No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Henderson,Dingemans LJ,Underhill LJ |
| Judgment Date | 21 July 2021 |
| Neutral Citation | [2021] EWCA Civ 1119 |
| Docket Number | Case No: C3/2020/1406 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 1119
Lord Justice Underhill
(VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION)
Lord Justice Henderson
and
Lord Justice Dingemans
Case No: C3/2020/1406
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
(MR MARTIN RODGER QC, DEPUTY CHAMBER PRESIDENT)
[2020] UKUT 163 (LC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justin Bates & Ms Kimberley Ziya (instructed by DLA Piper UK LLP) for the Appellant
Ms Lesley Anderson QC & Ms Lina Mattsson (instructed by Penningtons Manches Cooper LLP) for the Respondent
Hearing date:15 April 2021
Approved Judgment
Introduction
This appeal raises two unrelated, but each significant, main issues concerning recovery by the landlord from tenants of residential property held on long leases of (a) service charges, and (b) legal costs incurred by the landlord in litigation with the tenant.
The first main issue concerns the application and proper interpretation of section 20B(1) of the Landlord and Tenant Act 1985 (“the 1985 Act”), which imposes an eighteen month time limit on the service of a demand for the recovery of service charges running from the date when the relevant costs were incurred. The issue arises in circumstances where a demand for payment of a specified sum potentially falling within the scope of the relevant service charge provisions was served on the tenant during the eighteen month period, but the demand was made under the wrong provisions in the lease, and the sum in question has never been the subject of a contractually valid demand for payment as a service charge.
The second main issue turns on the construction of three separate cost recovery provisions in the leases, in reliance on which the landlord seeks to recover from the tenant a proportionate share of the landlord's own legal costs incurred in the present litigation with the tenant, which started in 2014 and has been vigorously contested ever since.
The appellant landlord (“WIQR” or “the Landlord”) is No. 1 West India Quay (Residential) Ltd. It owns the head leasehold interest in the residential parts of a 33-storey building (“the Building”) at that address in Canary Wharf, London, E14. The twelve lower floors of the Building comprise a Marriott Hotel and 57 associated apartments. The twenty-one upper floors consist of 158 residential flats, a large number of which (originally 42, but now 30) are let on 999-year underleases in substantially the same terms (“the Leases”) to the respondent, East Tower Apartments Ltd (“ETAL” or “the Tenant”). The flats are then sub-let by ETAL to residential occupiers, on terms which are for present purposes immaterial.
Background
The litigation has its origin in a long-running dispute arising from the arrangements for the supply of utilities and the metering of consumption of gas, electricity and water at the Building. As the Upper Tribunal (Lands Chamber) (Martin Rodger QC, Deputy Chamber President) explained in an earlier appeal in 2016 (“the 2016 UT Decision”, [2016] UKUT 0553 (LC)):
“16. Gas, electricity and water are supplied to the Building as a whole by commercial utility companies. The total quantities of these supplies are metered by four bulk meters (one each for gas and water and two for electricity).
17. Sub-meters have been installed throughout the Building to measure the consumption of utilities in different areas, including the hotel, the common parts, the car park and the individual apartments.
18. Each of the apartments on the upper floors has four individual meters intended to measure the consumption of heating, cooling, electricity and domestic hot water; there is no supply of gas to the individual apartments. The electricity measured by the apartment meters has been referred to in the proceedings as “direct electricity” to distinguish it from electricity consumed in connection with the common parts and communal service installations, which is known as “indirect electricity”.
19. The quantities of gas, indirect electricity and water consumed by the communal service installations in the provision of heating and cooling to the apartments are not separately metered as a supply to the individual apartments but, rather, the output of heating and cooling provided for each apartment is metered and a composite energy rate is applied to the units consumed.
20. Data from the meters throughout the Building is transmitted electronically to a remote collection point where it is collated and a calculation is performed to identify the utility usage attributable to the various parts of the Building including the individual apartments. For the period under consideration in this appeal the task of gathering the usage data and calculating the charges appropriate to each unit of occupation has been undertaken by a company known as ENER-G Switch2 Ltd (“Switch2”).”
Once Switch2 had read the meters, it would calculate the sums payable by each occupier and prepare a statement (said to be “for information purposes only”) itemising the charges. These statements were then delivered by the Landlord's managing agents to the individual tenants accompanied by an application for payment of the total sum, to which VAT at the standard rate was added. Each statement included a so-called “Standing Charge” the nature of which was not explained, but was in fact intended to cover Switch2's costs of reading the meters and calculating the sums due: see the 2016 UT Decision at [26] and [27].
As the 2016 UT Decision went on to record, there were at least three problems with which this basic system had to contend. The first problem was that, by 2008, some of the meters recording consumption in certain parts of the building were known to be defective, so it became necessary to make estimates of usage for certain areas, and eventually for the whole of the upper floors. The second problem was that the sub-meters did not record all of the energy consumed in the Building, and Switch2 sought to recoup the cost of this “lost” energy from the individual tenants, although there was no reason to believe that it had been consumed in their flats. The third problem was that the utility companies' bills for energy supplied to the Building as a whole included charges which are payable by commercial consumers (in particular the climate change levy and VAT at the standard rate) but are not payable by domestic consumers (who are exempt from the former, and who pay VAT on energy at a reduced rate of 5%): see [29] to [31].
Most of these problems only came to light after ETAL issued proceedings in 2014 in the First-tier Tribunal (Property Chamber) (“the FTT”) taking issue with a number of aspects of the utility costs which had been charged. Those proceedings led to a three-day trial before the FTT in July 2015. Shortly before that hearing, the Landlord conceded that it had wrongly included commercial rate VAT and climate change levy in the unit rates for heating, cooling and domestic hot water, and then further added VAT at the residential rate, thus overcharging the Tenant (and all other lessees of the Building) by approximately 26%. The Landlord also admitted some other overcharging, but a number of issues remained in dispute and were the subject of the trial. Following an appeal to the Upper Tribunal in 2016, which resulted in the 2016 UT Decision, certain matters were remitted to the FTT for determination. Further hearings then took place before the FTT in December 2018 and March 2019, leading to a final decision after review which was released on 21 June 2019. One of the issues dealt with in that decision was the recoverability of Switch2's standing charges. The FTT held that they were not recoverable, because there had never been a contractually valid demand for them as service charges, and it was not open to the Landlord to “re-allocate” them as general service charges.
In a separate decision issued on 14 May 2019, after a hearing on 30 April 2019, (“the Costs Decision”) the FTT considered the question whether the terms of the Leases permitted the Landlord to claim its legal costs from the Tenant in respect of the proceedings between the parties in the FTT and the Upper Tribunal. The FTT answered this question in the negative, but granted the Landlord permission to appeal that decision.
The Landlord's appeal on the costs issue, together with appeals by both parties against various aspects of the FTT's June 2019 decision for which permission had been granted, came on for hearing before the Deputy Chamber President (Martin Rodger QC) in February 2020. In his decision released on 26 May 2020 (“the 2020 UT Decision”, [2020] UKUT 0163 (LC)), he identified four issues which he had to consider, including the two main issues which I have identified at the start of this judgment. He decided each of those two issues in favour of the Tenant, and therefore dismissed the Landlord's appeal on them.
The Landlord now appeals on both issues to this court, with permission granted by the Upper Tribunal for a second appeal. Permission to appeal on a third ground was refused by the Upper Tribunal, and again by Phillips LJ on 15 October 2020.
With this introduction, I will now consider the two main issues in turn.
Issue 1: does section 20B(1) of the 1985 Act prevent the Landlord from recovering the Switch2 “standing charges” between 2008 and 2012?
The rents payable by the Tenant under clause 2 of each Lease consist of a ground rent, and:
“2.2 the Service Charge payable in accordance with the provisions of Part B of Schedules 4 and 5; and
2.3 the Apartment Energy Charge in accordance with clause 3.2.3
2.4 on demand any other sums due to the Lessor under the terms hereof
2.5 value added tax payable on any...
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