Howe Properties (NE) Ltd v Accent Housing Ltd [2024] EWCA Civ 297: Interpretation And Applicability Of Service Charge Provisions
Author: Courtney Wilbor
Key Contact: Jennifer Butcher
On 27 March 2024, judgment was handed down by the Court of Appeal (Civil Division) (CA) in respect of the Upper Tribunal’s (UT) decision to allow an appeal from the First-tier-Tribunal (FTT) that service charges in respect of management fees of properties owned by the respondent were reasonable.
Background
The appellant managed an estate comprising of 138 properties; 10 freehold properties, 31 flats held on long leases and the remainder being flats let to social tenants on assured tenancies.
To determine the charges to levy on homeowners for its management services, the appellant had adopted a system whereby all of its properties were placed in one of five tiers according to their characteristics i.e., the type of property and level of services provided, with tenants/owners charged a flat management fee as part of an Annual Service Charge. These fees ranged from the lowest “Tier 1” which attracted a charge of £100 per annum, to the highest “Tier 5” which attracted a charge of £420 per annum. Each lessee was responsible for paying a proportion of the estate’s annual service charge to cover the lessor’s expenses, including maintenance costs and management fees.
The respondent held four leases, each with different wording surrounding the annual service charge payable. For example, one of the leases required the respondent to pay the lessor (annually) “a 1/137th part” of the ‘Annual Service Charge’. Another lease required the respondent to pay a “proportionate part”, and the other two stated that it had to pay a “fair proportion”. In the case of each respondent, their management fee charge was £300. The respondent submitted before the FTT that a flat rate of £300 for the management fees was:
- Excessive;
- Did not represent value for money; and
- Was inequitable in comparison to the 15% being charged to the assured tenants (approximately £50 per annum).
In the first instance, the FTT found that the management fees were “within the spectrum of reasonable charges for the work undertaken” and payable in the sum of £300 in respect of each of the four flats for the years ending 31 March 2017, 2018, and 2019.
On appeal, the UT held that the FTT had erred in holding that the charges imposed were reasonable, stating that the flat management fee of £300 was not payable as it had not been charged in accordance with the terms of the lease.
Decision
At the CA, the applicant landlord’s appeal was allowed in part.
In making its decision, the CA considered the judgment in Arnold v Britton (a case involving the meaning of a service charge clause in a lease) where it was held that the general approach to interpretation of a written contract is to identify the intention of the parties by reference to what a “reasonable person having all the background knowledge which would have been available to the parties” would have understood them to be, using the language in the contract.
As noted above, the leases (clause 5(1)) contained the expressions such as “a proportionate part” and “a fair proportion”, which the UT had reasoned in its determination as requiring a “single proportion” of a “global sum”, with costs divided on an equal basis. However, in its judgment the CA held that clause 5(1) did not refer to a “single proportion” but rather to a “proportionate part” or a “fair proportion”. As such, the appeal against the UT’s interpretation of the wording of clause 5(1) of the leases was allowed.
Conversely, in respect of the definition of ‘Annual Service Charge’ in clause 5(2) of the leases (“the total of all sums actually expended or provided… in connection with the management charge and maintenance of the building”), the CA agreed with the UT that this definition was only intended to cover sums actually expended or provided for in connection with the management and maintenance of the estate properties.
Specifically, Lord Justice Snowden stated that “Whatever Accent might consider to be “realistically” necessary, or simply more convenient for it in the conduct of its national business, is irrelevant to what it is contractually entitled to charge under clause 5 of the leases”. Thus, it was held that there was no basis for the Annual Service Charge to include any amounts expended or provided for by the appellant in connection with the management or maintenance of any other properties that were not on the estate.
If you would like any more information or have any potential issues or disputes surrounding service charge provisions in a lease, please get in touch with our market-leading Property Litigation team.
