Howe Properties (NE) Limited v Accent Housing Limited

In construing a residential lease’s service-charge provisions, a proportionate part or a fair proportion is not necessarily an equal share. The wording may permit different allocations reflecting the services provided and the properties benefiting from them. Any differential must be objectively justified and relevant to those services. It cannot be used to cross-subsidise statutory limits affecting other occupiers. The charge definition nevertheless confines recovery to sums actually expended or provided for managing and maintaining the relevant buildings. National corporate costs allocated across a wider portfolio cannot be recovered merely because that is the landlord’s accounting method. The appeal was therefore allowed in part, with the remaining issues remitted for determination.

Howe, the long leaseholder of three properties, challenged Accent’s annual service charge, particularly a standardised £300 management fee calculated under Accent’s nationwide tier system. The First-tier Tribunal found the charge reasonable. The Upper Tribunal allowed Howe’s appeal on lease construction, holding that the leases required a single proportion of the global Annual Service Charge and did not permit the flat management fee: [2022] UKUT 273 (LC).

The Court of Appeal considered whether the expressions a proportionate part and a fair proportion required equal allocation, and whether costs derived from Accent’s wider housing portfolio fell within the contractual definition of Annual Service Charge.

1. Disposition. The Court of Appeal allowed Accent’s appeal against the Upper Tribunal’s restrictive interpretation of clause 5(1), but upheld its conclusion that costs relating to properties outside the Estate could not be included under clause 5(2). The outstanding challenge to the payability and reasonableness of the management charge for the relevant years was remitted to the First-tier Tribunal.
2. Interpretation. Applying the objective approach stated in Arnold v Britton [2015] AC 1619, the court construed the lease language in its documentary, factual and commercial context. The statutory definition of service charge in section 18(1) of the Landlord and Tenant Act 1985 was consistent with the general purpose of the clauses.
3. Clause 5(1). A proportionate part or fair proportion of the Annual Service Charge does not necessarily mean an equal share. The wording can permit different proportions to reflect the nature of particular services and the identity of the properties benefiting from them. Equal allocation may be simpler or appropriate as a default, but it is not mandated in every case.
4. Objective limits. Accent could not determine the proportion subjectively or rely on irrelevant considerations. It could not charge long leaseholders more merely to compensate for statutory limits on charges to assured tenants. A difference based on tenure would be permissible only if the tenure required greater management work and the differential could be objectively justified.
5. Clause 5(2). The Annual Service Charge was limited to sums actually expended or provided in connection with managing and maintaining the Buildings on the Estate. Clause 5(2)(d) did not authorise recovery of a global sum derived from national payroll and overhead costs allocated among properties in a nationwide tier. In-house staff costs were recoverable only insofar as the relevant work concerned the Estate.

1. Court of Appeal (Civil Division). Allowed Accent’s appeal in part, upheld the restriction on recovering costs relating to properties outside the Estate, and remitted the remaining issues to the First-tier Tribunal: [2024] EWCA Civ 297.
2. Upper Tribunal (Lands Chamber). Allowed Howe’s appeal from the First-tier Tribunal and held that the leases required a single proportion of the global Annual Service Charge, rejecting the standardised flat management fee: [2022] UKUT 273 (LC).
3. First-tier Tribunal (Property Chamber). Found that the £300 annual management charge was within the spectrum of reasonable charges and made no order under section 20C of the Landlord and Tenant Act 1985.