Service Charges and Estate Management - May 2016 Update

Christopher Moran Holdings Ltd v Carrara-Cagni [2016] UKUT 152 (LC)

Summary: On the proper construction of a lease, the lessee was obliged to contribute towards the costs of repairing parts of the building which had been added after its original construction and after leases of flats had been granted.

Facts: Daska House (“the Building”) is a 9 storey building constructed in the early 1970's on a site in Kings Road, directly opposite Chelsea Town Hall.  The ground, first and second floors comprise commercial units and form a podium above which rises a tower block from the third to the ninth floors containing 25 residential flats. The ninth floor of the tower block is occupied by a penthouse flat surrounded by a roof terrace, while the other floors each have three flats. Leases of the flats were granted in 1972 and 1973.

In June 2012 the appellant commenced a programme of major works to the exterior of the Building, at a cost of almost £1.38m. The works included repairs carried out to parts of the Building which had been added after its original construction. Those parts, two conservatories enclosing sections of a roof terrace, were added to the building in the early 1970s. The penthouse conservatories, which were in a poor state of repair, were demolished and rebuilt at a cost of £91,334.

On 5 February 2015 the first respondent applied to the FTT for a determination of her liability to contribute towards the cost of the major works. The FTT held that penthouse conservatories were constructed in breach of an absolute prohibition on alterations contained in the head-lease of the Building and in breach also of a similar prohibition in the lease of the penthouse flat. It
then held “We are therefore satisfied that the [respondent] should not be liable to pay any additional cost arising from the unlawful erection of the conservatories. Our primary ground is that the cost of these works is not payable pursuant to the terms of the [respondent's] lease.” The FTT went on to explain that if it was wrong on the meaning of the respondent's underlease,
so that the sums in issue were payable contractually, it would not nevertheless exclude their recovery on the grounds that it would not “be reasonable for the [appellant] to pass on these costs to the tenants through the service charge, given the circumstances in which these additions were constructed and were subsequently adopted by the [appellant].” This appears be reference to the effect of s.19, which prevents the recovery of expenditure which has not been reasonably incurred.

Issues: (1) Whether, at the time the disputed expenditure was incurred in their reconstruction, the conservatories were part of the premises to which the appellants repairing obligations extended, as a matter of construction of the underleases; (2) Whether it made any difference that the conservatories may have been erected in breach of the covenants in the headlease or the penthouse underlease.

Decision on appeal: Allowing the appeal the UT (Martin Rodger QC, Deputy President) held: in principle, a repairing covenant will apply to subsequent alterations and additions to a building, unless that result is excluded by the language used: see Rose v Spicer [1911] 234. It could not seriously be disputed that by the time they came to be reconstructed by the appellant the conservatories were at the very least “additions” to (and therefore part of) the Reserved Property (as defined in the lease). Accordingly, the outcome of the
appeal turned entirely on the effect of their (supposedly) having been constructed in breach of covenant. The FTT’s construction of the lease was contrary to the natural and ordinary meaning of the words, which mad no distinction between lawful and unlawful additions to the Building, and contrary to common sense. There was no reason for the historic lawfulness of the addition to the Reserved Property to make any difference to the analysis of the continuing rights and obligations of different parties.