CASE LAW

Service Charging

Fitzroy Place Residential Ltd v Lovitt [2024] UKUT 63 (LC)

The Upper Tribunal considered the First-tier Tribunal had correctly interpreted residential lease provisions concerning the apportionment of service charges payable by the tenants on a mixed-use estate. The residential leases were in a standard form and set out a primary method for calculating each residential tenant's proportion. The service charge clause gave a discretion to the landlords and the estate management company to use a different method of apportionment, as was fair and reasonable.

However, the Tribunal considered that discretion only applied on an ad hoc basis to particular types or items of expenditure. It was not a power to adopt a blanket change to the method of calculating the service charge.

The Upper Tribunal thought it was most unlikely that the parties would have agreed an entirely open-ended discretion that would bypass the primary method of apportionment and put the residential tenants at the mercy of the landlords' commercial interests.

A copy of the judgement is here.

What this means for you

This is a good example of lease interpretation and takes us back to basic principles of contract law established in Arnold v Britton – parties have control over the wording they use in a contract and must be presumed to have been focused on the issue when agreeing that wording.

Courts and Tribunals will be reluctant to depart from the ordinary meaning of language used where the wording is clear. When an event occurs which, judging from the language used, was plainly not intended or contemplated by the parties, the court will give effect to the intention of the parties, if it is clear what the parties would have intended in that situation.

Forfeiture

Clemente v Mindmere Ltd [2024] UKUT 50 (LC)

Section 81 of the Housing Act 1996 (HA 1996) requires a landlord to obtain determination from the court or tribunal that unpaid service charges are payable before it can serve section 146 notice.

In this case, the tenant was sent a Letter Before Claim in relation to service charge arrears of £13,431. The letter outlined that the next steps would be to serve a section 146 notice.

The landlord proceeded to issue a money claim in respect of the arrears at the County Court. The claim was transferred to the First-Tier Tribunal who found the service charges to be reasonable and payable, and the landlord’s legal costs were recoverable as administration charges.

The question on appeal was whether, in applying to the County Court for a money judgment, the landlord had waived its right to forfeit the lease for the non-payment of service charges and could rely on the lease terms to recover its costs.

The Upper Tribunal held the right to forfeit had not been waived by issuing County Court proceedings. An action for damages was equally effective as a determination of breach, to satisfy section 81 HA 1996. Reference was made to the definition of waiver in Woodfall, Landlord and Tenant – the "act relied on as constituting waiver must amount to a recognition of the continued existence of the tenancy".

A copy of the judgement is here.

What this means for you

In this case, the landlord had not unequivocally demonstrated that it had regarded the lease as continuing. Its intentions had been made clear in the letter before claim and no demands for rent or service charges had been made since sending that letter. Had it made any such demands, its right to forfeiture would have been waived. However, this case demonstrates that the pursuit of a money judgment for services charges was not a waiver.

Enfranchisement

Gray's Inn Investments Ltd v Jolleys [2024] UKUT 2 (LC)

Section 60 of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) provides that where a leaseholder gives notice of a claim to exercise a lease extension, it becomes liable for the landlord’s costs. Section 43 of the Act allows for such claim notices to be assigned to new lessees when the leasehold property is sold.

In this case, the landlord of a flat appealed against the First-tier Tribunal's refusal to order the lessee to pay its costs pursuant to section 60. The former leaseholder of the flat had given the landlord notice under section 42 to exercise his right to acquire an extended lease. He subsequently sold his lease of the flat to the respondent lessee, and assigned to her the benefit of the section 42 notice.

The lessee then applied to the tribunal for determination of the terms of the new lease and the tribunal determined the premium payable. However, the lessee did not continue with the procedure and the new lease was not completed, so the application was deemed to have been withdrawn.

The landlord applied to the tribunal for an order that the lessee pay its costs pursuant to s.60, to reimburse it for costs incurred as a result of the notice. The tribunal dismissed the application holding that, as the lessee was not "the tenant by whom the notice" was given within the wording of s.60, she was not liable to the landlord for any costs under s.60.

The Upper Tribunal allowed the landlord’s appeal on the basis that the First-tier Tribunal had misinterpreted section 60. The effect of section 43 was that when the lessee took on the benefit of the section 42 notice, she also took on the liabilities that went with it. On proper interpretation, reference to “tenant” in section 60 included the tenant’s assignee.

A copy of the judgement is here.

What this means for you

Whilst this is an interesting decision, if and when the relevant provisions of the Leasehold and Freehold Reform Act 2024 are brought into force it will remove the two-year qualifying period for lease extensions thus likely doing away with the need for assignment of the right; it will also restrict costs.

Disrepair

Crisplane Ltd v Plymouth Community Homes Ltd [2024] UKUT 15 (LC)

The lessee of an upper floor flat and ground floor flat in two separate buildings, whose leases had been granted under the Right to Buy, was not liable to contribute to half of the cost of repairing the roofs of the two buildings.

Under the upper floor flat lease, "demised premises" (which the leaseholder was responsible for keeping in repair) referred to the upper flat including the roof. "Reserved premises" (the landlord’s responsibility) referred to the ground floor flat in that building up to the mid-point of the joists supporting the ceiling. Under the ground floor flat lease, "demised premises" referred to the ground floor flat up to the mid-point of the joists supporting the ceiling and "reserved premises" meant the upper flat in that building including the roof. The leases also required the landlord to keep the exterior of the property (excluding the roof) in good repair and condition. The lessee was to contribute towards half the costs of the lessor complying with its obligations, except for costs in repairing the reserved premises.

The First-Tier Tribunal found both leases were subject to the implied covenant introduced by Schedule 6, paragraph 14(2) of the Housing Act 1985 – that the landlord is responsible for keeping the structure and exterior of the building in repair. This meant the exterior repair clause, which expressly excluded the roof, was of no effect because the parties could not opt to contract out of the implied covenant, and therefore the lessee was liable to contribute towards half the roof repair costs.

On appeal, the Upper Tribunal allowed the appeal. “Reserved premises” expressly included the roof in the ground floor lease and this was excluded from the service charge provision. The lessee therefore did not have to contribute towards the roof repair costs.

The upper floor lease expressly included the roof in the definition of “demised premises”, which was the lessee’s responsibility. The roof was not part of the “reserved premises” and therefore the landlord was not contractually obliged to repair the roof and the lessee was not required to contribute towards the costs it had incurred. The landlord had been complying with the implied covenant in repairing the roof but Schedule 6, para 14(2) says nothing about any obligation to contribute towards costs.

The lessee therefore was not required to contribute towards the roof repair costs in respect of either lease.

A copy of the judgement is here.

What this means for you

Reading a lease often requires flicking between pages and paragraphs to refer back to defined terms and related clauses. The lease should be read as a whole. The service charge provision will likely refer to the landlord’s obligations under the lease and careful consideration of definitions is important.

Right to Buy

Weintraub v Hackney LBC [2024] EWHC 845 (Ch)

A secure tenant of a council flat wished to exercise his right to buy the premises under section 118 of the Housing Act 1985 (the Act). He had not slept at the property overnight for a long period but said he intended to return to the property as his only home after he had exercised his right to buy and carried out repairs and alterations to the property. The question for the court was whether such intention was sufficient to satisfy the tenant condition in section 81 of the Act.

The tenant condition involves two questions:

1. whether the person occupied the dwelling as a home
2. if so, whether they occupied it as their only or principal home.

In order to conclude that a dwelling-house was not a principal or only home, it was first necessary to find that some other property was the principal home. Where a person had more than one home, in order to conclude that one of them was not the principal home, it logically required that one of the other homes was the principal home.

It was considered that the tenant’s daughter’s house was his principal home, where he usually slept overnight. The fact that his intention to return to the property was conditional or contingent on completion of his right to buy and carrying out works, was not in itself a reason to conclude that he did not remain in occupation for the purposes of the Act. With reference to the tenant condition, it was not essential that a secured tenant was currently living in the premises as their only or principal home. An intention to return to such a pattern of existence was sufficient.

A copy of the judgement is here.

What this means for you

This is an interesting decision demonstrating the importance of scrutinising (Preserved) Right to Buy or Right to Acquire eligibility and making additional enquiries or investigations where needed.

LEGISLATION

Leasehold and Freehold Reform Act 2024

After much speculation the Leasehold and Freehold Reform Act 2024 (the Act) received Royal Assent at 6:30pm on 24 May 2024 – the dying hours of the last working day of the last Parliament.

It’s less radical than many had hoped (or feared) and all but four of the sections (relating to estate rentcharges and changes to the Building Safety Act 2022) will come into force on a date to be specified in secondary legislation.

There are some big headlines:

• the Act bans the sale of most new leasehold houses
• makes it cheaper and easier to extend a lease
• makes service charges more transparent
• makes it easier for leaseholders to buy their freehold.

There are many things it didn’t do, which some may say was a missed opportunity, such as

• no abolition of ground rent or cap at £250 for existing leases
• no automatic or free conversion of all existing leasehold houses to freehold
• no change to the law of forfeiture for residential leases.

Ultimately, how and when to introduce the additional legislation to bring the Act into force will be the job of whoever wins next month’s general election. With the polls currently predicting a Labour win, it’s hard to envisage that they would choose to prioritise the last piece of legislation passed by the Conservatives. It’s therefore unlikely to be before 2025 at the earliest, if indeed it ever comes into force, and for the time being it’s business as usual.

More information is available here.

How Capsticks can help

Capsticks aims to be the firm of choice for our housing clients, offering a full service from leasehold and asset management advice to banking and finance, governance and planning. We are experts on all aspects of compliance with these new legal requirements and can advise on the broader changing landscape of the housing sector.

If you have any queries around what's discussed in this article, and the impact on you, please speak to Steven Wood or Emily Jordan to find out more about how Capsticks can help.