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Freehold Managers v Celestia [2017] EWHC 1281 (Ch)

Nathaniel Duckworth appeared for the successful Defendant in a recent High Court decision about the construction of an outgoings covenant in a number of subleases.

The Claimant held a head-lease of a development comprising 8 blocks of flats and associated amenity land.  The head-lease gave the Claimant rights in common to use certain waterfront pathways, a bridge and an access road that lead to the development and required the Claimant to pay for their upkeep through service charge provisions.

The sub-leases of the individual flats on the development were in tri-partite form; the Defendant management company was responsible for the provision of services at the development and recovered its costs of doing so from the tenants through standard form service charge provisions in the sub-leases.  Although the sub-tenants were also given the right to use the pathways, the bridge and the access road, the sub-leases did not specifically require either the Defendant to pay or contribute towards the service charge payable by the Claimant under the head-lease in respect of those areas.

However, the sub-leases did impose a requirement that the Defendant pay: “pay all existing and future rates taxes duties assessments charges impositions and outgoings whatsoever whether parliamentary parochial local or of any other description which are now or during the said term shall be assessed charged or imposed or payable on or in respect of the entirety of the Development or its curtilage or Common Areas.” 

The Claimant said that, having regard to the wide terms of that covenant and the commercial purpose of the overall leasehold structure, the Defendant was liable to indemnify the Claimant against the head-lease service charge.

In determining the question of construction in the Defendant’s favour, HHJ Jarman QC had regard to the ‘requirement of clarity’ where general words are used in service charge and related provisions – referred to in Gilje v Charlogrove Securities Ltd [2002] 1 EGLR 41 and Francis v Philips [2014] EWCA Civ 1395 (which seemingly survives Supreme Court’s decision in Arnold v Britton [2015] UKSC 36) – and held that the words relied upon by the Claimant were insufficiently clear to bring home to the tenants of the sub-leases that they were assuming a liability to pay the head-lease service charge.

The judgment can be found here

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