Landlord and tenant – Service charges – Recoverability – Appellant landlords applying to First-tier Tribunal (FTT) for determination of reasonableness and payability of estimated service charges – Previous inconsistent decisions of FTTs – FTT determining amount payable – Appellants appealing – Whether cost of providing accommodation for holiday park wardens recoverable – Whether FTT assessing fair and equitable proportion of sums expended and liabilities incurred – Appeal allowed in part
The Atlantic Bays Holiday Park at St Merryn, Cornwall, was a 25-acre site on a former RAF base which was developed for holiday use in the 1970s. It included areas occupied by permanent holiday chalets and lodges, touring caravans and a camping field. In 2008, the appellants acquired the freehold interest in the park.
The chalets were let on long leases which included a covenant by the park owner, binding on the appellants, to maintain the park and provide certain services. The leases also provided for the leaseholders to pay service charges to meet the cost of those services. Each year the leaseholders were required to pay an estimated charge, with a balancing charge or credit being applied at the end of the year.
On 5 March 2020, the appellants applied to the First-tier Tribunal (FTT) under section 27A of the Landlord and Tenant Act 1985 for a determination of the reasonableness and payability of the estimated charges. The respondents were a number of current leaseholders.
In 2016, the FTT had determined that the same appellants were liable to pay £18,000 on account for accommodation for park wardens in their 2015 estimated service charge. In 2017, the same FTT panel, determined that the provision of accommodation for wardens was not recoverable as it was a notional cost to the landlord rather than actual expenditure incurred which was not recoverable.
In the present case, the FTT determined that the reasonable amount payable in advance for 2020 was £1,474.89 plus VAT. The appellants appealed. Issues arose: (i) whether a sum could be recouped through the service charge as an “accommodation cost for manager/wardens”; and (ii) whether the FTT’s approach to the assessment of the fair and equitable proportion was permissible.
Held: The appeal was allowed in part.
(1) The most significant feature of this case was that the tribunal was faced with inconsistent decisions of two previous FTTs between the same parties. The tribunal had to either decide which view of the meaning of the lease was correct, or choose between the previous decisions on some other basis. The existence of inconsistent first-tier decisions between the same parties on the same point was in itself a special circumstance meaning that the doctrine of issue estoppel ought not to be applied: Arnold v National Westminster Bank plc [1991] 2 AC 93 applied. Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 [2014] AC 160 and Hemmise v London Borough of Tower Hamlets [2016] UKUT 109 (LC) considered.
(2) It was clear that the FTT’s 2016 decision proceeded on an incorrect assumption about the meaning of the service charge provisions in the lease so far as they concerned staff accommodation. The issue for determination in the 2016 decision was the reasonable amount for each leaseholder to pay in advance for one year, and the question of what charge the park owner was entitled to levy for staff accommodation costs for that year was one small part of that issue, which the FTT did not address in clear terms. The FTT itself reminded the parties that its decision was of only limited effect and that the reasonableness of charges actually incurred (as opposed to prior estimates) could be revisited. The issue of interpretation of the lease was then reconsidered by the FTT in 2017 when it reached a clear and specific conclusion contrary to the assumption it had made the year earlier, although in relation to different years. Finally, neither decision was appealed on that point.
In all the circumstances it seemed not only just, but also necessary, that the UT decide this appeal on its substantive merits and not simply on the basis of that one of the parties was bound by the earlier of the two un-appealed decision of the FTT.
(3) The question whether a leaseholder was obliged to contribute towards the rent foregone by a landlord in fulfilling an obligation to provide accommodation for a resident member of staff was not a question of principle to which the same answer would be given in every case. In each case the answer would depend on the language used. In the right context, it was not a misuse of language to refer to income foregone as a “cost”, but beyond that there was little to be gained by tribunals comparing the language with which they were concerned with different provisions agreed between different parties. The focus should be on the words of the lease, read as a whole and in their relevant context, with the well-known principles of contractual interpretation in mind: Retirement Lease Housing Association Ltd v Schellerup [2020] UKUT 232 (LC); [2021] 1 P & CR 11 followed.
(4) The relevant language in this case allowed the park owner to recover the aggregate of the sums actually expended or liabilities incurred by the landlord “in connection with the management and maintenance of the estate and the provision of such services as herein described”. The rent which a landlord could have obtained by letting a unit of accommodation to a paying tenant rather than using it to house a member of staff was not a sum actually expended; the parties’ choice of language limited the landlord’s entitlement to the recovery of money which had actually been paid out, and did not extend to circumstances where a potential receipt of money had not been taken advantage of. Nor was a rent foregone a liability incurred by the landlord; it was not a liability at all. A notional staff housing cost representing letting income foregone by the landlord could not be recovered as part of the service rent.
On the evidence, the UT would not disturb the FTT’s assessment that no sum should be included in the 2020 budget as an estimate of recoverable staff accommodation costs but the appellants might include any expenditure actually incurred in the 2020 end of year accounts.
(5) However, a fair and equitable apportionment should be undertaken by dividing the total relevant expenditure by 176, the appellants’ assessment of the total number of chalets on the park. That divisor would be substituted for the figure of 177 used by the FTT.
The appellants appeared in person; Rawdon Crozier (instructed by Coodes Solicitors, of Truro) appeared for the respondents.
Eileen O’Grady, barrister
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