Court ruling affecting tenants of LIFT and PFI buildings

The payment mechanisms in LIFT and PFI leases are notoriously complex, but very rarely (if ever) challenged in the Courts.

In this instance, a dispute over the interpretation of Lease Plus Agreement (LPA) payments in the recent case of Community 1st Oldham (Chadderton) Limited v Oldham Metropolitan Borough Council [2015] EWHC 1263 (TCC) was referred to and heard by the Technology and Construction Court.

What happened in the case?
Community 1st Oldham (Chadderton) Ltd let a community centre to Oldham MBC using an LPA and following various disputes with Oldham MBC regarding the payment provisions of the LPA, Community 1st sought a declaration from the Court on the correct interpretation of certain provisions.

Whilst the declarations made were with reference to the specific facts of this case, they do provide helpful guidance as to how the Court is likely to interpret the payment provisions contained in the LPA, and, moving forward, both landlords and tenants alike using LPAs should bear the declarations in mind before taking action.

What did the Court say?
The Court made various declarations as to the correct interpretation of the payment provisions of the LPA, some of which are as follows:

1. The Payment Monitoring Report, Payment Notice and invoice provided each month by the Landlord to the Tenant, should be based on all Service Failures reported as Service Failures, not those which the Landlord unilaterally accepts to be Service Failures;

2. When a Landlord does not accept a reported Service Failure it is obliged to make an assessment of whether the reported Service Failure is an Availability Failure and include a deduction in Payment Notice and invoice the Lease Payment on that basis;

3. If a Tenant, acting in good faith disputes that it is obliged to make all or part of a Lease Payment claimed by the Landlord in a Payment Notice or invoice, then the Tenant is entitled to deduct 50% of the sum in dispute but is obliged to pay the other 50% and the undisputed amount;

4. Deductions for Availability Failures from Lease Payments for a particular Contract Month are to be made in the Payment Notice and invoice for the following Contract Month. The judge also confirmed that a failure to include these deductions from such Payment Notice and invoice does not prevent them being included in future Payment Notices; and

5. The Tenant is entitled to set off sums due to the Landlord which have been agreed or determined as due, but that entitlement does not apply to Self Help Costs (already deductible under separate provisions in any event) or other sums taken into account in calculating the Lease Payment.

What does this mean for me?
From a tenant’s perspective, this is an encouraging judgment as it demonstrates that tenants should not accept their landlord’s application of payment provisions where they feel that these have not been interpreted correctly and failing adjudication, the courts can assist in providing judicial clarity where needed.

From a landlord’s perspective, it is a reminder of the need to report all failures and to proactively consider whether circumstances that it does not consider to be a Service Failure may be an Availability Failure.

It is important to bear in mind that any litigation should be considered carefully before hand as it is often costly for those involved. Tenants must also ensure that the Help Desk facilities are being used properly by all staff and that the landlord is also self-monitoring as required.

It will be interesting to see if this case is the subject of appeal.

If you require any advice in relation to the provisions of an LPA, are having a dispute with your landlord under an LPA, or have any other queries about these situations, Ward Hadaway are well equipped to support you in all matters relating to your LPA.