Francis & Anor v Phillips & Anor & Ors

For the consultation trigger under the Landlord and Tenant Act 1985, qualifying works are assessed by identifying individual sets of works. They are not assessed by aggregating every work carried out during an annual service-charge period. Whether works form one set is an objective question of fact and degree, determined commonsensically by factors including location, contract, timing, and character or connection. The definition is not confined to works that permanently modify existing structures, and section 20 does not impose an annual cap.

A lease must be construed to prevent double recovery. An individual lessor cannot recover personal management remuneration through a wholly owned company under the service-work provision as well as the express percentage management charge. The corporate veil is not the issue; the proper construction of the lease is.

The appellants were the lessors of a holiday park containing long leasehold chalets. The lessees challenged service charges, including sums for site works and remuneration paid to the lessors through a wholly owned management company.

The County Court determined several service-charge issues. On appeal, the High Court allowed the lessees’ appeal on the meaning of qualifying works and on the recoverability of management charges: [2012] EWHC 3650 (Ch). The lessors appealed. The central questions were whether qualifying works should be aggregated by service-charge year or divided into separate sets, and whether the lessors could recover both wages paid through their company and a five per cent management charge.

Qualifying works

1. The appeal was allowed on this issue. The aggregating approach was wrong. Section 20 of the Landlord and Tenant Act 1985 applies by reference to individual sets of qualifying works, rather than all works carried out during an annual service-charge period. The amendments made by the Commonhold and Leasehold Reform Act 2002 and the consultation regulations did not alter the definition of qualifying works. Section 18(3) was inconsistent with importing an annual cap.
2. The practical consequences supported that construction. Aggregation could require consultation on every minor or emergency repair, causing delay, expense, and potentially perpetual consultation. Routine repair and maintenance remained controlled by the requirement under section 19 that service charges be reasonable and reasonably incurred. This protective purpose was consistent with Daejan Investments Ltd v Benson [2013] UKSC 14.
3. Whether works comprise one set is an objective, multi-factorial question of fact and degree. Relevant factors include their location, whether they are subject to the same contract, their timing, and whether they differ in character or connection. The way in which the works were planned and the reasons for their implementation may also be relevant. The lower judge was entitled to find that the works were separate sets. His misdirection that qualifying works required a permanent modification of existing structures was immaterial and did not justify interference with his factual conclusions.

Management charges

The appeal was dismissed on this issue. On the proper construction of the lease, the lessors could not recover wages paid to them through their wholly owned company under paragraph 6 of schedule 3 in addition to the paragraph 8 management charge. The prohibition on double recovery followed from the lease itself; it was unnecessary to lift the corporate veil or distinguish micro-management from macro-management. Ordinary contractual principles required consideration of the meaning a reasonable person would understand from the language and relevant circumstances. The obligation to pay additional sums should be clearly stated, particularly in a long lease.

The Chancellor added obiter observations that a third-party agent, including a non-professional agent, might fall within paragraph 6 where its cost related to services benefiting tenants, and that such cost might coexist with the paragraph 8 charge. The final result was that the appeal succeeded on qualifying works but failed on management charges.

• Court of Appeal (Civil Division): Allowed the lessors’ appeal on the qualifying works issue and dismissed it on the management charge issue.
• High Court, Chancery Division: On appeal from the County Court, allowed the lessees’ appeal on both issues in [2012] EWHC 3650 (Ch).
• Truro County Court: HH Judge Cotter QC determined the service-charge disputes in a judgment handed down in October 2011.