The Upper Tribunal determined whether costs incurred by a headlessee in providing energy to apartments held on individual underleases were recoverable in circumstances where the systems for metering energy use had malfunctioned.
The building in this case was constructed in 2004 and comprised 32 floors containing 158 residential apartments on the upper floors together with a hotel on the lower floors. The various underleases contained provisions requiring the lessees to make payments for the utilities consumed within their apartments, as well as a payment towards the headlessee’s cost of supplying hot and chilled water to the air conditioning systems in each apartment.
The building was equipped with complicated systems for measuring the consumption of utilities including sub-meters to measure the various supplies to the hotel, the common parts and the car park. There were also individual meters for each apartment.
Bills had been levied to each underlessee in respect of the utilities costs for many years, however by 2008 some of the meters were known to be defective. The problem with the meters worsened over time and the headlessee therefore decided to base its charges for utilities not on the metered readings but to make an estimate of consumption based on historic consumption data.
Further, the freeholder (and then subsequently the headlessee) had sought to pass on to the underlessees various other fixed charges levied by the energy suppliers such as an “availability charge”, a “standing charge”, and a “reactive charge”. These charges were not directly linked to energy consumption but rather to energy efficiency and supply.
The underlessees submitted that they were only obliged, on the construction of the relevant provisions of the leases, to pay for such consumption of utilities as had been evidenced by current meter readings. As there was no evidence of current consumption because the meters were faulty, they were not obliged to pay anything towards utilities. Historic evidence of consumption could not form the basis of a valid demand.
The underlessees also submitted that they were not liable to pay for the additional fixed charges because these were not directly related to energy consumption.
The First Tier Tribunal (Property Chamber) (‘FTT”) held that it was permissible for the headlessee to make charges for utilities based on historic meter readings.
The FTT further held that the other fixed charges were recoverable as part of the necessary cost of procuring electricity.
Decision on appeal
On appeal to the Upper Tribunal, the Tribunal asked the underlessees whether the parties must have been taken to consider that the meters would never malfunction, or, what they might be taken to have intended in the event of one or more of the meters giving false readings. The answer given was that the parties must be taken to have anticipated the possibility of breakdown, and that it would be permissible in those circumstances for a reasonable estimate of usage to be substituted for accurate meter readings.
That concession having been made, the Tribunal went on to hold that whilst the onus was on the supplier to state how much electricity had been consumed by an apartment, and that this calculation would generally be based on meter readings, there was nothing to prevent the supplier using other methods if the meters were faulty. It would be open to the leaseholder to challenge the supplier to establish the level of consumption, and if no agreement could be reached then the energy consumption could be determined by a Tribunal in the usual way.
This was so even when the particular clause required the relevant proportion of the costs payable by the leaseholder to be “evidenced by meters installed for the purpose of measuring such consumption”. According to the Tribunal, meter readings were a “tool which should not be allowed to assume a disproportionate significance”. It would be wrong to make the leaseholder’s obligation to pay for its admitted use of services dependent on the reliability of the meters. Further, even if the obligation were dependent on accurate metering this would not mean that the leaseholders were not obliged to pay for services, as they would have to make payment on a quantum meruit basis.
The second issue was also resolved against the underlessees. The relevant fixed charges had been incurred because the building had been constructed so that electricity was supplied in bulk to the building as a whole. Having taken a lease in a building constructed in this manner, the underlessees could not object to the charges, which were a necessary cost of procuring electricity.
This is a case on the construction of the clauses contained in the particular leases involved in the trial. However, it emphasises the general point that lessees face an uphill struggle in trying to assert that they are not liable to pay for services of which they have enjoyed the benefit.