Some residential developments include the services of a resident caretaker or warden. The rental costs of providing employee accommodation is notional when the landlord owns the premises as no actual rent is being charged. Some landlords argue that the costs incurred is the rent forgone in letting the premises to a third party. Whether the “costs” of such notional rent is recoverable from leaseholders through the service charge will depend on the actual service charge provisions of the lease.
Retirement Lease Housing Association and another v Schellerup and others [2020] UKUT 0232 (LC) was a conjoined appeal before the Upper Tribunal (Lands Chamber) (UT). The essence of each appeal concerned the question of whether the landlord was able to recover contributions from its leaseholders for the “cost” of providing rent-free accommodation to a resident warden employed to work and live within its sheltered housing development scheme. In both cases, the First-tier Tribunal (FTT) found that the notional rental cost was not recoverable and the leaseholders were not required to pay. The landlords appealed.
As its starting point, the UT had regard to the principles of contractual interpretation laid down by Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28. In particular, the UT reminded itself that in contractual interpretation “the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.”
The UT went on to consider the decisions in Agavil Investment Co v Corner (unreported, 3 October 1975, CA), Lloyds Bank plc v Bowker Orford [1992] 2 EGLR 44, Earl Cadogan v 27/29 Sloane Gardens Ltd [2006] 2 EGLR 89 and Gilje and others v Charlgrove Securities Ltd [2001] EWCA Civ 1777; [2002] 1 EGLR 4. These authorities all concerned the notional cost of accommodation provided for resident staff employed by the landlord to provide services to leaseholders. Save for Gilje, it was found in the remaining authorities that the notional costs were recoverable through the service charge.
The UT observed that the case law demonstrated that the question of whether a leaseholder was required to contribute towards the rent forgone by a landlord in such circumstances was not always certain. It depended upon the language used. The authorities illustrated that, in the right context, it was not a misuse of language to refer to income foregone as a “cost”, but beyond that little assistance could be derived by comparing the language with which they were concerned with different provisions agreed between different parties. “The focus should be on the words of the lease, read as a whole and in their relevant context, with the well-known principles of contractual interpretation in mind.”
In dismissing both appeals the UT found that the specific terms of the service charge provisions in the lease did not permit the recovery of a notional rent for the provision of accommodation for a resident warden.
Elizabeth Dwomoh is a barrister at Lamb Chambers
