This is another of the (irregular) updates on matters relating to leasehold property, leasehold valuation tribunals and the like.

First up, those practicing in this field should note the the Right to Manage Companies (Model Articles) (England) Regulations 2009 SI 2009/2767 and the guidance issued by the DCLG on the Regulations. The Commonhold and Leasehold Reform Act 2002 confers on qualifying leaseholders of flats a right to establish and join a “Right to Manage company” (RTM company) which can then exercise the management functions of the freeholder. The RTM company is a “normal” company and was previously required to have articles and a memorandum of association. The Companies Act 2006 replaced these two documents with one new document called simply “the articles.” These regulations prescribe the form of articles for RTM companies in England. All new RTM companies are bound by the new articles and all existing companies have until September 30, 2010 to adopt them.

Secondly, the Upper Tribunal (Lands Chamber) (aka the Lands Tribunal) has given judgment in Circle Thirty Three Housing Trust Ltd v Segovia LRX/66/2008 (link is to a .pdf) [Also on Bailii]. The respondent was the tenant of the appellant. The tenancy agreement provided for a weekly service charge of £1.80 and £1.42 for heating and hot water, with a power to vary such sums in accordance with ss.102 and 103 Housing Act 1985

(I pause at this stage to ask whether this is actually a service charge within the meaning of s.18 Landlord and Tenant Act 1985? See Home Group Ltd v Lewis LRX/176/2008 and Chand v Calmore Area Housing Association Ltd LRX/170/2007)

The appellant did vary the amounts and reduced the service charge to £1.02 per week but increased the heating and hot water charge to £17.39 per week. This was in an attempt to recover a previous shortfall. The respondent applied to an LVT for a determination as to the reasonableness of these charges.

The LVT concluded that:

(a) the service charge could not be varied. The charge was payable for certain items specified in Appendix A of the tenancy agreement. There was nothing specified in Appendix A, so the costs could not possible change;

(b) the shortfall related to a year or years prior to the commencement of the respondents tenancy and so could not be recovered from her.

The Lands Tribunal allowed an appeal against (a) but rejected the appeal against (b). There clearly was power to vary the service charge (and, as part of that, the heating and hot water charge) and the LVT had been wrong to focus on the fact that Appendix A had been left blank. That was an obvious error and, applying Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, HL, the Lands Tribunal was entitled to remedy the error through construction of the contract.

However, there was nothing in the agreement to suggest that a reasonable tenant would understand that they were obliged to contribute towards shortfalls incurred prior to their tenancy having commenced. There was no objection to recovering shortfalls during the tenancy, but shortfalls which pre-dated the tenancy were not, as a matter of construction of the contract, recoverable.

The reasonableness of the increase for the future years was, however, remitted to the LVT for determination.