Morshead Mansions Ltd v MacTra Properties Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Warren |
| Judgment Date | 15 February 2013 |
| Neutral Citation | [2013] EWHC 224 (Ch) |
| Docket Number | Case No: CH/2012/0152 |
| Date | 15 February 2013 |
| Court | Chancery Division |
[2013] EWHC 224 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Warren
Case No: CH/2012/0152
Jonathan Seitler QC and William Moffett (instructed by Payne Hicks Beach) for the Appellant
Edwin Johnson QC (instructed by Mishcon de Reya) for the Respondent
Hearing Date: 28th November 2012
This is a remarkable appeal concerning the obligation of a landlord to provide an account in relation to service charges payable in respect of a block of flats. It is remarkable because the landlord is asserting a more onerous obligation than the tenant in order to resist an order for specific performance of its, the landlord's, obligation. It is an appeal from orders of HHJ Bailey, sitting in the Central London County Court, dated 29 September 2011 (" the 2011 Order") and 17 February 2012 (" the 2012 Order"), the latter relating to the costs of the application which resulted in the former.
The claimant in the action and respondent to this appeal (" MPL") is the leaseholder under long leases at ground rents of 19 of the 104 flats comprised in a block known as Morshead Mansions, Morshead Road, London W9 (" the Property"). The defendant and appellant (" MML") is the lessor under each of those long leases and is the registered proprietor of the Property. The leases of each flat are, for present purposes, in materially identical form. I shall refer simply to " the Lease" without distinction. The claim seeks provision of an account of Expenses and Service Charge which MML is obliged to provide under the Lease and damages for breach of that obligation. The central issue concerns the true construction of the relevant provisions of the Lease.
Relevant provisions of the Lease
One of MPL's covenants under the Lease (see Clause 3.2) is "To pay the service charge calculated in accordance with the 4 th schedule on the dates stated there". I note that "service charge" is all in lower case although "Service Charge" with capital leading letters is a defined term for the purposes of the 4 th Schedule. A question, which I will come to later, has arisen whether they have a different meaning.
One of MML's covenants under the Lease (see Clause 4.4) is "To provide the services listed in the 5 th schedule" on payment of the service charge; a second covenant (see Clause 4.5) is "To maintain a reserve fund in accordance with the 6 th schedule". A third covenant (see Clause 4.2) is to insure the building against specified risks. Paragraph (c) of that clause requires MML to lay out the sums paid under any such policy in rebuilding and reinstating the Property. If that should prove impossible, the policy proceeds are to be shared among MML and the lessees in proportion to the value of their respective interests in the Property.
The 4 th Schedule is headed "Service Charge", the 5 th Schedule is headed "Services to be provided" and the 6 th Schedule is headed "Reserve fund". The material provisions of the 4 th Schedule are as follows:
i) Paragraph 1(a) defines the "Accounting Year" as the calendar year save where the landlord otherwise determines (which it has not).
ii) Paragraph 1(b):
"the Expenses" means in respect of each Accounting Year the cost to the Landlord of the items set out in the 5 thschedule and shall be deemed to include not only those expenses and outgoings which have actually been paid or incurred by the Landlord during the year in question but also such reasonable proportion of the expenses and outgoings of a periodically recurring nature (whether recurring regularly or irregularly) whenever paid or incurred (whether prior to thecommencement of the lease period or otherwise) including a sum or sums by way of reasonable provision for anticipated expenditure as the Landlord or his accountants or managing agents (as the case may be) may in their discretion allocate to the year in question as being fair and reasonable in the circumstances."
iii) Paragraph 1(c):
"the Service Charge" means .96154% of the Expenses"
iv) Paragraph 2 is headed "Calculation of expenses":
"The amount of the expenses shall be determined by reference to the Accounting Year"
v) Paragraph 3 provides that the landlord may require the tenant to pay, quarterly, reasonable interim payments on account of the Service Charge.
vi) Paragraph 4 (the interpretation of which is in issue):
"As soon as practicable after the end of each Accounting Year the Landlord shall furnish to the Tenant an account of the Expenses and the Service Charge payable for that Accounting Year such account to be certified by the Landlord's auditors and to contain a summary of the expenses incurred during the Accounting Year to which it relates and the relevant details and figures forming the basis of the Service Charge."
vii) Paragraph 5 which deals with the making of a balancing payment consequential on the production of the account:
"If the amount of the Service Charge is found to be less than the sum of the Interim payments made by the tenant in respect of the Accounting Year the excess shall be refunded by the Landlord to the Tenant or at the option of the Landlord credited against the next Interim Payment due and if the amount of the Service Charge is found to be greater than the sum of the interim Payments made by the Tenant in respect of the Accounting Year the Tenant shall pay the balance due in respect of that Accounting Year within 14 days following notification of the account of the Expenses and Service Charge to the Tenant."
The 5 th Schedule lists in 22 paragraphs the services which MML is to provide. They include, at paragraph 1, "Repairing the roof, outside, main structure and foundations of the building". Paragraphs 14 to 22 (other than paragraph 16) all commence with "the cost of ….". Although these costs are not services, it is clear that the intent of Clause 4.4 read with the 4 th and 5 th Schedules is that they are intended to fall within the recoverable Service Charge. Paragraph 19 refers to
"the cost of preparing and supplying the account of the Expenses and Service Charge including the charges and expenses of a qualified accountant employed to prepare audit and provide copies of the same"
The material provisions of the 6 th Schedule, which relates to the reserve fund, are as follows:
i) Paragraph 1: MML is to "maintain a reserve fund to accumulate in advance the expected cost of" and there follow three specified items, namely "(a) major repairs to the roof and foundations (b) exterior decoration and (c) decorating and furnishing the common parts". These works are defined as "reserve fund works". The reserve fund is also to cover the expected costs "generally in connection with the matters mentioned in paragraph 1 of the 5 th Schedule".
ii) Under paragraph 2, MML is to hold the reserve fund in trust for those for the time being liable to pay the cost of reserve fund works.
iii) Paragraph 3:
"The Landlord estimates the contribution needed by the reserve fund each year and that sum is a service cost when calculating the service charge"
iv) Paragraph 4: If part of the Property is not let on terms obliging the lessee to contribute, MML has to contribute to the reserve fund "the balance". This can only be the amount which a lessee would have had to pay if that part of the Property had been let on terms obliging him to pay his appropriate portion of the total cost.
v) Paragraph 5:
"The cost of any reserve fund works must be paid from the reserve fund, and only if and to the extent that the fund is insufficient is it to be charged as a service cost"
vi) Paragraph 6:
"The reserve fund is to be deposited at interest and all interest earned shall be credited to the fund"
vii) Paragraph 7:
"Every service charge statement is to include a statement of the balance of the reserve fund and of the income and expenditure since the previous statement"
Background
MML was incorporated in 1992 presumably, as the Judge said, for the purpose of acquiring the freehold of the Property. In the early years of its existence, audited service charge accounts were prepared which I, like the Judge, take to be accounts "in what may briefly be described as full audited form from the point of view of a chartered accountant" as he put it. I have found it useful to adopt the description "Full Accounts" put forward by Mr Seitler in his skeleton argument namely accounts, in the style of accounts drawn up by an accountant showing all relevant information, on an accruals not a cash basis and showing balances carried forward and matters such as contributions payable to, and held by, an account referred to in the accounts as the "Reserve Fund".
There was dissention concerning the management of the Property which resulted in an order made on 13 January 2000 by the Leasehold Valuation Tribunal under Part 2 Landlord and Tenant Act 1987 appointing a manager, a Mr Maunder-Taylor (" the Manager") to manage the Property.
Mr Seitler QC is highly critical of the way in which the Manager carried out, or rather failed to carry out, his role. The Manager is not here to defend himself from MML's accusations, in which context it is perhaps worth noting that Mr Johnson QC, who appears for MPL, does not associate himself with Mr Seitler's words. But this appeal is not about the Manager's conduct. I do not need to say anything about that except in relation to the accounts and paperwork which he produced, or rather failed to produce.
It is fair to say, however, that there was justified dissatisfaction with the Manager's custodianship resulting in the suspension of his appointment by the LVT on 3 February 2003. The LVT ordered the Manager to return all books, records, bank statements, ledgers, accounts, receipts and other documents relating...
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