Orbit Housing Association Ltd v Robert Vernon

A charge’s status as a variable service charge is determined primarily from the tenancy agreement, including the nature of the charge and the parties’ intentions. The court should decide that issue before examining the services actually provided or the reasonableness of the costs. A charge stated to be payable for services and calculated by reference to actual or estimated costs may fall within section 18 of the Landlord and Tenant Act 1985 even if services are not provided in a particular period. Once within that definition, the tribunal may assess contractual payability and statutory reasonableness. A charge remains payable under the tenancy agreement where the obligation to pay is clear and is not made conditional on services being provided, but section 19 may prevent recovery where no services were in fact provided.

Orbit Housing Association Ltd, the freeholder of a development for older residents, appealed against a decision of the First-tier Tribunal (Property Chamber). The FTT had struck out Robert Vernon’s application for a determination of the payability and reasonableness of a weekly Scheme Based Support Charge, holding that it was not a variable service charge within section 18 of the Landlord and Tenant Act 1985.

The FTT had also found that no relevant services were provided to Mr Vernon, who was a sheltered housing tenant without a separate Support Agreement. The appeal concerned whether the charge was a variable service charge, whether it was payable under the tenancy agreement, and whether the relevant costs were reasonable.

1. The appeal was dismissed in substance and the FTT’s conclusion on the charge was upheld. The Tribunal held that classification under section 18 of the Landlord and Tenant Act 1985 must begin with the tenancy agreement. The court must examine the nature of the charge and the parties’ intentions before considering the practical services provided. A practical approach alone may produce an unstable answer and may lead the FTT to make findings on matters outside its jurisdiction.
2. The Scheme Based Support Charge was a variable service charge. The tenancy agreement described it as a support charge, stated that it formed part of the total weekly payment, and provided for its calculation by reference to previous costs and future estimates. It was therefore an amount payable in addition to rent for services, the whole or part of which varied or might vary according to relevant costs.
3. The charge was payable under the tenancy agreement. The obligation to pay £18 per week was clearly stated in the opening provisions and in clause 2.2. Clause 1.3(ii) explained how the charge could be calculated or recalculated by reference to service costs, but did not make payment conditional on services actually being provided.
4. The charge nevertheless failed the statutory reasonableness requirement. The FTT was entitled to find, on the evidence before it, that no services represented by the charge were provided to Mr Vernon in the relevant years. Its conclusion was therefore open to it, whether assessed under section 19(1) or section 19(2) of the 1985 Act. The Tribunal would interfere with the FTT’s factual findings only for an error of law or irrationality, neither of which was established.
5. The FTT’s orders concerning the landlord’s legal costs under section 20C of the 1985 Act and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 were not challenged. The Tribunal directed the appellant to confirm whether equivalent orders concerning the appeal costs could be agreed.

• Upper Tribunal (Lands Chamber): allowed the appeal to proceed on the stated grounds but upheld the FTT’s conclusion that the charge was not reasonable and confirmed that it was a variable service charge payable under the tenancy agreement.
• First-tier Tribunal (Property Chamber): struck out the tenant’s application after finding that the charge was not a variable service charge within section 18 of the Landlord and Tenant Act 1985. The Upper Tribunal disagreed on jurisdiction but upheld the substantive conclusion that the charge was not reasonable.