Howe Properties (NE) Limited v Accent Housing Limited

A lease requiring a lessee to pay a proportion, fraction or percentage of the Annual Service Charge requires that proportion to be applied to the global charge, unless the lease clearly provides otherwise. The landlord cannot apply different proportions to separate cost streams or impose a flat management fee based on the property’s tenure. A management charge is not payable if it is calculated contrary to the lease. The tribunal may remit the matter for recalculation and for determination of reasonableness under the Landlord and Tenant Act 1985, but cannot substitute a proxy figure without evidence establishing the contractual charge.

The appellant held four long leasehold flats on an estate managed by the respondent. The leases required payment of a proportion, a fair proportion, or a specified fraction of the Annual Service Charge. That charge was defined by reference to the landlord’s expenditure on several matters, including management fees.

The respondent charged the long leaseholders a fixed management fee of £300 per flat, while applying different arrangements to freeholders and assured tenants. The First-tier Tribunal found the fee reasonable and payable. The appellant appealed, arguing that the fee was not calculated as a proportion of the whole Annual Service Charge and was therefore contrary to the leases.

1. Appeal allowed in substance. The fixed management fee of £300 per annum was not payable because it was not charged in accordance with the leases.

2. The lease specifying payment of 1/137th of the Annual Service Charge required the global charge, comprising items (a) to (e), to be divided by 137. There was no contractual scope for applying different proportions to different items or for imposing a tenure-based flat fee.

3. The same construction applied to the other three leases. Their references to a proportionate part or a fair proportion required a single proportion of the global Annual Service Charge. If the parties had intended separate proportions for separate cost streams, the wording would have said so.

4. The issue whether the charge satisfied the reasonableness requirements in sections 19(1)(a) and (b) of the Landlord and Tenant Act 1985 did not arise because the £300 charge was not contractually payable in that form.

5. The Upper Tribunal could not substitute a 15% proxy for the management element because the leases required a different calculation and there was insufficient evidence to determine the proper amount. The respondent was required to add its direct and indirect management costs to the other service-charge items and apply the agreed denominator of 1/138. The matter was remitted to the First-tier Tribunal to determine payability and reasonableness for the relevant years. If agreement was not reached within 56 days, the respondent had to disclose the recalculated charges and supporting information.

• First-tier Tribunal (Property Chamber): found the management fees of £300 per long leaseholder reasonable and payable for the years ending 31 March 2017, 2018 and 2019.
• Upper Tribunal (Lands Chamber): allowed the appeal in substance, held that the fee was not payable under the leases, and remitted the management-fee issue to the First-tier Tribunal.