Friends Life Management Services Ltd v A & A Express Building Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 09 May 2014 |
| Neutral Citation | [2014] EWHC 1463 (Ch) |
| Court | Chancery Division |
| Date | 09 May 2014 |
| Docket Number | Case No: HC13A00247 |
[2014] EWHC 1463 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Morgan
Case No: HC13A00247
Mr Timothy Dutton QC (instructed by Norton Rose Fulbright LLP ) for the Claimant
Mr Mark Wonnacott QC (instructed by Wragge Lawrence Graham LLP) for the Defendant
Hearing dates: 30 April, 1 and 2 May 2014
Introduction
This is a dispute about a service charge in a lease of commercial premises. The Claimant was the Tenant and the Defendant was the Landlord under the relevant Lease. The principal point which divides the parties is as to what is to happen in a case where the Tenant, over a period of years, has been charged sums by way of service charge, which sums did not represent actual expenditure by the Landlord at the time the charges were made, but which were a "provision" in respect of expenditure on major works which were expected to be carried out in future years. When the Lease in this case ended, those major works had not been carried out but they were begun after the Lease ended and then they were carried out later in the year in which the Lease ended and continued into the following year.
Mr Dutton QC appeared on behalf of the Tenant and Mr Wonnacott QC appeared on behalf of the Landlord.
The Lease
The dispute arises in relation to a Lease dated 10 th March 1998. The Lease demised most of the office accommodation in a building known as the Express Building, Great Ancoats Street, Manchester, together with the whole of a nearby car park. The building is a substantial office building constructed over seven floors (the ground and six upper floors) in the late 1930s. It was built in the art deco style and is Grade II listed. The building was constructed to house the northern operations of the Daily Express newspaper but that occupier vacated the building in the 1980s. The building was then refurbished in the 1990s. The Lease was granted by a predecessor in title of the Defendant to a predecessor in title of the Claimant. In around 2002, the Claimant acquired the term of the lease from an associated company, which had been the original lessee. In around 2006, the Defendant acquired the reversion on the lease.
The office accommodation demised by the Lease comprised the ground and first to fifth floors (inclusive) of the building. The demised office accommodation was referred to in the Lease as "the Premises" and the demised car park was referred to in the Lease as "the Car Park". The Premises and the Car Park were demised for a term of 15 years from and including 25 March 1998. The tenancy created by the Lease was not contracted out of the security of tenure provisions in Part II of the Landlord and Tenant Act 1954. Clause 7.13 of the Lease permitted the Tenant to determine the Lease on the expiry of the 12 th year of the term (i.e. 24 March 2010), subject to the Tenant complying with certain conditions, namely, the Tenant had to give 12 months prior written notice, pay the rents reserved by the Lease and give vacant possession on the expiry of the notice. The Claimant did in due course successfully rely upon clause 7.13 to determine the Lease on 24 March 2010.
The Lease contained a number of definitions which are relevant in this case, as follows:
(1) ""Accountant" means any qualified person or firm of accountants and or managing agents appointed by the Landlord (including a qualified accountant who is an employee of the Landlord or a Group Company of the Landlord)";
(2) ""Annual Expenditure" means in relation to any Financial year the Gross Annual Expenditure for that Financial Year less the aggregate of:-
a) if in the Financial year ( sic) in question or in any previous Financial Year the landlord has incurred any costs or expenses in or incidental to making good any loss or damage covered by any policy of insurance maintained by the Landlord pursuant to its obligations in this Lease all (if any) amounts recovered by the Landlord in the Financial Year in question pursuant to such policy of insurance and
b) if in the Financial year ( sic) in question or in any previous Financial Year the Landlord has incurred any costs or expenses in or incidental to providing any of the Services or in relation to any of the Ancillary Items which are recoverable (in whole or in part) from any person other than the tenant or any other tenant in the Building all (if any) amounts recovered by the Landlord in the Financial Year in question for any such person";
(3) ""Calculation Date" means 31 st December in every year or such other date as the landlord may from time to time nominate and "Calculation Dates" shall be construed accordingly";
(4) ""Contractual Term" has the meaning given in the Particulars"; (the Particulars stated that the Contractual Term was "Fifteen years from and including the 25 March 1998 until and including 24 March 2013");
(5) ""Financial Year" means the period:-
(a) from and including the date of commencement of the Term to and including the first Calculation Date and subsequently
(b) between two consecutive Calculation dates (excluding the first Calculation Date from but including the second Calculation date in the period)
and "Financial Years" shall be construed accordingly";
(6) ""Gross Annual expenditure" means the aggregate of
(a) all reasonable and proper costs fees expenses and outgoings actually incurred by the Landlord during the Financial Year in or incidental to providing all or any of the Services or in or incidental to the Ancillary Items
(b) all such reasonable and proper fees expenses and outgoings actually incurred by the Landlord in the previous Financial Year and not previously taken into account in calculating Gross Annual Expenditure and
(c) such reasonable and proper sums as the Landlord shall in its reasonable discretion consider appropriate to charge in that Financial Year by way of provision for anticipated expenditure in any future Financial years ( sic) in respect of any of the Services or the Ancillary Items
but "Gross Annual expenditure" shall not include:-
any expenditure in respect of the maintenance or repair of any part of or of anything in the Building and/or the Car Park the maintenance or repair of which is the exclusive responsibility of the Tenant or any other tenant and or occupier in the Building (which may for the avoidance of doubt include the landlord or any Group Company of the Landlord)
Or any costs fees expenses outgoings or sums of the type set out in paragraph (a) (b) or (c) of this definition incurred exclusively in relation to a Lettable Area or Lettable Areas which is or are from time to time not subject to an occupational lease or an agreement to grant the same
Or the cost of refurbishment of the Building and Car Park so as to enable them to be beneficially occupied by the Tenant
Or the cost of remedying any disrepair damage or destruction caused by any Inherent Defect or any want of repair attributable to such Inherent Defect";
(7) ""Payment Days" means the first day of January the first day of April the first day of July and the first day of October in every year and "Payment Day" means any of the Payment Days";
(8) ""Service Charge" means the aggregate of the sums which the Landlord shall determine in respect of each individual item of the Services and Ancillary Items as being a fair and reasonable proportion attributable to: the Premises as part of the Annual Expenditure relating thereto for the relevant Financial Year; and the Car Park of the part of the Annual Expenditure relating thereto for the relevant Financial Year (taking proper account of the fact that the tenant has the benefit and use of the entirety of the car park save as reserved by paragraph 7 of Part 2 of the First Schedule)"; (the reference to paragraph 7 of Part 2 of the First Schedule was to the reservation to the Landlord of a right to park three cars within the Car Park);
(9) ""Services" means the services facilities and amenities to be provided by the Landlord for the benefit of the Building the Car Park and (or) Adjoining Property or some part or parts thereof as set out in part B of the Third Schedule";
(10) ""Term" means the Contractual term as extended by any period of holding over or extension or continuance of the Contractual Term whether by statute or at common law".
The Lease reserved a yearly rent, subject to review every five years during the term, and, by way of further rent, an insurance rent and the Service Charge (and some other sums which were to be paid). Clause 3.1.2 of the Lease provided that the principal rent was to be paid by equal quarterly payments in advance on the Payment Days and "proportionately for any period of less than a year". The reservation of the Service Charge by way of further rent stated that the Service Charge was payable at the times and in the manner provided in the Third Schedule. The Tenant covenanted to pay the reserved rents "throughout the Term".
By clause 5.2 of the Lease, the Landlord covenanted to provide the Services. By clause 7.1, the Landlord was entitled to forfeit the lease for non-payment of rent or breach of covenant on the part of the Tenant.
The Third Schedule to the Lease made further provision in relation to the Service Charge. Part A of the Third Schedule provided for the Payment of the Service Charge and para. 1 in Part A was in these terms:
"1. Payment of the Service Charge
1.1 The Tenant shall pay for the period from the Occupation Date to the Calculation date next following the date of this Lease the Initial Provisional Service Charge the first payment being a proportionate sum in respect of the period from and including the Occupation Date to and including the day before the next Payment Day after the date of...
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