- Court of Appeal (Civil Division)
- 19 March 2021
- Henderson, Rose and Lewis LJJ
- [2021] EWCA Civ 403
- [2021] PLSCS 58
Landlord and tenant – Appointment of manager – Service charges – Appellant lessees of flats appealing against decision of Upper Tribunal that maintenance trustee appointed under lease entitled to recover service charges payable to earlier manager appointed by tribunal – Whether payments made to manager under management order being “service charges” under section 18 of Landlord and Tenant Act 1985 – Whether service charges due to manager recoverable by trustee following appointment – Appeal dismissed
The appellants were long lessees of flats in Aldford House, a purpose-built block on Park Lane, in Mayfair, London which comprised commercial units on basement, ground and mezzanine floors, two flats on the ground floor and twenty-eight flats on the first to eighth floors. There were long headleases vested in the first and third respondents. Each of the residential flats was held on an underlease by the lessees in similar terms where the second respondent maintenance trustee, and not the landlord, was responsible for repairing and maintaining the premises.
During the 1990s, the building required extensive repair and maintenance. Although some attempt was made to carry out the works, no real progress was achieved. In 2010, a manager (W) was appointed under section 24 of the Landlord and Tenant Act 1987 by order of the tribunal to supervise the works. The appointment was to last until June 2013, after which the second respondent would take over control of the building. By the end of W’s tenure as manager, many of the appellants were substantially in arrears with payment of their service charges. In 2016, the respondents entered into a deed of assignment to transfer the entitlement to arrears of service charges, allegedly owed to W, to the second respondent. The respondents then issued proceedings for recovery of the alleged arrears of service charges and ground rent of around £1m, including arrears accrued before the second respondent was appointed.
The First-tier Tribunal (FTT) rejected the appellants’ argument that the second respondent was not entitled to recover service charges falling due prior to its appointment. The Upper Tribunal dismissed the appellants’ appeal against that decision: [2019] UKUT 371 (LC). The appellants appealed.
Held: The appeal was dismissed.
(1) The jurisdiction under Part II of the 1987 Act was a problem-solving jurisdiction designed to address problems for landlords and tenants arising from the management of privately owned flats, including the appointment of a manager. Its purpose was to enable the tribunal to appoint a manager who might not be confined to carrying out the duties of a landlord under the lease. The tribunal was enabled under section 24(1) to appoint a manager to carry out in relation to any premises to which Part II applied “such functions in connection with management of the premises as the tribunal thinks fit”. There was no limitation as to the management function of the manager; in particular the functions were not limited to carrying out the terms of the leases. That was the position even if the order appointing the manager defined their duties and obligations by reference to the lease. It was clearly parliament’s intention that the manager should be able to collect service charges due from the tenants and use the money so obtained for repair of the premises: Maunder Taylor v Blaquiere [2002] EWCA Civ 1633; [2003] 1 EGLR 52 followed.
(2) The sums paid by the appellants to W during the management period retained their character as “service charges” within section 18 of the Landlord and Tenant Act 1985, even though they were payable to W instead of the second respondent and even though the source of the obligation to pay them lay in the management orders made by the tribunal. The sums in question were still payable by each appellant as the tenant of a dwelling; they were payments in respect of the matters specified in section 18(1)(a); their amount was variable in accordance with the relevant costs, provided that those costs were incurred or to be incurred by or on behalf of the landlord; and the manager satisfied the extended definition of “landlord” in section 30 because, by virtue of the management orders, he was “a person who has a right to enforce payment of a service charge”: Maunder Taylor and Kol v Bowring [2015] UKUT 530 (LC) considered.
(3) The provisions contained in an order made under section 24 of the 1987 Act were superimposed on the existing contractual framework of the lease, but the underlying contractual rights and obligations of the parties remained in place, subject to the terms of the management order, and they were not permanently disapplied or modified. The imposition of a management order did not displace the lease covenants and the lessees remained bound by them, subject to the underlying contractual framework, which remained in place subject to the terms of the management order. To the extent that the terms of the order were in conflict with the underlying contract, the former had to prevail while the order remained in force.
(4) Once it was appreciated that the underlying contractual framework of the leases remained in place during the management period, there was no difficulty in concluding that the right to sue for arrears automatically revested in the second respondent upon the termination of W’s term of office as manager. Where the underlying machinery of the service charge provisions in the leases had remained in force throughout the management period, and the lessees had failed to comply with their obligations under it, the resumption by the maintenance trustee of the right to enforce those obligations amounted to no more than a restoration of the status quo under the leases. There was no injustice to the lessees in recovery of the arrears being sought by the very person to whom they were contractually bound to pay them under the leases. Nor was there any risk of double recovery, because the right of the manager to sue for arrears must have come to an end with the termination of his appointment: Kol v Bowring applied.
The contractual obligation to pay the relevant service charges remained in place throughout, and to the extent that it was displaced during the management period, that displacement came to an end when the management period expired without the manager having taken any steps to recover the arrears. There was no further step which the maintenance trustee needed to take in order to perfect its title to sue.
Jonathan Upton (instructed by Forsters LLP) appeared for the appellants; Michael Walsh (instructed by Stephenson Harwood LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Chuan-Hui and others v K Group Holdings Inc and others
