Christopher Moran Holdings Ltd v Laura Carrara-Cagni [2016]:

Liability of tenants to contribute towards maintenance of structures constructed by a further tenant.

The background

A tenant of a penthouse flat in a building occupied by several tenants, including two floors of commercial properties and seven floors of residential units, constructed two additional conservatories adjoining the penthouse.

The building was let to Appellant Christopher Moran Holdings Ltd under a 99-year lease, under which the Appellant covenanted to keep the building in repair, including all buildings, structures or erections which now are or may at any time hereafter be erected thereon.

The headlease permitted external alterations with the head landlord’s consent, which was not to be unreasonably withheld.

25 underleases were granted to the occupational tenants, each of which contained covenants to pay service charge. The underlease for the penthouse required the tenant to pay double the amount of service charge of the other tenants; the underlease also contained covenants on the part of the tenant not to erect any new or additional buildings on, and not to made any external additions to, the demised premises.

The two conservatories annexed to the penthouse were held by the First-tier Tribunal as being ‘integral’ to the flat, having first been constructed in the 1970s. The Appellant undertook major works to the building in June 2012, totalling almost £1.4million. Windows and patio doors were replaced for all flats, and the penthouse conservatories were demolished and rebuilt.

The Respondent and other tenants objected to the costs of the demolition and rebuilding of the conservatories, bringing an action in the FTT.

The law

The FTT held that construction of the conservatories was in breach of covenants contained in both the headlease and underlease. Further, it agreed with the Respondent and determined that the cost of replacement of the conservatories was not one which could be recharged to other tenants of the building, holding that the original intention at the time the leases were granted could not have been that tenants need to contribute towards costs of additional structures erected in breach.

The appeal to the Upper Tribunal focused on the interpretation of the leases, referencing the leading 2015 case of Arnold v Britton. The parties’ intention should be identified by considering “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.

In addition, the UT cited the following:

“an event subsequently occurs which was plainly not intended or contemplated by the parties…in such a case, if it is clear what the parties would have intended, the court will give effect to that intention”

The UT held that the Appellant had covenanted under the terms of its own lease to keep the conservatories in repair. Turning to the Respondent, regardless of when the conservatories were constructed, other tenants were still obliged to contribute towards their upkeep:

• If the conservatories had been constructed after the Respondent had entered into its underlease, they would be considered ‘additions’, repairs for which the Appellant was responsible and the costs for which could be recovered by way of the service charge; or
• If the conservatories had been constructed before the date of the underlease, they were considered to form part of the landlord’s property as they formed part of the main structure or other roof and walls not forming part of the penthouse.

The decision

The Upper Tribunal allowed the appeal, finding a number of faults with the FTT’s decision; in particular, that it had interpreted incorrectly the ‘clear and practical language’ of the underleases.

The UT judgment noted that:

• the underleases did not make any distinction between lawful and unlawful additions made to the premises and that therefore this could not be considered;
• the FTT’s reading of the lease was ‘subversive of the overall purpose of the clause’; if the responsibility for costs could not be determined by the lease wording, the decision would centre on the date of construction of the conservatories, a point which was difficult to ascertain;
• the FTT’s decision was was ‘contrary to common sense’, holding that a landlord should instead have looked to sue for breach of covenant;
• it was highly unlikely that the landlord had been unaware of the construction of the conservatories, given that planning applications had been made and permission granted, and that both were visible from the ground; and
• decisions made by the landlord in respect of applications for alterations could not be influenced by undertenants.

JB Leitch’s Phil Parkinson comments on the decision:

“The Courts have again reached a decision based on strict interpretation of the clear language comprised within a lease. Regardless of how equitable it may or may not be for a tenant to contribute towards the costs of repair of structures which may have been erected in breach, the wording of the lease is unambiguous, enabling the landlord to recover costs from all occupants.”