This update deals with the case of Bradley and another v Abacus Land 4 Ltd [2024] UKUT 120 (LC) which was an appeal by two residential leaseholders against a decision made by the First-Tier Tribunal (“the FTT”). 

The leaseholders challenged the apportionment of costs which were associated with the gym contained in the building and which they were required to pay in accordance with the terms of their leases.  The FTT found in favour of the Landlord.  However, upon appeal to the Upper Tribunal, parts of the appeal were upheld as it was found that the Landlord had not acted reasonably in allocating 100% of the costs associated with the gym to the leaseholders.

Facts

The two appellants were residential leaseholders (“the Leaseholders”) out of 168 residential flats contained in one building (“the Building).  Also contained in the Building were four commercial units and a gym.

The Leaseholders had been granted long residential leases of their flats (“the Leases”) and the Respondent owned the freehold of the Building and was the Landlord in respect of the Leases (“the Landlord”).

The Landlord was also the landlord under a lease granted over the gym to Mr White (“the Gym Lease”).

The Leases contained a provision for the Leaseholders to pay a contribution towards the service charge of “such fair proportion as the Landlord acting reasonably shall from time to time determine”.  The Leases also granted the Leaseholders “a right to use such facilities as the Landlord may choose to provide”.  Those facilities included the gym. 

Prior to 2013 the Leaseholders and all of the other residential leaseholders had exclusive use of the gym.  But in and from 2013 the gym was let to Mr White, who was permitted, in accordance with the terms of the Gym Lease, to make the gym available to users outside of the development as long as the residential leaseholders were not prevented from using the gym.  Although Mr White had to pay an annual rent, there was no covenant in the Gym Lease that he pay a service charge for the costs associated with the gym despite the fact that he was receiving an income from his customers.

It was agreed between the Landlord and the residential leaseholders in 2014 that the Landlord would use the annual rent received from Mr White to contribute towards the costs of maintaining the gym and its equipment thereby reducing the residents’ apportionment towards these costs under the service charge. This arrangement continued until 2019 when a dispute arose between Mr White and the Landlord in relation to the repair and maintenance obligations under the Gym Lease. 

The Landlord agreed to refurbish the gym and take no rent from Mr White for three years (until 2023) thereby settling the matter in September 2021.  As a result of this agreement though the Landlord ceased its contribution towards service charge in relation to the gym costs placing 100% of the costs of the gym to the residential leaseholders.

The case in the FTT

In December 2022 the Leaseholders applied to the FTT under s.27A Landlord and Tenant Act 1985 for a determination that it was not fair and reasonable for the Landlord to recover 100% of the costs associated with the gym from the residential leaseholders for the period 2013 to 2021 and for the periods not yet demanded for 2022 and 2023 (being the rent free period that the landlord had granted to Mr White).  The Leaseholders also sought a determination from the FTT of what would be a fair and reasonable apportionment.

Section 27A of the Landlord and Tenant Act 1985 provides to the FTT jurisdiction to decide whether service charges are payable by leaseholders.  

“27A Liability to pay service charges: jurisdiction

(1)    An application may be made to [the appropriate tribunal] for a determination whether a service charge is payable and, if it is, as to-

(a)    the person by whom it is payable,

(b)    the person to whom it is payable,

(c)     the amount which is payable,

(d)    the date at or by which it is payable, and

(e)    the manner in which it is payable.

The Leaseholders asserted that the Landlord is not entitled by the Leases “to designate the gym costs as payable in full by the residential leaseholders”.  Therefore, the leaseholders were challenging a decision taken by the Landlord rather than the level of cost or standard of work.

The Decision in the FTT

The FTT found that it had no jurisdiction to make a determination in relation to the charges from 2013 to 2020 because it found that as the Leaseholders had paid the charges without objection from 2013 to 2020, and thus they had, therefore, agreed to that service charge and thus the apportionment applied - see Cain v Islington [2015] UKUT 542 (LC) (see here the Lease Advisory Service report on this case and a similar outcome here).

The FTT also found, in respect of the charges beyond 2020, that the Landlord was entitled, under the terms of the Leases, to recover 100% of the costs from the Leaseholders.  The FTT stated that the Landlord’s decision “was not a decision of the type where it could be said that no reasonable landlord in a similar position could ever have made it”.

The leaseholders appealed both decisions. 

Appeal

The Upper Tribunal dismissed the appeal in relation to the 2013 - 2020 gym charges as it agreed with the FTT’s finding that the Leaseholders had agreed for 8 years without dispute to pay those charges and so had, for the purposes of s.27A(4)LTA1985, admitted those sums.  Accordingly, the decision of the FTT was in line with that set down by Cain -v- Islington and so was sound.

On the issue of the charges for 2021 - 2023 though the Upper Tribunal di not agree with the FTT.  It found that the “landlord's decision [on how to apportion costs shared between the leaseholders and the commercial tenant of the gym] must be objectively reasonable”(para 105 of the decision).  Based on this test, the Upper Tribunal found that “It is manifestly unfair, and therefore not objectively reasonable, for the residential leaseholders to pay the whole of the gym costs after 2020 when they no longer have exclusive use of the gym”.  The appeal was, therefore, upheld in relation to the gym costs for 2021, 2022 and 2023 i.e. the Leaseholders were not liable for all of these costs.

Comment

This case is important as it denotes the difference between rationality and reasonableness when dealing with landlord/leaseholder disputes.  The Tribunal is not responsible for determining what it may consider to be a fair or reasonable proportion but just needs to consider whether the apportionment decided by the landlord “is within the range of what could be considered fair or reasonable”.

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