Service charges: the approach to determining whether a charge is a variable service charge

When determining whether a charge is a variable service charge, it is advisable to start from the terms of the lease. In Orbit Housing Association Ltd v Vernon [2023] UKUT 156 (LC); [2023] PLSCS 126, the appellant was the freeholder of a mixed-tenure scheme consisting of sheltered and extra-care tenants. In 2021, the respondent was granted an assured tenancy of a flat within the scheme. He was categorised as a sheltered housing tenant who did not receive personalised care in his home. The respondent applied to the First-tier Tribunal for a determination of the reasonableness and payability of charges described in his tenancy agreement as a scheme-based support charge (SBSC). The years in dispute were 2021/22 and 2022/23. Both the respondent and the appellant agreed that the SBSC was a variable service charge. The appellant contended that it was a charge for the provision of overnight personalised care for residents who had a separate support agreement in place. The respondent argued that he did not want, nor receive, any services available to him within the SBSC. The FTT struck out the application because it determined that the SBSC was not a variable service charge within the meaning of section 18(1)(a) of the Landlord and Tenant Act 1985. Accordingly, it had no jurisdiction to assess its reasonableness or payability under section 27A. Even though it struck out the application, the FTT deemed the respondent to be the successful party and made orders under section 20C of the 1985 Act and paragraph 5 of schedule 11 to the Commonhold and Leasehold Reform Act 2002. The appellant appealed the finding that the SBSC was not a variable service charge. The Upper Tribunal (Lands Chamber) was critical of the practical approach adopted by the FTT as to whether the SBSC was a variable service charge or not. It noted that the FTT failed to analyse the terms of the tenancy agreement and instead focused on the practical arrangements in place on the estate, which would not “yield a stable answer”. The UT observed that the question of whether a charge was a variable service charge concerned the nature of the charge and the intentions of parties to the tenancy agreement, and should be answered by an examination of the terms of the agreement. The respondent was under an obligation to pay the SBSC and this was not qualified in any way under the agreement. The SBSC was a variable service charge within the meaning of section 18 of the 1985 Act. However, it did not meet the requirements of section 19 of the 1985 Act because, for the relevant years in dispute, no services were provided to the respondent in return for payment of the SBSC. Elizabeth Dwomoh is a barrister at Lamb Chambers