[2025] UKUT 115 (LC)

Before I come to the procedural history of the Application it is necessary give a brief summary of the service charge provisions in the Headleases and the Occupational Underleases. This summary is essential to an understanding of the issue of contractual liability which the FTT raised at the Hearing.

Starting with the Headleases, they have what may be described as a fairly conventional set of service charge provisions. By paragraph 2 of Schedule 4 to the Headleases, the Tenant (the Appellant) covenants to pay the Service Charge. The Service Charge is payable on an estimated basis in each Service Charge Year by four equal instalments on each of the Rent Payment Dates. There is also a balancing provision in paragraph 2, which provides either (i) for the Tenant to pay the excess, if the actual Service Charge for the relevant Service Charge Year exceeds the estimated payments or (ii) for the Tenant to be given a refund if the estimated Service Charge exceeds the actual Service Charge for the relevant Service Charge Year.

The Service Charge is defined to mean a fair and reasonable proportion, determined by the Landlord (Mr Hunt), of the Estate Service Costs and the Tenant’s Proportion of the Building Service Costs. The Service Charge Year is defined as the calendar year. The Rent Payment Dates mean the usual quarter days in each year.

In terms of the party to whom the Service Charge is payable, clause 2.3 of the Headleases recites that the grant of the relevant Headlease was made in consideration of the Tenant covenanting to pay the Landlord and/or the Management Company (Cudweed) various specified sums as rent. There then follows a list of the specified sums, which include the Service Charge. Clause 5.1.1 of the Headleases contains a covenant on the part of the Tenant, with the Landlord and as a separate covenant with the Management Company to observe and perform the Tenant Covenants. The Tenant Covenants are set out in Schedule 4 to the Headleases, and thus include the obligation, in paragraph 2 of Schedule 4, to pay the Service Charge.

By clause 6 of the Headleases the Management Company covenants with the Tenant to observe and perform the Management Company Covenants. The Management Company Covenants are set out in Schedule 7 to the Headleases. By paragraph 1a of Schedule 7, the Management Company covenants to provide the Services. Paragraph 1 of Schedule 7 also contains provisions for the administration of the Service Charge, including provisions for (i) an estimate of the Service Charge, to be provided to the Tenant as soon as possible after the start of the Service Charge Year, and (ii) a certificate showing the Service Costs and the Service Charge for the Service Charge Year, to be provided to the Tenant as soon as reasonably practicable after the end of the relevant Service Charge Year.

The Services are defined to mean the Buildings Services and the Estate Services. The Service Costs are defined to mean the Building Services Costs and the Estate Services Costs. For the purposes of this decision, it is not necessary to go further into the definitions of the Buildings Services or the Estate Services.

In essence therefore the Headleases require the payment of an annual service charge, payable on an estimated basis by equal quarterly payments on the quarter days in each calendar year, with an end of year balancing charge or refund.

Cudweed retained managing agents to manage the estate, of which Cudweed Court forms part, on its behalf. Prior to 1^st October 2021 the managing agent was London Residential Management Limited. After 1^st October 2021 the managing agent was Anglo Fortune Estate Management Limited.

The FTT noted, in the Interim Decision, that Cudweed, by its managing agents, had not been operating the service charge strictly in accordance with the service charge provisions in the Headleases. The FTT noted various inconsistencies. First, Cudweed had made quarterly demands on the basis that the estimated service charge instalments were payable on 25^th December, 25^th March, 24^th June and 29^th September, which did not accord with the Service Charge Year (the calendar year). The FTT noted that it would have been open to Cudweed to make the quarterly demands within each calendar year, commencing with 25^th March, consistent with the requirement for an estimate of the Service Charge for the Service Charge Year to be provided as soon as possible after the start of the Service Charge Year. The FTT recorded that Cudweed had elected not to do this. Second, Cudweed had delayed in preparing service charge accounts and in making its demands for payment of the Service Charge. Third, and in addition to this, Cudweed, through its former managing agents, had adopted the practice of charging service charges on a six monthly rather than a quarterly basis; see paragraphs 34-36 of the Interim Decision.

The position in relation to the Occupational Underleases is rather different to the service charge provisions in the Headleases. There are no service charge provisions, as such, in the Occupational Underleases. Instead there is a tenant’s covenant, at clause 3.3, which is in the following terms:

“Outgoings

3.3.1

To pay Outgoings.

3.3.2

To refund to the Landlord on demand (where outgoings relate to the whole or part of the Building or other property including the Premises) a fair and proper proportion attributable to the Premises, such proportion to be conclusively determined by the Landlord (who shall act reasonably).

3.3.3

To pay the sums due to the Superior Landlord under the Superior Lease.”

Outgoings are defined in the Occupational Underleases, at clause 1.2.22, in the following terms:

“Outgoings means (in relation to the Premises) all existing and future rates, taxes, charges, assessments, impositions and outgoings whatsoever (whether parliamentary or local) which are now or may at any time be payable, charged or assessed on property, or the owner or occupier of property.”

The Superior Lease is defined to mean the relevant Headlease of the relevant Flat. The Superior Landlord is defined to mean the landlord under the Headleases; that is to say the freehold owner of the relevant Flat (Mr Hunt).

In order to understand the basis on which the FTT made the Interim Decision it is necessary to differentiate between (i) the service charges payable under the Headleases, pursuant to the provisions which I have summarised above, and (ii) the same sums, as demanded from the Applicants by the Appellant in reliance upon clause 3.3 of the Occupational Underleases. I will refer to the service charges payable under the Headlease as “the Service Charges”. I will refer to the sums demanded from the Applicants by the Appellant, in reliance upon clause 3.3 of the Occupational Underleases, as “the Payments”. Neither expression is intended to imply any views on my part, preliminary or otherwise, either as to the correct description of these sums or as to the contractual position in terms of the obligation to pay these sums.