Jonathan Brett & Anor v Harlow Court Limited

Whether an advance service charge is reasonable under section 19(2) of the Landlord and Tenant Act 1985 is a fact-sensitive evaluative question, not a purely mechanical accounting exercise. The tribunal may consider the anticipated expenditure, the timing and certainty of costs, historic credits, the use made of sums collected, and the practical consequences of requiring further adjustments. An appellate tribunal should not substitute its own assessment unless the first-instance tribunal considered irrelevant matters, failed to consider relevant matters, or reached a conclusion outside the range of reasonable outcomes. A contractual surplus clause may require comparison between the sums collected and the charge properly due, but it need not require immediate application of the whole surplus or exhaustion of a reserve fund. The FTT’s jurisdiction under section 27A is declaratory and does not include ordering repayment.

The appellants, former leaseholders of a flat in a lessee-owned block, appealed against a decision of the First-tier Tribunal (Property Chamber) concerning advance service charge demands. Earlier FTT proceedings had found that some management, legal and professional costs were not recoverable as service charges. The appellants argued that historic credits made later advance demands unreasonable and that any resulting overpayments had to be repaid to them.

The FTT held that the relevant demand was reasonable, subject to a modest reduction for a surplus from the immediately preceding year. It also considered that any later credit would benefit the successor leaseholder. The appeal concerned the reasonableness of the advance demands and the FTT’s jurisdiction to order repayment.

1. Appeal dismissed. The demand of £784.50, reduced by the FTT to £712.55, was within the range of reasonable assessments available to it.
2. Under section 19(2) of the Landlord and Tenant Act 1985, reasonableness of an advance payment must be assessed in the light of the particular facts. Relevant matters may include when the landlord is likely to incur liability, the certainty of the anticipated costs, available credits, and the practical consequences of requiring accounting adjustments. The question is not determined by rigid accounting rules: [2019] EWCA Civ 1827.
3. The FTT was entitled to take account of the fact that the money collected had been spent on works and services, that ongoing funds were required, and that the expenditure itself was not challenged as unreasonable. It was also entitled to consider the pragmatic agreement reached with most leaseholders. It was not required to reattribute every historic charge or require equivalent company contributions before deciding that the advance demand was reasonable.
4. Clause 3(2)(e) of the lease required comparison between the proper Maintenance Charge and the interim sums collected. The landlord could not avoid a surplus by asserting that improperly collected sums had already been spent. However, the clause permitted application of a surplus towards a succeeding or future accounting period and did not require immediate application of the whole surplus. Nor did it require the reserve fund to be exhausted.
5. The FTT’s jurisdiction under section 27A of the Landlord and Tenant Act 1985 is declaratory. Following Knapper v Francis [2017] UKUT 3 (LC), it could not order repayment of sums paid above the statutory limit. Any repayment claim had to be brought in the County Court.

• First-tier Tribunal (Property Chamber): Decisions were issued on 7 August 2018, 17 October 2019, 25 November 2020 and 1 June 2021. The final decision treated the March 2020 advance demand as reasonable, subject to reduction to £712.55.
• Upper Tribunal (Lands Chamber): Permission to appeal was granted on two grounds. The appeal was dismissed.