[2024] UKUT 400 (LC)

Planning permission was granted in 2014 for the construction of Highview Court as a block of flats in Luton, on condition that

“details of a scheme for renewable energy production equipment to provide at least 10% of the predicted energy requirements of the development shall be submitted to and approved by the Local Planning Authority, unless it can be demonstrated that there are overwhelming practical reasons why this is not appropriate. The scheme thereby approved shall be installed before first occupation or in accordance with a timetable agreed in writing by the Local Planning Authority and shall be used, retained and maintained thereafter for so long as the development remains in existence.

The building was constructed with solar panels on its roof, some of which were connected to 12 of the 53 individual flats for their private supply while others were set up to generate electricity for the common parts of the building. Long leases of the flats were granted; the second respondent, Mrs Pilgrim, was the original tenant on the 125-year lease of flat 52 and the first respondent, Mr Pilgrim, later became joint tenant with her. Flat 52 is one of the flats connected to solar panels.

The lease is tripartite, between the freeholder, the second appellant as the management company, and the tenant. It contains unsurprising covenants, made by both the freeholder and the second respondent as management company, for the maintenance and repair of the building and the common parts, including the provision of heating and lighting to the common parts and the maintenance of the lifts and security equipment. The lessee pays a service charge to reimburse the costs of compliance with those covenants.

There is no mention of solar panels in the respondents’ lease. The appellants are obliged to maintain a supply of electricity to the common parts and the respondents are obliged to pay their share of the cost.

The first appellant purchased the freehold in 2016. It immediately appointed a related company, Y & Y Management Company Limited, to act as its managing agent. Since 2016 the management of the building has been carried out by Y & Y, and the annual management fee it charges has been recouped as part of the service charge.

In April 2023 the respondents applied to the FTT for a determination of their liability to pay service charges in the years 2017/18 onwards. For the five years from 2017/18 they challenged the charges demanded by reference to costs incurred, and for 2022/23 and 2023/24 they challenged interim charges based on estimated costs. A number of items were challenged in each year of which only two are relevant to the appeal; one is the respondents’ share of the cost of electricity for the common parts and the other is the additional fee charged by Y & Y for the management of a consultation process in relation to the installation of a fob entry system for the building.

Section 27A of the Landlord and Tenant Act 1985 gives the FTT jurisdiction to decide whether and to what extent service charges are payable. Section 19 of the 1985 Act says this about service charges, which in this context means charges that vary with the costs incurred by the landlord:

“(1)

Relevant costs shall be taken into account in determining the amount of a service charge payable for a period—

(a)

only to the extent that they are reasonably incurred, and

(b)

where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

 and the amount payable shall be limited accordingly.

(2)

Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable shall be so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.”

It will be seen that a service charge that reflects costs already incurred is payable only to the extent that the costs were reasonably incurred, while an estimated charge payable in advance is payable only to the extent that it is reasonable.

It will be convenient to consider separately the electricity charges and the management charges, looking in each case first at the FTT’s decision and then at the arguments in the appeal.