Adriatic Land 1 (GR3) Limited v Miller & Others
21st January 2020
On an appeal against a determination of the First-Tier Tribunal (FTT) as to the reasonableness and payability of service charges, the Upper Tribunal found that the FTT had erred in its construction of the residential leases.
Where a Management Company went into liquidation, the leases provided for the freeholder to carry out the relevant services and recover the costs from the tenants. There was no ambiguity in the leases that justified the FTT’s decision.
The leases of the flats in the building were all in the same form. They were tripartite, made between the landlord WDI Properties Limited (defined in the lease as “the Freeholder”), All Saints Apartments Residents Association Limited (“the Company”) and the lessee (“the Flat Owner”). The Company was a management company and covenanted with the Freeholder and the Flat Owner to provide the usual services, maintenance, insurance, cleaning the common parts etc. There was provision for the Freeholder to perform those covenants in certain circumstances.
On 20 June 2016 the Company went into liquidation, as a result of a dispute with a service provider and county court proceedings that it did not defend. On 20 May 2016 there was incorporated All Saints Apartments Residents Limited. It was set up by one of the lessees of Flat 7, and was owned by the lessees. It appeared to manage the property from the date of its incorporation until 1 September 2018 when a Right to Manage Company formed by the lessees took over the management.
The appellant purchased the freehold of the property on 17 June 2017. Its officers became aware that the Company had gone into liquidation, and the appellant sent notices to the lessees on 24 July 2017 notifying them that it was taking over the management of the property. It used a managing agent who acted for the landlord and was not a party to the leases. This caused some confusion for the lessees, who thought that a successor to the Company had been appointed and objected to that. There followed some acrimonious correspondence with the lessees. The appellant took over the management of the property in December 2017. It had considerable difficulty in gaining access to the property but, having done so, on 5 February 2018 sent to the lessees a service charge demand on the basis of its budgeted expenditure for 2018.
No payments of that service charge were made by any of the respondents, and the leaseholders disputed the reasonableness of the sums claimed (albeit no substantive reasons were given in the application to the FTT).
Whether or not the leases permitted the Freeholder to carry out the works and subsequently charge the lessees for those works where the Company was in liquidation.
Part of the costs claimed by the Freeholder/ Appellant had been admitted by the lessees and were therefore outside of the FTT’s jurisdiction.
With regards to the remaining amount (the majority of the sums claimed), the FTT found that they were not payable to the Appellant as they fell outside the terms of the leases.
The FTT found that, whilst the leases permitted the Freeholder to carry out certain works, the leases stipulated that this was where the Company had “ceased to exist”. The FTT considered that being in liquidation did not satisfy this condition because it had not yet been struck off the companies register. As no notice had been given by the Freeholder to the Company requiring the latter to carry out the necessary works, the former could not then recover the costs when they chose to step in and do the work themselves.
Further, the FTT held that a reference in the leases to “the Landlord” carrying out the works of the Company in default was by no means clear where the leases defined “the Freeholder” but not “the Landlord”.
Decision on appeal
Upper Tribunal Judge Elizabeth Cooke disagreed with the approach taken by the FTT.
She referred to the case of Arnold v Britton  UKSC 36, but emphasized that those guidelines were important where a lease was ambiguous or lead to problematic consequences. That was not the situation with these leases.
She considered the drafting to be perfectly clear. The leases enabled the Freeholder to step in where the Company was in default, whether because it refused to carry out the works or had ceased to exist. In her view, a company in liquidation had for all practical purposes ceased to exist. The Appellant was therefore entitled to carry out the works and recover costs from the lessees.
Further, whilst the leases may have been inelegant in that they referred to both “the Freeholder” and “the Landlord”, there was only one candidate for who that might be. There was accordingly no ambiguity in that clause, and the Appellant was also entitled under that clause to carry out the works.
As no real challenge had been mounted to the reasonableness of the service charges, the Judge found them to be reasonable and recoverable in full.
Although the facts and decision on appeal are relatively straight-forward, the case reinforces the principle that one cannot go looking for ambiguity in contracts/ leases where there is none. If the words are plain, effect must be given to them.