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Landlord ordered to cut service charges by 50%

Posted: 16th January 2019   In: Commercial Property

A landlord has been ordered to cut its service charges covering several years by 50% because they did not represent a reasonable proportion of the costs involved.

The case involved a tenant who owned the lease on a flat within a converted factory. The landlord was a residents’ association managed by other tenants.  

The lease provided that the tenant was to pay the landlord each year "a proportionate sum on account of Service Charge ... as the landlord shall consider is fair and reasonable" and to pay the balance "on receipt of the Certificate".

The "Certificate" was defined as a fair summary of the landlord’s annual expenditure, with the tenant being entitled to inspect the receipts.

The landlord sent demands for payment of the interim service charges for six-month periods between 2010 and 2016. The tenant challenged the charges on the basis that the landlord had failed to supply the relevant certificates in accordance with the lease and that the demands were twice the expenses incurred.

The First Tier Tribunal determined the service charges payable, essentially upholding the landlord's demands as being reasonable.

The Upper Tier Tribunal has reversed that decision.

It held that there were several problems with the landlord’s position. The fact that the amount demanded for each year was precisely the same was a clear indication that the landlord had not carried out careful assessments and that the figure claimed was not based on a genuine estimate of the likely expenditure.

The onus had to be on the landlord to establish the reasonableness of the estimate. It might or might not be reasonable for the estimate to turn out to be approximately twice the expenditure in any given year. It was for the landlord to justify it, but landlord had not provided any explanation.

The claim for 2009/10 would be allowed as there was an undated document setting out the expenses for that year. However, all the other claims were reduced by 50%.

Please contact Shyam Patel if you would like more information about the issues raised in this article or any aspect of commercial property law.