Sections 19 and 20 of the Landlord and Tenant Act 1985 limit residential service charges to amounts that are reasonably incurred and cap the sums that landlords can charge unless they consult with tenants or the court agrees to dispense with the consultation requirements. In particular, landlords must consult before contracting for work that will cost more than £250 per leaseholder or entering into long-term agreements for the provision of services. The legislation defines a qualifying long term agreement as an agreement for more than 12 months and the Service Charges (Consultation Requirements (
Paddington Basin Developments Ltd v West End Quay Estate Management Ltd [2010] EWHC 833 (Ch); [2010] PLSCS 110 has significant implications for practitioners dealing with residential and mixed-use properties. It concerned an estate-management scheme for offices, shops, restaurants, bars and homes in the vicinity of Paddington station, and confirms that the courts will not allow landlords to sidestep the legislation by creating different layers of management for large developments.
The leases of flats within the development required leaseholders to pay service charges to West End Quay Estate Management. Importantly, the service charge provisions expressly included any sums payable to the company that managed and maintained
In due course, West End Quay Estate entered into an estate-management deed with Paddington Basin Management, obliging it to contribute to the costs of maintaining, lighting, controlling traffic and providing security and other services in
The court was asked to decide, as a preliminary issue, whether the deed was a qualifying long-term agreement for the purposes of the Landlord and Tenant Act 1985. The High Court ruled that it was. The judge held that although it would have been difficult to substitute another provider, landlords proposing to enter into agreements with monopolists are not excluded from the legislation.
The judge took the view that it would not accord with legislative policy if he were to decide that leaseholders had no right to be consulted before Paddington Basin Management ran up costs and that the structure imposed on the tenants rendered service charge expenditure immune from challenge. Had Paddington Basin Management been a party to the leases, in place of West End Quay, and had extracted covenants from the leaseholders to contribute towards the estate-wide costs, the leaseholders would have been entitled to challenge individual items of expenditure and long-term agreements with service providers.
The judgment leaves the residential management company in a difficult position. It will be entitled to recover £100 from each tenant but, unless it can find some means of escape, it remains liable for the full amount due under the deed.
Allyson Colby is a property law consultant