E14 Limited v Limehouse East Management Limited

Lease terms must be construed by identifying what a reasonable person, with the relevant background knowledge, would understand the language to mean. The court must consider the natural and ordinary meaning, the lease as a whole, its commercial purpose, relevant facts known at execution and commercial common sense, while disregarding subjective intentions.

A service-charge definition referring to the “Commercial Block” as part of a building did not mean either the three demised units alone or the whole building. Properly construed, it meant the ground floor, excluding the lift. The chargeable expenditure therefore had to be apportioned to the ground floor.

E14 Limited held long leases of three ground-floor units in a development containing those units and ten upper-floor apartments. The leases required contributions to service charges relating to the “Commercial Block”. After a 2016 variation, the definition referred to parts of the building containing commercial units, including the formerly commercial ground-floor units converted to residential use, but excluding the apartments.

The First-tier Tribunal construed the definition as requiring the leaseholder to contribute to the costs of maintaining the whole building, subject to express exclusions. E14 appealed, challenging that construction and other service-charge determinations. The central issue was the meaning and extent of the “Commercial Block”.

1. Ground 1 allowed. The First-tier Tribunal’s construction was set aside. The Tribunal substituted its own construction of “Commercial Block”.
2. Applying the principles stated in Arnold v Britton [2015] UKSC 36, the varied definition had to be read in its documentary, factual and commercial context. The natural meaning of “any part of the Building” and the continuing word “only” pointed to a part of the building containing the relevant units but not the apartments.
3. The construction contended for by E14, under which the Commercial Block comprised only the three demised units, would deprive most of Part A of the Sixth Schedule of purpose. It would also make the express exclusion of the lift pointless.
4. The First-tier Tribunal’s construction, under which the Commercial Block comprised the whole building, was also implausible. It would permit recovery of 100% of building expenditure from the tenants of three of thirteen units and would disregard the language designating a “part” of the building.
5. The correct construction was that the Commercial Block meant the ground floor of the Building, excluding the lift. The respondent could recover from the ground-floor-unit tenants the expenditure attributable to that area. Whole-building expenditure required appropriate apportionment.
6. Grounds 2 and 3 failed. The Tribunal confirmed that the accounting treatment of reserve-fund contributions was outside the First-tier Tribunal’s jurisdiction under section 27 A of the Landlord and Tenant Act 1985. “Communal front doors” included external doors, and the First-tier Tribunal’s determination concerning safety checks stood.

1. Upper Tribunal (Lands Chamber): appeal from the First-tier Tribunal’s service-charge determination. Ground 1 succeeded and the Tribunal substituted its construction of “Commercial Block”; grounds 2 and 3 failed.
2. First-tier Tribunal (Property Chamber): determined that the leases required contributions towards maintaining the whole building, subject to express exclusions, and made further service-charge determinations.