There is no reason in principle why a determination under section 27A of the Landlord and Tenant Act 1985 should not be available in proceedings to which the landlord is a party, even though the service charge is not payable by the landlord.
Section 18 of the Landlord and Tenant Act 1985 defines service charges as an amount payable by a tenant, directly or indirectly, for services, including insurance, the whole or part may vary according to the relevant costs.
“Relevant costs” are defined as the costs or estimated costs incurred by or on behalf of the landlord in connection with the matters for which the service charge is payable. By virtue of section 30, the expression “landlord” includes any person who has the right to enforce payment of a service charge.
In Douglas and others v RMB 102 Ltd and another [2023] UKUT 207 (LC), the Upper Tribunal (Lands Chambers) was asked to determine whether the First-tier Tribunal had erred in striking out an application brought under section 27A by lessees of flats in two blocks in London NW9.
They had applied for a determination of the reasonableness and payability of service charges for building insurance policy for the year 2021-2022, which they alleged had increased by more than 180% compared to the previous year.
The tripartite leases were made between each lessee, the lessor, who was now the respondent freeholder, and the management company.
Under the terms of the leases, insurance cover was to be procured by the management company which, in turn, would demand the costs of the same from the lessees through the service charge.
The respondent’s role was to nominate the insurer and act as agent of the management company in connection with the insurance, and to step in to provide insurance in the event of default.
Relying on Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47, the FTT found that the leaseholders did not have legal standing to make the application.
Although the cost of the insurance policy was payable by the leaseholders, the FTT found that the cost was not incurred by or on behalf of the landlord and therefore was not a relevant cost.
In allowing the appeal, the UT commented that in Cinnamon Ltd v Morgan [2001] EWCA Civ 1616 it had been highlighted that the observations of the Court of Appeal in Berrycroft Management Co Ltd, as to the effect of the Act, were obiter and not a binding part of the decision.
In the present case, the service charge paid by the leaseholders for insurance varied in accordance with the cost incurred by the management company in procuring the same. Further, by virtue of section 30, the management company fell within the definition of landlord.
Although, the leaseholders had failed to name the management company – who was in receipt of the service charges, as the respondent – this did not necessitate the application being struck out.
The service charge was payable by the lessees to the management company, but the respondent landlord retained an interest in any determination as to whether those costs were reasonably incurred.
For example, if forfeiture proceedings were contemplated by the landlord, the leaseholders would need to bind the landlord to a determination that any part of the service charge payable was unreasonably incurred and therefore not payable.
Elizabeth Dwomoh is a barrister at Lamb Chambers
