Social landlord loses appeal over charges for services leaseholders were unable to access

Judge Elizabeth Cooke found in favour of 27 leaseholders in a case brought against Notting Hill Home Ownership (NHHO), part of social landlord Notting Hill Genesis.

The shared owners at Viridian Apartments, in Battersea, argued that they should not have to pay for the upkeep of a garden and common areas they are not allowed to use or a concierge service that is unavailable to them.

Viridian Apartments is configured such that residents of the shared ownership block have no access to the rest of the estate, where flats are privately owned.

Freeholder Barratt Homes has granted a headlease to NHHO, which in turn sub-lets one block to shared owners.

NHHO appealed against the First-tier Tribunal’s decision that the majority of the service charges in question were not payable, because they were for services which the leaseholders could not access.

The FTT also decided the leases did not make satisfactory provision for the payment of service charges.

Judge Cooke said: “The practical problem at the heart of this appeal is that NHHO’s headlease requires it to pay service charges calculated by reference to all eight blocks of Viridian Apartments, including costs incurred on services that its own sub-lessees are not allowed to use including the garden and the concierge.

“NHHO seeks to pass those service charges on to the sub-lessees, and asserts that the sub-leases should be construed, or varied, so as to enable it to do so.”

It sought to argue that even though leaseholders could not access the garden they still benefited from it being well-maintained.

NHHO also said there was an obvious mistake in the sub-lease, with an obvious solution: the term ‘estate’ in the sub-lease should be read to mean “the development” as defined in the headlease, which would enable it simply to pass its service charge on to leaseholders.

The FTT found that the sub-leases were poorly drafted but had no clear mistake, and that they were not intended to provide for the tenants to pay for services from which they did not benefit.

Judge Cooke took all but one of NHHO’s grounds together.

These were that the FTT erred in law and fact in finding that the sub-leases make sense, and that it failed to give any reason why it rejected NHHO’s submissions in relation to “the clear mistake” in the definition of  ‘the estate’

NHHO also contended the FTT erred in failing to have regard to the principle that a tenant deriving no benefit from a particular service is irrelevant to whether they are contractually bound to pay for it. It also said the FTT should not have had regard to sales literature for the flats.

The remaining ground was that the FTT was wrong to make orders under section 20C and paragraph 5A of the Landlord and Tenant Act 1985, preventing NHHO from recovering its costs as service or administration charges.

Judge Cooke said: “In my judgment there is no mistake in the definition of ‘the estate’. NHHO’s argument overlooks the fact that the estate is defined so as to be co-extensive with NHHO’s title.”

She said leaseholders could be contractually liable for something from which they do not benefit, “but in the absence of plain words making them so liable it is extremely implausible to rectify the lease by construction so as to make that the case”.

The judge criticised as “deeply unattractive” said NHHO's argument that the leaseholders derive a benefit from the garden being kept in a good condition for other people to use.

The real problem was that the plain words of the headlease made NHHO liable for services that cannot benefit it or its sub-lessees.

"Why it entered into a lease in those terms is unknown, but its attempt to visit the consequences of that decision on its sub-lessees cannot succeed,” Judge Cooke said.

NHHO sought to change the 1985 Act orders on the basis that it succeeded on some issues before the FTT.

But Judge Cooke said: “There is no substance in this challenge. The FTT’s decision is well within the bounds of its discretion; the respondents succeeded on the major issue of principle before the FTT, and on other points, and it is unsurprising that these orders were made.”

Rejecting NHHO’s case, she added: “As in the service charges appeal, the root of the problem is not the sub-lease but the headlease, whose service charge obligations do not match those of the sub-lease.

“The service charge provisions in the sub-lease are satisfactory, and there is no basis on which they can be amended to solve the problems that arise for NHHO from the startlingly different provisions in the headlease.”

Mark Smulian