Discretionary leasehold services

The Court of Appeal has rejected a challenge to charges for a council’s discretionary leasehold services. Sebastian Clegg explains why.

In common with other areas, many of Blackpool Borough Council’s secure tenants have purchased their flats under the right to buy legislation of the Housing Act 1985. Blackpool has about 400 such long leaseholders. The responsibility for managing those properties was transferred to an Arms’ Length Management Organisation, Blackpool Coastal Housing Limited (BCH). Over the years, BCH has, in its discretion, provided various services for those leaseholders such as anti-social behaviour services, gas safety and the provision of information by way of newsletters and forums (the discretionary leasehold services).

In 2010, BCH conducted a review of the costs of providing the discretionary leasehold services and concluded that the amount it had been charging, about £50 per year, was substantially less than the services cost. Following consultation, including with leaseholders, and executive approval by the council, the charge for the discretionary leasehold services was increased to over £190 as for the year commencing 1 April 2011, in line with the review.

Two of the leaseholders challenged the increased charge in the Leasehold Valuation Tribunal (LVT). The LVT held that most of the management charges were not chargeable under the terms of the leases and decided in the leaseholders’ favour reducing the charges back to £50 per annum. The council appealed and the Upper Tribunal, which agreed with the council’s interpretation of the leases, allowed the charges for the particular year to stand at £155, after discounting some elements of the charges. Mr Morris appealed that decision to the Court of Appeal.

Upon appeal, before Jackson, McCombe and Gloster LJJ, the main issue in Ian Morris v Blackpool Borough Council and Blackpool Coastal Housing Limited [2014] EWCA Civ 1384 was whether the terms of the lease permitted the council to charge for the discretionary leasehold services. The council’s obligations for providing services were set out in the 8th Schedule to the lease and the council was clearly entitled to charge for those services under the terms of the lease. The council identified its right to charge for the discretionary leasehold services in the 7th Schedule to the lease which generally set out covenants on the part of the Lessee; the 14th paragraph of that Schedule was the material one:

“14. The Lessee shall comply with and observe any reasonable regulations which the Council may consistent with the provisions of this Deed make to govern the use of the Flats and Reserved Property Such regulations may be restrictive of acts done on the Property detrimental to its character or amenities Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them.”

Peter Knox QC, acting for Mr Morris, argued that paragraph 14 did not mean that the council had a right to charge for the discretionary leasehold services unless they were directly related to regulations passed by the council and paragraph 14 did not give the council wide powers to provide and charge for services beyond those expressly set out under the council’s obligations in the 8th Schedule to the lease. Mr Knox submitted that any doubt as to that issue should be resolved in favour of Mr Morris, ‘contra proferentum’.

Sebastian Clegg, acting for the council, pointed to the wide provisions at the end of the paragraph for the council to do works and provide services and submitted that the paragraph expressly permitted the council to charge for those works and services as if they had been carried out pursuant to the Ccouncil’s obligations as set out in the 8th Schedule. Mr Clegg submitted that there was no ambiguity as to that interpretation of the lease and ‘contra proferentum’ did not apply.

Handing down its decision on 24 October, the Court of Appeal rejected Mr Morris’ narrow interpretation of paragraph 14 and dismissed the appeal. The maxim “omnia praesumuntur contra proferentum” did not apply as the court was not unable to interpret the lease without deploying the maxim. The Court of Appeal accepted the submission that the most likely reason for the positioning of the relevant provision in the 7th Schedule was so that the council could provide the services and charge for them but was not under a positive obligation to provide the services (although it was stated that the provision would have sat more happily in its own schedule or elsewhere in the lease). Further, it was recognised that the tenants would be protected because the relevant sections of the Landlord and Tenant Act 1985 required any such charges to be reasonable.

The decision has significant ramifications for the council, the services it can continue to provide to leaseholders and the charges it can make for them going forward. The decision may also assist other councils in a similar position, depending upon the terms of their particular leases.

Sebastian Clegg is a barrister at Deans Court Chambers in Manchester and appeared for the council in this case. He can be contactedThis email address is being protected from spambots. You need JavaScript enabled to view it..