Landlords are reminded that when seeking to recover an item of expenditure through the service charge, the sum demanded must be charged in accordance with the service charge provision of the lease.
The respondent in Howe Properties (NE) Ltd v Accent Housing Ltd [2022] UKUT 273 (LC) was the lessor of an estate situated in Yarm in Cleveland. It contained 138 properties, 10 of which were houses that were disposed of as freeholds. The remaining properties were flats: 31 flats were held on long leases and the remaining flats were let on assured tenancies.
The appellant was the long leaseholder of four of the flats in the estate, including 134 The Meadowings. Pursuant to a clause of that lease the appellant was required to pay the lessor annually a 1/137th part of the annual service charge. Clause 5(2) of the lease defined the annual service charge. In particular, clause 5(2)(d) permitted the lessor to recover management fees.
In respect of the management fees under clause 5(2)(d), the lessor charged the freeholders £150 per annum and the lessees of each flat was required to pay £300 per annum. The assured tenants were charged a percentage of the remainder of the service charges, which was presently 15%.
In November 2019, the appellant made an application to the First-tier Tribunal via sections 19 and 27A of the Landlord and Tenant Act 1985 for a determination as to the payability and reasonableness of the management fees for the years ending 31 March 2017, 2018 and 2019.
The appellant argued that the sum of £300 they had to pay for the management fee was excessive. Further, it did not represent value for money and was inequitable compared with the 15% being charged to the assured tenants. The FTT determined that the sum demanded by the lessor from the appellant in respect of management fees was both reasonable and payable in the sum of £300. The appellant appealed the FTT’s determination.
The UT agreed with the appellant that the annual service charge was carefully defined. Pursuant to clause 5(2), the appellant was required to pay the specified portion of the whole charge and there was no exception made in relation to the management fee payable under clause 5(2)(d). The appellant was not required to pay the sum of £300 for management fees because, as an item of service charge, it was not charged in accordance with the terms of the lease.
The matter was remitted to the FTT for it to determine the payability and reasonableness, for the years in question, of the part of the annual service charge that represented the management fee under clause 5(2)(d).
Elizabeth Dwomoh is a barrister at Lamb Chambers
