Landlord and tenant – Ground rent – Collection – Administration charge – First-tier Tribunal deciding respondent landlord entitled to charge administration fee for collecting ground rent – Appellant tenant appealing – Whether covenant to pay landlord’s deemed expenses for collecting ground rent could include charge for giving notice under section 166 of Commonhold and Leasehold Reform Act 2002 – Appeal allowed
The appellant held a 125-year lease, granted in 2010, of Flat 12, 6 Trinity Mews, London E1. The respondent was the freeholder. The ground rent payable in respect of the flat was £250 per annum, payable in equal half-yearly instalments.
Section 166 of the Commonhold and Leasehold Reform Act 2002 provided that ground rent was not owed by a lessee unless a notice in the form specified by section 166 was first given to him or her by the landlord. The notice had to set out the amount of the rent and the date when it was payable.
Because the rent for the appellant’s flat was payable in half-yearly instalments, the respondent freeholder had to provide two section 166 notices each year. It bought the block in 2017, and since July 2019 it had charged each tenant a “ground rent collection fee” of £30 plus VAT, twice a year. Rather than paying rent of £250 per annum, the lessees paid £322 per annum once the collection fee was included.
The appellant and a number of other leaseholders applied to the First-tier Tribunal (FTT) for a determination of the reasonableness and payability of the ground rent collection fee. It was common ground in the FTT that the charge was an administration charge; the application was therefore properly made under paragraph 5 of schedule 11 to the 2002 Act.
The FTT concluded that the service of the section 166 notice and associated work was part and parcel of the collection process. In order to collect, the respondent had to serve the notice and carry out work associated with it. The appellant appealed.
Held: The appeal was allowed.
(1) If it was the case that the ground rent collection fee was a charge for a number of items including the giving of the section 166 notice, the latter task could be isolated from the rest. But in any event, it was clear from the terms of the FTT’s decision that that was not how the respondent put its case. The ground rent collection fee was explained to the FTT as a charge for giving the section 166 notice and that was how the FTT understood it. That was clear because the appellant and his fellow lessees disputed the whole charge. If the FTT had been contemplating a charge for a package of work, with just one element being the section 166 notice, it would have had to say, first, that the elements that did not relate to the section 166 notice were chargeable as a fee for collecting ground rents and, second, that the section 166 notice itself was part and parcel of the collection of ground rents. It did not do that. It made a decision about the section 166 notice because that was the only thing in issue, because the respondent’s case was that that was a charge for giving the section 166 notice, which was a substantial task because of the need to check the details to ensure the respondent got it right.
The £30 + VAT was, exactly as the respondent said in correspondence, a charge for giving the section 166 notice. The FTT said that it was taken through all the aspects of the work required to be done in preparation of a section 166 notice. Whatever that work was, it was seen by the FTT as the work required to be done in preparation of a section 166 notice and not as a wider package of work of which the section 166 notice was a component.
(2) The Upper Tribunal disagreed with the FTT’s construction of the lease. The FTT had been led astray by its earlier decision in Newton House, 175 Queens Road, Croydon, Surrey CRO 2PX (LON/00AH/LAC/2018/0004), where the covenant given by the tenant was to pay “all legal and administration and other ancillary costs incurred in the collection of any sums… due under the terms of this lease”. That was a different covenant and shed no light on the construction of the appellant’s lease. The question was whether “the collection of ground rents” included giving a section 166 notice.
(3) Section 166 notices were introduced in order to protect tenants from forfeiture for trivial amounts; it was open to the parties to a lease to make provision for a tenant to pay for such a notice, but that provision would need either to be express (as provision for the recovery of costs associated with a notice under section 146 of the Law of Property Act 1925 had to be), or at the very least to take the form of a reference to ancillary or incidental costs. There was no such reference in the present case, and the omission was conspicuous because of the inclusion of provision for incidental costs. Rent could not be collected until it was due, and giving a section 166 notice in order to make it due was not the same as collecting it. Accordingly, there was no provision in the lease enabling the respondent to charge the ground rent collection fee that it demanded in July 2019 and January 2020.
Rebecca Cattermole (acting pro bono) appeared for the appellant; Justin Bates (instructed by Scott Cohen Solicitors Ltd) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Stampfer v Avon Ground Rents Ltd
