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One size does not fit all

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19/03/2015

The letter of the lease is king. When it comes to the recovery of service charge, a fundamental point is that a tenant’s service charge liability does not arise at all unless and until the landlord has properly followed the procedure set out in the lease. This point is one which seems so obvious that you might think it goes without saying, but in fact it is one of which, in practice, landlords and managing agents easily and often fall foul.

In the recent case of Norwich City Council v Redford and another [1] the landlord (“the Council”) owned a city-wide portfolio of properties and, no doubt to achieve value for money by reason of economy of scale, had entered into a maintenance contract which covered the communal lighting in all of its residential flats – not just the flats within the particular estate in question (“the Estate”). The Council then apportioned and charged service charge to its tenants by reference to the relative rateable values of all of the properties covered by the lighting contract. One of the tenants of a flat on the Estate challenged its service charge on the basis that its lease required service charge liability to be calculated by reference to the Council’s expenditure on communal lighting “on the Estate”.

The Upper Tribunal (Lands Chamber) agreed, concluding that the service charge was not payable as it had not been calculated and demanded in accordance with specific requirements of the lease and, further, on the basis of information provided by the Council it was not even possible to calculate the true cost that should be payable by the tenant.

WM Comment
Landlords and their agents and advisors must have regard to, and strictly comply with, the particular provisions of all individual leases within their portfolio. Failure to do so could leave landlords out of pocket as they remain obliged under their service charge covenants to provide services but will be unable to recover costs where procedural failings mean tenants’ payment obligations do not arise. Similarly, agents and advisors could face negligence claims where landlords look to recoup their losses. In addition to lease awareness, landlords and agents should maintain separate accounts for all of their tenanted properties.

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[1] [2015] UKUT 30 (LC)

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