Cases - Fluor Daniel Properties Ltd and others v Shortlands Investments Ltd

Record details

Name
Fluor Daniel Properties Ltd and others v Shortlands Investments Ltd
Date
[2001]; [2001]
Citation
EWHC 705 (Ch); 2 EGLR 103, Ch D
Legislation

Landlord and Tenant Act 1985

Keywords
Commercial property- lease required landlord to establish a reserve fund for anticipated future expenditure – express provision enabling the landlord to make reasonable additions and variations to the services – whether the costs of up-grading the air conditioning system and other works were recoverable under the service charge
Summary

Leases of a modern commercial block required the landlord to maintain equipment and to provide air conditioning and other services. The air-conditioning system was well maintained and in good working order. The leases also provided for the landlord to establish a reserve fund for anticipated future expenditure. The monies accumulated in the reserve fund amounted to some £850,000 by the end of the 1998/99 service charge year.

The landlord sought to recover in excess of £2m under the service charge provisions for upgrading the air-conditioning system and other works and proposed covering the cost by means of:

  1. additional reserve fund contribution, included in the audited service charge account for the year ending April 1998, of £750,000 (the effect of which was to increase the overall reserve fund contribution for that year to £800,000 as the landlord had only budgeted £50,000);
  2. £750,000 provision in the estimate of the repairs within the service charge budget for the year then current; and
  3. contribution of £500,000 from the reserve fund, over and above the £750,000 to be added to it.

The landlord also sought to rely on the wording of the repairing covenant, which gave the landlord express power to make reasonable additions and variations to the services.

It was held that the cost of the works was not recoverable as the service charge provisions of the lease presupposed some defect or disrepair to the equipment had to exist prior to the need for replacement. As no defect existed which required that the system be replaced, and the proposed works were not required to maintain the service, the costs were not recoverable.

It was also held that on the question of reasonableness, the standard had to be such as the tenants, given the lengths of their lease, could fairly be expected to pay for and the landlord could not reasonably overlook the relatively limited interest of the paying tenants.

It was held that seeking to increase the amount of the previous year's service charge expenditure by retrospectively increasing the amount of the tenants' reserve fund contribution was a ploy to recover, in advance of any expenditure being incurred, as much as possible of the anticipated costs of the works without going through the correct machinery for increases in service charge demands as provided by the lease.

It was therefore concluded that:

  1. landlord was not entitled retrospectively to increase the contribution to the reserve fund;
  2. landlord ought to have looked to the reserve fund to cover the whole cost (so far as it could) of works which it was agreed would fall to be undertaken at the tenants' expense.

As to the inclusion of £150,000 as a contribution to the reserve fund in 1998/99, this represented a substantial increase in the reserve fund contribution included in the previous years and was held to be excessive, as the balance remaining in the fund would have far exceeded the anticipated funds required in order to meet the likely cost of major repairs and renewals.