Flat owners may often wish to challenge the reasonableness of the their landlord’s management fee. Sometimes this fee will be based on the passing service charge expenditure, e.g. 20% of the same, and on others as a fixed fee perhaps with inflation proofing.
They may be surprised to hear that their ability to do this is not always available; it may be closed off by the terms of their lease.
This is demonstrated by the Upper Tribunal’s decision in the case of ANCHOR TRUST v LESLIE WABY & ORS (2018) UKUT 370 (LC) following the appeal by the landlord against the decision at first instance by the First-tier Tribunal.
It had held that management allowances paid by the leaseholders as part of the service charge should be recalculated, and any overpaid sums refunded.
The service charge contained an allowance to the landlord for its own management costs. In the first year of the lease this allowance was related to the level of the wider service charge expenditure. In subsequent years the allowance was the sum allowed in that first year adjusted for inflation rather than the figure for the wider service charge in the subsequent so it became detached from the variable service charge after year one for example the monies laid out decorating and insuring the building. The landlord changed. The incoming landlord applied a different index for the inflation proofing element and dispute ensued.
The Upper Tribunal found for the landlord; the management allowance was not a service charge as it did not to vary according to the relevant costs of providing service pursuant to s.18(1)(b) of the Landlord and Tenant Act 1985 s.18(1). In the first year it had been as the amount was based on the costs actually incurred in that year. So a charge for a given service could turn away from being a “service charge” in later years.
The fact that it was collected along with trust “service charge” items did not change this. So the Tribunal did not have jurisdiction to determine the reasonableness of the management allowance as part of the current service charge.
So landlords looking to raise this type of charge or to buy a reversion containing one need to take a careful look at the lease to see whether it is prone to being challenged as a service charge. Leaseholders need to beware fixed charges that they cannot challenge.