Variation of service charges

Shersby v Grenehurst Park Residents Co Ltd LRX/142/2007 Upper Tribunal (Lands Chamber)

The appellant held a lease of a flat in a former mansion house. The wider estate comprised 17 such flats and a number of freehold houses and mews cottages. In total there were 40 residential units. All the units were obliged to contribute to the costs of repairing the main structure of the mansion house but, for the first five years of the lease, the service charge was capped by virtue of an agreement between the developer and the tenants.

It subsequently became clear that the cap could not be maintained as it was not sufficient to allow for the collection of any reserves. The freeholder house owners were not happy with this and pointed to the apparent unfairness of obliging them to repair not just their own homes but also the mansion.

The respondent – as freeholder and manager under the leases – was minded to move towards a scheme whereby the leaseholders would pay increased service charges. The lease did provide for the service charge percentages to be varied and the issue was whether or not the respondent had lawfully done so.

The appellant contended that it had not done so. In particular, he argued that the obligation to contribute towards the mansion was a collective obligation on both the leaseholders and freeholders and that the lease made no provision for dividing costs into separate “pots”. There were also sound policy reasons against construing a generous power of alteration to the respondent, if only because leaseholder were entitled to certainty regarding their proportion of the overall expenses. In addition, a subsidiary issue arose as to payment of insurance premiums.

The Upper Tribunal (Lands Chamber) dismissed the appeal. The lease entitled the respondent to vary the percentages payable if “in the opinion of the Manager” it was appropriate to do so. This had to be a genuine and bona fide opinion. The task of the Tribunal was to determine whether the respondent reached a lawful and reasonable decision. It was not the task of the Tribunal to substitute its own view but to ensure that the decision taken as one within the range of reasonable decisions.

The respondent took legal advice on the issue and advice from a surveyor. It gave detailed and careful consideration to the matter and came to a clear view. It was a bona fide decision. The fact that a different decision was possible was immaterial.

The insurance premiums had been paid between 1997 and 2004 and, in addition, had not been challenged at the time, whether in correspondence or in previous LVT proceedings between the parties. The charges had been admitted within the meaning of s.27A(4), Landlord and Tenant Act 1985 and were not capable of challenge in the LVT. In addition, premiums since 2004 were payable as charged.

About J

J is a barrister in London. He loves service charges and all things leasehold law related. He also likes beating rogue landlords and mortgage companies.
Posted in Leasehold and shared ownership, Uncategorized and tagged , , .

4 Comments

  1. it is to be noted that the Unfair Terms In Consumer Contracts Regulations 1999 SI 2083 were not argued by the payer.
    payee’s power to alter was wider than the payer’s and the matter was decided on payee’s subjective basis.

  2. True, although I’m not sure how far such an argument would have helped, since the Upper Tribunal (in its previous capacity as the Lands Tribunal) has previously made clear that isn’t too impressed by such arguments!

  3. Niki,

    But to what extent is the Unfair Terms in Consumer Contract Regulations 1999 applicable to a lease that was created in 1991 and that starts from a term beginning in 1989? Hence the whole contract substantially predated the start of this legislation.

    Knowing something about this case it appears to me that the outcome was reliant not just on the terms of the lease or the actions taken by the Appellant (the individual leaseholder) and the Respondent (the management company) but the perception of the Judge as to the reasonableness or otherwise of the parties appearing before him at the hearing. Also why did Judge Huskinson sit alone and not with a surveyor member when a surveyor member’s opinion should surely have been critical to deciding whether the advice given by the Respondent’s Surveyor was reasonable or justifiable in the circumstances and whether the Respondent’s variation of that advice was also a reasonable course of action. I don’t see how Judge H as a lawyer can himself have formed a reasonable opinion on any of those things.

    The Appellant in this case was hugely disadvantaged by being forced to represent themselves due to being let down by Bar Pro Bono after the Appellant had passed their means and merits tests but Bar Pro Bono did not manage to find anyone to take on the case in time.

    Also note that the original LVT in this case failed to exercise its powers correctly by declining jurisdiction and so the Lands Tribunal was actually making the original decsion from scratch. Despite this it thought it completely reasonable for a body calling itself a Tribunal to have only one Judge sitting alone compared to the solicitor, surveyor and lay member that would have been part of an LVT Tribunal panel.

    Another sad example I fear that in this country those with the deepest pockets for lawyers fees usually win their cases. Also that cost cutting by the Lands Tribunal in only appointing a judge sitting alone and only hearing the case over two days may not be permitting all the relevant facts to be put in front of the Judge. There were massive bundles in this case of around 2,000 pages with long statements of case and witness statements but despite this the Judgement only reads as though what was said during the hearing was actually taken in to account.

  4. You’ve hit the nail on the head re the 1999 Regulations. The President (George Bartlett QC) has raised this point on a number of occasions and, whilst he’s not actually ruled on it yet (to the best of my knowledge), it’s quite clear which way he’s leaning.

    As for the composition of the Tribunal – you’ll find that it’s quite common for a surveyor member to hear a legal case and / or a legal member to hear a largely evidential case. Given the relatively small pool of members, they each tend to be quite knowledgeable about all relevant matters. An argument that a judge can’t really decide questions of expert evidence isn’t likely to get you very far, since that is what judges do every day of the week.

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