A tenant can only be levied with an administration charge by their landlord for the preparation and service of a notice to collect ground rent under section 166 of the Commonhold and Leasehold Reform Act 2002 if the lease expressly provides for the same – so says the Court of Appeal in Stampfer v Avon Ground Rents Ltd [2022] EWCA Civ 1375; [2022] PLSCS 170.
Section 166 provides that a tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given him a notice relating to the payment and the date on which the payment specified in that notice is due. The notice must be in the prescribed form and contain certain prescribed information as set out in the Landlord and Tenant (Notice of Rent) (England) Regulations 2004, SI 2004/3096.
The respondent was the long leaseholder of a flat situated in London E1. The appellant was his landlord. The ground rent payable under the lease for the first 25 years was £250, payable by equal half yearly payments in advance in the sum of £125. From July 2019 onwards the landlord added a charge of £30 plus VAT to its half yearly invoices by way of a “ground rent collection fee”.
Pursuant to paragraph 7-2.3.2.4 of the lease, the respondent covenanted to pay the landlord’s deemed costs of carrying out various tasks routinely required under the lease, including the “collection of rents for the building”. The respondent disputed liability for the payment of the “ground rent collection fee”.
In July 2020, the respondent and 10 other leaseholders applied to the First-tier Tribunal for a determination of their liability to pay the “ground rent collection fee”. In issue was whether the appellant could charge a fee for serving a section 166 notice because it was an expense incurred by the appellant which fell within paragraph 7-2.3.2.4; namely, an amount for “attend[ing] to the collection of rents from the Building”. The FTT answered in the affirmative. On appeal to the Upper Tribunal (Lands Chamber), it answered in the negative. The landlord appealed to the Court of Appeal.
The appellant argued that it needed to serve the section 166 notice in order to make the ground rent due. Accordingly, it was part and parcel of the process of collecting rent.
In dismissing the appeal, the Court of Appeal focused on the conceptual difference between making the rent due and collecting the same. Rent could not be collected until it was due. The covenant in the lease to pay rent imposed only a potential liability on the leaseholder, which did not become an actual liability until the section 166 notice was given.
The effect of the giving the notice was to make payment due. Rent could not be collected unless there was a liability but, in principle, you could have a liability for rent without it being collected.
The Court of Appeal also endorsed the observation of the UT that the government, which enacted section 166 to prevent lessees from having their leases forfeited for “trivial amounts”, could not have expected to impose extra costs on lessees by way of such “ground rent collection fees”. If a landlord wanted to recover those costs, they should have included express provision in the lease.
Elizabeth Dwomoh is a barrister at Lamb Chambers
