The Commonhold and Leasehold Reform Act 2002 enables qualifying leaseholders of flats to manage their building using a right to manage (RTM) company established specifically for that purpose.
Section 94 applies to “accrued uncommitted service charges held” by landlords in such cases. It provides that where a landlord has collected service charges in advance but has not spent them, it must transfer that money to the RTM company. In OM Ltd v New River Head RTM Co Ltd [2010] UKUT 394 (LC); [2011] PLSCS 34, an RTM company asked the Upper Tribunal of the Lands Chamber to determine the amount that it was entitled to receive from its landlord under section 94.
The tenants had previously crossed swords with the landlord– and had persuaded the court to reduce their service charges for previous years by almost £122,000. The RTM company tried to recover the repayment due to the tenants on the ground that the amount in question was part of the “uncommitted service charge”. The leasehold valuation tribunal (LVT) upheld the claim, despite the decision in BCL (RTM) Co Ltd v Barrington Court Developments Ltd LON/00AP/LIS /2006/0091, in which a contrary view was taken.
The landlord appealed. While the appeal was pending, the LVT heard a similar claim in Triangle Residential Management RTM Co Ltd v Shuttleworth Property Management Co Ltd CHI/43UF/LUS/2009/0001. The tribunal in that case sympathised with the tenants, but followed the decision in BCL
The Upper Chamber has restored judicial unanimity by allowing the landlord’s appeal in
The tribunal also confirmed that landlords handing over to RTM companies are entitled to clear their debts to suppliers. Consequently, if a landlord has incurred service charge costs, it can pay them in full out of the service charge money that it holds, even though some tenants may not have paid their share of such costs. In addition, if the landlord knows that it has yet to receive accounts for costs that have already been incurred, it will be entitled to retain sufficient money to discharge them (as money representing committed accrued service charges) and pay any balance to the RTM company.
In the worst-case scenario, landlords with a shortfall after the handover can still sue their tenants for unpaid service charges. RTM companies are not entitled to do so: see section 97(5).
The decision confirms that section 94 requires nothing more than a simple arithmetical calculation to ensure that uncommitted cash balances are transferred to RTM companies – and confirms that tenants who have overpaid service charges must seek restitution through the courts.
Allyson Colby is a property law consultant
