Orchard Trading Estate Management Ltd v Johnson Security Ltd

Rentcharge — Validity — Rentcharge permitting respondent to recover all expenditure incurred in maintenance or management of industrial estate — Judge holding rentcharge valid and appellant liable thereunder — Whether rentcharge for benefit of land charged — Whether limited to reasonable payments — Section 2(3), (4) and (5) of Rentcharge Act 1977 — Appeal dismissedThe respondent owned and managed the common parts of an industrial estate in Gloucestershire. The appellant was the freehold owner of one of the units on the estate. A rentcharge created by deed, purporting to be a valid estate rentcharge, entitled the respondent to recover from the freeholders rates and service expenditure, the latter being defined as “all… expenditure incurred by [the respondent] in or about the maintenance and proper or convenient management of the estate”. By virtue of section 2(3)(c) of the Rentcharges Act 1977, estate rentcharges were an exception to the prohibition on the creation of new rentcharges. An estate rentcharge was defined in section 2(4) as one created for the purpose of, inter alia: “(b)… meeting… the cost of the performance… of covenants for the provision of services, the carrying out of maintenance and repairs… or the making of any payment… for the benefit of the land affected by the rentcharge.” Section 2(5) provided that a rentcharge securing payments for those purposes was not an estate rentcharge unless the payments were reasonable. In proceedings by the respondent to recover certain sums under the rentcharge, the judge tried a preliminary issue as to the validity of the rentcharge. The appellant contended that it was void because it failed to comply with section 2(4)(b) and 2(5), respectively, since: (i) rates in respect of the common parts were not payments for the benefit of the land charged; and (ii) the definition of service expenditure in the rentcharge did not limit the respondent to recovering reasonable sums. The judge held that section 2(4) and (5) was satisfied, after finding that: (i) it was for the benefit of the individual owners on the estate to have any liability for rates for the common parts discharged out of a fund to which all contributed, so that there was no interruption to the common services; and (ii) since the purpose of the service expenditure provisions was to meet 100%, but no more than 100%, of the expenditure under the respondent’s covenants, then the payments had to be reasonable in relation to those covenants. He accordingly struck out the appellant’s defence and gave judgment for the respondent. The appellant appealed. Held: The appeal was dismissed. 1. The common parts of the estate had been transferred to the respondent to enable it, as the management company, to perform its obligations for the benefit of the units. Rates, were they to be charged, would be part of the cost of the respondent holding the common parts for that purpose. It followed that the payment of rates was for the benefit of the units and their individual owners, and fell within section 2(4)(b). 2. A rentcharge did not have to be expressly limited by a requirement of reasonableness in order to satisfy section 2(5). Since the rentcharge imposed in the instant case was a variable one, measured and limited by the respondent’s expenditure in carrying out its covenants, it was hard to see how it could be said to be unreasonable in relation to those covenants. Anthony Radevsky and Charles Harpum (instructed by Bretherton Price Elgoods, of Cheltenham) appeared for the appellant; Paul Morgan QC and Edward Cousins (instructed by Mishcon de Reya) appeared for the respondent. Sally Dobson, barrister