Malone & Ors v Bircham & Co Nominees (No.2) Ltd & Ors

Landlord’s co-operation

By Schedule 4:

The Landlord shall be entitled to delegate at its discretion some or all of its rights and obligations in respect of a Garden to a properly constituted Garden Association consisting of the Owners and Leaseholders who shall reach agreement with the Landlord as to how the Garden can best be managed

The Owners of those properties situate in Thurloe Square edged green which are enfranchised properties shall have the express right to walk in the Garden situate in Thurloe Square shown edged and hatched green on the Plan

An Owner entitled to walk in a Garden shall pay to the Landlord a reasonable contribution to be determined by the Landlord’s Surveyors towards the costs and expenses incurred from time to time by or on behalf of the Landlord in respect of the administration of and services provided in respect of the Garden and the repair maintenance and upkeep of the Garden including (but for the avoidance of doubt and without prejudice to the generality of the foregoing) the keeping of the Garden in neat order and good and tidy condition and the stocking tending and cultivation of the Garden the repair maintenance painting and renewal of the railings surrounding the Garden the repair maintenance and replacement of the irrigation system of the Garden the repair maintenance and decoration of the garden services stores and the employment of such gardeners or other persons and the purchase and maintenance of such machinery and equipment as the Landlord may consider necessary from time to time such contribution to be paid by equal quarterly instalments in advance on the usual quarter days in every year…"

By Schedule 6, para 3, provision was made for the composition of an Executive Committee, with 3 members to be nominated by the Landlord, and 8 to be elected by the Owners. This is the Executive Committee of the Thurloe Owners and Leaseholders Association, the successor to the pre-EMS Thurloe Leaseholders Association.

Following the adoption of the EMS in 1998 the trustees delegated their rights and obligations in respect of the Garden to the TGSA, and a new constitution was adopted.

The TSGA Constitution provided:

Aims and Objects

To be a properly constituted garden association as referred to in Paragraph 1.2 of the Fourth Schedule of the Anstruther Estate Management Scheme (‘the Scheme’) approved by the Leasehold Valuation Tribunal on the 23rd day of June 1998 so that the Trustees of The Thurloe Trust or their successors in title (‘the Trustees’) may delegate to it their powers under the Scheme in respect of Thurloe Square Garden (‘the Garden’) and reach agreement with it as to how the Garden can best be managed.

To exercise with the Trustees’ consent the Trustees’ obligations under the Scheme in connection with the day to day management of the Garden through an executive committee (‘the Executive Committee’).

Executive Committee

The Executive Committee shall be composed of:

3 members appointed by the Trustees at their discretion

Subject to 3.3 up to five Freeholders and/or Leaseholders elected at a properly constituted Annual General Meeting

Executive Committee Obligations

The Executive Committee is responsible for:

Setting a Garden rate (‘the Garden Rate’) to be paid by Freeholders Leaseholders and Keyholders equally for the following main areas of expenditure:

Setting a capital rate (‘the Capital Rate’) to be paid by Freeholders and the Trustees in respect of their leasehold properties equally for the following main areas of expenditure:

The Garden Rate shall continue to be paid to the Trustees’ Managing Agents by the Leaseholders in accordance with the terms of their leases. The Garden Rate and the Capital Rate shall be paid by the Freeholders and the Trustees in respect of their leasehold properties to the Trustees’ Managing Agents under the terms of the Scheme who shall then pass such sums to the Association without unreasonable delay.

Endorsement of Executive Committee Decisions on Financial Matters

The Executive Committee shall publish the proposed Garden Rate and the proposed Capital Rate and budgets for their expenditure (having first obtained the approval of the Trustees) 14 days before the Annual General Meeting.

At the Annual General Meeting:-

The Garden Rate and the budget for its expenditure shall be approved by the Freeholders Leaseholders and Keyholders.

The Capital Rate and the budget for its expenditure shall be approved by the Freeholders.

Subject to Paragraph 3.3 hereof the approval of the Garden Rate and its budget shall be by a vote held at the Annual General Meeting amongst those present. For the avoidance of doubt the voting shall be on the basis of one vote per key but not more than one vote per property.

Subject to Paragraph 3.1 the approval of the Capital Rate and the budget for its expenditure shall be by a vote held at the Annual General Meeting or by proxy each Freeholder having one vote per property."

On February 1, 1999 solicitors for the trustees notified members of the TSGA (including discretionary keyholders) that the trustees intended to delegate the management of the Garden to the TSGA, and sent them the constitution of the new TSGA. The first Annual General Meeting of the new TSGA was held on April 21, 1999. An executive committee was constituted consisting of three appointees of the trustees (including Lady Anstruther and Mr Sebastian Anstruther), two nominees of the freeholders/leaseholders, and five associate members including Sir Donald Logan, chairman of the new TSGA and vice-chairman of the old TSGA, and Mr John Simson, former chairman of the old TSGA.

Between April and September 2000 Sir Donald Logan conducted a long correspondence, on behalf of the members of the executive committee of the TSGA, with Lady Anstruther and later Mr Sebastian Anstruther, the essence of which was that Sir Donald expressed concern about the ability of the executive committee to manage the Garden and emphasised that management was the responsibility of the trustees.

At a meeting of the executive committee of the TSGA on October 2, 2000 it was announced that there had been a change of ownership of the Garden to Mr Toby Anstruther, who would be replacing Mr Sebastian Anstruther as the trustees’ representative on the executive committee. He said that he foresaw no major change in the day-to-day running of the Garden.

On October 26, 2000 Mr Toby Anstruther wrote to Sir Donald Logan to say that his plan was that the trustees should agree a lease of the Garden to a company 100% owned and run by Mr Anstruther personally. The existing executive committee would be asked to remain as an advisory board, and formal administration of the Garden would be taken on by Free-time Business Services (which later correspondence indicates was owned by Mr Anstruther).

On November 14, 2000 title to the Garden was registered in the names of the first and second defendants.

In November 2000 Mr Toby Anstruther informed the members of the executive committee that the trustees, through Mr Anstruther, had decided to take a more direct and transparent role in the management of the Garden. The management of the Garden would be undertaken with effect from January 1, 2001 by his company Visortuning Ltd, which would be granted a lease of the Garden. He was proposing to take away membership administration from Cluttons (who have long been the managing agents of the various Thurloe trust estates) and Mrs Renata Cesar and provide the services through Free-time Business Services.

In his witness statement in these proceedings, the first claimant, Mr Malone, stated that the TSGA’s involvement in running the Garden was terminated by Mr Anstruther with effect from December 31, 2000.

On March 27, 2001 the lease to Visortuning Ltd was granted at an initial rent of £10,000 pa. The demise was (by clause 1) with the benefit of and subject to the burden of the matters set out in the third schedule, which included the benefit of the Garden Agreements, and was subject to the rights of all parties entitled to use Thurloe Square by virtue of the EMS, and Visortuning Ltd was not to "impede the access of those entitled to use the Square save as permitted under the EMS or those Garden Agreements."

By clause 4.3 of the lease:

On May 25, 2001 Sir Donald Logan wrote as chairman of the TSGA to Bircham & Co, the trustees’ solicitors, referring to the meetings of the executive committee on October 2 and November 20, 2000, and gave notice on behalf of the committee that:

On July 4, 2001 Messrs Bircham Dyson Bell gave formal notice to the TSGA that the ownership of the Garden had changed, and that the Thurloe Trust had transferred its freehold interest in the Garden to IFC Anstruther’s 1983 Settlement – Toby’s Family Fund, and that the trustees had granted a lease to Visortuning Ltd, which confirmed that it had adopted a completely different approach to management. They said that as of December 31, 2000 any agreement for delegated management to the TSGA had been brought to an end.

On March 19, 2002 Messrs Stitt & Co wrote to Mr Toby Anstruther on behalf of a number of freeholders and leaseholders to say that the delegation of the rights and obligations of the landlord to the TSGA had been revoked, which rendered any agreement with the freeholders and leaseholders comprised by the new constitution nugatory. Stitt & Co wrote on April 22, 2002 stating that the question remained whether Mr Anstruther had acted lawfully in purporting to revoke the delegation of rights and obligations in respect of the Garden and in abrogating the agreement that had been reached between the freeholders and the TSGA as to how the Garden could best be managed. In a letter of June 14, 2002 Stitt & Co reserved the right to contend that the revocation of the delegation of the landlord’s rights and obligations to the committee was a departure from the terms of the EMS which should have been approved by the owners and leaseholders and/or the executive committee. They accepted that for practical purposes their clients accepted that the executive committee of the TSGA had no current role to play in managing the Garden.

On December 24, 2001 Visortuning Ltd sent a budget to the residents which indicated that £800 pa would be required from those entitled to use the Garden.

A number of issues have arisen in relation to the administration of the Garden. Most of them have been resolved. I will refer below to certain matters which have been agreed in a proposed consent order.

It has been agreed that only six issues remain for determination. The outstanding issues (apart from costs, which will be dealt with later) are dealt with in this judgment. Although I asked for, but was not given, details (except for the information that Issue 3 concerns an amount of £15,000), I have the impression that the costs of these proceedings far exceed the monetary amount which might be involved in them, and that a wholly disproportionate amount of time, effort and expense may have been poured into these proceedings. Thus, in relation to Issue 1, the parties are now in effect (as a result of a concession by the defendants to which I shall refer) arguing about the validity and effect of the substitution as one of the registered proprietors of the Garden of a retired partner (Mr Dolman) in what was Bircham & Co by a current partner in the firm (the second defendant).

The first issue is whether, upon a true construction of the EMS, the transfer of the legal ownership and/or the beneficial ownership of the Garden and/or of the rights and powers of the party defined as the Landlord under the EMS to the first and second defendants, without the approval of the Executive Committee or the LVT under the EMS, was in either case a valid transfer, a voidable transfer or a void transfer.

The claimants’ argument is that the governing provision is clause 5.2. They say that the effect of clause 5.2 is that the Landlord cannot transfer its "powers and rights" under the EMS without the prior approval of the Executive Committee of the Thurloe Owners and Leaseholders Association (which is not to be unreasonably withheld) or of the LVT. The transfer by the first defendant and Mr Dolman to the first and second defendants is a purported transfer of such "powers and rights", and was effected without the necessary approval of the Executive Committee or of the LVT and is invalid.

The definition of "The Landlord" in the EMS does not expressly include, but could have done, successors in title to that landlord or those landlords; and there is no reason to imply that it does. This is to be contrasted with the reference to the successors in title of Sir Ian Anstruther in the definition section.

The purpose of clause 5.2 (which follows exactly the terms of section 69(4)(b)) is to protect owners of enfranchised properties from the risk that the considerable powers of management, and the rights to levy contributions towards maintenance and upkeep of amenities, may fall into the hands of unsatisfactory organisations. Section 69(4)(b) deals with powers and rights but not obligations nor title. The transfer of the freehold of the Garden does not carry with it the transfer of powers and rights under the EMS.

Those powers and rights, under both section 69(4)(b) and clause 5.2 of the EMS, may only be separated from "the Landlord" if they are transferred, with the prior approval of the Executive Committee (which cannot be unreasonably withheld or delayed), either to a body constituted for the purpose of exercising those powers and rights, or to some other body, or to a local authority. In this way the owners who are closely affected by the identity and characteristics of the person or body having those powers and rights can exercise reasonable control over their transfer.

This purpose would be entirely frustrated if the expression "the Landlord" included by implication any successor in title or person deriving title under the Landlord. Thus, if the Landlord were to propose the transfer of powers and rights under clause 5.2 to some "other body" not approved by the Executive Committee under clause 5.2, and their refusal to give approval was reasonable, it could, if the definition included successors in title and persons deriving title under it, circumvent the restrictions contained in clause 5.2 simply by transferring the legal estate in the Garden to such a body, or granting it a lease, which might be of short duration.

For this reason there is no room for a wider interpretation of the definition of "the Landlord" in the EMS than the language of the document expressly indicates. No injustice will result from the claimants’ interpretation, because a change of circumstances, such as an intention to transfer title from "the Landlord" to some other person or body can be reviewed by the LVT under clause 5.1; and an unreasonable withholding of consent by the Executive Committee can be challenged under clause 5.2.

By clause 2.2 of the EMS the "Landlord" is to observe the obligations regarding those freehold properties owned by the "Landlord". The powers and rights given to the Landlord by the EMS must remain with that Landlord. If "successors" of a Landlord did fall under the EMS then clause 2.2 would not be workable.

Accordingly, the first and second defendants are not "the Landlord" for the purposes of the EMS and cannot exercise any of the rights and powers which accrue to the Landlord.

Although it is accepted that the registration of title is not impeachable, the transfer, as between the first and second defendants and the claimants, is void. The claimants rely on the old company law cases and cases in public law which hold that a transaction which is ultra vires is void: Ashbury Railway Carriage and Iron Co. v Riche (1875) LR 7 App Cas 653 (company law); Rhyl Urban DC v Rhyl Amusements Ltd [1959] 1 WLR 465 (ultra vires act of local authority).

The defendants’ argument is that the transfer is unimpeachable because the Garden was transferred in November 2000 to the first and second defendants and there is no restriction on dealings in the Land Certificate, nor was there previously.

The defendants accept that (a) the definition of landlord in the EMS does not expressly include successors in title, nor is it implied; and (b) clause 5.2 requires consent where it applies.

But the 1993 Act does not enable the EMS to restrict the landlord’s right to make a disposition of his freehold property within the area of the EMS. Section 69 provides that a disposition of the landlord’s property within the area of the EMS leaves the scheme entirely unaffected, unless the scheme itself provides otherwise.

The EMS does not contain any express restriction on the Landlord’s power to make a disposition of his property, and it does not contain any provision which provides for the operation of the scheme to be affected by a disposition of the Landlord’s property.

The only provision in the EMS which concerns a transfer of the powers and rights under the scheme is clause 5.2, which is directed at reproducing the provisions of section 69(4)(b). These provisions make it mandatory for a scheme to permit the Landlord to divorce the powers and rights under the EMS from his ownership of property within the area of the scheme, by transferring them to a local authority or other body constituted for that purpose.

Clause 5.2 of the EMS does not expressly or impliedly prohibit the Landlord from effecting a disposition of his freehold interests in the property within the area of the scheme; a disposition of this nature is governed by the primary rule contained in section 69(4) that the scheme "shall not be affected" by the disposition. The effect of a scheme provision pursuant to section 69(4)(b) is that the landlord can hive off its powers and rights, with the consequence that the transferee becomes the landlord for the purposes of the scheme: section 69(7).

If there is a transfer of part of the estate, such as the Garden, then the transferee becomes the Landlord for the purposes of the EMS as it affects the Garden.

The argument based on company law/public law that without consent a transfer is void does not reflect registered conveyancing practice, under which a transfer can take place unless there is a restriction on dealing on the title.

The only relevant transfer is the transfer of the freehold title in the Garden to the first and second defendants. The first defendant and Mr Dolman remain the registered proprietors of the freehold title to the unenfranchised properties.

In my judgment the defendants’ legal argument is to be preferred. Despite the wording of Issue 1, the claimants do not now (if they ever did) suggest that the transfer of the legal ownership and/or the beneficial ownership from the first defendant and Mr Dolman to the first and second defendants was invalid. So far as legal title is concerned it is plain that the registered proprietor has unfettered powers of disposition in the absence of an entry on the register which restricts them, and it is common ground that at no material time has there been any such restriction. The first and second defendants and Mr Dolman have at all material times been bare trustees, and there can be no question of any transfer of the beneficial interest.

The effect of the opening words of section 69(4) of the 1993 Act is that the operation of the EMS is not affected by "any disposition .. of the landlord’s interest in the property within the area of the scheme or in parts of that property," "except as provided by the scheme." There has been a disposition of the legal interest of the Landlord (as defined in the EMS, i.e. the first defendant and Mr Dolman) in part of the property in the EMS, i.e. the Garden. But the scheme has no provision which has the effect of disapplying the basic provision in section 69(4)(b), namely that the operation of the EMS is not affected by the disposition.

Clause 5.2 is not such a provision. It does not expressly or impliedly prohibit the Landlord from effecting a disposition of his freehold interests in the property within the area of the scheme. Clause 5.2 reflects section 69(4)(b), which makes it mandatory for a scheme to permit the landlord to divorce the powers and rights under the scheme from his ownership of property within the area of the scheme, by transferring them to a local authority or other body constituted for that purpose. Thus according to Woodfall, Landlord and Tenant (para 26.178): "The person who would normally be treated for the purposes of the scheme as the landlord for the time being would be the landlord for the unenfranchised residue of the estate, but on some estates there might come a time where there is no such person, or his holding is so small and scattered that he has little interest in enforcing the scheme. In that case the powers conferred by [section 69(4)](b) could be utilised. The final portion of (b) contemplates something in the nature of an estate association for the enforcement of the scheme."

Clause 2.2 of the EMS has nothing to do with the present problem. It deals exclusively with the position of the Landlord as Owner of one of the freehold properties on the estate. This point is elaborated in connection with Issue 3 below.

The effect of these conclusions on the answer to Issue 1 is as follows. Issue 1 raises a number of sub-issues. The first is whether the transfer of legal ownership of the Garden without the approval of the Executive Committee or the LVT is valid, voidable or void. It follows from what I have said (and it is conceded by the claimants) that the transfer is valid: the transfer of the legal title in the Garden to the first and second defendants could not have been prohibited by the EMS; the EMS does not in fact attempt to prohibit the transfer; and the transfer is therefore valid.

The second sub-issue is whether the transfer of the beneficial interest in the Garden without such approval is valid, voidable or void. But there has been no transfer of the beneficial ownership in the Garden in the relevant period since the approval of the EMS, and in any event it is not easy to see how a change in the beneficial interest could be relevant.

The third sub-issue is whether the transfer of the rights and powers of the party described as the Landlord under the EMS without such approval is valid, voidable or void. But there has been no actual or purported transfer by the first defendant and Mr Dolman of the rights and powers of the Landlord (or any part of them) under the EMS to the first and second defendants. The most that could be said is that when granting the lease to Visortuning Ltd (which purports to pass "all rights and powers given to the Landlord under the EMS" to Visortuning Ltd) the first and second defendants must have been advised that those rights and powers had been passed to them by the first defendant and Mr Dolman.

There is in fact no live issue between the parties relating to the transfer of powers and rights, in view of the concession by the defendants that the transfer of powers and rights to Visortuning Ltd was invalid. The EMS contains no obligation on the Landlord to maintain the Garden. The residents have obligations, and in theory an issue might arise as whether the relevant Landlord is the first defendant and Mr Dolman, or the first and second defendants. But there is no suggestion that there is any practical question about the right of the first and second defendants to claim a contribution from the residents under Schedule 4, para 4. If the question had arisen directly, I would have decided that the effect of section 69(4) and the transfer of the legal title resulted in the first and second defendants becoming the Landlord for the purposes of the EMS provisions relating to the Garden. Although I have had some doubt about whether a declaration to this effect would be appropriate in the absence of a real dispute and in proceedings to which the first defendant (as bare trustee for the trustees of the Thurloe Trust) and Mr Dolman are not parties, I will grant a declaration to this effect.

The second issue is whether, upon a true construction of the EMS, any transfer of rights and powers under the EMS effected by the lease of the Garden from the first and second defendants to the third defendant, dated March 27, 2001, without the approval of the Executive Committee or the leasehold valuation tribunal under the EMS, was a voidable transfer or a void transfer.

The claimants denied that Visortuning Ltd was capable of acquiring the status of "Landlord" under the EMS or of acquiring the relevant powers and rights under it without the consent of the Executive Committee or a variation of the EMS approved by the LVT; and the purported lease was accordingly void. In the amended defence it was conceded that approval of the Executive Committee was required for the transfer of powers and rights to Visortuning Ltd, and that the transfer was not valid or effective. The defendants have offered to effect a surrender of this lease, and they have also offered to agree that any transfer of rights and powers under the EMS to the third defendant is voidable and should be set aside. In the proposed consent order it is agreed that the third defendant is not the agent of the first and second defendants for the purposes of the EMS or the Garden Agreements. The claimants accept that this issue is not suitable for a declaration. But they say that I should infer from the concession that for the purposes of Issue 1 the defendants accept that there was no power to transfer powers and rights without approval of the Executive Committee or the LVT.

There is no basis for a declaration on this issue, and the determination of Issue 1 depends on the construction of section 69 of the 1993 Act and clause 5.2 of the EMS. It is not for me to investigate, or draw any conclusions from, the concession made by the defendants.

The third issue is whether, upon a true construction of clause 2.2 of the EMS, the party known as the Landlord under the EMS is required to contribute a capital rate towards the budget for the Garden in those accounting years where a capital rate is payable by the persons entitled to use the Garden under the EMS.

The claimants argue that the Landlord is required to make such a contribution. Their argument is as follows. First, under clause 1 of the EMS, "Owner" for the purposes of Schedule 4 includes a person holding a freehold or long leasehold interest in an enfranchised property. Second, clause 2.2 of the EMS requires the Landlord to: ".... observe where it does not conflict with the terms of any leases or licences existing at the date of the registration of the Scheme previously granted by the Landlords the obligations of an Owner under this Scheme with regard to those freehold properties which are owned by the Landlord." Third, under paragraph 1.2 of Schedule 4 the Landlord was entitled to delegate some or all of its rights and obligations in respect of the Garden to the TSGA. Fourth, paragraph 4 of Schedule 4 establishes the Owners’ rights to walk in the Garden subject to their making appropriate contributions towards costs and expenses as described in paragraph 4. Fifth, under paragraph 6.1.11 of the TSGA Constitution the Committee has to set "the Capital Rate" which is to be paid "by Freeholders and the Trustees in respect of their leasehold properties equally" for certain main areas of expenditure. The expenditure in question cannot all be described as "capital expenditure" in the conventional sense, but the heads of expenditure (whether they are capital or revenue) are sufficiently defined to enable the liability of freeholders and the trustees to be ascertained.

It is submitted by the claimants that the natural meaning of those words is that where freeholders are required to contribute to expenditure falling within the definition of "Capital Rate" in the Constitution the Landlord under the EMS should do so on the same basis in respect of the properties of which it is the freeholder. The effect is not that the Landlord has to pay to himself. It is simply a matter of apportionment.

The defendants say that the claimants are not entitled to the declaration. First, the EMS entitles the owners of the enfranchised houses to walk in the Garden: paragraph 2.2 of Schedule 4. Second, the owners who are so entitled are required to make a contribution towards the expenditure on the Garden: paragraph 4 of Schedule 4. Third, the EMS contains no reference whatever to the concept of a "capital rate". Fourth, although the TSGA was formed, and set a capital rate for the year 2000, it bowed out at the end of 2000, and its functions terminated, and any delegation of powers to the TSGA was revoked. Fifth, the provisions of the Constitution cannot be employed to supplement the terms of the EMS.

There is nothing in clause 2.2 of the EMS which entitles the claimants to the declaration. The obligations of an Owner under the scheme are defined in clause 7 of the EMS, which provides that in order that the Landlord may regulate the development use and appearance of the Estate an Owner shall in respect of his enfranchised property observe and comply with restrictions and regulations in Schedules 1 and 2. Those schedules contain various obligations relating to the appearance and the use of the properties within the estate. It is these obligations to which clause 2.2 relates. For example, an enfranchised owner is required to keep the exterior of the house in a state of repair. By virtue of clause 2.2, the Landlord is under a similar obligation in relation to those houses which have not been enfranchised.

Clause 2.2 does not require the Landlord to comply with any of the provisions in paragraph 10 and in Schedule 4, which concern the Garden, because the reference in clause 2.2 to "the obligations of an Owner" is a reference to the "Owner’s obligations" which are specified in clause 7.

If this is wrong, then the liability to pay a contribution under paragraph 4 of Schedule 4 is a liability which is imposed on the enfranchised owners of the houses in the Square in consequence of the grant to them by the EMS of the right to walk in the Garden. In relation to the unenfranchised houses in the square, the EMS does not grant the right to walk in the Garden either to the Landlord or to the lessees or occupiers of these houses. The liability to make the contribution therefore does not arise.

In my judgment, the defendants are right. First, the EMS does not refer to the concept of a capital rate, and there is no outstanding capital rate set by the TSGA (irrespective of whether it still exists), and the question is entirely academic. Second, even if it were relevant, it is plain that paragraph 6.1.12 of the Constitution has nothing to do with the obligations of the Landlord as Owner, which are provided for clauses 2.2 and 7 of the EMS. The answer therefore is that, upon the true construction of clause 2.2 of the EMS, the party known as the Landlord under the EMS is not required to contribute a capital rate towards the budget for the Garden in those accounting years where a capital rate is payable by the persons entitled to use the Garden under the EMS.

The fourth issue, is whether, upon the true construction of the Garden Agreements and the EMS, the defendants are entitled to include as expenses in the accounts the legal costs incurred by the defendants in relation to the correspondence and matters arising therefrom between the parties’ respective solicitors and other professional advisers between March 19, 2002 and the issue of these proceedings and arising in these proceedings and/or whether there should be an order under section 20C of the Landlord and Tenant Act 1985 that the legal costs incurred by the defendants or any of them in connection with these proceedings should be irrecoverable from the claimants under the Garden Agreements.

The claimants contend that the legal costs relating to the dispute between the parties, and the costs of these proceedings, are not costs recoverable under the terms of the Garden Agreement (clause 3(ii)) or under the EMS (paragraph 4, Schedule 4).

The natural meaning of the words, in the context of the Garden Agreement read as whole, must be that "the cost of maintaining" means garden maintenance as such. Such costs would include the direct and obvious costs of hiring gardeners, and maintaining and repairing the paths and railings, but no more.

The natural meaning of the words in paragraph 4 of Schedule 4 "in the administration of" would include administrative costs in the nature of supervision of staff or contractors and preparation of accounts. Legal or litigation costs (unrecoverable legal expenses) are not "administration" as such. The words therefore do not permit the employment of others save those directly concerned with garden maintenance as such: cf Sella House Ltd v Mears [1989] 1 EGLR 65.

If contrary to their primary submission, the legal costs are costs under the Garden Agreement, the claimants submit that section 20C(3) of the Landlord and Tenant Act 1985 applies, to enable the court to decide that the legal costs are not to be regarded as relevant costs, because the Garden Agreement Rate is a service charge for the purposes of section 20C(3).

The defendants argue that the expenses to which the contribution under the Garden Agreement relates are the costs of maintaining the Garden. The costs incurred in maintaining the Garden include the costs incurred in its administration, and these include the costs of the correspondence and of these proceedings.

The expenses to which the contribution under the EMS relates includes "the administration of … the Garden…" The legal expenses have been incurred in relation to the administration of the Garden. The defendants are therefore entitled to bring them into account.

It is accepted in each case, however, that the required contribution would not be reasonable if it included any costs incurred in relation to issues on which the defendants are unsuccessful in these proceedings.

The Garden Agreements provide:

IN this deed the expression ‘Garden Rate’ shall mean:-

the sum of Thirty pounds per annum or

such other sum as the Grantors shall consider necessary (together with all other sums payable to them for the right to use the Garden Enclosure) to meet the cost of maintaining the Garden Enclosure and replacing from time to time as may be necessary the trees shrubs and plants therein PROVIDED ALWAYS however that no variation in the Garden Rate shall take place until three months have elapsed from the date of notification to the Grantee of any variation therein"

By paragraph 4 of Schedule 4 of the EMS

Of course, there must be certain types of legal costs which would come within these instruments, such as the costs of evicting squatters or other trespassers. Decisions of the courts on other documents are not, of course, more than persuasive, but in Sella House Ltd v Mears [1989] 1 EGLR 65, 67-68, the relevant words of cost recovery in a lease service charge provision, included the following costs: "to employ … professional persons as may be necessary or desirable for the proper … administration of the Building". It was held those words did not include the costs of counsel and solicitors' in recovering service charges. Taylor LJ said (at 68) that he would require to see a clause in clear and unambiguous terms before a tenant would be held liable to pay as part of a service charge the landlord’s legal costs of suing his co-tenants for recovery of service charges.

The expression in clause 3(ii) of the Garden Agreements is "the cost of maintaining the Garden Enclosure and replacing from time to time as may be necessary the trees shrubs and plants therein" and the expression in paragraph 4 of Schedule 4 of the EMS is "a reasonable contribution to be determined by the Landlord’s Surveyors towards the costs and expenses incurred from time to time by or on behalf of the Landlord in respect of the administration of and services provided in respect of the Garden and the repair maintenance and upkeep of the Garden" (followed by examples which are clearly linked to maintenance in the traditional sense). But I am satisfied that in their context the ordinary and natural meaning of these provisions is not to impose liability for the costs of correspondence relating to the issues between the parties and the subsequent litigation, and that there are no factors which justify any departure from the natural and ordinary meaning.

It is not therefore necessary to rule on the claimants’ reliance on section 20C(3) of the Landlord and Tenant Act 1985, which provides that the court may make such order as it considers just and equitable on an application by a tenant that costs incurred in connection with proceedings before a court are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant. But if (contrary to my conclusion) the legal costs were costs of maintaining the Garden to which the residents were obliged to contribute, I would have been of the view that the Garden Agreement Rate would be capable of being a service charge for the purposes of section 20C(3). Section 18(1) of the 1985 Act defines "service charge" to mean "an amount payable by a tenant of a dwelling as part of or in addition to the rent (a) which is payable, directly or indirectly, for services … maintenance .., and (b) the whole or part of which varies or may vary according to the relevant costs". The expression "landlord" includes any person who has a right to enforce payment of a service charge (section 30) and "dwelling" includes any garden usually enjoyed with the building which is occupied as a dwelling (section 38). It seems to me that the combination of these provisions means that the fact that the charges are in respect of a communal garden would not take the charge out of the operation of section 20C(3), even if the beneficial ownership of the houses and the Garden is in separate trusts, and the legal ownership is in separate sets of bare trustees (the first defendant and Mr Dolman in respect of the houses, and the first and second defendants in respect of the Garden).

Consequently, the answer on Issue 4 is that, upon the true construction of the Garden Agreements and the EMS, the defendants are not entitled to include as expenses in the accounts the legal costs incurred by the defendants in relation to the correspondence and matters arising therefrom between the parties’ respective solicitors and other professional advisers between March 19, 2002 and the issue of these proceedings and arising in these proceedings.

The fifth issue is whether on the true construction of the Garden Agreement and/or the EMS the defendants shall and are required to bring into account and credit against expenses (in addition to the income referred to in the draft consent order) in determining from time to time the Garden Rate payable by a leaseholder or the reasonable contribution payable by a freeholder all other sums payable to the defendants for the rights to use the Garden.

The parties have agreed in a proposed consent order that in computing the contributions to be made under the Garden Agreement and the EMS by the leaseholders and owners, the first and second defendants are to bring into account certain income derived from the use of the Garden in determining from time to time the Garden Rate payable by leaseholders and the contribution payable by owners, namely (a) fees etc. paid or payable by discretionary users for use of the Garden; (b) fees etc. payable pursuant to the letting or use of the Garden for social or other events; (c) payments by or on behalf of the playschool which has permission to use the Garden; and (d) fees etc. in respect of access to the Garden for any party, fete, modelling or filming session.

The claimants say that it appears to be common ground that if the Landlord receives the specified income from users of the Garden it is not entitled to keep that as pure profit and continue to charge the contributors the gross costs of maintenance. The claimants have always maintained that the Landlord should credit those receipts against the maintenance account and charge the contributors a net sum, and this is now agreed. It follows that any other sums payable to the Landlord (which it is not possible to predict or specify in advance) must be governed by the same principle.

The defendants say that they have already agreed that the various specific categories of income set out in the particulars of claim should be credited. They have also indicated their willingness to consider the inclusion in the declaration of any further categories of income that might be specified. The blanket declaration should not be granted, because whether the income must be credited depends on the nature of that income.

As I have already said, the contribution which is payable under the Garden Agreement is "… such other sum as the Grantors shall consider necessary (together with all other sums payable to them for the right to use the Garden Enclosure) to meet the cost of maintaining the Garden Enclosure and replacing from time to time as may be necessary the trees shrubs and plants therein…" (clause 3(ii)); and the contribution payable under the EMS (Schedule 4, paragraph 4) is a reasonable contribution towards the costs and expenses incurred in respect of (inter alia) "the repair maintenance and upkeep of the Garden."

I accept the defendants’ contention that the declaration which is sought should therefore be refused because it is over-broad and hypothetical. The answer to the question will inevitably depend on the circumstances, as in the example given by the defendants: if the defendants were to receive income as a result of the grant of a wayleave for the installation of underground cabling across the Garden, the income from the wayleave would be a sum which was payable for the grant of a right to make use of the Garden. But the existence of the wayleave might have no effect whatever on the cost of maintaining the Garden for the purposes of the Garden Agreement, or of "repair maintenance and upkeep" of the Garden, for the purposes of the EMS. In such circumstances it would be strongly arguable that there would be no reason why credit should be given for the income. But that is now purely hypothetical and should not be the subject of a decision by declaration.

The sixth issue is what order for costs should be made in relation to these proceedings. It has been agreed that this issue should be stood over until after this judgment. Before I hear argument on the costs issue, I would find it helpful if I were provided with the approximate figures involved.

If the form of order cannot be agreed, I will hear argument.