Residential leasehold management legislation may work reasonably well for a standard block of flats. But in the case of some large mixed-use buildings, the application of the law and the interpretation of the leasing arrangements can be tricky. Take a recent case that came before the Upper Tribunal (The Gateway (Leeds) Management Ltd v Naghash (and another) [2015] UKHT 333 [2015] PLSCS 193. It concerns a building in Leeds within which there are 640 residential apartments, a hotel, some office and other commercial areas and car parking (in other words, hardly a standard block of flats).
An appeal was made against the decision of the First-tier Tribunal which reduced certain service charges. It was made by a management company (‘Gateway’); the respondents to the appeal are two of the apartment leaseholders. Under the leases Gateway provides services for which the leaseholders covenant to contribute to the costs by paying service charges. These services include a gym, a concierge service and a high-specification CCTV system. To provide those services Gateway paid a rent to the landlord for the gym and the concierge office under separate leases of 10 and 20 years respectively. Each lease has a rent review clause. Under a separate five-year agreement rent was paid for the CCTV equipment. Could these rental payments be passed onto the leaseholders as service charges? The FtT decided that they could in principle, but it reduced the charges for gym, CCTV and the rent for the office.
On appeal, Gateway argued that the rental payments could not be treated as a service charge as defined in section 18 of the Landlord and Tenant Act 1985. Instead the charges should be characterised as rental payments. Moreover they were fixed charges and therefore not covered by the Act. For these reasons the FtT had no jurisdiction to determine the charges. The UT rejected these submissions and it dismissed the appeal.
An obligation to contribute to the rent payable by a landlord to its head landlord, where there is no element of services is provided, is a rent. But here charges were claimed for Gateway’s costs of providing the gym, concierge office and these included the rent it pays for these services. Nor was it correct to characterise the rent element of the charges as fixed: each of the leases had rent review clauses; and the leases were for far shorter periods than the occupation leases and so would in time have to be renegotiated.
Gateway also claimed that the FtT had failed to give adequate reasons for its decisions to reduce the charges. On this matter the UT noted that Gateway failed to produce evidence supporting the charges. Nor was comparative evidence of the costs of such services produced. The FtT had adopted a robust and commonness approach in reducing the charges and this appeal ground was also dismissed.
For the future though a different result might obtain if Gateway produces “more considered evidence in support of a claim for future service charges”.
James Driscoll is a solicitor, a mediator and a writer
