Leases, repairs and ‘errors’

For long leases, outside the provisions of s.11 Landlord and Tenant Act 1985, the repairing obligation of the landlord is limited to the exact terms set out in the lease, as is the extent to which the landlord can recover the costs of repairs from the leaseholder. As anyone who has dealt with repairs on housing association shared ownership schemes where the housing association is itself a lessee of part of the building will know, this can be an utter nightmare, where the immediate landlord can seem to escape any repairing obligations whatsoever. But what if the lease terms themselves contain an apparent error?

In Lucie Marie-Antoinette Campbell v Daejan Properties Ltd [2012] EWCA Civ 1503, the alleged error benefited the leaseholder, Ms Campbell held the lease of a maisonette on the 3rd and 4th floors of a house on Upper Wimpole Street, London W1. The relevant lease clauses read:

2 […]
(xxv) To pay to the Lessor on demand two-fifths of the expense at all times and from time to time incurred by the Lessor in performing the covenant contained in Clause 3 (iii) hereof.

3 […]
(ii) To keep the house insured against comprehensive risks to the full value thereof in some insurance office of repute and to pay all premiums when the same shall become due and produce to the Lessees on demand the policy of such insurance or a duplicate thereof and the receipt for every premium
(iii) To keep the roof and outside walls of the premises in good repair and condition and to paint the exterior of the premises once in every seven years and except in cases of emergency the Lessor shall before carrying out any work under this sub-clause obtain not less than two competitive estimates from substantial and reputable firms of contractors and shall submit them to the Lessees for approval and the Lessees shall be deemed to approve the cheaper or cheapest of the said estimates unless the Lessees shall within one calendar month of the receipt of the said estimates produce and forward to the Lessor an estimate from a substantial and reputable firm of contractors cheaper than the cheaper or cheapest estimate obtained by the Lessor and in such case the Lessor shall accept the estimate procured by the Lessees”.

Note the ‘house’ in 3(ii) and ‘premises’ in 3(iii). This clause was in the original 1958 lease and incorporated into a new lease in 1999.

Ms Campbell had previously negotiated down a demand for 40% of the insurance premium of the house to 33 and a third, on the basis that her maisonette only occupied some 29.2% of the floor area of the house.

In 2005/6 Daejan, the landlord, carried out substantial works of maintenance and repair to the house. There was then a dispute about Ms Campbell’s share of the costs of the work. Daejan took the view that Ms Campbell should pay 40% of the costs of works to the house. Ms Campell countered that 40% of works to ‘the premises’ meant to the roof and walls to the third and fourth floor, but nothing below that, including the lower walls and roofs to the basement and ground floor extensions.

Daejan brought a claim under s.35 Landlord and Tenant Act 1987 for an order varying the terms of the lease, seeking “a declaration that clause 3 (iii) of the 1958 lease, which was incorporated into the 1999 lease, should be construed as if the word “premises” in lines one and two had read “house”.”

Ms Campbell defended, on the basis that clause 3 (iii) meant what it said and had always been dealt with that way in the past.

At first instance, the Judge agreed with Daejan, finding five reasons why ‘premises’ should be read as ‘house’:

22. I consider that the following factors are particularly relevant. First, as regards the landlord’s obligation to insure the house at clause 3(2), the tenant’s share is specified at 40 per cent at clause 2(20). Similarly, as regards heating the house and the provision of hot water, the share as at 1958 was specified at eight-nineteenths, which amounts to 42.1 per cent.
23. Those factors suggest that if the tenant were indeed required to pay only 40 per cent of the costs of repairing and painting the exterior walls of the maisonette and nothing at all for the lower three floors or the basement, that would be proportionately a far lower contribution than the parties considered appropriate for the contributions clearly specified as applicable to expenses attributable to the house as a whole such as insurance and heating. I do not think that point is in any way weakened by the fact that the maisonette accounts for only 29.2 per cent of the floor area and, at least as at 1958, 26 per cent of the rateable value of the whole house.
24. Secondly, the main roof of the building is clearly that over the maisonette. It makes no sense that if the tenant has to pay only 40 per cent of the cost of maintaining and painting the exterior walls of the maisonette (that is the second and third floors of the building) and nothing at all for repair or painting of the other floors, nonetheless, it would have the burden of paying 40 per cent of repairs to the main roof.
25. Thirdly, if the tenant’s construction is correct, the tenant would not have the benefit of a covenant from the landlord to keep the building as a whole in good repair. I consider that would be a serious deficiency in a lease and to the manifest disadvantage of the tenant since disrepair of parts of the lower floors would clearly affect the amenity and potentially even the structural integrity of the maisonette. The fact that the demise in the lease includes the right of support to the premises is not an effective answer to this.
26. Fourthly, it is inconceivable that the landlord, having a long lease, would not provide for the costs of painting and repairs which it had to carry out to be covered by the aggregate contribution from the tenants. Mr Murch realistically accepted that that must be the case but on the tenant’s construction here, it is unclear where the balance of 60 per cent of the costs of the repair of the roof and the exterior walls of the maisonette would come from.
27. Mr Murch suggested that the other tenants, especially the professional tenants on the lower floors, could have an obligation in their leases to pay 100 per cent of the repair and painting of the discrete parts of the house leased to them and, in addition, to pay 60 per cent of the costs of repair of repair and painting the exterior of the second and third floors and the main roof. Although Mr Murch urged that the court should not speculate on what might be contained in the other leases which were not in evidence, that would be an utterly bizarre and unorthodox form of covenant, all the more so when one bears in mind that the ground floor is in dual occupation under two leases.
28. I note that in the Billson case, as I indicated, the Court of Appeal was prepared to proceed on a reasonable assumption on what was likely to be in the other leases, although they apparently were not in evidence before the court, and I feel it is entirely appropriate to dismiss as utterly implausible the suggestion that such a form of covenant would be contained in the other leases here.
29. Fifthly, there is the question of the estimates for repair work required by clause 3(3) which the landlord must provide for repairs within the scope of the covenant before it can charge for that work. The premises are defined to include not just the maisonette on the third and fourth floors but also the stairs leading up to them from the second floor of which the staircase abuts part of the external wall.
30. If the tenant were correct, then when structural repair was required to the second floor including the wall on the staircase side, a separate estimate for that part of the external wall which abuts the staircase would be required so that it could be provided to the tenant of the maisonette. Mr Murch submitted that this is not really such a practical problem as the landlord could obtain estimates for the whole work and then ask the builder or quantity surveyor to itemise this part of the wall separately.
31. However, under the clause, the tenant could serve a counter-estimate, obviously only for that part of that structural wall abutting the staircase comprising the premises, and that estimate may be cheaper. Under the clause, the landlord would then be obliged to accept the tenant’s estimate for that part of the wall even if the other builder’s quotation for the work to the whole of the wall was cheaper. This demonstrates the air of unreliability [unreality] which is created by the tenant’s construction.

Ms Campbell appealed. On appeal, she argued that the Judge had erred in his approach to construction and had, in effect, re-written parts of the 1958 lease. She then amended to include further grounds, “that as a result of the new lease granted in 1999, the alleged mistake in clause 3 (iii) cannot now be corrected”. She also sought to introduce fresh evidence, including the head lease and correspondence from the 1990s showing how the parties had interpreted the clause.

On the issue of construction of the lease, the Court adopted the approach to contractual interpretation set out in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, 2009 1 AC 1101 and in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429.

What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. [Lord Hoffmann in Chartbrook]

the court cannot introduce words into a contract unless “satisfied (i) that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it and (ii) that they did intend some other commercial purpose which can be identified with confidence” [Lord Neuberger MR in Pink Floyd]

The two questions for the court on construction were:

“(i) whether it is clear that something has gone wrong with the language of clause 3 (iii); (ii) if so, whether it is clear that reasonable persons would have understood clause 3 (iii) to be referring to all of the roofs and all of the external walls of the house.”

It was very hard to answer affirmatively to either of these. The lease clauses imposed a variety of different rates of charge, for insurance, for rates and water rates, for maintenance of common parts and so on. It was hard to see the clause 3(iii) as being either obviously out of line. Moreover:

There is no obvious pattern in the various service charge provisions which leads to the conclusion that the parties must have intended the lessee to pay 40% of the repair costs of all roofs and all outside walls. Indeed such an obligation would be surprisingly onerous since the floor area of the maisonette represents only 29.2% of the total floor area of the house. Furthermore the lessee of the maisonette derives no benefit from the flat roofs above the basement and the ground floor extensions.

The five reasons given by the judge below:

On the first, it was not possible to satisfactorily deduce from the other clauses an intention that the charge should be 40% of the house, as the charges varied too widely.

On the second, the requirement to pay 40% of the main roof repairs did make sense as the roof directly benefited the maisonette, and the three flat roofs which did not benefit maisonette entailed no contribution.

On the third, “it is correct that the lessee of the maisonette does not have the benefit of a covenant to keep the building as a whole in good repair. On the other hand the lessor was under such an obligation from other sources. Clause II (2) of the head lease imposed such an obligation. Mrs. Campbell has the benefit of that covenant under clause 1 (e) of the 1958 lease”. Daejan’s argument that construing the clause as meaning the premises was in this regard both too favourable to the lessor and to the lessee was not a basis for the court to re-write the contract, which usually required benefit to one party and detriment to the other.

On the fourth, “It is not always the case that the landlord of a property with multiple tenants on historic leases recovers 100% of his expenditure through service charges. Obviously this is what the landlord desires, but there are many possible reasons why he may not achieve that. There is no presumption in construing a lease that the service charge provisions will enable the landlord to recover all of his expenditure: see Rapid Results College Ltd v Angel [1986] 1 EGLR 53 at 55, column 1″

And on the fifth, while the clause could certainly produce difficulties in estimates for costs of works, with the lessor producing estimates for the whole house and the lessee producing estimates for the main roof and exterior of the premises only, this was not fatal to the clause. There had been no such problems to date and in any event, it was not unusual for procedures for sharing remedial costs between parties to give rise to problems.

Overall, it was not possible to say that in using ‘premises’ the dafter of the clause had made a clear mistake, nor was it commercially nonsensical. As a matter of fact, the parties had made previous arrangements according to the terms of the clause.

If I were counsel advising on the drafting of the 1958 lease, I would not recommend clause 3 (iii) in its present form. I would be inclined to advise the parties that the word “premises” should be changed to “house” and the contribution figure should be reduced from 40% to about 30%. However, I am not counsel advising the parties about what the lease should say. My task is to construe clause 3 (iii) judicially. In my view this is not a case of clear mistake, where the court can step in and construe the contract as if it said something different. Clause 3 (iii) should be construed as meaning what it says. The word “house” should not be substituted for “premises”.

Moreover, when the 1958 lease was replaced by the 1999 lease, it was open to Daejan to have proposed a modification of the clause. It did not. despite ongoing discussions over the operation clause since 1990. It was not necessary to decide whether this was in itself fatal to Daejan’s application to amend the lease term.

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Disrepair, Housing law - All, Leasehold and shared ownership.

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