Avon Ground Rents Limited v (1) Cowley and others (2) Metropolitan Housing Trust (3) Advance (4) May Hempstead Partnership
21st January 2020
Likely payments from third parties, including insurers, may be considered when the assessing what sums are reasonable and accordingly payable in respect of service charges in advance under s.19 (2) Landlord and Tenant Act 1985.
The Appellant is the freeholders of a block of flats in which many of the flats were let on long leases. These leases contained provision for a service charge payable in advance, the landlord’s recoverable expenditures included the costs of maintaining the building.
The building was subject to water penetration into its basement. The principle relevant insurers, the National House Building Council insurance scheme (‘NHBC’) did not dispute liability but did not commit themselves to payment of a specific sum. The Appellant sought to recover the entire estimated cost of the works, contractually recoverable from the long leaseholders, by way of a service charge payable in advance. The Applicant applied to the FTT for a determination that the sums demanded were payable.
- Whether s.19 (2) of the Landlord and Tenant Act 1985 required a landlord to give credit for an anticipated payment when assessing the reasonable amount to be credited on account; or
- To take account of third-party payments only when they are received and thereafter to apply those monies as a balancing charge back to the leaseholders.
The FTT found that the amounts demanded were, subject to third party contributions, reasonable. The FTT directed the applicant to update it on the contribution to be made by the NHBC and finally determined that the contribution required from the first respondent was nil as the NHBC was liable for the full amount apportioned to the private residential leases, the second respondent was liable to pay a modest sum in respect of the applicable NHBC excess. The FTT made an order further to s.20C of the LTA 1985 restricting the Appellants costs recoverable through the service charge to 50%.
On appeal the Upper Tribunal held that the FTT had been entitled to reach the conclusions it had and that there was no basis for interfering with the s.20C Order.
Decision on appeal
The Court of Appeal held that reasonableness for the purpose of s.19 (2) LTA 1985 is to be determined in all the circumstances of the case. A third-party payment is not required to be certain before it can be taken into account for the purpose of assessing reasonableness, the weight to be attached to a prospect of a third-party payment was a matter for the Tribunal.
The decision continues the practice of the appellate courts being unwilling to constrain what the Tribunal is entitled to consider when considering reasonableness.