Phillips & Ors v Francis & Anor

Management costs under a chalet lease must be construed as a whole. A provision allowing reimbursement of fees paid to agents for professional services does not authorise recovery of the lessor’s own non-professional management costs where a separate provision supplies a management charge. Double recovery is not permitted.

Under the amended statutory scheme governing service charges, the relevant questions are whether expenditure constitutes qualifying works and whether the tenant’s annual contribution exceeds the prescribed limit. The legislation does not require the court to identify separate sets of qualifying works or apply a separate triviality threshold. All qualifying works carried out in the relevant year must be included in calculating the contribution.

The lessees of 97 holiday chalets appealed declarations made by HH Judge Cotter in the Truro County Court concerning service charges under their 999-year leases. The leases allowed recovery of management and maintenance costs and included a 5 per cent management charge.

The first issue was whether the lessors could recover both professional or agency costs under Schedule 3 paragraph 6 and their own management charge under paragraph 8. The second concerned the statutory consultation requirements for qualifying works under the Landlord and Tenant Act 1985, as amended. The central questions were the proper construction of the leases and whether the amended statutory scheme required the identification of separate sets of qualifying works.

1. Management charges. Permission to appeal was granted and the appeal was allowed on the construction of the leases. Clause 3(b) imposed obligations by reference to Schedule 3 paragraphs 1 to 7. Clause 4 limited recovery to sums actually expended or liabilities incurred in connection with management and maintenance, including the matters in those paragraphs.
2. Schedule 3 paragraph 6 permitted reimbursement of staff costs and fees paid to professional agents, including a company in which the lessor was interested. In context, “agent” referred to a professional service provider. It did not extend to non-professional management services supplied by the lessors personally or through their management company. The lessors could not recover wages paid to themselves or charges for non-professional work. The separate 5 per cent charge in paragraph 8 did not permit double recovery.
3. Qualifying works. The statutory scheme had materially changed since Martin v Maryland Estates [1999] 2 EGLR 53. The amended legislation fixed the limit by reference to the tenant’s contribution, while the consultation requirements focused on notice of an intention to carry out qualifying works.
4. The correct statutory inquiry was whether the expenditure constituted qualifying works under section 20ZA(2), and whether the resulting annual contribution exceeded the prescribed amount. The legislation did not require identification of one or more sets of qualifying works, nor did it impose a separate triviality threshold or require avoidance of excessive fragmentation. All the works accepted as qualifying had to be included in the account, subject to their allocation between relevant years.
5. The appeal was allowed on both issues. The relevant part of the county court order was set aside, and the matter was remitted to the judge to recompute the cost of the qualifying works consistently with these principles.

The judgment records that the claim was transferred from the Queen’s Bench Division, Truro District Registry, to the Truro County Court after a preliminary decision that the statutory service-charge restrictions applied.

• Truro County Court: HH Judge Cotter made declarations on management charges and qualifying works in October 2011, with the order drawn up on 19 March 2012. Permission to appeal was refused.
• High Court (Chancery Division): Permission to appeal was granted and the appeal was allowed on both issues under [2012] EWHC 3650 (Ch). The qualifying-works issue was remitted for recomputation.