Pressfab Engineering Ltd Re Grange Point  UKUT 448 (LC)
15th January 2018
Whether the cost of maintaining parts of an estate falls within service charge provisions depends on the wording of the relevant lease, and not on whether the lessee benefits from those parts of the estate. The Upper Tribunal (“UT”) interpreted “designed contracted or adapted so as to be the subject of a separate letting or occupation” to mean that the subject land must be capable of being separately let or occupied, rather than the more onerous requirement that it both be capable and actually separately let or occupied.
The freehold was a plot of land that comprised of:
- A residential apartment block (which included a private car park);
- A supermarket; and
- A car park with 103 spaces.
The freehold owner granted a headlease of the apartment block to the headlessee. The headlessee granted underleases of residential flats to two tenants, which each had the benefit of an identified parking space.
The freehold owner also granted a lease of the supermarket to a retail food chain. The retail food chain was permitted under the supermarket lease to use “Serviced Areas” for purposes ancillary to its business, which included the car park.
The underleases’ service charge provisions required the residential tenants to each pay one eighth of the service charge payable by the headlessee to the freeholder under the headlease.
The headlease required the headlessee to pay a due proportion of the costs associated with the “Serviced Areas” to the freeholder. The definition of “Serviced Areas” in the headlease was less explicit in respect of the car park than in the lease of the supermarket to the retain food chain. The operative part of the definition of “Serviced Areas” in the headlease was: “any other part of the Estate which do not from time to time form part of a Lettable Unit”.
“Lettable Unit” was defined as “any building or ancillary arears on or part of the Estate (including the premises) which is designed constructed or adapted so as to be the subject of a separate letting or occupation.”
Whilst it was manifestly clear that for the retail food chain’s lease of the supermarket, “Serviced Areas” included the car park, it was not clear whether the same was true for the headlease. If the car park was a “Serviced Area” under the headlease, this would result in the two tenants having to contribute towards the maintenance of the car park through their service charges.
The appellant company had the benefit of the two underleases.
The First-tier Tribunal (“FTT”) started from the position that whether or not the residential tenants benefitted from the maintenance of the car park as a whole was irrelevant; the terms of their leases would be determinative of whether contributions were required.
The FTT found that the car park fell within the “Serviced Areas” under the headlease for three reasons:
- There was nothing preventing the residential tenants from using the car park;
- The car park was not a “Lettable Unit” as it had not been “designed constructed or adapted so as to be the subject of a separate letting or occupation”, which required the car park to be both so designed constructed or adapted and separately let or occupied; and
- The car park was not within the demise of the lease of the supermarket to the retail food chain.
This resulted in the appellant having to contribute towards the cost of maintaining the car park through the service charge.
Deputy Chamber Martin Roger QC granted permission to appeal because albeit “the decision was coherent and logical, the conclusion that the tenant of the flats was liable to contribute to the maintenance of the supermarket car park, as well as the car park designated for their own use, was a surprising one.” The UT was to reconsider the interpretation of the headlease on the basis of written submissions.
The headlessee had three grounds of appeal:
- As the residential tenants have no use or benefit of the larger car park, the decision was unfair and unreasonable;
- The car park is, properly construed, a “Lettable Unit”, meaning that it falls outside of the definition of “Serviced Areas; and
- The pedestrianised areas of the wider estate are not designated for use generally, and so explicitly fall outside the headlessee’s definition of “Serviced Areas” which comprise “roads footpaths and verges forming part of the estate and designed for use generally by occupiers of the Estate”.
Decision on appeal
The UT agreed with the FTT that the appellant’s liabilities under the service charge provisions fell to be determined by the word of the underleases and not the fairness or reasonableness of the provisions.
Further, the aspect of the definition of “Serviced Areas” in the headlease concerning pedestrianised areas of the wider estate bore no relevance to the present dispute as the car park could not be properly construed as a road, footpath or verge.
However, the UT did find that the FTT’s interpretation of “Lettable Unit” was in error. The definition was not concerned with whether the unit was actually separately let or occupied, but instead with whether it was designed, constructed or adapted so as to be capable of being so. The UT put this pithily:
“After all, the defined expression is “Lettable Unit” and not “Let Unit”, and the definition reflects that difference.”
The UT upholding that the question of whether the appellant benefitted personally from the services provided was irrelevant is unsurprising.
The definition of “Lettable Unit” in the headlease is somewhat ambiguous – “so as to be” neither rings clearly as must be or is capable of being.
What the UT’s decision does afford is some certainly within the subject-matter of the contract. On the FTT’s decision, whether or not the car park has actually been separately let or occupied is capable of substantially altering the service charge payable by the residential tenants. This is out of the tenants’ control. Month to month, this position would be able to change, thereby altering the liabilities of the tenants at the whim of the freeholder (and/or the market).
On the UT’s decision, the tenants’ liabilities are more predictable, which is always desirable.
Team: James Castle
Expertise: Landlord & Tenant
, Residential Landlord & Tenant
, Service Charges
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