Malone & Ors v Bircham & Co Nominees (No.2) Ltd & Ors

An estate management scheme is not generally affected by a disposition of the landlord’s interest unless the scheme expressly provides otherwise. A provision requiring approval for the transfer of scheme powers and rights does not, without clear wording, prohibit a transfer of the freehold itself. The transferee of legal title to part of the estate may therefore become the landlord for the scheme’s purposes in relation to that part.

Obligations to contribute towards garden administration, maintenance and upkeep do not ordinarily include the landlord’s legal costs of correspondence and litigation unless the contractual language clearly supports that result. A declaration should not be granted to answer a broad hypothetical question whose answer depends on future circumstances.

The claimants, residents and owners of properties at Thurloe Square, challenged aspects of the management and financing of a communal garden under an estate management scheme approved under the Leasehold Reform, Housing and Urban Development Act 1993, and under individual Garden Agreements.

The dispute concerned six issues, including the effect of transfers of the garden’s legal title and scheme powers, the liability of the landlord to contribute a capital rate, recovery of legal costs, and crediting income received from garden users against charges. The central questions were the proper construction of the scheme and agreements, and whether declarations should be made.

1. The transfer of the legal title to the Garden from the original registered proprietors to the first and second defendants was valid. Section 69(4) of the Leasehold Reform, Housing and Urban Development Act 1993 provides that the operation of an estate management scheme is unaffected by a disposition of the landlord’s interest unless the scheme provides otherwise. Clause 5.2 of the EMS concerned the transfer of scheme powers and rights to another body; it did not prohibit disposition of the freehold. The first and second defendants became the landlord for the EMS provisions relating to the Garden, and a declaration to that effect was granted.

2. There was no basis for a declaration concerning the lease to Visortuning Ltd. The defendants had conceded that any transfer of EMS powers and rights to that company was ineffective, and the court would not investigate or draw conclusions from that concession.

3. The landlord was not required by clause 2.2 of the EMS to contribute a capital rate towards the Garden budget. The EMS did not refer to a capital rate, and clause 2.2 related to the landlord’s obligations as an owner under clauses 2.2 and 7, not to the Garden provisions in Schedule 4. The issue was also academic because the TSGA had ceased to set such a rate.

4. The defendants were not entitled to include in the accounts their legal costs relating to the correspondence and litigation. The natural meaning of the Garden Agreement and Schedule 4, paragraph 4, concerned garden maintenance, administration and upkeep, and did not extend to these dispute-related costs. Costs such as those incurred in evicting trespassers might fall within the instruments, but that issue was not decided.

5. A declaration requiring credit for all other garden income was refused as over-broad and hypothetical. Whether income must be credited depends on its connection with the costs chargeable under the relevant instrument.

6. It was unnecessary to decide the claim under section 20C(3) of the Landlord and Tenant Act 1985. The judge stated obiter that, if the legal costs had been recoverable maintenance costs, the Garden Agreement rate could constitute a service charge for that provision. The costs issue was stood over.