[2024] UKUT 175 (LC)

The costs in question were rental and maintenance charges paid by the landlord to Countryside Communications Limited (“Countryside”) for the security system for the estate including the door video intercom and remote release systems, TV and satellite services, car park gates and barriers and leisure centre CCTV and alarms. This was a substantial charge each year, just over £200,000 altogether in 2018 and similar sums in 2019 and 2020; the charge to the individual leaseholder was several hundred pounds each year, which the leaseholders said amount to 10% or 11% of the total service charge.

These charges were challenged by the leaseholders in the FTT, for the years 2018, 2019 and 2020 only, on the basis that the cost of renting and maintaining this system each year was about half the cost of buying a new system outright, and that the cost of maintaining a new system would be a fraction of what they were paying to rent and maintain the present one. Accordingly it was unreasonable to spend this “eye-watering” sum, as Mr Spender put it, and the cost was not reasonably incurred as section 19(1)(a) of the 1985 Act requires.

The landlord’s answer to that, in the FTT and in the appeal, is that the developer entered into a series of contracts, each for a 20-year term, with Countryside in July 2000, and that the landlord had taken over that contractual liability and remained bound by those contracts until their expiry. The price of rental and maintenance was fixed, subject to RPI increases; there was an option to terminate the contract in 2007 and 2014, at the price of four times the annual rental, which unsurprisingly the landlord did not exercise.

Over time, that price became increasingly expensive as technology advanced and costs reduced. In 2008 some of the leaseholders challenged the costs, and a settlement was reached between them and the landlord’s predecessor in title that the amount charged to the leaseholders from then on would be capped at 90% of the then level of payment, without further RPI increases. The landlord has kept to that agreement which is why charges have remained constant.

The contracts were for a term of 20 years and then from year to year, and could have been brought to an end in July 2020; but in fact the landlord missed the boat and did not give notice of termination of the contract to Countryside in time, with the result that the contracts rolled on. After that, the landlord carried out a tendering exercise for the purchase of a new system, and at the same time sought to negotiate a new deal with Countryside. It then consulted the leaseholders about the available options, with the result that since 1 January 2022 the Countryside system remains in place but the charge is at about 50% of previous levels.

In view of that the landlord conceded in the FTT that the charge for the second half of 2020 should be reduced by 50% (i.e. a 25% reduction in the charge for the year). That was unsatisfactory to the leaseholders; their case in the FTT was that the charge should have been just under 20% of its then current level, on the basis of comparison with present-day maintenance costs for similar systems when owned rather than rented.