Chuan-Hui & Ors K Group Holdings Inc & Ors

The Court of Appeal held that sums demanded and collected by a tribunal-appointed manager under a section 24 management order remain "service charges" within the meaning of section 18 of the Landlord and Tenant Act 1985 (read with section 30). The management order does not permanently displace the underlying lease covenants; it temporarily vests enforcement rights in the manager but does not remove the application of the 1985 Act regime. On expiry of the manager's appointment unpaid service charges revest in the contractual landlord (the Maintenance Trustee) and may be recovered by it without any need for a separate deed of assignment. The court declined to rule on a separate pleading issue because that point was unnecessary to disposal of the appeal.

Background and parties: The appeal concerned Aldford House, a block of flats the subject of long-standing disputes about management and service charges. The appellants were lessees of residential flats; the respondents included the head lessors and the Maintenance Trustee. The First-tier Tribunal (FTT) had appointed a manager under Part II of the Landlord and Tenant Act 1987, and disputes arose about arrears of maintenance/service charges incurred during the manager's tenure.

Procedural posture: A County Court claim for arrears was transferred to the FTT. The FTT (decision 1 November 2018) held that the lessees had not pleaded a point that would prevent the Maintenance Trustee recovering arrears that fell due during the management period. Permission to appeal to the Upper Tribunal was granted; the Upper Tribunal ([2019] UKUT 371 (LC)) dismissed the lessees' appeal. The lessees appealed to the Court of Appeal.

Nature of the application/relief sought: The lessees sought to resist recovery of arrears claimed by the Maintenance Trustee, contending (inter alia) that sums demanded and collected by the tribunal-appointed manager were not "service charges" under the Landlord and Tenant Act 1985, and that an alleged 2016 deed of assignment from the former manager to the Maintenance Trustee was ineffective because the manager had no power to assign after his appointment had ended.

Issues before the Court:

• Whether sums demanded by a tribunal-appointed manager are "service charges" under section 18 of the 1985 Act and therefore subject to the service charge regime.
• Whether unpaid service-charge arrears at the end of the management period "accrued" to the Maintenance Trustee (and whether a deed of assignment was required or effective).
• Whether the FTT correctly held that the matter of the deed of assignment had not been pleaded.

Reasoning and conclusions: The court held that the statutory definition of "service charge" in section 18 (taken with section 30) extends to sums enforceable by a tribunal-appointed manager because the manager, by the management order, becomes a person entitled to enforce payment. To treat charges collected under a management order as outside the 1985 Act would undermine the statutory service-charge regime. The court applied Maunder Taylor v Blaquiere to confirm that a manager is a tribunal-appointed official who may act in his own right, but it rejected the argument that that status means such sums cease to be service charges for the purposes of the 1985 Act. On the question of arrears, when the manager's appointment expired unpaid arrears revested in the Maintenance Trustee, who could pursue them under the leases; the 2016 deed of assignment was unnecessary for that purpose. The court declined to determine the pleading point because it was unnecessary to decide the appeal. The appeal was dismissed.

Appeal dismissed. The court concluded that amounts demanded and collected by a tribunal-appointed manager under a section 24 order remain "service charges" within the meaning of section 18 of the Landlord and Tenant Act 1985 (read with section 30), that a management order does not permanently displace lease covenants, and that unpaid service-charge arrears at the end of the management period revest in the Maintenance Trustee and may be recovered by it without a separate assignment. The court did not decide the separate pleading question as it was unnecessary to do so.

County Court claim (October 2016) was transferred to the First-tier Tribunal; FTT decision (1 November 2018) refused permission to appeal but made findings on pleadings and scope of issues. Deputy President of the Upper Tribunal granted permission to appeal (22 February 2019). Upper Tribunal (Lands Chamber) dismissed the lessees' appeal ([2019] UKUT 371 (LC)). The lessees' appeal to the Court of Appeal ([2021] EWCA Civ 403) was dismissed.