Landlord and tenant – Service charge — Landlord and Tenant Act 1987 – Respondent landlord successfully applying under section 35 of 1987 Act to vary service charge provisions in leases of flats – Appellant buying one such flat prior to decision on respondent’s application – Service charge liability under appellant’s lease increasing on variation of leases – Whether appellant entitled to compensation under section 38(1) – Whether suffering loss or disadvantage as a result of variation – Appeal dismissed
In 2009, the appellant purchased a long lease of a flat in a mansion block in London E9. The block was one of three which had originally belonged to the same freeholder but which had come under separate ownership after the freehold to each block was sold. The respondent held the freehold of the block containing the appellant’s flat. The flats were, for the most part, originally let on long leases which provided for the payment of a service charge, under which the various lessees shared the costs referable to the upkeep of the entirety of the three blocks rather than merely to merely the block in which the relevant flat was situated. In some of the leases, the lessee’s share was calculated by reference to the rateable value of the flat.
At the time when the appellant purchased his flat, the leasehold valuation tribunal (LVT) was determining an application by the respondent, under section 35 of the Landlord and Tenant Act 1987, to vary the service charge provisions in relation to its block so as to: (i) vary the definition of the “Building” so as to refer only to its block rather than to the three blocks as a whole; and (ii) vary the service charge percentages in the residential leases by substituting percentages calculated by reference to internal floor areas rather than by rateable values. The LVT subsequently allowed that application and ordered the variation. The effect was to increase the service charge liability in respect of certain flats, including that of the appellant.
Thereafter, the first-tier tribunal (FTT) considered whether any of the lessees were entitled to compensation from the respondent under section 38(10) of the 1987 Act as a result of the variation of their leases. The FTT determined that the appellant was not entitled to any compensation since he had suffered no loss or disadvantage as a result of the variation in circumstances where he must have been aware when he contracted to purchase his flat that his service charges liability might be increased.
Held: The appeal was dismissed.
Section 38(10) should not be applied so as to put any claimant for compensation into the same position as that claimant would have been in had the financial contributions toward service charge made by that claimant under the lease remained in the original unamended percentage. Where parliament had provided a mechanism in the 1987 Act to amend leases where the lease failed to make satisfactory provision in respect of certain matters, it seemed unlikely that it would have intended that cure to be effectively nullified by the award of compensation. There was an advantage not only to a lessor but also to lessees that the leases under which flats were held should be well drafted and should, in particular, make satisfactory provisions with respect to the payment of service charges. Where the existing leases of the flats in a building did not make satisfactory provisions in that regard, then an amendment to secure that satisfactory provisions were made was not an amendment which necessarily brought loss or disadvantage to a lessee even though that lessee might be paying a higher percentage of the service costs than previously.
The FTT had been entitled to conclude that the appellant must have been aware, when he exchanged contracts on the purchase of his flat, that the service charge might be increased. The was clearly on notice, prior to exchanging contracts, that there was an ongoing case before the LVT and that the percentage relevant to his flat might well be increased pursuant to the 1987 Act. Further, at the date when the appellant exchanged contracts, there was no finding of any tribunal that the lessee of the flat would be entitled to compensation under section 38(10), let alone any quantification of such compensation. All that the appellant would have known, if properly advised on the point, was that the provisions of the legislation enabled the lessees to seek an order for compensation. There was no guarantee available to the appellant that compensation would definitely be awarded or how much. Further, there was no evidence that the appellant would have succeeded had he tried to negotiate a lower price because of any perceived difficulty regarding compensation. While major works were needed to the block, and the appellant would be required to pay a larger proportion of the substantial costs than would have been the case had the lease had not been amended, it remained the case that he had purchased a flat knowing of the problems regarding the service charge, knowing that the percentage attributable to his flat might be increased, knowing of the condition of the block, and knowing that he would, if the amendments were made to the lease, be required to contribute to the costs of major works in accordance with the new higher percentage. In all the circumstances, the additional cost to him of those works under the amended percentage was not a loss or disadvantage which had been caused to him by reason of the variation of service charge percentage in the lease.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
Click here to read the transcript of Parkinson v Keeney Construction Ltd
