The case we are looking at in this Legal Update is Thirty One Crescent Grove Ltd v Atherden [2024] UKUT 80 (LC) a case that we have looked at previously on a different point (see here).

31 Crescent Grove is a block of 6 flats in a converted house and the leaseholders were all shareholders in the landlord company.  The landlord company was run by the leaseholder shareholders on a very informal basis with decisions made collectively but ultimately informally.

In the summer of 2021 there was email correspondence about a leaky gutter, which was causing problems for Mr Atherden the leaseholder of the first floor flat, and for Mr Daniel Anderson, another leaseholder. There was some disagreement between the collective shareholders about what was to be done to resolve the issue.  Mr Atherden commissioned and paid for some work. He then took the view that that cost, £600, should be shared by the leaseholders as part of the service charge and he sought to be reimbursed the overall cost less his proportionate liability.  Mr Bingham, a Director of the landlord company, disagreed on the basis that it was not a charge that the landlord, by its shareholders, had agreed to incur and therefore the landlord could not use service charge monies for a cost that the landlord had not itself sanctioned.

In his application made subsequently to the FTT for a determination (about several things but including the roof costs) Mr Atherden contended that the roof works cost was a charge that was payable [by the service charge], that it was reasonable in amount, and that Mr Atherden was prepared to pay his proportion of it under the lease.

The FTT took the view that “There is ample correspondence in the bundle to suggest that the roof works had been discussed and there was support for such works to be commissioned by the applicant from one other leaseholder.

It is difficult to see how the charge of £600 was not reasonably required if the tenants in Mr Atherden's flat were experiencing water ingress, … The Tribunal therefore finds that the charge of £600 is reasonable and payable and should have been included in the service charge account to be apportioned between the leaseholders."

The Landlord appealed those two findings on the basis that the £600 cost was not a "cost incurred by or on behalf of the landlord" as required by section 18(2) of the Landlord and Tenant Act 1985".

The Upper Tribunal considered various correspondence sent by emails between the leaseholders where the works to the roof were clearly discussed but found that that correspondence did not show that a majority agreement of the shareholders had been reached.  The UT Judge considered that “The responsibility for repairs to the structure and exterior rests with the landlord. [The email correspondence] is – to put it in formal terms – a discussion between the members of the landlord about how to fulfil its responsibility for repair and maintenance. No-one [leaseholder] has a controlling shareholding. So any disagreement has to be resolved by majority, whether that is at a meeting convened formally under the Companies Acts, or an email conversation, or a chat in the garden.

Obviously, the landlord can decide to authorise one of the leaseholders to get work done, for which the landlord then takes responsibility. And it was open to the landlord – by a decision of its shareholders whether unanimous or not – to authorise Mr Atherden to commission and pay for the £600 job. Equally obviously, a unilateral decision to get work done without the company's agreement is not a decision of the landlord and does not fall to be reimbursed as part of the service charge.”

The email discussion was about approach to the repair.  One set of leaseholders proposed a route that was to cost £23.17 (a painted coating of and Instant Waterproof Covering) undertaken by Mr Bingham, one of the other leaseholders, in person.  Mr Atherden and one other leaseholder affected by the leak were proposing the more costly approach leading to the cost of £600.

What then occurred was that Mr Bingham went up on the roof himself and painted the One Coat, Instant Waterproof Roof Covering on the affected area and reported so to the other leaseholders in an email of 6 September. That cost £23.17. On 22 September Mr Atherden, with the agreement of the other affected leaseholder, engaged contractors to essentially do the same job with a different covering application to the same area treated by Mr Bingham, but giving rise to a cost of £600 which Mr Atherden paid and then sought to be reimbursed for by the landlord from the service charge.

Mr Atherden claimed that he had the authority of the landlord to incur the expense since he and the other affected leaseholder supported his plan and that only Mr Bingham had opposed it with no-one else expressed support of either plan.  Accordingly, Mr Atherden contended that he had a 2:1 majority vote.  Mr Bingham's response was correctly that, as he owned two flats in the block he held two shares in the landlord company and therefore he had two votes making the vote, according to Mr Atherden’s own reasoning, 2:2 and so no decision had been made as there was no majority vote in favour of (or against) the appointment of Mr Atherden's contractor.

The FTT said in its decision on the matter that there had been discussion between the shareholders of the landlord, which is correct, and that there "was support" for Mr Atherden's plan, which there was, but only by one other shareholder.   The Upper Tribunal therefore found that there was no decision of the landlord in favour of spending the £600 and so it was not therefore an expenditure of the landlord and could not therefore be chargeable as a service charge.

The Upper Tribunal found the FTT's decision that the £600 was a service charge expense to have been “irrational” and set it aside substituting its own decision that the £600 incurred by Mr Atherden cannot be reimbursed as part of the service charge and so no refund of that sum was due to him.

Lesson to be learned by both sides here

1. No matter how well you may get on with your neighbouring leaseholders in your block and how lovely it is to make decisions informally or how many years “this way of doing things has worked perfectly fine” that informal approach is, sadly, something that can lead to exactly this kind of costly dispute.  If you are managing in block and in similar form to that of the shareholders of Thirty One Crescent Grove Ltd, as many blocks are, then, at the very least, have in place a clear written policy about how decision are made before money is spent and a clear process to be followed prior to the instruction of contractors.  That way the issue arising in this case will be easily avoided.

2. If you are a leaseholder experiencing problems then do seek competent legal advice before resorting to (sometimes necessary) self help remedies.  Don’t do what Mr Atherden did here as you will almost always find yourself out of pocket.

If you have any queries on this week’s Legal Update, please contact a member of the team on 01435 897297 or info@kdllaw.com. 

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