Interpretation of lease terms

Whether a leaseholder was liable for 75% of roof repair costs

The background

In Ryan v Villarosa [2018], the leaseholder occupied the ground, first and second floors of a terraced house. The roof, situated above the second floor, required repair and, under the terms of the lease, the landlord held responsibility for undertaking such works. The leaseholder was required to pay a service charge, being 75% of the costs incurred by the landlord in fulfilling its obligations under the lease.

The lease also stated that the roof and foundations were to be repaired jointly at the expense of the leaseholder and other leaseholders of the rest of the building. The First-tier Tribunal concluded that, whilst the roof formed part of the leaseholder’s demise, the ‘joint expense’ clause meant that the leaseholder was only responsible for 50% of the costs of its repair. The landlord appealed to the Upper Tribunal.

The decision

The Upper Tribunal assessed whether the First-tier Tribunal had interpreted the lease correctly, referring crucially to the lease interpretation decision Arnold v Britton [2015] [link to JB Leitch Arnold v Britton report]. The Upper Tribunal asked ‘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 particular, whilst the Court may want to reach a decision that makes ‘commercial sense’, it must consider what the parties intended at the time. Here, ‘all that the whole of the building excepting the basement floor’ must have included the roof. The lease contained logical reasoning as to the leaseholder’s liability for 75% of the repair costs of the roof and took precedence over the poor drafting of the later ‘joint expense’ clause. The leaseholder was therefore liable for 75% of the costs of repairing the roof.

Advice and action for landlords

As ever, it is vital that leases are drafted clearly and unambiguously to avoid litigation centred around lease interpretation. Demises should be defined both in writing and with reference to a detailed plan, ensuring that all parts of a building are either adequately demised to the leaseholder or reserved to the landlord.

Landlords should be aware that Courts are often referencing Arnold v Britton, using this case as authority for the fact that, whilst commercial sense may be a factor in their decisions, the parties’ intentions at the time will take precedence if these can be identified.