Morshead Mansions Ltd v Di Marco

A contribution payable by a leaseholder as a member of a company under the company’s articles and a members’ resolution is legally distinct from a service charge payable by that person as tenant under a lease. Section 18 of the Landlord and Tenant Act 1985 does not provide a defence to the separate corporate claim merely because the company intends to use the fund for expenditure which might otherwise be met through service charges. The statutory protections available in respect of a leasehold service-charge demand remain matters for a claim made in the landlord-and-tenant relationship.

Morshead Mansions Ltd was the freehold owner and management company of a block of flats. Each leaseholder was also a shareholder. Under article 16 of its articles, and resolutions passed at its 2006 annual general meeting, the company established a recovery fund and required Mr Di Marco to contribute £4,000 in two instalments, with interest for late payment.

The Recorder held that article 16 was valid but dismissed the company’s contractual claim. He held that the contribution was a service charge within section 18 of the Landlord and Tenant Act 1985. Morshead appealed. The central issue was whether a contribution claimed from a company member under the articles was a statutory service charge.

1. Appeal allowed unanimously. Mummery LJ, with whom Wall and Toulson LJJ agreed, held that the Recorder had wrongly treated the company’s claim as a service-charge claim under section 18 of the Landlord and Tenant Act 1985.

2. The decisive distinction was between two separate legal relationships which happened to exist between the same parties. Mr Di Marco was liable as a tenant under his lease, including its service-charge provisions. He was also liable, in a different capacity, as a member under the company’s articles and resolutions made pursuant to them. The existence of the first relationship did not alter the character of an obligation arising from the second.

3. The recovery-fund contribution was claimed expressly under article 16 and the resolutions. It was not a payment demanded from Mr Di Marco as tenant, or as rent or an addition to rent. Statutory protections which might be available if the company pursued a leasehold service charge did not therefore constitute a defence to this distinct contractual claim.

4. The Recorder had correctly upheld the validity and enforceability of article 16. Morshead was consequently entitled to recover the two contributions and the authorised interest from Mr Di Marco as a member.

5. The court did not decide whether any separate service-charge demand to Mr Di Marco as tenant was valid, whether statutory consultation or reasonableness requirements applied to such a demand, or whether the directors could use article 16 funds to meet sums not due from him as tenant. Those questions were outside this appeal.

• Court of Appeal (Civil Division) — Allowed Morshead’s appeal and restored its contractual claim under article 16: [2008] EWCA Civ 1371 .

• Central London Civil Justice Centre — Mr Recorder Mitchell QC held article 16 valid and enforceable, but dismissed Morshead’s claim on the basis that section 18 of the Landlord and Tenant Act 1985 applied. His order was dated 23 January 2008.