Community 1st Oldham (Chadderton) Ltd v Oldham Metropolitan Borough Council

Under a payment mechanism requiring self-monitoring, contractual payment reports must record all service failures notified to the helpdesk, even where the landlord disputes their characterisation. The resulting assessment and deduction must be included, with the contractual dispute mechanism determining the amount payable pending resolution.

Deductions for availability failures in one contract month are made in the payment notice and invoice for the following month. A contractual adjustment clause may correct previous overpayments or underpayments, including missed deductions. A clause granting an additional set-off right does not exclude common law, equitable or contractual set-off without clear words. Inadequate construction may constitute a service failure without creating an availability failure or deduction entitlement unless the contractual safety condition is also breached.

The claimant landlord provided a community health and wellbeing centre to the defendant council under a Lease Plus Agreement. Disputes arose concerning the operation of the payment provisions, including deductions for service failures and availability failures, set-off, adjustments, estoppel, the treatment of library areas, and defects in the swimming pool changing area.

The claimant sought declarations on 14 issues. The central questions were the proper construction of the payment and monitoring provisions, whether the council was entitled to make particular deductions, and whether inadequate floor falls, ponding and cleaning failures amounted to a safety-condition breach and an availability failure.

1. Payment reporting. An Availability Failure required both unavailability of a Functional Area under paragraph 2.1.1 of Schedule 10 and causation by a matter specified in paragraph 2.1.2. The monitoring provisions required every notified Service Failure to be recorded. Accordingly, the Performance Monitoring Report, Payment Notice and invoice had to be based on all Service Failures reported to the helpdesk, not merely those accepted by Community.
2. Disputed deductions. Community had to assess reported Service Failures and include the resulting deductions for Availability Failures in the Payment Notice and invoice. If it disputed the characterisation, it could invoke clause 19.4. Oldham then had to pay the undisputed amount and 50% of the disputed amount. The same 50% mechanism applied where Oldham disputed the payment claimed.
3. Timing and adjustments. Deductions for Availability Failures in a particular Contract Month were to be included in the Payment Notice and invoice for the following Contract Month. Clause 19.2.2.7 permitted later adjustment for previous overpayments or underpayments, including a missed deduction, and was not confined to administrative errors. Where Oldham alone failed to report a failure, the contract provided no mechanism for a late deduction; where Community failed to report it, Oldham retained contractual remedies, but could not rely on the principle in Alghussein Establishment v Eton College [1988] 1 WLR 587.
4. Set-off and estoppel. Clause 19.6 created an additional set-off right for sums agreed or determined to be due to Oldham. It did not exclude other common law, equitable or contractual rights of set-off. The correspondence did not establish any representation, common assumption or equitable forbearance preventing Community from disputing retrospective deductions.
5. Functional Areas and physical defects. Each library area identified in Table 1 was a separate Functional Area, so deductions were calculated by reference to the affected area or areas. The inadequate falls in the swimming pool changing area constituted a Service Failure. However, ponding alone did not reduce slip resistance to an unsafe level, and the evidence did not establish a breach of the Safety Condition. There was therefore no Availability Failure and Oldham was not entitled to deductions. Issues 13 and 14 did not arise.