Chuan-Hui & Ors K Group Holdings Inc & Ors

Sums payable by residential tenants during a tribunal-appointed management period may remain service charges under the Landlord and Tenant Act 1985, even when collected by the manager under a management order. The statutory definition is met where the payments are made by dwelling tenants for specified services or works, vary according to relevant costs, and relate to costs incurred by or on behalf of the landlord. A manager with the right to enforce payment falls within the extended definition of landlord.

A management order is superimposed on the lease. It may prevail over inconsistent terms while in force, but it does not permanently displace the underlying covenants. When the order ends, unpaid arrears may be enforced by the person entitled under the lease without an assignment. Surplus funds held by the manager are different and require accounting and, where necessary, tribunal directions.

The appellants were long leaseholders of flats at Aldford House. A manager had been appointed under section 24 of the Landlord and Tenant Act 1987 from 2011 until 30 June 2013. Service-charge arrears accrued during that period.

The respondents, including the Maintenance Trustee, later sued for the arrears. The First-tier Tribunal refused to entertain arguments that the charges were not recoverable or that an assignment was ineffective because those matters had not been pleaded. The Upper Tribunal dismissed the appeal, holding that the charges remained service charges and that the contractual right to recover them revived when the management order ended: [2019] UKUT 371 (LC). The central issues before the Court of Appeal were the statutory character of the charges, the effect of expiry of the management order, and the assignment and pleading issues.

1. Appeal dismissed. Henderson LJ gave the judgment of the court. Rose LJ and Lewis LJ agreed.
2. Service charges. Payments made by the lessees during the management period satisfied the definition of service charge in section 18 of the Landlord and Tenant Act 1985. They were payable by tenants of dwellings, related to services, repairs, maintenance, improvements, insurance or management costs, varied according to relevant costs, and concerned costs incurred by or on behalf of the landlord. Under section 30, the manager was also a landlord because he had the right to enforce payment. The statutory service-charge regime therefore continued to apply.
3. Effect of the management order. The order did not replace the lease framework. It superimposed additional powers and obligations on the existing contractual rights and covenants. Those terms remained effective subject to the order, and the order prevailed to the extent of any conflict. The decision in Maunder Taylor v Blaquiere, [2002] EWCA Civ 1633; [2003] 1 WLR 379, established that a section 24 manager acts as a court-appointed official in his own right. It did not establish that sums otherwise satisfying section 18 ceased to be service charges.
4. Arrears after expiry. During the appointment, the manager’s right to recover arrears was vested in him by the management orders. When his appointment ended without recovery, the Maintenance Trustee’s contractual right to sue under the leases automatically resumed. No deed of assignment was required, and there was no risk of double recovery because the manager’s right to sue ended with his appointment. The position differed from surplus funds held by a manager, for which an account and, if necessary, directions from the First-tier Tribunal would be required, as illustrated by Kol v Bowring, [2015] UKUT 530 (LC).
5. The court declined to decide the validity or effect of the 2016 deed of assignment and the pleading issue. Those matters were unnecessary to the disposal of the appeal, and the court considered it inappropriate to express obiter views merely to assist with costs issues.

1. Court of Appeal (Civil Division). Dismissed the appeal: [2021] EWCA Civ 403.
2. Upper Tribunal (Lands Chamber). Dismissed the leaseholders’ appeal from the First-tier Tribunal and held that the charges remained service charges and that the contractual right to recover arrears resumed after expiry of the management order: [2019] UKUT 371 (LC).
3. First-tier Tribunal (Property Chamber). Refused to permit the leaseholders to argue that the Maintenance Trustee could not recover the pre-appointment charges because the point had not been pleaded.
4. County Court at Central London. Proceedings for recovery of maintenance-charge and ground-rent arrears were issued in 2016 and transferred to the First-tier Tribunal on 22 March 2017.