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The case in essence concerns the definition of lease terms and, on the other hand, reasonability of service charges payable to E & J.

E & J Ground Rents No 11 LLP v Various Leaseholders [2018]

Summary

The claim is in respect of the service charges from E & J Ground Rents No 11 LLP hereinafter called E & J versus various Leaseholders. The case in essence concerns the definition of lease terms and, on the other hand, reasonability of service charges payable to E & J. It was, therefore for the Upper Tribunal Lands Chamber to pronounce on these issues and to create precedence on how such like cases be determined thereafter.

Facts

E & J Ground Rents No 11 LLP is a company owning the freehold interest in a residential block. The appellants are all leaseholders who are tenants of the respondent under long leases obliging them to pay service charges for the maintenance and repair of the common parts of the building.

Through the years, the E & J issued demands in respect of service charge to which the leaseholders objected to. The leaseholders argued that such service charges were excessive and covered works which had never been carried out or in the alternative, that the work was carried out but to a below standard level. Finally, the difference resulted in an application by the lessees to the First-tier Tribunal (Property Chamber) for a determination concerning the reasonableness and legitimacy of the service charges.

Issues

The following were the main issues, which came up from the case:

1. Whether the service charges claimed by E & J were reasonable

2. Whether the specific items included in the service charges were necessary and properly incurred

3. Meaning to be given to the expressions used in the lease to describe both the scope and calculation of service charge

First Instance

The First-tier Tribunal heard the evidence called by both E & J and the leaseholders—this included invoices and records of the works—and expert evidence as to the necessity and quality of the works.

The First-tier Tribunal has held that, in various respects, the service charges were unreasonable, pointing out areas where the charges were excessive, when payment for works unnecessary was made, where quality did not merit charging, and so on. Based on this, it reduced the service charge payable by the leaseholders to a very substantial extent.

Decision on Appeal

E & J appealed the reductions in the service charges by the First-tier tribunal at the Upper Tribunal [Lands Chamber]. This is an appeal about the findings concerning the service charges reasonableness and necessity.

Coming to its decision, the Upper Tribunal considered all the evidence and reasoning presented by the First-tier Tribunal. Stated briefly, having allowed the appeal, it held that "the service charges, as claimed in the original demand made by E & J, had not been justified." Further, it underlined, "Landlords with their service charge demands must provide clear, detailed evidence for the works, which should not only be necessary but properly carried out.".

The Upper Tribunal was also bound to the precedent in interpreting the lease terms. It, therefore, reiterated that the wording of the lease be constructed in such a way as is envisaged to be fair and reasonable between the parties. By practice, the ruling meant service charges had to be able to justify the services carried out and the benefit accruing to lessees.

Comments

Probably the most prominent lessons flowing from the case of E & J Ground Rents No 11 LLP v Various Leaseholders for the community of landlords and tenants in relation to service charge disputes thereafter can be summarized as hereinafter stated:

1. Reasonability of Charges: This puts the landlords in a very tight corner with all service charges credited to their lessees so that the same are reasonable in amount and show their actual expenditure made on necessary works. Overcharging and including such costs for works which really are not considered necessary, the amount would likely be challenged and reduced by the tribunal.

2. Transparency and evidence: All that has to be conducted in works to get the amount of service charge calculated needs to be fully documented and transparent. A good landlord keeps every detail on the works undertaken, costs incurred, with evident proof that supports this charge.

3. Quality and Necessity of Works Items of service charge should only be for works which are necessary and satisfactory in nature. The charges for unsatisfactory or unreasonable works would cease to be justified .

4. Construction of the lease: The lease has to be fairly and reasonably construed. It is reported that this includes that service charges have to be related to the benefit bestowed upon the lessees.

5. What do the Tribunals do?: The First–tier and Upper Tribunals decide cases and appeals relating to disputes about service charges. This in itself ensures good practice in that it makes sure that there is no abuse of power by the landlords.

Precedent for Future Cases: The ruling shall provide a lead for the future disputes of service charge cases, on the assumption that there needs to be something that can be judged as reasonable, open, and according to the lease terms. This confirms the right of the leaseholders to confront unreasonable charges and the corresponding duty of the landlords to offer clear and logical explanations for what they are demanding.

It is, therefore, not an end but a closure of the case of E & J Ground Rents No 11 LLP v Various Leaseholders, bearing in mind the principle of the treatment of the service charges as a question of fair practice. In this view, these have invoked principles of reasonableness, transparency, and accountability as they provide for safeguarding the leaseholders against what might otherwise be discretionary financial impositions. Conclusion This is a precedent that made an extremely valuable learning curve not just for the landlord but also for the tenant on how to deal with disputes on the service charge without wrecking the lease agreements.

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