Landlord and tenant – Management charge – Respondents’ leases providing for payment of management charge – Whether respondents liable for charges of managing agent retained by appellant local authority landlords to provide management services – Whether costs in respect of respondents’ building properly apportioned – Appeal allowed The respondents held long leases of flats at a low rent, having acquired them from the appellant local housing authority under the right-to-buy legislation. A management charge was payable under the terms of the leases, representing a proportion of the reasonably estimated amount required to cover the costs and expenses incurred by the appellants in carrying out various functions relating to the management and maintenance of the building. The lease provided that the appellants were entitled to appoint managing agents for the purpose of managing the property and to remunerate them properly for their services; it further provided that the appellants could delegate any of their management functions on such terms and conditions and for such remuneration as they thought fit. In 2006, the appellants set up an arm’s-length management organisation (ALMO) to manage their housing stock on a non-profit-making basis. The ALMO had a dedicated team that dealt specifically with the properties let on long leaseholds. In the following years, the respondents’ management charge was calculated by determining what proportion of the ALMO’s global fee was attributable to the work of the leasehold team; a further percentage of that cost was excluded as representing items that related to specific properties and were recoverable from the lessees of those properties. On an application under section 27A of the Landlord and Tenant Act 1985, the leasehold valuation tribunal (LVT) determined that the appellants were not entitled to recover management charges calculated in that manner. They held that the appellants could not pass on all the charges of their managing agents but only those incurred in performing the functions specified in the lease; accordingly, not all the costs of the ALMO were recoverable since they included matters that were not concerned with the proper and reasonable management of the building. The LVT further determined that the appellants should calculate a management fee for each property by reference to the nature of the block in which it was situated. The appellants appealed. Decision: The appeal was allowed. (1) The fees payable to the ALMO were properly recoverable as part of the management charge under the terms of the respondents’ leases. They were recoverable under the clause that entitled the appellants to appoint managing agents for the purpose of managing the building and to remunerate them properly for their services and also entitled the appellants to delegate their functions on such terms and conditions and for such remuneration as they thought fit. A clause worded in that way did not merely cover the services, repairs and other matters referred to elsewhere in the lease but also extended to the general managing of the relevant building as part of the appellants’ residential property portfolio. The appellants were therefore entitled to appoint the ALMO to manage their housing stock, including the building comprising the respondents’ flats, and to agree terms and conditions with the ALMO as to the remuneration that the ALMO would receive for that management. The appellants had reasonably agreed to pay 100%, no more and no less, of the ALMO’s costs of managing the appellants’ housing stock. (2) The appellants were entitled to charge the respondents, as a management charge, the due proportion of the reasonably estimated amount required to cover the cost and expenses incurred or to be incurred by the appellants in paying the ALMO for managing their building. The invoices submitted by the ALMO did not specify a separate amount for the management of each particular building and the appellants were not obliged, under the terms of the leases, to agree terms and conditions of remuneration that involved such separate charges. However, that did not mean that, as a consequence, some figure should be assessed as a generally reasonable management fee for managing that sort of building, without reference to the ALMO’s actual costs charged to the appellants. The proper course was to calculate what part of the global sum paid to the ALMO for managing the entire housing stock was attributable to the management of the leasehold properties. The appellants and the ALMO had in fact made that apportionment in a careful and reasonable manner. The figure that it had produced, in respect of a building such as the respondents’ building, properly represented the costs and expenses incurred by the appellants in paying the ALMO for its management services in relation to the building. Nicola Muir (instructed by the legal department of South Tyneside Council) appeared for the appellants; the first respondent appeared in person; the second respondent did not appear and was not represented. Sally Dobson, barrister
Landlord and tenant – Management charge – Respondents’ leases providing for payment of management charge – Whether respondents liable for charges of managing agent retained by appellant local authority landlords to provide management services – Whether costs in respect of respondents’ building properly apportioned – Appeal allowed The respondents held long leases of flats at a low rent, having acquired them from the appellant local housing authority under the right-to-buy legislation. A management charge was payable under the terms of the leases, representing a proportion of the reasonably estimated amount required to cover the costs and expenses incurred by the appellants in carrying out various functions relating to the management and maintenance of the building. The lease provided that the appellants were entitled to appoint managing agents for the purpose of managing the property and to remunerate them properly for their services; it further provided that the appellants could delegate any of their management functions on such terms and conditions and for such remuneration as they thought fit. In 2006, the appellants set up an arm’s-length management organisation (ALMO) to manage their housing stock on a non-profit-making basis. The ALMO had a dedicated team that dealt specifically with the properties let on long leaseholds. In the following years, the respondents’ management charge was calculated by determining what proportion of the ALMO’s global fee was attributable to the work of the leasehold team; a further percentage of that cost was excluded as representing items that related to specific properties and were recoverable from the lessees of those properties. On an application under section 27A of the Landlord and Tenant Act 1985, the leasehold valuation tribunal (LVT) determined that the appellants were not entitled to recover management charges calculated in that manner. They held that the appellants could not pass on all the charges of their managing agents but only those incurred in performing the functions specified in the lease; accordingly, not all the costs of the ALMO were recoverable since they included matters that were not concerned with the proper and reasonable management of the building. The LVT further determined that the appellants should calculate a management fee for each property by reference to the nature of the block in which it was situated. The appellants appealed. Decision: The appeal was allowed. (1) The fees payable to the ALMO were properly recoverable as part of the management charge under the terms of the respondents’ leases. They were recoverable under the clause that entitled the appellants to appoint managing agents for the purpose of managing the building and to remunerate them properly for their services and also entitled the appellants to delegate their functions on such terms and conditions and for such remuneration as they thought fit. A clause worded in that way did not merely cover the services, repairs and other matters referred to elsewhere in the lease but also extended to the general managing of the relevant building as part of the appellants’ residential property portfolio. The appellants were therefore entitled to appoint the ALMO to manage their housing stock, including the building comprising the respondents’ flats, and to agree terms and conditions with the ALMO as to the remuneration that the ALMO would receive for that management. The appellants had reasonably agreed to pay 100%, no more and no less, of the ALMO’s costs of managing the appellants’ housing stock. (2) The appellants were entitled to charge the respondents, as a management charge, the due proportion of the reasonably estimated amount required to cover the cost and expenses incurred or to be incurred by the appellants in paying the ALMO for managing their building. The invoices submitted by the ALMO did not specify a separate amount for the management of each particular building and the appellants were not obliged, under the terms of the leases, to agree terms and conditions of remuneration that involved such separate charges. However, that did not mean that, as a consequence, some figure should be assessed as a generally reasonable management fee for managing that sort of building, without reference to the ALMO’s actual costs charged to the appellants. The proper course was to calculate what part of the global sum paid to the ALMO for managing the entire housing stock was attributable to the management of the leasehold properties. The appellants and the ALMO had in fact made that apportionment in a careful and reasonable manner. The figure that it had produced, in respect of a building such as the respondents’ building, properly represented the costs and expenses incurred by the appellants in paying the ALMO for its management services in relation to the building. Nicola Muir (instructed by the legal department of South Tyneside Council) appeared for the appellants; the first respondent appeared in person; the second respondent did not appear and was not represented. Sally Dobson, barrister