I thought that the point of taking a preliminary issue was, well, because the determination of that issue would likely resolve a significant part of the case. In Paddington Basin Developments Ltd and others v West End Quay Estate Management Ltd [2010] EWHC 833 (Ch), the High Court was dealing with a preliminary issue that, frankly, doesn’t seem particularly preliminary.

The case concerns the definition of “qualifying long term agreement” (QLTA) in ss.20 and 20ZA, Landlord and Tenant Act 1985. In outline, if a landlord under a long lease enters into a QLTA without having first complied with the various consultation requirements (Service Charge (Consultation Requirements) (England) Regulations 2003) or obtained dispensation from the LVT, then the recoverable service charges are capped at £100 per tenant in any accounting period. A QLTA is defined (s.20ZA, 1985 Act) as being an agreement made by or on behalf of a landlord for a period exceeding 12 months, under which a leaseholder is required to contribute more than £100. For these purposes, a landlord is any person entitled to enforce a right to the payment of service charges (s.30, 1985 Act).

The claimant was the leaseholder of a plot of land. Part of that land was demised to a third party, which built three blocks of flats on their part of the land. The flats were then sub-let to individual tenants. The defendant was a management company under the residential leases. The residential tenants had covenanted to pay service charges to the defendant, and, included within the service charges was any sums which the defendant had to pay to the claimant. That was important because the defendant had agreed with the claimant that it should provide certain services (fire alarm, security etc) for the benefit of the whole development, and the defendant would pay a fair and reasonable proportion of those costs.

It seems that the claimant and defendant could not agree what a fair and reasonable proportion was. In particular, the defendant argued that there was an implied term that it should not have to pay more than it could recover from the residential tenants. It went on to argue that the maximum that it could recover was £100 per tenant, because the agreement with the claimant was a QLTA and had not been consulted on (or dispensation granted). The claimant denied both of these assertions. The High Court ordered that there be a trial of the preliminary issue as to whether or not the contract between the claimant and defendant was a QLTA.

The Court held that the agreement was a QLTA. Statute defined a QLTA as being (i) an agreement, (ii) entered into by or on behalf of the landlord, which (iii) was for a term of more than 12 months. All three of these features were met in the present case. The claimant and defendant were clearly in a contractual relationship for the provision of certain services. The defendant had a right to collect service charges and, so, was a landlord (as against the residential tenants) under s.30, 1985 Act and the agreement was for a minimum term of 25 years.

The claimant argued that this was an absurd conclusion (although, frankly, I don’t see that any of the arguments they raised really had that much force). Lewison J disagreed. What the claimant was really doing was saying that, in some circumstances, it might be difficult for the defendant to consult its tenants, but that (a) was a matter for them and (b) was why the LVT had a power to dispense with the consultation requirements.

I confess that this doesn’t seem like the more obvious preliminary issue.  Even if the agreement between the claimant and defendant was a QLTA, that wouldn’t have any impact on the dispute as between the claimant and defendant unless there was an implied term that the claimant could not recover more than the defendant could lawfully demand from the leaseholders. Surely it would have made more sense to determine the question of the implied term as a preliminary issue?