Cases - Brown's Operating System Services Ltd v Southwark Roman Catholic Diocesan Corporation
Record details
- Name
- Brown's Operating System Services Ltd v Southwark Roman Catholic Diocesan Corporation (2007)
- Date
- [2007]
- Citation
- EWCA Civ 164; PLSC 44 (CA)
- Legislation
- Keywords
- Commercial property – landlord and tenant – service charge – terms of lease – surplus from annual charges – whether the landlord was obliged to repay the surplus built up from the service charge at the end of the tenancy
- Summary
-
The tenant covenanted to pay a service charge being a contribution towards the 'total service cost' to include 'such sum as the landlord shall ... think fit as being a reasonable provision for expenditure likely to be incurred in the future in connection with the matters mentioned in this Schedule' (the Schedule setting out the services to be provided).
The lease also provided that any excess arising from the tenant's on-account payments could be retained to cover any deficiency in the following year and that the landlord would only be entitled to demand further sums for the provision of services if the money held by the landlord in reserve were insufficient to meet any shortfall.
The landlord's policy was to build up a surplus from the annual charges to cover future expenditure and over a period of ten years a substantial sum had built up. The tenant thought that the money was being retained to his credit and that the size of the sum accumulated by 2002 entitled him to a service charge 'holiday'. When the landlord refused, the tenant exercised an option to break and withheld payment of the last two quarters' service charge, totalling almost £10,000, for which the landlord sued. The tenant counterclaimed seeking recovery of sums held by the landlord as surplus.
The landlord argued that the service charge provision of the lease entitled it to create a reserve fund to defray its future liabilities as landlord. However, the Court of Appeal held that the lease permitted the landlord to include in the total service cost a reasonable sum for future repairs but did not provide for the creation of a reserve fund and that nowhere in the lease does the expression 'reserve fund' appear.The monies were intended to even out demands on tenants during the course of the lease; and that the tenant's obligation was limited to contribute to works reasonably required during the term, but not in respect of works that might be required after termination of the lease.
The leases did not make any express provision as to how any surplus should be dealt with at the end of the lease and therefore any money remaining unspent at the end of the lease should belong to the tenants.