On 14 May 2015 the Technology and Construction Court provided some useful guidance on the operation of the payment mechanism contained within the standard NHS LIFT Lease Plus Agreement (LPA), in a judgment handed down by Sir Vivian Ramsey in Community 1st Oldham (Chadderton) Ltd v Oldham MBC [2015] EWHC 1263. This guidance will be of significant interest to all parties involved in the administration of an LPA and is also likely to be of interest to those involved in the administration of health standard form PFI agreements, as it addresses many common issues that arise between the Authority and their private sector partners.

Under an LPA dated 30 April 2008, Community 1st Oldham (Chadderton) Ltd (the Landlord) agreed to develop a new community centre and associated facilities (the Centre) on behalf of Oldham MBC (the Tenant). The Centre was completed in October 2009 and in the course of 2012 a dispute arose between the Landlord and the Tenant in respect of the operation of the payment mechanism contained within Clause 19 and Schedule 10 of the LPA. Various elements of the dispute were referred to the Court for final determination and, in respect of the operation of the payment mechanisms within the LPA, the Court made the following declarations:

  • That any Performance Monitoring Report, Payment Notice and invoice to be provided by the Landlord to the Tenant in accordance with Clause 19.2 of the LPA must include all Service Failures reported to the helpdesk and not merely those Service Failures which the Landlord accepts to be Service Failures.
  • In submitting a Payment Notice and invoice to the Tenant, the Landlord is required to include appropriate deductions in respect of all the Services Failures reported to the helpdesk. The Landlord is not entitled to say that the reported Service Failure is not accepted and that no deduction should be made in respect of the Service Failure.
  • Where the Landlord does not accept the validity of a reported Service Failure then the Landlord may, in accordance with the provisions of Clause 19.4 of the LPA, dispute any deduction made from the Lease Payment in respect of the reported Service Failure. Where the Landlord disputes the validity of a reported Service Failure then the Tenant is only obliged to pay 50% of the disputed amount to the Landlord pending the resolution of the dispute.
  • Deductions for Service Failures from Lease Payments for a particular Contract Month are to be made in the Payment Notice and invoice for the following Contract Month. However, where a Payment Notice and invoice for a particular Contract Month should have included a deduction but failed to do so (for example, if the Landlord incorrectly excluded a reported Service Failure from the Payment Notice and invoice on the basis that it was not accepted or the duration and/or the consequences of a Service Failure are subsequently reassessed as a result of additional information etc.) then this would result an overpayment by the Tenant and, in the event of an overpayment, the value of any subsequent Payment Notice and invoice may be adjusted in accordance with Clause 19.2.2 of the LPA in order to reimburse the Tenant.
  • Pursuant to Clause 19.6 of the LPA the Tenant may set-off from sums otherwise due from the Tenant to the Landlord any sums which have been agreed or determined as due from the Landlord to the Tenant under the LPA. However, the provisions of Clause 19.6 do not exclude any other right that the Tenant may have to make common law, equitable or contractual set-offs.

The case emphasises the requirement to properly administer the terms of the payment mechanism within LPA arrangements.  The payment mechanism is structured such that there should be strict reporting based on the primary Helpdesk records, and no application of subjective interpretation of those records to reflect one party's version of events or arguments.