(1) BDW Trading Limited (2) Comet Square Phase 2 Block Management Co Ltd v South Anglia Housing Ltd [2013] EWHC 2169 (Ch)

This was a dispute on a pure point of law. The facts giving rise to the dispute are not therefore terribly relevant, but it always worth having a broad idea of the backdrop to a pickle which resulted in the instruction of two silks and a hearing in the High Court.

The development in question, comprising four blocks of residential accommodation, was constructed by BDW Trading Limited.

The contractual relationships between the parties to the litigation were as complicated as a Fair Isle knitting pattern to a left-hander: suffice it to say that all three parties to the litigation were, with others, parties to leases of diverse lengths in respect of the blocks or individual flats within them.

BDW entered an agreement with Utilicom Ltd for the provision of hot water and electricity to the residential flats in the development. The term of the agreement was 25 years.

“At the date that the agreement was entered into, there were no lessees of Blocks 1-4 and no agreements for a lease of those blocks or any of the flats in them”. Nicholas Strauss QC used bold type to emphasise this point in his judgment.

Does section 20ZA of the 1985 Act apply to a long term agreement entered into in relation to buildings which have not yet been constructed, or which are not let at the time of the agreement?

In a nutshell, the parties were exercised by the meaning of “landlord” in section 20ZA: did it mean a person who is a landlord for the time being – or did it also mean those who would become landlords in the future?

The Claimants argued for the former definition; the Defendant targeted the latter.

Four pages of the judgment are devoted to reciting:

• Sections 18 – 20ZA and 30 of the Landlord and Tenant Act 1985, and
• The preamble to the Consultation Regulations and regulations 1-3, with bold type highlighting those parts which were particularly on point.

The full text of those sections and regulations can be found here and here. I set out below only those parts which the judge emphasised in bold.

Section 19 Limitation of service charges: reasonableness

(2)  Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequently charges or otherwise. …

Section 20 Limitation of services charges: consultation requirements

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

(a)  complied with in relation to the works or agreement; or

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

20ZA Consultation requirements: supplementary

(2)  In section 20 and this section – …

“qualifying long term agreement” means … an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months.

Section 30 Meaning of “flat”, “landlord” and “tenant”

In the provisions of this Act relating to service charges –

“landlord” includes any person who has a right to enforce payment of a service charge;…

Service Charges (Consultation Requirements) (England) Regulations 2003

Agreements that are not qualifying long term agreements

3.

(1) An agreement is not a qualifying long term agreement …

(d) if –

(i) when the agreement is entered into, there are no tenants of the building or other premises to which the agreement relates; and

(ii) the agreement is for a term not exceeding five years.

There were two main strings to the Claimants’ bow: statutory interpretation and – dare I say it? – common sense. Here, in bullet point form, is a summary of the arguments, which the court accepted practically without demur.

• Section 20ZA refers to “the landlord”, denoting an existing tenancy;
• Neither Section 30 nor 36 give an extended definition of “landlord”;
• The Housing Act 1985 expressly refers to “prospective landlords” where future landlords are intended: the Landlord and Tenant Act 1985 does not;
• A landlord was only required to consult for qualifying works in the 1985 Act as originally enacted. QLTAs did not exist. As originally formulated therefore “landlord” in the 1985 Act “had”, in Nicholas Strauss QC’s words, “its normal meaning”;
• In that case, on the Defendant’s argument, when QLTAs were introduced by the Commonhold and Leasehold Reform Act 2002, for sections 20 and 20ZA alone, and without actually making any changes to the definitions, the meaning of “landlord” was broadened.

• It would not be a sensible construction of the provisions that the owner of the land or building should be required to consult, when there would be nobody with whom to consult, and no one to respond to an application for dispensation;
• The LVT exists to deal with adversarial disputes. In his judgment, Nicholas Strauss QC put it thus: “The LVT would be unlikely to be selected by statute to carry out a process of approving applications without respondents”. On an application by a landlord for dispensation, “the basic function of the LVT … is to determine, in an adversarial proceeding, whether and if so to what extent a failure by the landlord to consult has prejudiced the tenants”.

Statutory interpretation

• There is no requirement in the 1985 Act for an identifiable tenant or sub-tenant at the time the agreement is entered into;
• “The landlord” must include future or prospective landlords, since otherwise there would be a major gap in the legislation: the landlord could simply enter all of its agreements before letting.

The court declined to accept those points:

• There was no gap in the legislation: section 19 provided the necessary protection;
• Tenants could always enquire about the level of charges before taking the lease, and
• The meaning for which the Defendant argued would cause problems for those who may have no intention of letting at the date of entering the agreement, but who then elected to let. A developer deciding to let rather than sell, and an individual being posted abroad and deciding to let were relevant examples.

The dispensation solution

The Defendant moved on to its second point:

• If consultation is impossible for want of tenant(s), the LVT has the power to dispense with it. The landlord would probably need to demonstrate that:
  • That it has undertaken a competition to determine the proposed other party to the agreement, rather than simply awarding the agreement without competitive analysis,
  • That the rates to be charged for the works or services to be undertaken were within the market range and
  • The Tribunal would be likely to grant dispensations on conditions – for example that any prospective lessee be informed of its decision in advance of any grant of lease.
  • The tribunal could then be satisfied that no significant prejudice would result to any tenant if the proposed qualifying long term agreement in question was entered into.

Nicholas Strauss QC was having none of it.

“It is difficult to imagine that, if it had been intended that potential future landlords would be obliged to seek dispensation from the LVT, this would not have been explicitly provided for, and one would have expected provision for regulations to be issued governing the procedure before the LVT on such a one-sided application”.

The Paddington Basin argument

The Defendant did not curry favour by its reliance on Paddington Basin Developments Limited v. West End Quay Estate Management Limited [2010] 1 W.L.R. 2735, in which Lewison J. held, in respect of an agreement with a monopoly supplier, that: “The very fact that Parliament provided for the dispensation of the consultation requirements shows, in my judgment, that it contemplated that agreements might well fall within the definition of qualifying long term agreements even though the consultation requirements might be difficult, or even impossible to apply”.

Nicholas Strauss QC observed: “I do not think that what Lewison J. said in Paddington Basin Developments is of any assistance in this case; plainly he was not contemplating the present, very different, case now before the court, in which all consultation is impossible”.

Subordinate legislation and consultation documents

The final limb of the Defendant’s argument will be for me the most useful to retain for future reference.

It began innocuously enough:

• The Regulations passed under the Act assume that it does apply to buildings not yet in existence or not yet let, and
• The 1985 Act is to be construed consistently with those Regulations.

The plot thickened however when the Defendant sought to adduce, as evidence of the intention of Parliament as to the meaning of the Act:

• A consultation paper issued by the Office of the Deputy Prime Minister on the proposed regulations in August 2002, and
• The Consultation Regulations themselves. “It is undeniable,” said Nicholas Strauss QC, “that Regulation 3(1)(d) assumes that the Act does apply to agreements entered into where there are no tenants, and then proceeds to exempt agreements of under five years duration”.

Was that evidence admissible as an aid to statutory interpretation?

The Defendant referred the court to Craies on Legislation, 10th ed., 2012 at paragraph 27.1.11, for the proposition that consultation papers can be relevant evidence for the construction of legislation.

As regards the evidential value of statutory instruments such as the Consultation Regulations, in Hanlon v The Law Society [1981] A.C. 124 at 193G to 194C, Lord Lowry said:

“My Lords, when these regulatory provisions are so clearly relevant, it is pertinent to ask how far they are admissible for the purpose of construing [a section of an Act of Parliament].

“A study of the cases and of the leading textbooks (Craies on Statute Law, 7th ed. (1971), p.158, Maxwell on Interpretation of Statutes, 12th ed. (1969), pp.74-75, Halsbury’s Laws of England, 3rd ed., vol. 36 (1961), para. 606) appears to me to warrant the formulation of the following propositions:

“(1) Subordinate legislation may be used in order to construe the parent Act, but only where power is given to amend the Act by regulations or where the meaning of the Act is ambiguous.

“(2) Regulations made under the Act provide a Parliamentary or administrative contemporanea expositio of the Act but do not decide or control its meaning: to allow this would be to substitute the rule-making authority for the judges as interpreter and would disregard the possibility that the regulation relied on was misconceived or ultra vires.

“(3) Regulations which are consistent with a certain interpretation of the Act tend to confirm that interpretation.

“(4) Where the Act provides a framework built on by contemporaneously prepared regulations, the latter may be a reliable guide to the meaning of the former.

“(5) The regulations are a clear guide, and may be decisive, when they are made in pursuance of a power to modify the Act, particularly if they come into operation on the same day as the Acct which they modify.

“(6) Clear guidance may also be obtained from regulations which are to have effect as if enacted in the parent Act.”

Nicholas Strauss QC referred darkly to Lord Steyn’s dissenting speech in R. on the application of Eddison First Limited v. Central Valuation Officer [2003] 4 All E.R. 209: “The question is how far, on a contextual reading of a statute, the language is capable of stretching”.

He then turned to the application of legal principle to the facts before him.

On the initial question of whether the meaning of the Act was ambiguous, in his judgment there was little doubt as to its: “considerable stretching of the language is required to produce an ambiguity”. Things were not looking good for the Defendant on this, its last throw of the dice.

He nonetheless admitted both consultation paper and regulations as relevant evidence:

• They were sufficiently contemporaneous with the Act. The Commonhold and Leasehold Reform Act 2002, which amended the Landlord and Tenant Act 1985, received the Royal Assent on 1st May 2002, the draft regulations were in existence by 17th July 2002 and were attached to the consultation paper in August 2002.
• It was also clear that the Act and the Regulations were intended to be part of one code.

Examining that evidence however, he observed that no one knew whether the understanding of the civil servant(s) who drafted the Regulations and/or wrote the consultation paper coincided with the intention of the legislation drafted by a Parliamentary draftsman.

The consultation paper strongly suggested that their draftsman “simply assumed that the Act applied to long term agreements entered into when no part of the building was let, without applying his mind to whether this was so”.

Overall therefore, “neither the Regulations nor the consultation document … [came] remotely near dislodging what was otherwise the clear meaning of section 20ZA”.

“The section does not say that “the landlord” is someone who may in the future become a landlord, and there is no proper basis for stretching its meaning. The regulations passed under the Act do assume that it does have this meaning but, although potentially relevant to its interpretation, appear in this case to have been drafted without much attention to the statutory provisions and therefore carry no weight or conviction as evidence of the legislative intention”.

In other words, the Claimants were home and dry.

The parties’ focus on the meaning of landlord disguises what I suspect was the flint which lit the fire of this dispute: was the agreement with Utilicom Ltd a QLTA?

I could not resist the temptation to ponder whether the meaning of qualifying works was affected by this judgment. After an hour or so of wailing and gnashing of teeth, I realised that I was over-complicating matters. After a further day or so, I came to the conclusion that the meaning of qualifying works is probably not affected.

To my mind, the key is the difference between the definitions of qualifying works and qualifying long term agreement:

• The definition of “qualifying works” does not mention the landlord – those works are simply defined as “works on a building or any other premises”. The definition is unlimited in time in any way: if the works are works on a building or any other premises, they are qualifying works. The question of present and future landlords simply does not arise because there is no reference to either landlord, tenant or any other aspect of the landlord and tenant relationship in the definition, whereas
• The definition of qualifying long term agreement focuses on the date when the landlord enters the agreement. There is a fixed point in time at which the person entering the agreement must be a landlord in order for the consultation touchpaper to be lit.

What if qualifying works are half-completed when a lease is granted?

I suspect that the premium payable for the lease may be higher to account for the landlord’s inability to recover the (full) costs of the works – or an application for dispensation from the requirement to consult may be required.

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