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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Morris v Blackpool Borough Council & Anor [2014] EWCA Civ 1384 (24 October 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/1384.html Cite as: [2014] EWCA Civ 1384, [2015] HLR 2 |
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ON APPEAL FROM
UPPER TRIBUNAL (LANDS CHAMBER)
HHJ Huskinson
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE McCOMBE
and
LADY JUSTICE GLOSTER
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IAN MORRIS |
Appellant |
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- and - |
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BLACKPOOL BOROUGH COUNCIL BLACKPOOL COASTAL HOUSING LIMITED |
Respondents |
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Sebastian Clegg (instructed by Blackpool Borough Council) for the Respondents
Hearing date: 24th June 2014
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AS APPROVED BY THE COURT
CROWN COPYRIGHT©
Lady Justice Gloster:
Introduction
Background
The relevant provisions of the lease
i) the recitals to the lease and the First, Second and Third Schedules thereto which respectively defined:
a) "the Estate" as
"ALL THAT area of land situated in South Shore Blackpool in the County of Lancashire comprising land dwelling houses flats maisonettes garages gardens and premises known as The Lennox Gate Estate";
b) "the Property" as
"ALL THAT plot or parcel of land being part of The Lennox Gate Estate TOGETHER WITH the two-storey building erected thereon or upon some part thereof and divided into eight self-contained Flats ALL which said land and building are for the purposes of identification only shown edged red on the plan numbered 1 annexed hereto";
the Property was in fact the building of which the appellant's flat formed part;
c) "the Reserved Property" as (in summary) (a) the common parts of the Property; (b) the main structural parts of the Property; (c) any flat in the Property not sold or let on long lease for a term exceeding 21 years; (d) all parts of the Estate other than the Property; and
d) "the Premises" as, in effect, the flat;
ii) clause 2 which provided:
"The Lessee hereby covenants with the Council throughout the term hereby granted
(A) to observe and perform the covenants contained in the Seventh Schedule hereto
(B) to comply with and observe such regulations as the Council may make for the benefit of the occupiers of the Property…… "
iii) clause 3 which provided:
"3. The Lessee hereby further covenants with the Council as follows:-
(i) Subject to the provisions of Sections 18 to 30 of the Landlord and Tenant Act 1985 to pay a proportionate amount to the Council being the reasonable expenses and outgoings incurred or to be incurred by the Council
(a) in respect of the repairing and maintaining renewing and cleansing as the case may be of any of the parts of the Reserved Property firstly and secondly described in the Third Schedule hereto
(b) in respect of the provision by the Council of the services mentioned in the Eighth Schedule hereto
(c) in respect of the rebuilding or reinstatement of the Property or in insuring against such rebuilding or reinstatement
(d) in respect of the management costs involved in sub-paragraphs (a) (b) and (c) above and also in collection of the rent and the computation and collection of other monies due from the Lessee hereunder
PROVIDED ALWAYS that the amount payable under this sub-clause shall be reviewed annually by the Council during the term hereby created by reference to its financial year and the amount or reasonably estimated amount shall become due in advance on the First day of April in any year (the first of such payments or a proportionate part thereof to be made on the date hereof) and shall be payable in manner aforesaid PROVIDED ALSO that if any adjustments to such amount or reasonable estimated amount as the case may be should become necessary upon annual review or otherwise the method of effecting such adjustments as become necessary shall be in the discretion of the council within the extent of Section 47(2) of the Act
(ii) To pay such improvement contribution as defined in Section 187 of the Act as the Council may reasonably demand in respect of improvements carried out to the Property during the term hereby created".
iv) Paragraph 14 of the Seventh Schedule, entitled "Covenants on the part of the Lessee" provided:
"The Lessee shall comply with and observe any reasonable regulations which the Council may consistent with the provisions of this Deed make to govern the use of the Flats and Reserved Property Such regulations may be restrictive of acts done on the Property detrimental to its character or amenities Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them".
I comment that although upper case letters were used at the start of what appear to be separate sentences in this paragraph, consistently with the rest of the lease, no full stops or commas were used anywhere in this paragraph. In this judgment I shall refer to the sentence beginning "Any costs or expenses incurred by the Council" as "the second part of paragraph 14".
v) Paragraphs 3, 4 and 6 of the Eighth Schedule provided:
"3. The Council shall keep the Reserved Property and all fixtures and fittings therein and additions thereto including drains gutters and external pipes serving the Property in a good and tenantable state of repair decoration and condition including the renewal and replacement of all worn or damaged parts PROVIDED that nothing herein contained shall prejudice the right of the Council to recover from the Lessee or any other person the amount or value of any loss or damage suffered by or caused to the Council or the Reserved Property by the negligence or other wrongful act or default of the Lessee or such other person
4. The Council shall provide the following additional services in respect of the Premises:-
(1) The cutting and maintenance of the grassed area comprised in the Reserved Property
(2) Rediffusion Service as detailed in the Agreements mentioned in the Tenth Schedule hereto so long as such Agreements remains operative
6. The Council shall employ and engage such servants agents and contractors as it considers necessary or desirable for the performance of its obligations under this Lease and shall pay their wages commissions fees and charges".
The charges for management costs
The increase in lessees' management charges
(1) Ground rent £10
(2) Insurance Buildings £79.97
(3) Management Charge £194.78
(4) Aerial Service £70.56
(5) Electrical maintenance £6.82
(6) Electrical supply £22,36
(7) Grounds maintenance £50.51
Total: £435
The appellant and a Mr. Allen Cargill, another long leaseholder of a property owned by the Council and the first appellant before the UT, challenged these invoices, principally because the management charge of £194.78 was about three times the amount in the previous year.
The relevant sections of the Landlord and Tenant Act 1985
"Section 18 – Meaning of 'service charge' and 'relevant costs'
(1) In the following provisions of this Act "service charge" means an amount payable by a tenant of a dwelling as part of or in addition to the rent—
(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and
(b) the whole or part of which varies or may vary according to the relevant costs.
(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.
(3) For this purpose—
(a) "costs" includes overheads, and
(b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period.
Section 19 – Limitation of services charges: reasonableness
(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period —
(a) only to the extent that they are reasonably incurred, and
(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly.
(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise."
The applications to and determinations by the LVT and the UT
i) The Council was entitled to charge for its services under paragraph 14 of the Seventh Schedule.
ii) The Council was permitted to charge lessees under clause 3(i)(d) of the lease for the management costs of discretionary services pursuant to paragraph 14 of schedule 7 to the lease, which provided that such costs and expenses were relevant by virtue of having been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule to the lease.
iii) Further, the Council was entitled to a management charge for the provision of such services, by reason of the combined effect of clause 3(i)(b) and paragraph 14 of the Seventh Schedule.
iv) In any event, even under clause 3(i)(b) and the Eighth Schedule, the Council was entitled to management charges for performing its obligation to keep the Reserved Property and all its fixtures and fittings in a good and tenantable state of repair etc. The fulfilment of the Council's requirement to keep the Reserved Property could only properly be described as the provision of services to the lessee. The costs and expenses of fulfilling that requirement were properly chargeable under clause 3(i)(d).
i) If paragraph (b) had been intended to be so limited, it could have provided for that result.
ii) The reference to 'additional' services at paragraph 3 of the Eighth Schedule carried the necessary inference that the other obligations contained in the Eighth Schedule were to be treated as provided by the Council.
iii) Finally, if the appellant's argument were correct, the second part of paragraph 14 of the Seventh Schedule would be rendered ineffective: it would be nonsense to deem that a cost had been properly incurred, but maintain that it was irrelevant for the purpose of calculating the service charge.
"23. Paragraph 14 part 2 provides that certain costs and expenses incurred by the Council in doing certain things –
"… shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by any Council to incur them."
In my judgment the only possible purpose of this provision is to provide that such costs are costs which have a relevance by reason of being (through this deeming provision) properly incurred by the Council in pursuance of its obligations under the Eighth Schedule. It would make no sense for these costs to be deemed to be properly incurred by the Council in pursuance of its obligations under the Eighth Schedule if the result of such a deeming was merely that the lessee could say: under clause 3(i)(b) it is only the cost of the services specifically mentioned in the Eighth Schedule which can be included in the calculation of the service charge, namely the cost of the two "additional services" referred to in paragraph 3 of Eighth Schedule, such that it makes no difference to the calculation of the service charge whether or not the cost of these matters under paragraph 14 part 2 are to be deemed as properly incurred by the Council in pursuance of its obligations under the Eighth Schedule.
24. Reading paragraph (b) together with paragraph 14 part 2 and with the Eighth Schedule, in my judgment the only proper construction, if effect is to be given to both provisions, is that paragraph (b) is not intended to refer merely to the "additional services" mentioned in paragraph 3 of the Eighth Schedule regarding grass cutting etc and re- diffusion. Paragraph (b) is instead intended to refer to expenses and outgoings in respect of not only these specific "additional services" in paragraph 3 of the Eighth Schedule but also of the other services referred to in the Eighth Schedule together with such services as the Council provides under paragraph 14 part 2 being services the costs of which are deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule.
25. Quite apart from the foregoing argument based upon paragraph 14 part 2, there is a separate reason why in my judgment paragraph (b) of clause 3(i) extends to services substantially wider that merely the "additional services" referred to in paragraph 3 of the Eighth Schedule. I repeat subparagraphs (1) and (2) of paragraph 21 above. In addition to those considerations there is the following point. Paragraph 3 of the Eighth Schedule requires the Council to keep the Reserved Property and all fixtures and fittings etc in good and tenantable state of repair etc. This covenant by the Council extends to the whole of the Reserved Property (which is very extensive) – it is not limited to the firstly and secondly described parts of the Reserved Property. It is true that the lessee only has to contribute through paragraph (a) of clause 3(i) to the cost of repairing, maintaining, renewing and cleansing the firstly and secondly described parts of the Reserved Property. Thus the actual costs of repairing etc another building on the Estate or keeping the grounds of that other building in good condition does not form part of the calculation of a lessee's service charge – these costs are charged to the lessees of the building in question. However the obligation of the Council is to keep effectively the whole of the Estate in good repair and condition. This is a service specifically provided for in the Eighth Schedule. A substantial amount of management will be required from the Council in performing this obligation and thereby providing this service.
26. I accept that the construction of the lease is not without difficulty. I have however, with respect to the LVT, come to a conclusion different from that which it reached. I cannot accept the LVT analysis in paragraph 22 of its decision where it concluded, inter alia, that paragraph 14 part 2 was "inherently meaningless". I conclude that it does have a meaning and effect as explained above. In my view the LVT erred in failing to give effect to paragraph 14 part 2 and in apparently concluding that the only services within clause 3(i)(b) which could be charged for (and the management costs of providing which could be included) were the services expressly referred to as additional services in paragraph 3 of the Eighth Schedule. As shown above, even leaving aside paragraph 14 part 2, the lease through the Eighth Schedule imposes substantial obligations on the Council the fulfilment of which can in my judgment properly be described as the provision of services to the lessee. Accordingly management costs involved in the provision of these services (and in particular management costs in ensuring that the whole of the Reserved Property is kept in good and tenantable repair and condition) can be included as part of the service charge calculation by reason of clause 3(i)(d).
27. I therefore conclude that the LVT's decision that £50 was an appropriate management charge cannot stand as it was based upon too restrictive an interpretation of the lease. Also this assessment of £50 cannot stand because the LVT assessed this merely by reference to its general experience of management charges for services of the nature which is understood were provided, rather than by applying the words of clause 3 and seeking to establish in accordance with that clause what was the proportionate amount which should be paid to the Council based upon reasonable expenses and outgoings to be incurred by the Council upon certain matters.
28. It would appear that a substantial part of the expenses and outgoings of providing the discretionary leasehold services are properly to be included within the calculation of the service charge by virtue of clause 3(i)(b) (which deals with the cost of services) rather than clause 3(i)(d) (which deals with management costs). However the recoverability of an ingredient which is properly to be included within the service charge calculation cannot in my view depend upon the label which has been put upon it. Thus the fact that the Council has chosen to describe the costs of the discretionary leasehold services as part of the management charge rather than as part of the cost of the services does not in my view mean that these costs cannot properly be included in the calculation of the service charge, especially as the nature of these services can properly be described as services in the nature of management."
The law
"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."
"11 The court's task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual context. It must start with what it is given by the parties themselves when it is conducting this exercise. Effect is to be given to every word, so far as possible, in the order in which they appear in the clause in question. Words should not be added which are not there, and words which are there should not be changed, taken out or moved from the place in the clause where they have been put by the parties. It may be necessary to do some of these things at a later stage to make sense of the language. But this should not be done until it has become clear that the language the parties actually used creates an ambiguity which cannot be solved otherwise."
"The proper mode of construing any written instrument is, to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another and more express clause in the same deed".
"In a document like this, however, little weight should be given to an argument based on redundancy. It is a common consequence of a determination to make sure that one has obliterated the conceptual target. The draftsman wanted to leave no loophole for counter-attack by the recipient or intended recipient of a call. It is no justification for construing the language so as to apply to a situation which, on a fair reading of the general purpose of the clause was not within the target area."
To similar effect was Lord Hoffmann's statement in Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266, 274B:
"I think, my Lords, that the argument from redundancy is seldom an entirely secure one. The fact is that even in legal documents (or, some might say, especially in legal documents) people often use superfluous words. Sometimes the draftsmanship is clumsy; more often the cause is a lawyer's desire to be certain that every conceivable point has been covered. One has only to read the covenants in a traditional lease to realise that draftsmen lack inhibition about using too many words."
The parties' submissions
The appellant's submissions
i) What was the correct construction of the lease, and in particular of paragraph 14 of the Seventh Schedule?
ii) If the LVT's construction was correct (as the appellant submitted), should its finding that £50 was a reasonable management charge for the year 1 April 2011 to 31 March 2012 be upheld? If not, what should be put in its place?
iii) If the judge's construction was correct, was he right in concluding that the Council was entitled to add a management charge for all the items he found it could?
i) The only obligation to pay "management costs" was in respect of those things set out in clause 3(i)(d) – i.e. "in respect of the management costs involved in subparagraphs (a) (b) and (c) above and also in collection of the rent and the computation and collection of other monies due from the Lessee hereunder".
ii) On any footing, costs incurred voluntarily by the Council under paragraph 14 of the Seventh Schedule were not costs incurred by virtue of any of the obligations in clause 3(i) (a) (b) or (c).
iii) Paragraph 14 itself set out what charges the Council could charge for such services, and this did not include "management costs"; although it said that such costs were to be deemed to have been properly incurred under the Eighth Schedule, it did not go on to say that any management costs could be recovered for this service. Management costs were not included under paragraph 14 and it did not say that services were deemed to be supplied under the Eighth Schedule.
The Council's submissions
"Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them"
had to be referring to something more than "any reasonable regulation", or the phrase "any reasonable regulation" had to have a very wide meaning, because, included within the matters contemplated by paragraph 14, were such things as doing improvement works and employing gardeners, porters or other employees.
Discussion and determination
"Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them".
Accordingly, the question is whether the management costs of what have been described in the LVT and the UT as 'discretionary services' (i.e. services which the Council was not obliged to provide but did nonetheless provide for lessees) come within the remit of the Eighth Schedule and were chargeable to the lessee pursuant to clause 3(i)(d).
"shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them",
of any utility or function. His submissions, in other words, fail to give effect to the clear intention that some services provided to lessees by the Council may not be the express subject of a covenant. But that conclusion undermines the commercial reality that the evolving challenges faced by a landlord may well require some room for adaptation as to what services best meet its lessees' requirements; and that is particularly so in the case of a local authority landlord which is the freehold owner of 401 properties.
Disposition
Lord Justice McCombe:
Lord Justice Jackson: