, although potentially relevant to its interpretation, appear in this case to have been drafted without much attention to the statutory provisions and therefore carry no weight or conviction as evidence of the legislative intention.
The facts
I can take the facts from the parties' agreed statement:-
"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)
The Act
The relevant provisions of the Act are as follows (my emphasis):—
"Services charge
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...
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