The terminology in leases is frequently the source of conflict between parties whether due to different interpretations or disputes resulting from clauses being breached.
The importance of clear and unambiguous terms in a lease and any related deed of conditions in relation to the billing of service charges was recently highlighted in court in a case unsuccessfully disputed by tenants. It is important for tenants to understand and be clear on the basis of payments demanded by landlords and landlords are advised to ensure leases clearly outline the rights and obligations of the parties involved. It will help avoid costly litigation proceedings.
The recent case of The Glasgow Angling Centre Limited (tenant) v Granton Central Developments Limited, Granton Central Management Limited and Pip Asset Management LLP (landlord) concerned a dispute in relation to service charge demands, highlighting the importance of clear contractual provisions for landlords and tenants.
The case
The tenant occupies the commercial premises at West Harbour Road, Granton, Edinburgh under an FRI (full repairing and insuring) lease. The lease premises are also subject to a deed of conditions. Both documents contain provisions dealing with service charges.
The lease (clause 4.4) states:
“To pay to the Landlords or to such other party as the Landlords may direct on written demand the proportion applicable to the Subjects in terms of the title deeds or by statute, common law or otherwise of the costs and expenses of repairing, maintaining, renewing, rebuilding, lighting and cleansing of all roads, pavements, sewers, drains, pipes, water courses, walls, fences and any other structure or facility owned or used in common by the Subjects and other adjoining, neighbouring or nearby properties”.
The deed of conditions:
...a “promoter” is permitted to demand various payments in respect of the area forming Granton Harbour Estate, subject to various further provisions, such as the designation of a Public Realm Area (PRA), in respect of which service charges may be levied.
The tenant paid three invoices in respect of service charges to the premises, amounting to £20,023.65. Each of the invoices demanded payment of a service charge in the percentage of 4.58% of an unspecified budget. The tenants believed that those sums were demanded in accordance with the deed of conditions rather than the lease.
The dispute
The tenant raised a court action claiming that the landlord was not entitled to demand payment of the service charges in accordance with the deed of conditions. Such charges could only be sought if the conditions in the deed of conditions had been met, namely that the area was defined as a Public Realm Area in which service charges could be levied. As the area was not a PRA, the tenant claimed that the landlord did not have a right to demand payment of service charges under the deed of conditions.
The landlord claimed that the invoices for the service charges had been raised under the terms of the lease, rather than the deed of conditions. Consequently, the area did not need to be a defined PRA for payment to be demanded.
The decision
The court held that the invoices for the service charges had been raised under the service charge provisions of the lease; thus, it was irrelevant whether the conditions in the deed of conditions had been met.
Comment
Service charges can be billed under a deed of conditions if the relevant conditions are met, as is the case in any contract. This case reinforces the importance of clear and unambiguous terms in a lease. For tenants, it is important to understand and clarify the basis of payments demanded by landlords. For landlords, creating a lease which clearly outlines the rights and obligations of the parties is paramount in order to avoid costly litigation proceedings.