Leonora Investment Company Ltd v Mott Macdonald Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Tuckey,Lord Justice Wilson
Judgment Date23 Jul 2008
Neutral Citation[2008] EWCA Civ 857
Docket NumberCase No: A2/2008/0465

[2008] EWCA Civ 857






Royal Courts of Justice

Strand, London, WC2A 2LL


The President Of The Family Division

Lord Justice Tuckey and

Lord Justice Wilson

Case No: A2/2008/0465

HQ 07X00728

Leonora Investment Company Limited
Mott Macdonald Limited

Mr Jonathan Seitler Q.C. and David Holland (instructed by Speechly Bircham LLP) for the Appellant

Nicholas Dowding Q.C. and Mark Warwick (instructed by Asb Law) for the Respondent

Lord Justice Tuckey

This appeal is about the proper construction of the service charge provisions in four leases. It arises from a decision of His Honour Judge Seymour Q.C. sitting as a High Court Judge, [2008] EWHC 136 (Q.B.), who decided on the trial of a preliminary issue that the tenant, Mott Macdonald Ltd., had no liability to the landlord, Leonora Investment Co. Ltd. “pursuant to” an invoice for £263,117.21 dated 15 January 2003 for works to the common parts of the office block occupied by the tenant.


The thirteen storey office block, St. Anne House in Wellesley Road, Croydon was owned by the landlord until 17 January 2003. By four leases dated 7 July 2000 it let the ground, first, second and third floors of the building to the tenant for a term of ten years starting on 24 June 2000 on terms which, for present purposes, are identical.


Clause 2 contained the demise and reserved the rents set out in the remainder of the clause which, by clause 3.1.1, the tenant covenanted to pay “at the times and in the manner aforesaid”. The reserved rents included:

2.3 the Additional Rents – to be payable from the Rent Start Date and to be paid to the Landlord within 14 days of demand (except as otherwise provided).


Clause 1.1 defined the Additional Rents. There were five of them including:


2 The Service Charge (as hereinafter defined).

It was defined by clause 1.16 as:

the sum payable by the Tenant in accordance with Part 2 of the SCHEDULE OF SERVICES hereto.


The relevant provisions of part 2 of this schedule are:

Service Charge


The Service Charge to be paid by the Tenant shall be such fair proportion (which may if appropriate be the whole amount) of the actual or anticipated Service Costs for each Service Charge Year which shall be assessed by the Landlord or its Surveyor according to a reasonable and proper basis for apportionment applicable from time to time to the Premises.


The Landlord may make and send to the Tenant notice in writing of the Landlord's estimate of the anticipated Service Costs and the Service Charge applicable to the Premises for the coming Service Charge Year and the Tenant shall pay such estimate of the Service Charge by equal quarterly instalments in advance on the usual quarter days.


The Landlord will (unless prevented by causes beyond its control) prepare and send to the Tenant a statement of the actual Service Costs and Service Charge for each Service Charge Year as soon as practicable after the end of such year and in the event of the Service Charge for the Premises exceeding the aggregate amount paid by the tenant for such year the Tenant will pay the balance due to the Landlord within fourteen days of demand and in the event of the aggregate amount being greater the excess will be credited by the Landlord by way of set-off against the next instalment of Service Charge due from the tenant …


Service Costs are defined by clause 1.15 as:

The reasonable and proper costs incurred by the Landlord in carrying out the works and providing the Services set out in Part 1(A) of the SCHEDULE OF SERVICES hereto and the reasonable and proper service expenses incurred under Part 1(B) of that Schedule.

The costs and expenses listed in part 1(A) and (B) of the schedule are obviously intended to represent the total expenditure incurred by the Landlord for the whole building which then falls to be apportioned by paragraph 1 of part 2 of the schedule to determine the service charge payable by each tenant. The service charge year is defined in the lease but in this case it was the period of twelve months up to 24 December.


The relevant facts are as follows. The tenant had made quarterly advance payments in accordance with notices issued under paragraph 2 of part 2 of the schedule throughout the term of the lease. It had also received statements in accordance with paragraph 3 of the schedule at the end of the service charge years in 2000 and 2001. The works the subject of the invoice were carried out between May and September 2002 but their estimated cost had not been included in the quarterly payments made for the service charge year ending 24 December 2002 because, according to the landlord's agent:

… they were regarded as extra and outside the “normal” Service Costs and we always intended to invoice for them separately.


The invoice dated 15 January 2003 was accompanied by a letter to the tenant from the landlord's agents which said:

St Anne House, 20/26 Wellesley Road, Croydon

Common parts redecoration etc

I refer to past discussions and our telephone conversation on Monday regarding the above. In particular Mott MacDonald's contribution towards the cost of the works involved, and in accordance with the leases between our respective companies.

To this end I enclose our invoice number SUN102979 to which is attached a schedule detailing the work involved and costs incurred by your Landlord. By way of information the schedule indicates the overall cost and, that apportioned to Mott Macdonald.

The landlord looks forward to receipt of your payment.

The invoice amount had not been apportioned between the four leases as the earlier paragraph 2 notices and paragraph 3 statements had been.


On 31 January 2003 the same agents issued four credit notes on behalf of the landlord in respect of the service charge year ending on 24 December 2002 which reflected the fact that the tenant's payment of estimated service charge for the year exceeded the actual service charge for each of the four leases. The credit notes were supported by schedules of actual service cost incurred for the year but did not include the cost of the works to the common parts the subject of the earlier invoice.


The tenant did not pay the invoice and after some desultory correspondence these proceedings followed. The tenant contended that service charge was only recoverable under the procedure laid down by paragraph 3 of the schedule which had not been followed for the costs...

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