The Court of Appeal has warned that the amount of work a leaseholder does when collecting ground rents is likely to be minimal, so leaseholders should take care when setting collection charges.
The case, which was heard by Bean LJ, Phillips LJ and Nugee LJ, was brought by the long leaseholders of two blocks of flats in Whitechapel against freeholder Avon Ground Rents.
According to the 125-year lease, starting in 2010, each leaseholder is obliged to pay the freeholder £250 per year in two six-monthly payments.
When Avon acquired the freehold in 2017 it attached a £30 plus vat collection fee to each payment, making half-yearly payments rise from £125 to £161. When challenged by the leaseholders, Avon said it was to cover work they had to do.
The case flip-flopped though the First-tier Tribunal and Upper Tribunal to the Court of Appeal.
And, in a ruling handed down today (25 October) written by Nugee LJ, the judges found that in this particular case Avon was not entitled to charge a fee.
Even so, the court said there were provisions that allowed a fee to be charged in certain circumstances under section 166 of the Commonhold and Leasehold Reform Act 2002. This would be done by issuing a so-called S 166 notice.
In the ruling, Nugee LJ said that £30 plus VAT is a large uplift on the ground rent.
“It may be noted that although small in monetary terms this represents a significant extra charge as a proportion of the rent, £36 being a 28.8% uplift on the ground rent,” he said.
While he declined to rule on whether the sum was acceptable, he set guidance points “in case they are of any assistance in other cases where the relevant clause does on its true construction cover the preparation and service of S 166 notices.”
When a lease permits the landlord to include the pests of collection rents from a building, “it seems to me that the question would have been what a reasonable deemed cost would be for the whole run of S 166 notices, not for each individually.”
“The S 166 notices would all be in the same form apart from the names and addresses of the individual lessees and one would have thought that a professional landlord, as Avon obviously is, would already have the requisite details of each lessee in computerised form and that to generate a batch of S 166 notices every six months would not be very difficult or time-consuming, involving little more than the press of a button or two,” he said.
“Even if an independent agent would in fact have charged £30 plus VAT per notice, it does not follow that it would have been reasonable for Avon to charge the same amount. That would I think depend on evidence as to what work by Avon was actually involved,” he said.
Philipp Stampfer v Avon Ground Rents Ltd
Court of Appeal (Bean LJ, Phillips LJ, Nugee LJ) 24 October 2022