Frequently Asked Questions

Whether the service charges have been reasonably incurred and whether the leases were liable to pay the whole sum claimed.

Pemberstone Reversions Limited v Various Leaseholders [2018]

Summary

This was an action by Pemberstone Reversions Limited, Pemberstone, against various leaseholders in relation to service charges it charged. What was at issue in this decision of the Upper Tribunal (Lands Chamber) is whether the service charges have been reasonably incurred and whether the lessees were liable to pay the whole sum claimed. The judgment gives valuable guidance on the interpretative lease agreements and the reasonableness of service charges applicable in residential property.

Facts

The commercial building belonged to Pemberstone Reversions Limited which, in turn, made different persons as long lease holders. While accepting the lease, it was stipulated that the lease-holders would pay a contribution towards the service charges payable to Pemberstone for various services relating to maintenance, repair and otherwise. In the long term, however the said service charges were disputed with the same being thought of to be unreasonable.

The chargeholders challenged the sums as unreasonable, pointing out firstly that some of the works were not needed or poorly executed, and secondly that they were poorly accounted for. Having expressed dissatisfaction with the charges in question, the chargeholders applied for a reduction of the payable amount before the First-tier Tribunal Property Chamber.

Issues

The problems that most commonly emerged in the case were:

1. Whether the service charges that Pemberstone charged were appropriate.

2. Whether all individual items of works and goods supplied as a result of service charges were reasonably necessary of a reasonable standard.

3. The construction of lease terms as to the extent and manner relating to the calculation of service charges.

4. The extent that the records and evidence that Pemberstone provided explained the charges.

First Instance

The leaseholders had taken their case to the First-tier Tribunal on grounds that there were several reasons as to why parts of the service charges were unreasonable. The leaseholders called evidence and expert witness evidence to prove that some charges were too high, and some of the works either were not done or were not done satisfactorily.

The First-tier Tribunal took into account the totality of the evidence comprised in the invoices, accounts, and descriptions of works. It gave judgment in respect of many points in the leaseholders' favour with a finding that some of the service charges were not reasonably incurred. The total amount of service charges brought down by the Tribunal, listing concrete items and works that hadn't been properly explained or carried out.

Decision on Appeal

Pemberstone appealed the decision of the First-tier Tribunal to the Upper Tribunal (Lands Chamber) in so far as that tribunal had made reductions to the service charges initially levied which it said were reasonable and justifiable.

The Upper Tribunal reviewed the findings and the reasons given by the First-Tier Tribunal; it took into consideration the evidence and argument of the parties but, in particular, as to the works undertaken and costs expended. The Upper Tribunal dismissed the appeal, concluding that the service charges as claimed in origin by Pemberstone were at least partly unreasonable and insufficiently evidenced.

The Upper Tribunal also went on to say that reasonableness in service charge matters was alive and well, further underlining that the landlord should clearly and with cogent evidence demonstrate justification for his charges. The ruling merely emphasized that service charge should amount only to actual expenditure, necessary, and proportionate to services and benefits that are provided to the leaseholder.

Comments

The judgment in Pemberstone Reversions Limited v Various Leaseholders is significant for guidance in the management of residential leases and service charge disputes for both landlords and tenants. A number of key lessons to be learned from this case are as follows:

1. Charges' Reasonableness: A landlord will clearly acknowledge that service charges are realistic and reasonable, drawing out a full account of work that will be undertaken, evidenced by reasons, for this.

2. Required Transparency and Documentation: Proper documentation and transparency, while calculating and apportioning such service charges, are a necessity. There must be a proper record by the landlord of expenditure in works carried out and the reason/reasons therefore.

3. Quality and Necessity of Works: The service charge could only be levied for works which are necessary and carried out to a good standard. In other words, a landlord cannot charge for irrelevant works or works badly done.

4. Role of Tribunals: Quite substantially, the First Tier and the Upper Tier Tribunals help in making this review, as these tribunals are entrusted with the establishment of the authority segment for decisions/orders related to service charge disputes. Such orders then underline the very nature of 'fair practice' in the implementation of lease terms.

5. Precedent for Future Disputes: This case serves as a complete precedent for any other service charge disputes that time and again occur at a later period for adjudicating on what constitutes reasonable charges and what proverbial proof is required to establish it.

6. Interpretation of Leases: The case projects clear terms of the lease with respect to service charges; otherwise, vagueness and controversy over the same will result.

In brief, Pemberstone Reversions Limited v Various Leaseholders gives title to what should be a finely drawn balance struck between the landlord's rights to recover costs and leaseholders' rights from unreasonable or unjustifiable charges. It confirms principles of fairness, transparency, and accountability principles in the running of residential service charges. The case goes to become important and leads on how much one would be considered with respect to rights and obligations arising under a lease for both the landlord and the tenant.

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