Office Building Management Ltd. v. Netware Systems Co. Ltd.

Building Management Application No. 50 of 1996

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HEADNOTE

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Building Management - Deed of Mutual Covenant - Common Facility - Central Air-Conditioning - Management Fees

Commercial building has a kind of central air-conditioning system. A central water condensation plant for the system is installed on the roof of the building. Water pipes lead from this plant to each unit in the building and run back to the central water condensation plant. The system is such that cold water is pumped through the pipes to each office unit where the water can be connected to an air package unit to absorb heat energy, thereby producing a chilling effect for the office unit, and runs back to the central water condensation plant for treatment to reduce temperature and then re-cycled. The central water condensation plant and pipe-work were installed when the building was constructed. The air package unit needed by an office unit to take advantage of the system must be separately acquired and installed by each office unit. The Applicant concedes that the owner or occupier of each office unit is not obliged to install an air package unit. An office unit can have its own independent air-conditioning equipment. The Respondent indeed had conventional stand-alone air conditioning plant installed for its own office unit. The definition section of the deed of mutual covenant provides that "Common Facilities" means such facilities for common use at a given time which may include, inter alia, all air-conditioning installations (if any), air-conditioning chillers (if any), ductings (if any), switch boxes and wiring (if any). The Respondent refuses to pay that part of the monthly management fees which is in fact charges for operating and maintaining the central air-conditioning system. The Applicant contends that since the charges are billed as management fees, and because it is common ground that the Respondent is liable to pay management fees, the Respondent must pay the charges when billed as part of the management fees.

Held: (1) The crucial test is common use, in contradistinction to exclusive use. There is a distinction between a facility, even though installed in a common area, providing a service or utility which an individual owner or occupier can extract or take a finite measure to his or her own unit for exclusive use and one that provides a service or utility which cannot be extracted or taken for exclusive use. (2) It is slightly complicated if a facility provides some service or utility that is both used in common and exclusively by finite measure, e.g. electricity power is used in common as lighting for corridors, staircase landings and even the management office, and exclusively for appliances in individual units. What this entails is that an individual owner or occupier is liable to contribute towards the cost of maintenance and repairs of the electrical installations in the common areas, e.g. when it is necessary to re-wire the whole building, and the cost of electricity supply for the common areas such as lighting for corridors, staircase landings and even the management office, and bears sole responsibility for exclusive use within his or her own unit. There is no difference between the central air-conditioning system and other facilities like electricity power, fresh water, flushing water and telephone connections installed inside the Building. All of these facilities provide some service or utility that can be enjoyed both in common and exclusively by finite measure. (4) The Respondent should be liable for an appropriate portion of the costs that are attributable to common use and additional costs for exclusive use in the Respondent's unit. (5) The argument that the Respondent is liable to pay whatever amount charged as management fees is, untenable. Party A does not become liable to pay to Party B just because Party B chooses to call the amount claimed a debt owing from Party A. For Party B to succeed, the amount claimed must be in truth a debt owing from Party A to Party B. (6) However, since the costs for common use and those for exclusive use are not separately accounted for, the Respondent should not be ordered to pay as claimed. Application dismissed with costs.

L.T. Case No. BM50 of 1996

IN THE LANDS TRIBUNAL OF HONG KONG

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REASONS FOR DECISION

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The Applicant is the estate manager of the commercial building known as World Tech Centre situated at No. 95 How Ming Street, Kowloon ("the Building"). The Respondent is the registered owner of Unit E, 7th Floor of the Building. The Applicant claims against the Respondent the balance of monthly management fees for March 1995 to now.

2. It is common ground that the Respondent became the owner and occupier of Unit E on the 7th Floor of the Building in October, 1993. From then until early 1995, the Respondent was invoiced by the Applicant separately for management fees and charges for the central communal heat rejection system ("the communal system") of the Building. From March 1995, the Applicant has been billing the Respondent for one amount for management fees which included what used to be charges for the communal system. Both parties agree that the Respondent has never used the communal system. The Respondent contends that since it has never used the communal system and has never accepted liability for charges relating thereto, it has no obligation to pay that part of the management fees which is what used to be charges for the communal system. The Applicant says that the Respondent is liable to pay management fees as required by the deed of mutual covenant, and since charges for the communal system are now part of the management fees, the whole amount as billed each month must be paid.

3. Miss Tsang, counsel for the Applicant, has referred me to a number of provisions in the relevant deed of mutual covenant. I do not think it is useful to go into the particular provisions here because I accept, and this is in effect also the position of the Respondent, that the Respondent is liable to pay management fees. The real issue is whether charges for the communal system should be included as part of the management fees. This goes to the nature of the charges for the communal system. In this respect, provisions in the deed of mutual covenant do not really carry the Applicant's case further.

4. The design and purpose of the communal system should be explained. I gather from the evidence adduced by the Applicant that it is in fact a kind of central air-conditioning system. A central water condensation plant for the system is installed on the roof of the Building. Water pipes lead from this plant to each unit in the Building and run back to the central water condensation plant. The communal system is such that cold water is pumped through the pipes to each office unit where the water can be connected to an air package unit to absorb heat energy, thereby producing a chilling effect for the office unit, and runs back to the central water condensation plant for treatment to reduce temperature and then re-cycled. The central water condensation plant and pipe-work were installed as the Building was constructed. The air package unit needed by an office unit to take advantage of the communal system must be separately acquired and installed by each office unit. The Applicant concedes that the owner or occupier of each office unit is not obliged to install an air package unit. An office unit can have its own independent air-conditioning equipment. The Respondent indeed had conventional stand-alone air conditioning plant installed for its own office unit. The Respondent goes on further to say that two members of the staff at the management office of the Building had in fact verbally told them that if the Respondent does not use an air package unit connected to the communal system, there would be no charge on account of that system to the Respondent. The Applicant concedes that the Respondent's own air-conditioning plant has been approved by the estate management. No admission is made in respect of the verbal "promise" by the staff who, the Applicant indicates, have left its employ. For reasons that will become apparent, it is not necessary for me to make any finding on the alleged verbal "promise" or decide on any legal or equitable consequences that may flow from such "promise".

5. I am more concerned with a submission that may have general significance for building management. The Applicant says that although the Respondent does not make use of the communal system, the Respondent and indeed the owner or occupier of every office unit in the Building are still liable to contribute towards the operation and maintenance of the communal system because it is a common facility. My attention has been drawn to the following in the definition section of the deed of mutual covenant:

"Common Facilities" means such facilities for common use at a given time which may include:

(i) all air-conditioning installations (if any), air-conditioning chillers (if any), ductings (if any), switch boxes and wiring (if any);

6. Obviously, the crucial test is common use, in contradistinction to exclusive use. There is a distinction between a facility, even though installed in a common area, providing a service or utility which an individual owner or occupier can extract or take a finite measure to his or her own unit for exclusive use and one that provides a service or utility which cannot be extracted or taken for exclusive use. One cannot say, because there is a central switch box that controls and supplies electricity power through wiring along common areas to individual units of the building, that the consumption of electricity power by individual units is common use. Of course the maintenance and repair costs of the central switch box and wiring in the common areas should be shared by all unit owners or occupiers. But, in the absence of express agreement, it would be wrong to add up the total electricity charges for consumption in each individual unit in the entire building and require all units, irrespective of whether or how much electricity is consumed for exclusive use within each unit, to bear a portion of the total charges calculated according to the number of undivided shares in the common plot.

7. It is slightly complicated if a facility provides some service or utility that is both used in common and exclusively by finite measure, e.g. electricity power is used in common as lighting for corridors, staircase landings and even the management office, and exclusively for appliances in individual units. What this entails is that an individual owner or occupier is liable to contribute towards the cost of maintenance and repairs of the electrical installations in the common areas, e.g. when it is necessary to re-wire the whole building, and the cost of electricity supply for the common areas such as lighting for corridors, staircase landings and even the management office, and bears sole responsibility for exclusive use within his or her own unit. I see no difference between the communal system and other facilities like electricity power, fresh water, flushing water and telephone connections installed inside the Building. All of these facilities provide some service or utility that can be enjoyed both in common and exclusively by finite measure.

8. In the present case, my understanding is that the charges for the communal system is made up of (1) the cost of routine operation and maintenance of the system by a service company, (2) the cost of water used by the system and (3) the cost of electric power needed to run the system. The communal system provides air-conditioning to every office unit in the Building for exclusive use. So the costs of operating and maintaining the communal system are not solely attributable to common use. The water piping of the communal system has a valve in each individual office unit that can be closed to cut off service provided by the system. If the Applicant keepd separate accounts of the costs that are attributable to common use and those that are for the exclusive benefit of individual office units, I am more than willing to order the Respondent to bear an appropriate portion of the costs that are attributable to common use and additional costs for exclusive use in the Respondent's unit. However, the Applicant has not done so. I do not think it is right to require the Respondent to subsidize the air-conditioning bills of other office units in the Building.

9. The argument that the Respondent is liable to pay whatever amount charged as management fees is, in my view, untenable. Party A does not become liable to pay to Party B just because Party B chooses to call the amount claimed a debt owing from Party A. For Party B to succeed, the amount claimed must be in truth a debt owing from Party A to Party B.

10. In the premises, I should not order the Respondent to pay as claimed. It should be deducted from the management fees claimed the component for exclusive use by other office units the precise amount of which cannot yet be isolated and which the Respondent is not liable. The application is dismissed with costs to the Respondent, such costs to be taxed if not agreed.