Property company loses service charge dispute with tenants

A property company has lost its appeal against a tribunal ruling that it had failed to correctly calculate the level of service charges payable by leaseholders.

The case involved a mixed commercial and residential development owned by Avon Ground Rents Ltd.

The leaseholders were contractually obliged to contribute through a service charge to the cost of any repair and maintenance works for which Avon was liable. Remedial works were needed to repair a defective membrane which had allowed water penetration.

Avon claimed against insurer warranties provided by the National House-Building Council (NHBC).

It was common ground that Avon would credit the service charge account with the sums it received from the NHBC when they were paid.

Under the leases, the charges were payable in advance, based on an estimate of the anticipated expenditure before any of the remedial work had been done. The NHBC did not dispute liability, but the amount it had to pay was in issue due to the excesses under the warranties.

Avon took action against the leaseholders under the Landlord and Tenant Act 1985, seeking advance contributions to the full cost of the works.

In assessing the amount of the leaseholders' contributions, the First Tier Tribunal concluded that it was not reasonable to require an advance payment equal to the full costs in circumstances where a similar amount was anticipated from the NHBC.

The case went all the way to Court of Appeal, which upheld that decision.

It held that the tribunal had been correct to conclude that whether an amount was reasonable as an advance payment was not generally to be determined by the application of rigid rules but should be assessed in the light of the specific facts of the case.

Issues which should be considered in determining the question included the time at which Avon was likely to become liable for the costs and how certain the amount of costs was.

It was for the tribunal to determine what was "reasonable". To require certainty would constrain the tribunal's discretion; it had to be able to attribute weight to all relevant matters, particularly when the purpose of the statutory provision was to protect tenants from unreasonable demands.

Avon’s submission that no account should be taken of the sums due from the NHBC ignored the reality and would result in unnecessary expenditure and potentially lengthy proceedings to recoup sums overcharged.

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