CA-2024-001597 - [2025] EWCA Civ 1308

The Leaseholders appealed to the UT. Permission to appeal was granted in the UT by Martin Rodger KC, the Deputy Chamber President. In granting permission he said that the appeal provided an opportunity for the UT to consider an issue of general importance, namely the extent of the FTT’s jurisdiction under s. 27A L&TA 1985 to review the exercise by a landlord of a contractual discretion to select which expenditure should be contributed to by residential leaseholders and which by commercial tenants or by the landlord itself, drawing the parties’ attention to the recent decision of the Supreme Court in Aviva Ground Rent Investors GP Ltd v Williams [2023] UKSC 6, [2023] AC 855 (“Aviva”).

The appeal was heard by Judge Cooke in March and April 2024 and she released her decision on 15 May 2024 at [2024] UKUT 120 (LC).

After setting out the factual background to the appeal the Judge turned to the legal background. She considered Aviva and other authorities and concluded (at [51]) that an express requirement in a lease to act “reasonably” in exercising a discretion refers to objective reasonableness; by contrast where a landlord’s discretion is unqualified then the test to be applied is one of rationality only.

She then dealt with the FTT’s decision and the Grounds of Appeal. One (which concerned the recovery of the litigation costs incurred by Abacus in its dispute with Mr White) was conceded. The Judge dismissed another (which concerned the period from 2013 to 2020 when the service changes were paid without dispute). Neither issue has been raised on the present appeal.

She then considered the main question on appeal which was whether Abacus had acted reasonably. At [100] she reiterated that an express requirement to act “reasonably” in exercising a discretion conferred by a lease is likely to refer to, and should be understood to refer to, objective reasonableness. If the FTT applied a rationality test they therefore applied the wrong test (at [106]); if however they did intend to apply a test of objective reasonableness then they reached the wrong outcome. It was manifestly unfair, and therefore not objectively reasonable, for the residential leaseholders to pay the whole of the gym costs after 2020 when they no longer had exclusive use of the gym (at [107]).

She therefore set aside the FTT’s decision that Abacus’s decision to charge the whole of the gym costs to the residential leaseholders was in accordance with the terms of the lease (at [111]). She also held that there was no scope for either tribunal to remake what the lease designates as the landlord’s decision: Abacus would therefore have to try again, preferably in discussion with the residential leaseholders (at [112]).