Landlord and Tenant Act 1985 – Service charge – Management fees – Respondent holding long lease of flat – Appellant landlord seeking to include management costs in service charge levied on lessees of flats – Whether management costs recoverable under terms of lease – Whether appellant incurring any relevant costs in period in dispute – Appeal dismissed
The respondent was the lessee of one of three flats, each let on long leases in similar terms, on the upper floors of a converted building in Paignton, Devon. There was also a flat with a separate entrance on the ground floor. The leases of the upper flats provided for the lessee “to contribute annually or more frequently as the Lessor shall require when called upon to do so by the Lessor” one–quarter of the costs of the appellant landlord in insuring the property and discharging certain covenants under which the landlord was obliged to maintain, repair and renew the main structure, boundaries, conduits and common parts of the property, and to redecorate internally and externally not more than once in every five years.
The leasehold valuation tribunal (LVT) was asked to determine the extent of the lessees’ liability for service charges for the years 2004 to 2012 pursuant to section 27A of the Landlord and Tenant Act 1985. The main issue in dispute was whether the lessees were liable to pay management fees that the appellant had added to the service charge for the years 2009 onwards. These included the fees of a managing agent, totalling £740 in 2009 and rising to £950 in 2012, accountancy fees of £96 from 2011 onwards and, in 2012, the sum of £600 as an administration fee in respect of major works.
The LVT determined that the appellant was not entitled to recover the management fees since no management activities had actually been undertaken during the relevant period. The appellant appealed. It contended that a management fee and other associated professional fees were an integral part of the costs that it had to incur in order to perform its obligations under the repairing covenants; further, the cost of collecting service charge arrears should be regarded as coming within those covenants since it would be unable to perform its functions unless it was able to collect the money payable by the lessees.
The respondent contended that the lease did not entitle the appellant to recover any fees paid to its managing agent as part of the service charge.
Held: The appeal was dismissed.
Any liability of the respondent to contribute towards costs incurred by the appellant in connection with the property had to be found in the lease itself. The terms of the lease relating to service charges were unusually limited both in their scope and in the procedures agreed between the parties for determining how much was to be paid and when. The lease made no express reference to a service charge; the only relevant obligations on the lessees to make payments to the landlord were those reserving a contribution towards insurance premiums and the landlord’s costs, expenses and outgoings in performing its obligations to repair, maintain and redecorate the property. If the landlord incurred costs in relation to any other matter, such as dealing with insurance, collecting rent, preparing service charge accounts or enforcing covenants, the lessees were under no obligation to contribute towards those costs.
Further, the lease contained no express reference to a managing agent or to the cost of engaging a managing agent and no function was described which was to be performed by any agent of the landlord. While management fees and associated professional fees could be an integral part of the performance by the landlord of its obligations under the relevant covenants, the appointment of a managing agent did not automatically entitle the appellant to recoup the costs incurred in that appointment, regardless of what tasks the agent actually undertook. The agreement between the parties did not permit the recovery of an annual flat rate management fee irrespective of the management tasks actually undertaken in return for that fee. While it might be convenient for the appellant to employ managing agents to administer the property on its behalf, to collect the rent, to ensure that the electricity bill was paid and, when required, to arrange for repairs or other works, it was only the latter function for which it could look to the respondent for a contribution towards the agent’s fees.
In any year in which the managing agent undertook tasks falling within the scope of the relevant covenants, in addition to the other tasks for which they charged their fee, some part of that fee would properly be capable of being passed on to the lessees, with the appropriate apportionment falling to be considered in relation to specific facts and, if disputed, to be resolved by an application to the First-Tier Tribunal under section 27A of the 19985 Act. However, in the years under consideration, the appellant had taken no steps in the performance of the relevant obligations and accordingly no part of the management fee that the appellant paid to its managing agent amounted to costs, expenses and outgoings mentioned in the covenants. It followed that no part of the fees incurred by the appellant in engaging a managing agent was recoverable from the lessees for those years: Waverley Borough Council v Arya [2013] UKUT 501 (LC) considered.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
