Landlord and tenant – Service charge – Lease providing for payment of management charge of 10% of all other service charge items – Whether certain items charged under other heads of service charge properly constituting management expenses – Whether these to be included in management charge with figure of 10% operating as cap – LVT determining not so included and further 10% payable on top – Appeal dismissed
The appellant was the tenant of two flats in two different blocks in an estate in London NW1 under leases from the respondent local authority landlords. The leases provided for the tenant to pay a service charge as defined therein and further to be liable for the landlords’ management charges for the estate “in an amount equal to 10% of all other items included in the service charge”.
The respondents brought claims against the appellant in the county court to recover unpaid service charges for the two flats in the sums of £8,267 and £6,385 respectively.
The appellant applied to the leasehold valuation tribunal (LVT) for a determination, under section 27A of the Landlord and Tenant Act 1985, as to his liability for the service charges claimed. He contended that some of the items charged in respect of lift maintenance, such as the costs of the respondents’ call centre dealing with tenants’ complaints about the lifts, and items described by the respondents as “support services” and “payment and analysis”, properly constituted management expenses and should therefore be included within the 10% figure for management charges. He submitted that the 10% management charge was not an entirely separate item but operated as a cap on the total amount of management costs that could be recovered.
The LVT rejected those submissions and held that the respondents were entitled, under the terms of the leases, to charge a 10% management fee on all the other heads of service charge. Save for disallowing £604 on one item, it determined that the appellant was liable for all the sums claimed and that those sums were reasonable and did not involve any element of double counting. The appellant appealed.
Held: The appeal was dismissed.
In order for a landlord to recover money from a tenant, there had to be clear terms in the contractual provisions entitling it to do so: Gilje v Charlegrove Securities [2001] EWCA Civ 177; [2002] 1 EGLR 41; [2002] 16 EG 182 applied. Terms that provided for the recovery of service charges had to be read in a commonsense and practical way: Brent London Borough Council v Hamilton unreported 23 October 2006 (LT) applied. The definitions of “service charge” in the appellant’s leases had the effect of distinguishing between the management of the estate and building on the one hand and the carrying out of the landlord’s other obligations towards the demised property on the other.
Management costs incurred in the course of fulfilling the landlords’ obligations and providing services under the leases were incurred “in connection with” the carrying out of those obligations and duties and the provision of those services. By contrast, the provision for payment of a management charge was explicitly concerned only with the specific category of management charges for the estate and building, in contrast to “all other items included in the service charge”, and limited the charge under that particular head to 10% of those other items.
In considering the leases, it was appropriate to bear in mind that the landlords were a local authority responsible for a great many properties and that it might well make business sense to centralise some aspects of management, with the result that it was difficult or impossible to attribute the costs of that management to a particular service or a particular building or estate with any precision. The practical solution was for the landlords and tenant to agree a reasonable sum of management charges to be calculated by the sort of formula that was found in the appellant’s leases.
It followed that the respondents were entitled, by way of service charge, to all those direct and indirect costs and overheads that were incurred in connection with those matters set out in the definition of the service charge and that did not fall within the separate head of additional management charge for the estate and the building in which the particular flat was situated. That separate management charge was then to be calculated as 10% of all other items included in the relevant service charge.
The appellant appeared in person; Ellodie Gibbons (instructed by the legal department of Camden London Borough Council) appeared for the respondents.
Sally Dobson, barrister
