Case No. UKUT-273-(LC)-UTLC-Case-Number:-LC-2022-172

The construction of the lease14.Mr Verduyn went through clause 5(1) and (2), which I have set out above. He pointed out that the Annual Service Charge is very carefully and comprehensively defined; the lessee is to pay the specified proportion of the whole Charge and there is nothing to suggest that the management fee at item (d) should be treated any differently. The respondent’s practice is not in accordance with the requirements of the lease.15.Moreover, it is unfair; it results in 60% of the entire management fee being paid by the long leaseholders, who represent 22% of the properties on the estate.16.Mr Bates, for the respondent, agreed that the Annual Service Charge is defined as comprising a number of “streams”. He pointed out that the definition of the charge allows for a profit element and therefore there will not be an exact equivalence between the lessor’s expenditure and the charge to the lessees. Where he differed from Mr Verduyn was in arguing that the lessees could be required to pay a different proportion of each stream. He referred to the lease of 67 Sheepfoote Hill, which requires the lessee to pay “a proportionate part” of the Annual Service Charge, and said that the lessor is at liberty to charge, say, 4% of the total costs described at 5(2)(a), 6% of the total under 5(2)(b), a flat rate for another element, and so on. The cost of management for different types of properties might be different and so it is permissible to apportion the streams differently; that is why the streams are separately identified so that this can be done.17.The FTT’s role in the process, said Mr Bates, was to look at each stream – as indeed it did – and ask whether the cost was reasonably incurred (section 19(1)(a)) and whether the standard of service was reasonable (section 19(1)(b)). If the charge for each of the components of the Annual Service Charge is found to have been reasonable, then the entire charge will have been a “fair proportion” or “a proportionate part” of the whole as required in the lease.18.Mr Bates acknowledged that that construction does not work for the lease of 134 The Meadowings, which states what fraction of the whole charge the lessee must pay. He asked, however, how the Tribunal knows that £300 is not 1/137th, or the agreed 1/138th, of the whole. In any event he said that because this issue was not argued before the FTT the appeal must fail. The construction of clause 5(1) and 5(2) was not in issue before the FTT which was asked to determine, and did determine, a pure value for money challenge, which it properly assessed at its paragraphs 31 to 34. Accordingly he submitted that the appellant was entitled only to a narrative judgment in its favour as to 134 The Meadowings, which would determine the issue for future service charge demands.The conclusion on construction19.Mr Bates is right about the lease of 134 The Meadowings. It requires the calculation of a global sum made up of items (a) to (e) and its division by 137. There is no scope at all for the application of different proportions to different items, let alone to the charging of a flat fee that does not appear to be a proportion since the respondent’s own publicity material indicates that the rate of £300, and other flat fees for management depending on tenure of property and size of estate, is imposed on a number of the respondent’s estates.20.Moreover, Mr Bates’ construction of the other three leases is unarguable. None gives any scope for the lessor to charge a different fraction of its total expenditure (etc) on item (d) from the fraction it charges in respect of the aggregate of items (a), (b), (c) and (e); had the parties to the leases intended that the wording would have been quite different. Clause 5(2) would have had to read something like “a fair proportion of each of the following…”; but in fact each of the clauses 5(2) requires the Annual Service Charge to be calculated as a single proportion (or fraction, or percentage, or any other synonym) of a global sum. There is certainly no basis on which the lessor can charge a flat rate for item (d) that is determined by the tenure of the property.21.I am unimpressed by the idea that for all the Tribunal knows the £300 is 1/137 or 1/138 of the whole of the lessor’s expenditure (etc) on item (d). If it were, the respondent would have said so. It is manifestly not calculated by reference to expenditure since it is advertised as a flat rate on several estates.22.So the appellant is correct that the management fee of £300 per annum for these four flats is not payable because it is not charged in accordance with the terms of the lease.A further ground?23.At the hearing Mr Verduyn pointed out that the Tribunal had neither given nor refused permission to appeal on the further ground argued by the appellant, namely that the FTT’s decision as to reasonableness of the £300 charge for management, under section 19(1)(a) and (b), was made without consideration of the evidence. I agreed, and Mr Bates was content, that that point should be argued at the hearing on the basis that if I was persuaded by it I would grant permission to appeal and determine the appeal on that further ground.24.In the event there is no purpose in my doing so. £300 is not payable, and therefore the question whether it passes the tests in section 19 does not arise.