Service Charges & Estate Management February 2013 Update

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SERVICE CHARGES AND ESTATE MANAGEMENT

FEBRUARY 2013 UPDATE

Phillips v Francis [2012] EWHC 3650 (Ch D)

See the case summary in the January 2013 update.

I have since obtained a copy of the first instant judgment which runs to a whopping 382 paragraphs.

It may be that the Chancellor’s decision on the triviality threshold in relation to qualifying works (or the lack of one) was influenced by HHJ Cotter QC’s approach to the question of what are ‘qualifying works’ at para [341]:

 “a commonsense approach to construction needs to be taken and in view of the fact that it acts as a trigger for the protection afforded by consultation.  If the threshold were too low and all minor or on non permanent works covered the result would be commercially unmanageable to the detriment of both lessor and lessee.  The phrase building works is used to describe significant works with a permanent effect by way of modification of what there was before.  Whether works are indeed qualifying works, is a question of fact having regard to the nature and extent of the works in question.”

In my view, there is no basis for requiring work to be “significant”, “permanent” and “modify” what was there before.  Such a test is an illegitimate gloss upon s.20ZA(2).  It introduces a new triviality threshold that a proper reading of the legislation does not permit.  Parliament intended the threshold to be the cost of the tenant’s contribution to the works, not the nature or extent of the works.

The county court decision is not binding on LVTs and, in any event, these comments are obiter as the issue was whether the works were one set or many sets of ‘qualifying works’, not whether they were ‘qualifying works’ or not.  It should also be noted that the Chancellor did not comment on this part of HHJ Cotter QC’s judgment.  

The only other case on this issue that I am aware of is Paddington Walk Management Ltd v Peabody Trust [2010] L & TR 6 in which HHJ Marshall QC held that window cleaning was not ‘qualifying works’. She found the definition in s.20ZA(2) “not a very illuminating”.

I attempt to offer a full analysis of the case in an article to be published in the next edition of the Landlord & Tenant Review.

Sadd v Brown [2012] UKUT 438 (LC)

Summary: A lessor could not recover the cost of insurance premiums from the lessee when the lease contained a specific clause relating to the obligation to insure but omitted a specific clause requiring the reimbursement of the cost of doing so, notwithstanding that such a term would be reasonable and was probably omitted by mistake.  This case offers a useful analysis of when a term will be implied into a lease.

Lewisham LBC v Rey-Ordieres [2013] UKUT 14 (LC)

Summary: The contractual rates provided for in a PFI contract are strongly persuasive as to reasonableness but not conclusive for the purposes of s.19(1)(a).

Facts: The reasonableness of the professional fees (26%) and management fees (10%) charged under a PFI contract were challenged by leaseholders who had acquired their leasehold interests pursuant to the right to buy legislation.  The majority of the issues on the appeal were fact specific but one issue is of wider significance.

The Issue: The Appellant local authority submitted that the LVT was not entitled under s.19(1)(a) of the 1985 Act to go behind the contractual sums in the PFI contract.  Counsel relied on para [47] of HHJ Huskinson’s judgment in Auger v London Borough of Camden (2008) LRX/81/2007 (unreported):

“If works which are reasonably necessary and are done to a reasonable standard are carried out under a Partnering Agreement Camden will be able to meet criticism regarding the level of expense by pointing out that Camden is already contractually bound to the Partner and had to place the works with the Partner at the contract rate provided for in the Partnering Agreement , and therefore the costs were indeed reasonably incurred because, even if the works could reasonably have been expected to have been done significantly cheaper by other competent contractors, Camden would be in breach of contract by giving the works to anyone other than the Partner.”

It was submitted that this conclusion made sense because the contractor was appointed based on criteria that were fixed by legislation giving effect to EU public procurement procedures. This procurement process ensured (or was deemed to ensure) the appropriate market-testing of prices.  The local authority had entered into a 20 year agreement under which it was bound to give the work to the contractor at rates that were incorporated into the contract; it was not open to the leaseholders to argue that the individual cost elements that were behind the total price had been unreasonably incurred.

The Decision: The President rejected this submission.  He held at [44]: “We respectfully agree with the view expressed by Judge Huskinson in the passage relied on by [Counsel], but the terms of an agreement such as the one relied on here can only be strongly persuasive as to reasonableness. They are not conclusive for the purposes of the application of s.19(1)(a).”

JONATHAN UPTON

TANFIELD CHAMBERS

FEBRUARY 2013