[2025] UKUT 369 (LC)

This Tribunal is not bound to follow previous decisions of the Lands Tribunal. Nor are we bound to follow our own previous decisions. But it is well-established that where a point of principle has been decided by one judge, another judge sitting at the same level who is asked to consider the same point at a later date will regard themselves as bound to follow the earlier decision unless they are sure that it was wrong. That convention applies in the Upper Tribunal. It is all the more important to observe it where the first decision has been repeatedly followed over a lengthy period, and where it is likely that many tenancies have been entered into on the understanding that the law is settled (at least at the level of this Tribunal). Applying that approach, while I am not strictly bound to follow Home Group, I would only be entitled to reach a different conclusion if I was entirely convinced that it was wrongly decided. I will consider the arguments in this appeal with that approach in mind.

In his grounds of appeal, Mr Barton advanced two arguments. The second of these concerned section 26 of the 1985 Act which disapplies sections 18 to 25 of the Act from the tenancies of certain public authorities. After a discussion of the scope of this exception Mr Barton did not press his second ground of appeal and proceed only with his first.

Mr Barton argued that a distinction ought to be made between fixed service charges and variable service charges, and that only fixed service charges fell outside the scope of the protection afforded to tenants and leaseholders by sections 18 to 30 of the 1985 Act. The service charge which he is required to pay is not fixed, which he defined as meaning a charge which stays the same, without changing or being able be changed. On the contrary, his service charge is variable, in that it can be and is varied by Platform every year under clause 1(4)(i) of the tenancy agreement.

Mr Barton considered that Platform was only able to describe the service charge it collected as a fixed charge because of its own accounting practice which avoided an annual reconciliation of sums received and expenditure incurred. It was, he suggested, Platform’s own choice not to reconcile its service charge income and expenditure and to recoup any shortfall or credit any surplus, and that this should not be allowed to deprive tenants of their entitlement to refer the amount of the charges to the FTT.

Mr Barton also challenged the reasoning of the Lands Tribunal in Home Group and suggested that there was no need for a “causative link” between the costs incurred by the landlord and the charge payable by the tenant. He referred to section 19(2) of the 1985 Act which applies where a service charge is collected in advance, and provides that after the relevant costs have been incurred: “… any necessary adjustment shall be made by repayment, reduction or subsequent charge or otherwise”. Mr Barton focused on the words “or otherwise” and submitted that this left landlords free to adopt the approach taken by Platform of not carrying out any reconciliation or adjustment at all. For that reason, he suggested, there was no need for a causative relationship between the costs incurred and the service charges levied by the landlord for a charge to fall within section 18(1).

In responding to Mr Barton’s submissions on behalf of Platform, Mr Bhose KC began by referring to the regulatory framework in which private registered providers of social housing like Platform operate. Such housing providers are subject to the supervision of the Regulator of Social Housing and are required to comply with the Government’s published policy on rents for social housing, including by setting initial rents by reference to a formula related to average rents and earnings in their area, and by setting reasonable and transparent service charges which reflect the services being provided to tenants.

Mr Bhose confirmed that Platform’s tenancy agreements follow the model form of the National Housing Federation, which has been amended a number of times since the decision in Home Group without making any change to the basis on which service charges are dealt with. Under that model form the tenant is required to pay the same defined amount of service charge, in advance, for each month of the first period of his tenancy until 31 March. If notice is given under clause 1(4)(iii) the tenant is then required to pay a new defined service charge, again in advance, for each month of the following year, and so on. There is nothing which links any variation in the service charge to any alteration in the landlord’s estimated costs. The tenant is never liable to pay anything more for any previous period than has already been paid. There is no balancing charge and the tenant’s liability, throughout, is to pay a fixed, not a variable service charge.

Mr Bhose referred separately to the charge for heating and hot water which forms part of the total charges payable by Mr Barton in addition to the rent and service charge and which is in respect of the cost of heating the flat itself. This charge may be increased under clause 1(4)(iv) more frequently than once a year but, Mr Bhose submitted, that was not sufficient of itself to result in a different conclusion, or make the heating charge a service charge within the meaning of section 18(1).

Mr Bhose also referred to section 53 of the Leasehold and Freehold Reform Act 2025, which is not yet in force. When it comes into force this will bring some additional service charges within the scope of some of the protections afforded by section 18 to 30 of the 1985 Act. It will achieve this by substituting new subsections 1 and 2 in section 18 which will distinguish between a “service charge” and a “variable service charge”. A “service charge” will be any amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable directly or indirectly for the purpose of meeting or contributing towards the relevant costs. A “variable service charge” will be a service charge the whole or part of which varies or may vary according to the relevant costs. In effect, this rebrands the service charges which currently fall within the definition in section 18(1) as variable service charges. This rebranding is accompanied by changes to section 19 to 20F, and sections 30D and 30E, which apply these provisions to variable service charges only, leaving the rest of the statutory protections applying to all service charges as defined in the new section 18(1). In future, therefore, tenants who pay a fixed service charge will be entitled to apply to the FTT under section 27A for a determination of the amount they are required to pay, but that amount will not be limited by section 19, which will continue to apply a statutory test of reasonableness only to variable service charges.

The relevance of these changes, Mr Bhose suggested, was that Parliament had proceeded on the basis that charges which are fixed at the start of a 12-month accounting period are presently not “service charges” within the meaning of section 18(1). It had proceeded, in enacting section 53, on a particular interpretation of section 18(1) which assumed that the decision in Home Group was correct. In support of that submissions Mr Bhose referred to paragraph 275 of the Explanatory Notes to the 2025 Act which provides as follows:

“Section 53 makes a number of technical amendments to the 1985 Act to extend part of the existing regulatory framework to cover fixed service charges. Under current provisions there is no regulation of fixed service charge, which are those charges where the charges are fixed at the start of a 12-month accounting period. This can be based on a prescribed formula, or a regular landlord assessment of cost, or some other mechanism.”

Mr Bhose quite properly pointed out that there is uncertainty about the extent to which amendments to a statute which have not yet been brought into force can be relied on as an aid to the interpretation of the unamended statute (see R (BA (Nigeria)) v Secretary of State for the Home Department ([2010] 1 AC 444), per Lord Hope, at [26]).

It does not seem to me to be necessary to rely on the form which section 18 will take once section 53 of the 2025 Act is brought into force. The answer to the appeal is already clear. Nothing which Mr Barton was able to say in support of the appeal has persuaded me that the decision in Home Group was wrong. The distinction which he sought to draw between a “fixed” and a “variable” service charge, although it is a convenient shorthand, does not reflect the language of section 18, which refers only to service charges. The fact that the service charge which Mr Barton is required to pay can be varied every year is not sufficient for his purposes. Nor do I believe that section 19(2) assists him or that the words “or otherwise” will bear the weight he placed on them. Section 19(2) is concerned only with service charges, as defined in section 18(1), and provides statutory recognition that a periodic reconciliation of accounts, by one means or another, is an essential feature of the charges so defined.

To be a service charge within the meaning of section 18(1), as currently drafted, it is necessary that the charge must vary or be capable of varying “according to the relevant costs”. Mr Barton’s service charge does not vary according to the relevant costs incurred by Platform. In practice it is set by Platform on the basis of its estimate of relevant costs, and other factors, but that is not a requirement of the agreement. It is then fixed and does not change whether the relevant costs are greater or less than had been estimated. No consideration is ever required to be given to the relevant costs actually incurred by Platform. In those circumstances, for the reasons given in Home Group, at [21], the service charge payable by Mr Barton is not a service charge within the meaning of section 18(1).

I also accept Mr Bhose’s submission regarding the separate charge for heating and hot water, which is not required by the tenancy agreement to be related in any way to the cost incurred by Platform in supplying those services.