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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Phillips & Ors v Francis & Anor [2012] EWHC 3650 (Ch) (21 December 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/3650.html Cite as: [2013] L &TR 19, [2013] WLR(D) 7, [2013] 1 EGLR 47, [2013] 1 WLR 2343, [2012] EWHC 3650 (Ch), [2013] 13 EG 76, [2013] WLR 2343

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2012

The Chancellor :

Introduction
1. Point Curlew is a 25 acre holiday site ("the Site") at St Merryn, Cornwall. It was created in the 1970s on part of a disused WWII Airbase. It comprises in excess of 150 chalets let on 999 year leases, 11 lodges and a number of other buildings, including an amenity centre. On 22nd April 2008 the freehold of the Site was conveyed by the former owner, St Merryn Holiday Estate Management Co Ltd to the defendants, Mr and Mrs Francis ("the Lessors"). At a meeting of the chalet owners held on 3rd May 2008, as confirmed in a letter to them dated 15th May 2008, the Lessors indicated their intention to bring the Site up to a first class standard from which they might all benefit. Further meetings and letters to the like effect followed in October and November 2008. On 10th January 2009 the Lessors adopted a Design and Access Statement in support of a planning application for the improvement of the Site.
2. Whilst the plans for the improvement of the Site may have been welcomed by the lessees of the chalets, the increase in the service charges payable under their leases was not. The last service charge before the sale of the Site to the Lessors was £1,478 for each chalet. The first after the sale to the Lessors was a demand dated 29th December 2008 for £3,117.47 for each chalet on account for the year 2009. On 5th February 2009 this action was commenced by a Part 8 claim issued in the Queen's Bench Division, Truro District Registry by the claimants suing on behalf of themselves and the lessees of 97 other chalets on the Site ("the Lessees"). They sought various declarations as to the true construction of the service charge provisions contained in the leases of the chalets. In addition they applied for injunctions to restrain the Lessors from forfeiting any of the chalet leases for non-payment of the service charges.
3. The claim came before HH Judge Griggs in March 2010 on a preliminary issue to determine whether the restrictions on the recovery of service charges imposed by ss.18-30 of the Landlord and Tenant Act 1985, as amended by the Commonhold and Leasehold Reform Act 2002, applied to the leases of the chalets. For the reasons given in his judgment dated 24th March 2010 he concluded that the chalets were "dwellings" within the meaning of that word as defined in s.38 of the Landlord and Tenant Act 1985 with the consequence that the restrictions did apply. In the light of that decision the claim was transferred to the Truro County Court and the particulars of claim substantially amended to reflect the provisions of the Act.
4. On 22nd January 2010 accountants, C.V.Ross & Co Ltd, certified the amount recoverable from the Lessees by way of service charge for the period 22nd April to 31st December 2008 and the 12 months ended 31st December 2009 to be £269,933.49 and £583,542.87 respectively. The latter certificate indicated that the costs included both £95,000 as wages for the Lessors and £27,787.76 as a 5% management charge. The claim came before HH Judge Cotter sitting in the Truro County Court on three days in February and three days in April. In addition he received written submissions dated 12th and 19th May 2011. The judge handed down a very substantial judgment in October 2011 in which he dealt with all the issues then capable of being decided and adjourned the rest to a further hearing to be fixed. The order reflecting his decisions was drawn up on 19th March 2012. I should refer to the two parts of it which the claimants now seek to appeal. They are:

(1)

"(5) That on the construction of Schedule 3 clause 8 of the leases:-

(i) the lessor is entitled to charge and recover the reasonable costs (net of VAT) of agents for the management of the estate.

(ii) recovery of such costs is not confined to a "management charge of five per centum (5%) of the total cost of the items referred to in this Schedule", and such 5% charge is therefore recoverable on all items of expenditure properly recoverable under Schedule 3 paragraphs 1 to 7."

(2)

"(10) Save for the items declared in paragraph 6 above to not be recoverable under the lease provisions in any event (removal and dispersal of earth banks; and construction of office/shop and launderette/staff buildings), no items for which service charge is claimed relating to expenditure in 2008 and 2009 amounts or amount, individually or cumulatively, to a single set of "qualifying works" for the purposes of sections 20 and 20ZA of the Landlord and Tenant Act 1985."

The judge refused permission to appeal.

5. The Lessees issued their appellants' notice on 16th April 2012. They contend that each of the declarations to which I have referred is wrong in law and seek permission to appeal. Their application came before Morgan J on 1st October 2012. He directed that the application for permission to appeal should be listed for hearing by a judge in court with the appeal to follow if leave were granted. I have heard full argument from both parties and will consider the application in conjunction with the appeal. There are two issues, namely management charges and qualifying works. The first is a question of construction of the leases. The second raises issues in relation to the meaning and effect of the scheme relating to service charges imposed by Landlord and Tenant Act 1985 as amended by the Commonhold and Leasehold Reform Act 2002. I will deal with them in that order, but, first, it is necessary to set out the terms of the leases.
The Leases
6. The parties have identified various forms of lease of a chalet used over the years by which to grant 999 year terms. Fortunately there are no material differences. I will take as the standard lease that dated 21st January 1983 and made between Wardles Leisure Estates (St Merryn) Ltd (1) and Jeanette Curson (2). In recital (1) "the Estate" is defined as the Site. In consideration of £5,000 the relevant chalet is demised unto the lessee for a term of 999 years from 25th December 1975 at an annual rent of £10.
7. The lessee's covenants are set out in clause 2. In sub-clause (o) the lessee agrees not to use the chalet on or between 2nd January and 28th February in each year. So far as relevant sub-clause (q) is in the following terms:

"Pay to the Lessor by way of additional rent the service rent hereinafter defined in Clause 4 within fourteen days of written demand after the accounting date as hereinafter defined in each and every year of the term PROVIDED ALWAYS that the tenant shall pay to the Lessor on each of the accounting dates in every year during the term such sum or sums as the Lessor may reasonably require on account of the said service charge and any such payment to be credited to the tenant against payment of the services as certified to be due from it (as hereinafter provided) by the certificate issued next after the making of such demand and in default of such payment by the Lessee…"

8. Clause 3 contains the lessors' covenants. By paragraph (b) the lessor covenants:

"To carry out and provide the services as set out and numbered 1-7 in Schedule 3 hereto unless prevented from so doing by

(i) act of God

(ii) force majeure

(iii) strikes lock-outs or trade disputes

(iv) civil commotion"

9. Clause 4 contains the obligation to pay the service charge. So far as material it provides:

"The service rent hereinbefore covenanted to be paid by the Lessee shall be a fair and equitable proportion determined from time to time by the Lessor and such sum shall be ascertained by a certificate given by the Lessor or its managing agents and certified by them to be the aggregate of the sums actually expended on the liabilities incurred by the Lessor in any period ending on the thirty first day of December or such other date as the Lessor may in its discretion determine (hereinafter called "the accounting date") during the term hereby created in connection with the management and maintenance of the Estate and the provisions of such services as herein described and in particular without limiting the generality of the foregoing shall include the cost of the matters referred to in the Schedule 3 hereto."

10. There follows in clause 4 a provision dealing with the binding nature of such a certificate to which are appended three provisos. The third is as follows:

"(iii) As soon as practicable after the accounting date in each year throughout the term the Lessor will submit to the Lessee a statement certified by the Lessor's agent to show the computation of the said sums expended and the liabilities incurred (hereinafter called "the annual service cost") for the preceding year and the Lessee shall be entitled within fourteen days of receipt of such statement to inspect the vouchers and receipts of all items included in such statement."

11. Schedule 3 not only specifies the subject matter of the lessor's covenant in clause 3(b) but also the costs making up the service charge provided for in clause 4. That schedule provides:

"SCHEDULE 3

1. To pay all rates and other charges upon the Estate or any part thereof other than those properties specifically demised to third parties.

2. The erection and maintenance of suitable notice boards on the Estate.

3. The maintenance operation and cleaning of soil and drainage pipes and other conducting media conduits and channels and pumps in relation thereto.

4. The provision and maintenance of fire fighting equipment.

5. The cutting and mowing of grass lopping pruning and felling of trees on the Estate.

6. Management of the Estate and its appurtenances including where applicable the charges wages pensions contributions insurance and provision of uniforms and working clothes of any staff employed by the Lessee and the provision of telephones (if any) and also the cost of providing tools appliances cleaning and other materials bins receptacles together with any amounts of fees paid to architects agents surveyors and solicitors employed by the Lessor in regard to the management of the Estate.

7. Repairing renewing rebuilding decorating cleaning and maintaining those parts of the Estate (which include an amenity centre if any) used in common with other lessees including without prejudice to the generality of the foregoing the footpaths roadways and car park on the Estate.

8. A management charge of five per centum (5%) of the total cost of the items referred to in this Schedule."

Management Charges
12. I have set out the terms of the declaration made by Judge Cotter in paragraph 4(1) above. The reasons for his conclusion are contained in paragraphs 152 to 156 of his judgment. He had earlier recorded in paragraph 148 that counsel for the Lessees conceded that a landlord might employ as a managing agent a company owned by him so long as the employment was not a sham. Paragraphs 152 to 156 are as follows:

"152. Further, [counsel for the Lessors] submitted that the Claimants' submission that the recovery of any such costs is wholly limited and confined to the paragraph 8 "management charge of...5% of the total cost of the items referred to in this Schedule" is simply an untenable reading of Schedule 3. Paragraph 6 could not be clearer. Paragraph 8 is a "management charge of 5% of the total cost of the items referred to in this Schedule", and so is on top of the items referred to in e.g. paragraph 6.

153. I accept [counsel for the Lessors] argument as correct and in my judgment [counsel for the Lessees] submission cannot be correct given the clear and extensive wording of paragraph 6, one of the very paragraphs of services expenditure in Schedule 3 to which the 5% in clause 8 is expressed to be applied.

154. This paragraph authorises not just the employment of "staff", but also a wide range of professionals and "agents" for the "management of the Estate". So costs and charges can be incurred and recovered under this provision whether someone is an employed member of staff, or a self-employed or external professional or agent; of the specific types stated or the general category of "agent".

155. On the plain wording, the Defendants can instruct an "agent" for "the management of the estate", and recover the cost under that provision.

156. As I have set out [counsel for the Lessors] relied in part on the fact that the old company paid the managing director Mr. Drummond a substantial salary and provided him with a flat. However, I do not take into account past conduct; the terms of the lease are plain and simple. The 5% recoverable in clause 8 does not in someway negate the clear content of paragraph 6. In my judgment 5% is recoverable on all of the items of expenditure of themselves properly recoverable, in Schedule 3 paragraphs 1 to 7."

13. Counsel for the Lessees contends that the judge was wrong. They make two submissions. The first and primary submission is that the only management charge payable to the Lessors is under Schedule 3 paragraph 8, namely, 5% of the aggregate amounts chargeable under paragraphs 1 to 7. Their second, and secondary, argument is that if that is wrong then the Lessors may recover their management charges under either paragraph 6 or paragraph 8, but not both. Counsel submits that the judge failed to consider the terms of the Leases as a whole but regarded paragraphs 6 and 8 in isolation from each other and from clause 4 imposing the liability to pay. The Lessees basic objection is to being liable to pay management charges to an agent under paragraph 6 and management charges to the Lessors under paragraph 8 for the same management services. They submit that such double recovery could not have been intended so that the paragraphs should be read as mutually exclusive.
14. Counsel for the Lessees points out that in the absence of a provision such as paragraph 8 a landlord is not entitled to charge for its management, see Embassy Court Residents Association Ltd v Lipman [1984] 2 EGLR . He suggests that paragraph 6 covers cases in which the Lessors employ third party agents for which they are entitled to reimbursement. By contrast paragraph 8 entitles them to be paid for their own management services. They point out that the judge's conclusion leads to an unreasonable result which the parties cannot have intended to produce, but that the judge makes no mention of it.
15. Counsel for the Lessors submit that the judge was right for the reasons he gave. They point to the width of both paragraph 6 and paragraph 8. They submit that there is no double recovery because sums charged under paragraph 6 are merely reimbursement for sums paid out to the agent whereas sums charged under paragraph 8 are retained by the landlord for his own benefit. Counsel for the Lessors claim that the judge's construction is supported by a number of features including (1) the original lessor was a limited company, (2) the lessees ultimately controlled the lessor by virtue of their shareholding, (3) the leases were not the product of any adversarial negotiation, (4) one of the leases recited that the old form of lease did not adequately deal with the rights and liabilities of the parties but contained the same provisions as to the service charge, (5) the wording of paragraph 6 is clear and (6) paragraph 8 specifically includes paragraph 6. It is convenient to record at this stage that I derive no assistance from points (1)-(4); points (5) and (6) are the points at issue.
16. Nevertheless, counsel for the Lessors accepted that the services which are being reimbursed under paragraph 6 must be different from those for which paragraph 8 provides the payment. He suggested that the distinction must lie between what he described as micro-management provided by agents under paragraph 6 and the macro-management to be expected from the owner of the Site to be reimbursed under paragraph 8.
17. Thus both parties accept that some gloss must be put on the words used in the Lease in order to prevent double recovery for the same services. In my view the starting point must be clause 3(b). This provision sets out the obligations of the Lessors by reference to paragraphs 1 – 7 in Schedule 3. Similarly clause 4 limits the recoverable service charge to a proportion of

"sums actually expended on the liabilities incurred by the Lessor…in connection with the management and maintenance of the Estate…including the cost of the matters referred to in the Schedule 3 hereto".

Though Schedule 3 is referred to generally, in its context, it must be limited to paragraphs 1 – 7 in Schedule 3 because paragraph 8 does not identify any additional obligation or liability of the Lessors.

18. Paragraph 6 of Schedule 3 entitles the Lessor to reimbursement by the service charge of both the pay and expenses of "staff employed" and "fees paid" to "architects agents surveyors and solicitors" employed in regard to the management of the Estate. The context in which the word "agent" is used is by reference to the provision of some professional service required in connection with the management of the Estate. That is to be distinguished from the general management of the Estate. No doubt the professional agent may be a company in which the Lessor is interested, see Skilleter v Charles [1992] 1 EGLR 73, but the power to recover charges contained in paragraph 6 does not extend to non-professional management services provided by the Lessors either personally or through their management company.
19. Accordingly, in my judgment, the appropriate limitation to prevent the double recovery which both parties agree cannot have been intended is to recognise that the "fees paid" referred to in paragraph 6 are limited to those charged to the Lessors by professional agents. As such they do not include the wages of £95,000 paid to Mr and Mrs Francis in the year ended 31st December 2009 specified in the accountants' certificate referred to in paragraph 4 above because they could not employ themselves. Nor do they include payment for work of a non-professional nature charged by any agent, particularly one in which Mr and Mrs Francis are interested. Accordingly, in my judgment, the judge was wrong when in paragraph 154, quoted in paragraph 12 above, he concluded that the "fees paid" included those paid to one in "the general category of "agent"". The extension to the general category appears to me to ignore the context. I also disagree with his conclusion in paragraph 155 that the Lessors may employ an agent generally in the management of the Estate and recover his fees under paragraph 6. In my view the words "in regard to the management of the Estate" in the context of paragraph 6 as a whole are more limited than a power to appoint an 'agent to manage' the Estate, that is recognised by paragraph 8 as the function of the owners. Accordingly, I would give permission to appeal on this issue and allow the appeal. I would invite counsel to agree a form of order to give effect to these conclusions.
Qualifying Works
20. Landlord and Tenant Act 1985 ss.18 to 30 introduced limits on the recovery of service charges. It was substantially amended by a number of subsequent Acts, particularly the Commonhold and Leasehold Reform Act 2002, such that decisions on the meaning and import of the original Act need to be used with caution when considering the meaning and import of the Act as amended. In the original Act 'service charge' was defined in s.18 by reference to an additional amount payable by "a tenant of a flat". The Landlord and Tenant Act 1987 substituted the word "dwelling" for "flat". In the original Act the limit on the recoverable service charge was an amount for the cost of the works, which were undefined, prescribed by the Secretary of State unless the landlord had complied with the consultation for which the original Act provided. That was changed by the amendments made by the Commonhold and Leasehold Reform Act 2002 and the regulations made thereunder by fixing the limit by reference to the amount of the contribution sought from the tenant rather than the cost of the works.
21. The Landlord and Tenant Act 1985 as amended ("the 1985 Act") provides in s.20ZA(2):

"In section 20 and this section—

"qualifying works" means works on a building or any other premises, …"

Subsection (4) defines "consultation requirements" as the requirements prescribed by regulations made by the Secretary of State.

22. So far as relevant s.20 is in the following terms:

"20. Limitation of service charges: consultation requirements

(1) Where this section applies to any qualifying works…, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either —

(a) complied with in relation to the works…, or

(b) dispensed with in relation to the works … by (or on appeal from) a leasehold valuation tribunal.

(2) In this section "relevant contribution", in relation to a tenant and any works…, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works….

(3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.

[(4)..]

(5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount —

(a) an amount prescribed by, or determined in accordance with, the regulations, and

(b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations.

(6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works…which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount.

(7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined."

23. The relevant regulations are The Service Charges (Consultation Requirements)(England) Regulations 2003 SI 1987/2003. They came into force on 31st October 2003. By regulation 1(3) they apply "where a landlord… (b) intends to carry out qualifying works to which [s.20] applies on or after [31st October 2003]". Regulation 6 provides that:

"For the purposes of subsection (3) of section 20 the appropriate amount is an amount which results in the relevant contribution of any tenant being more than £250."

Regulation 7(4) prescribes the relevant consultation requirements in this case to be those specified in Part 2 of Schedule 4.

24. Schedule 4 part 2 paragraph 1 provides:

"1. - (1) The landlord shall give notice in writing of his intention to carry out qualifying works -

(a) to each tenant; and

(b) where a recognised tenants' association represents some or all of the tenants, to the association.

(2) The notice shall -

(a) describe, in general terms, the works proposed to be carried out or specify the place and hours at which a description of the proposed works may be inspected;

(b) state the landlord's reasons for considering it necessary to carry out the proposed works;

(c) invite the making, in writing, of observations in relation to the proposed works; and

(d) specify -

(i) the address to which such observations may be sent;

(ii) that they must be delivered within the relevant period; and

(iii) the date on which the relevant period ends.

(3) The notice shall also invite each tenant and the association (if any) to propose, within the relevant period, the name of a person from whom the landlord should try to obtain an estimate for the carrying out of the proposed works."

25. Subsequent paragraphs in that Part specify further obligations on the landlord. Thus paragraph 2 requires the landlord to provide a description of the proposed works available for inspection free of charge at a reasonable time and place or to provide a copy on request and free of charge to any tenant who asks for one. Paragraphs 3 to 6 oblige the landlord to have regard to any observations made by any tenant or tenants' organisation, including rival estimates of the cost of the works and reasons for awarding the contract to a particular person.
26. It is not suggested that the Lessors carried out any of the prescribed consultation requirements. Further it is common ground that the contribution sought from each Lessee exceeds £250. The Lessees sought to restrict their contributions to that amount. In paragraph 340 of his judgment the judge set out the terms of the definition of qualifying works in s.20ZA(2). He noted that it provided little help or guidance. In paragraph 341 he said:

"In my judgment a commonsense approach to construction needs to be taken and in view of the fact that it acts as a trigger for the protection afforded by consultation. If the threshold were too low and all minor or non permanent works covered the result would be commercially unmanageable to the detriment of both lessor and lessee. The phrase building works is used to describe significant works with a permanent effect by way of modification of what was there before. Whether works are indeed qualifying works, is a question of fact having regard to the nature and extent of the works in question."

27. The judge then noted the submissions for the parties. I should note in particular his description of the submission of counsel for the Lessees set out in paragraph 342 as follows:

"[Counsel for the Lessees] submitted that if works are on their face qualifying works the next issue is whether they represent one set of Qualifying Works for the application of what is sometimes called the "triviality threshold". He submitted that landlords often seek to "double dip" by arguing that various individual elements of work are each separate "Qualifying Works" so the triviality threshold above which consultation is required is not triggered, which obviously erodes the consultation requirements. He referred to Martin v Maryland Estates [1999] 2 EGLR 53 in which Robert Walker LJ concluded:

(a) A commonsense approach was necessary as Parliament has not made it clear how to make a division, if at all, between works being undertaken.

(b) Extreme fragmentation of works in a major scheme of development "plainly would be absurd".

(c) The fact all the works were covered by one contract is not a decisive factor.

(d) The legislative purpose of the limit on recovery in the absence of consultation is to provide a triviality threshold rather than to build into every contract a margin of error."

I shall refer to the judgment of Walker LJ in Martin v Maryland Estates greater detail later; for present purposes it is sufficient to note that it was given by reference to the 1985 Act before amendment.

28. The judge then turned in paragraph 346 to address the question of how a single set of qualifying works is to be identified. The judge concluded:

"347. In my judgment as, with the issue referred to [by counsel for the Lessees] it appears to me that the question of aggregation is a question of fact on the circumstances of each individual case.

348. Taking the steps together the task in the present case is to identify whether there are any particular items or tasks within the overall year's expenditure which constitute "qualifying works", and if so what they are. Secondly, it is necessary to consider whether such works constitute one or more sets of qualifying works. Thirdly, the triviality threshold must be applied to any relevant set of qualifying works. In the present case the sum of £250 per tenant produces figures of £41,000 (2008) or £41,500 (2009) as a limit to the cost of those works, before they become subject to any consultation requirement."

29. The judge then considered the rival detailed submissions made to him on the facts of the case. In paragraphs 357 and 358 he said:

"357. It was the Defendant's vision that the site should be the subject of an extensive upgrading exercise. As progression of this there have been certain specific defined and separate programmes of work, such as to the banks and, as proposed, to the amenity centre and also range of very different tranches/pieces of work to different parts of the site undertaken at different times and as the need or idea arose. I cannot accept, as a matter of fact that they were ever one scheme, or could properly ever be viewed objectively using a commonsense test as such. It is to be remembered that the aim is protection through consultation. That requires a clearly identified set of works which can be set out and considered. Apart from certain aspects of the work, which were in fact mentioned in advance, I find as fact that Mr and Mrs Francis did not themselves ever plan or in any way tie all the disparate pieces of work together. It was not until the beginning of 2009 that there was any structure to the planning of the revision of the site, that being to the extent referred to at paragraph 237 above.

358. Having heard Mr Francis and considered the nature of the works I was never at any stage attracted to [counsel for the Lessees]' primary submission. It was simply not the way that Mr Francis operated. Although [counsel for the Lessees] said that he relied upon what they said in evidence, neither Mr nor Mrs Francis gave evidence that it was a single set of works. The only acceptance of any coordinated approach was in 2009. Before that and contrary to [counsel]'s submission it was Mr Francis' evidence that, in effect, "one job creates another"."

The judge then considered the oral evidence as to specific works and identified certain works as qualifying works leaving others to fall under the costs threshold.

30. Counsel for the Lessees submitted that the judge was wrong not to have recognised all the qualifying works as being a single set originally designed by Mr and Mrs Francis, as stated at the meeting and subsequent letter in May 2008, for 'making the Point Curlew site one to be proud of and for the benefit of all". Those works generated individual service charges for lessees greatly in excess of the limit prescribed by the 2003 regulations. As there had been no compliance with the consultation requirement the excess over £250 is irrecoverable.
31. Counsel for the Lessors sought to uphold the judge for the reasons he gave. He submitted that the mechanics for consultation set out in Part 2 of Schedule 4 to the Regulations necessarily required a pre-defined set of works. He contended that whether there were one or more sets of qualifying works was a question of fact in respect of which the judge was in the best position to judge, having had the benefit of a site visit.
32. I accept that the judge was in the best position to adjudicate on the facts but the questions I have to decide are whether the issues on which he reached a conclusion on the facts were required by the legislation when properly construed. The questions he sought to answer are those set out in paragraph 348, quoted in paragraph 28 above. They were, in summary:

(1) which of the works fell within the definition of 'qualifying works' contained in s.20ZA(2)?

(2) Did those works constitute one or more 'sets of qualifying works'?

(3) Did any of those sets fall below the triviality threshold set by the limit on the cost of those works?

I accept that the first of those questions is correct. If the works do not fall within the statutory definition then there is no statutory limit on their recoverability. But the second and third questions are not reflected in the terms of the 1985 Act.

33. They appear to be derived from the judgment of Walker LJ in Martin v Maryland Estates [1999] 2 EGLR 53. That case concerned the 1985 Act but in a substantially different form. Three flats had been created by the conversion of a Victorian building. The landlord intended to carry out external works of repair and redecoration. He gave informal notice to the tenants and invited their observations. In the course of carrying out those works it became apparent that the roof was in a worse condition than had been realised. The landlord sought to separate the additional works from the original works in order to take the benefit of an additional cost ceiling of £1,000. At page 552 Walker LJ noted that:

"Finally, there is a short but not an easy point of construction as to the £1,000 limit under section 20(3) as amended. The judge held at the end of his judgment:

"The service charge bill was presented as a whole, as a complete bill in relation to all the works. Thus the excess relates to the cost above £1,000 and does not arise for separate consideration in relation to the additional works."

In other words, the £1,000 was a limit covering the entire works carried out between 21 March and late May 1995, and was not separately available for the additional works."

34. Walker LJ concluded:

"I readily agree that a common-sense approach is appropriate and necessary upon this point. I would also agree, if such were Mr Lewison's submission, that parliament has not made it entirely clear how one batch of qualifying works is to be divided from another. The definition of "qualifying works" indicates what their quality is but not how one batch is to be divided from another.

It seems to me, on what is I hope is a common-sense approach, that it is significant that the surveyor and the builder evidently regarded the additional work as a variation of the original contract. The judge himself found that some of the "Variation Order No 1" works were in fact covered by the original section 20 notice.

Mr Lewison submitted that the judge's approach on this point was inconsistent. He suggested that if the further works were seen as part of the original batch of works, then the case was truly one of non-compliance with section 20 as regards the entirety of the works, which was not how the judge had seen it. If, on the other hand, the further works were regarded as a new batch, then there was complete non-compliance with section 20 as regards that new batch, but a further £1,000 limit should be available. That is a subtle argument, but I am not persuaded by it.

It seems to me that since parliament has not attempted to spell out any precise test, a common-sense approach is necessary. The judge was influenced by the fact that all the works were covered by one contract. That would not, to my mind, always be a decisive factor, but, on the particular facts of this case, that was the right approach. The legislative purpose of the limit is to provide a triviality threshold rather than to build into every contract a margin of error, which may in some cases, including this case, simply duplicate a contingency sum that has already been provided for."

35. The distinction between that case and this is the change in the legislation. The limit then was by reference to the cost of the works; the limit now is by reference to the amount of the contribution. The consultation requirements then were the provision to the tenants of at least two estimates of the cost of the works; now it is a notice by the landlord to the tenants of his intention to carry out qualifying works and to describe them in general terms. Thus the emphasis has shifted from identifying and costing the works before they start to notifying an intention to carry out the works and limiting the amount of the individual contributions sought to pay for them after their completion. Accordingly, I see nothing in the present legislation which requires the identification of one or more sets of qualifying works. If the works are qualifying works it will be for the landlord to assess whether they will be on such a scale as to necessitate complying with the consultation requirements or face the consequence that he may not recoup the cost from the tenants' contributions. As the contributions are payable on an annual basis then the limit is applied to the proportion of the qualifying works carried out in that year. Under this legislation there is no 'triviality threshold' in relation to qualifying works; all the qualifying works must be entered into the calculation unless the landlord is prepared to carry any excess cost himself.
36. In my view the legislation in point on this appeal entitles me to construe it in the foregoing manner unconstrained by the conclusion of the Court of Appeal in Martin v Maryland Estates, save in its reference to the need to use common sense. In addition such a construction conforms more closely to the ongoing works of repair and maintenance likely to be necessary on an estate in multiple occupation. They are unlikely to be identified as parts of a complete set of works which can be costed at the outset. In the normal way they will be carried out as and when required. The need for some limitation on an obligation to contribute is at least as necessary with sporadic works of that nature as with a redevelopment plan conceived and carried out as a whole.
37. Accordingly, in my judgment the judge applied the wrong tests when seeking to apply the 1985 Act. It is not disputed that all the works he considered in paragraphs 361 to 367 were qualifying works within the statutory definition. Accordingly, all of them should be brought into the account for computing the contribution and then applying the limit. It may be that they should be spread over more than one year thereby introducing another limit. With that exception, the provisions relating to this service charge do not require any identification of 'sets of qualifying works' or the avoidance of 'excessive fragmentation'.
38. For these reasons I conclude that the judge's application of the 1985 Act was wrong in law. I give permission to appeal and allow the appeal accordingly. I will set aside the judge's order in this respect, invite counsel to agree a form of order to give effect to this conclusion and remit the matter to the judge to recompute the cost of the qualifying works in accordance with the principles I have expressed above.
Summary of Conclusions
39. For all these reasons I give permission to appeal and allow the appeal of the Lessees from the order of the judge on both the maintenance charge and qualifying works points.