Landlord and tenant – Service charge – Appellant acquiring estate from local authority by stock transfer under PFI agreement – Estate including heat and power plant – Whether appellant entitled to charge leaseholders of flats through service charge for costs of maintaining plant – Whether such recovery reasonable or contemplated by terms of stock transfer – Appeal allowed
The respondents were long lessees of flats on an estate owned by the appellant. The appellant had acquired the estate, including a heat and power plant which served it, from a local authority by a stock transfer under a private finance initiative (PFI) agreement. The appellant had made no payment towards the capital cost of the plant on acquiring the estate but the PFI agreement provided for it to make annual payments to the local authority in respect of their continuing liability for matters relating to the plant, including maintenance repair and capital replacement, an “operator” charge and a 15% margin. The appellant sought to charge leaseholders, through the service charge provision in their leases, for the “housing share” of the sums payable under the PFI agreement in respect of the heat and power plant. That share represented 57% of the annual total, which, when divided between the 534 units benefiting from the plant, produced an annual cost per flat of £343.75 inclusive of VAT. An issue arose as to whether that sum was recoverable under the service charge provisions
On an appeal from the leasehold valuation tribunal, concerning the service charge for the year 2010 to 2011, the Upper Tribunal held that the cost of maintaining the heat and power system could be included in the total service charge expenditure to which the respondents were liable to contribute. After receiving further evidence, including disclosure of the PFI agreement, it gave a further decision on outstanding issues in the case. The respondents contended that they were not liable to contribute to the costs associated with the heat and power plant since, in previous years, neither the local authority nor the appellant had considered it reasonable or appropriate to pass on those costs to leaseholders. They argued that it was the mutual intention of the local authority and the appellant that, on completion of the stock transfer, the appellant should meet the costs of its contributions towards the plant from its general revenue, rather than passing them on to leaseholders. They further submitted that it was not reasonable to charge leaseholders who sublet their flats with the cost of maintaining the plant since it was the occupiers and not the leaseholders who could choose to use the heat and power so supplied.
Held: The appeal was allowed.
The tribunal had already concluded that the maintenance of the heat and power plant was within the leaseholders’ contractual obligations under their leases. While the local authority was free not to pass those costs on to leaseholders, there was no constraint preventing them from doing so. The fact that the leaseholders were not charged for the maintenance of the plant in the first ten years of its life did not mean that the appellant was now prevented from levying the charge to which the lease entitled it.
Accordingly, the appellant was entitled to recoup its contributions towards the maintenance of the plant from the respondents. It was a matter for individual leaseholders and their tenants whether the cost of service charges was passed on or met by the leaseholders themselves.
The reasonable fears which the respondents had harboured before they had sight of the PFI agreement could now be seen to be unjustified. Since the appellant had not called on the leaseholders to contribute towards the capital cost of providing the plant, it was unnecessary to reach a concluded view on whether those costs would have been recoverable under the service charge provisions.
It followed that a charge of £343.75 was payable by the respondents in respect of their contribution to the plant maintenance costs for the year 2010 to 2011.
Ranjit Bhose QC (instructed by Judge & Priestley LLP, of Bromley) appeared for the appellant; the respondents did not appear and were not represented.
Sally Dobson, barrister
Click here to read the transcript of One Housing Group v Kingham and others
