Landlord and tenant – Service charge – Future expenditure – Appellant landlord entitled to demand service charge from respondent leaseholder for expenditure “incurred or to be incurred” in respect of specified matters – Leasehold valuation tribunal finding sum demanded unreasonable – Whether appellant entitled to include in service charge a reserve fund for anticipated expenditure in future service charge year – Appeal allowed
The respondent was the long leaseholder of a property on an estate of which the appellant was the freeholder. The terms of the lease required the respondent to pay to the appellant, as landlord, “on demand by way of service charge the due proportion as hereafter defined of the expenditure incurred or to be incurred by the Lessors” in respect of the listed matters, which consisted of services relating to the maintenance of the estate. A further clause provided that two-thirds of the estimated service charge for each calendar year was to be paid in advance each February on account for that year.
In 2013, the appellant demanded the sum of £425 from the respondent on account of the service charge. That sum included a reserve fund, in one-quarter of the amount of the budgeted expenditure for 2012, to cover expenditure that the appellant anticipated incurring in the following year. The respondent disputed the appellant’s entitlement to charge that amount.
The leasehold valuation tribunal (LVT) found that the sum demanded by the respondent was unreasonable since the terms of the lease did not permit the appellant to claim service charges for expenditure outside the current year. The appellant appealed
Held: The appeal was allowed.
As a matter of construction of the lease, the appellant was entitled to demand service charges outside of the current year so as to include expenditure anticipated to be incurred in the following service charge year. The critical wording of the service charge provisions was that reserving to the appellant the right to “demand by way of service charge the due proportion as hereinafter defined of the expenditure incurred or to be incurred by the Lessors.” The words “incurred or to be incurred” made it clear that the appellant was entitled to include within the service charge demands not only expenditure that it had already incurred at the time of the demand but also expenditure that would be incurred in the future. That included expenditure incurred in the following service charge year, provided that the expenditure fell within the specified categories of expenditure and satisfied the statutory requirement of reasonableness: Leicester City Council v Master LRX/175/2007; [2009] PLSCS 6 applied.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
