Graham Bradley & Anor v Abacus Land 4 Limited

An express lease term requiring a landlord to act “reasonably” when exercising a service-charge discretion ordinarily requires objective reasonableness, not merely Braganza rationality. An unqualified discretion is subject only to rationality review. Where a lease requires a “fair proportion” of costs and the landlord to act reasonably, those requirements govern the allocation process as a whole. A landlord cannot charge residential lessees the whole cost of a facility which they share with others where that outcome is objectively unfair. The tribunal may review compliance with the lease but cannot substitute its own apportionment for the landlord’s contractual decision.

The appellants were residential leaseholders of flats in a mixed-use building. They challenged service charges relating to a gym which had been let to a third party without a service-charge obligation. The First-tier Tribunal determined that the charges were payable, holding that the landlord’s allocation decision was not unreasonable and that earlier payments had amounted to agreement. The appeal concerned the proper interpretation of the lease’s requirements that the landlord act reasonably and determine a fair proportion, the effect of repeated payment under section 27A of the Landlord and Tenant Act 1985, and the charges incurred from 2013 to 2023.

1. Appeal allowed in part. The challenge failed for charges from 2013 to 2020, but succeeded for charges from 2021 onwards. The FTT’s decision was set aside to that extent.
2. Under section 27A of the Landlord and Tenant Act 1985, the FTT determines whether a charge is payable, including whether the landlord was contractually entitled to impose it. This was not a section 19 challenge to the reasonableness of costs incurred or the standard of works.
3. The appellants had agreed to the charges for 2013–2020. Their payments were not conclusive merely because they were payments. In the circumstances, however, they knew that the charges included the gym costs, knew of the landlord’s contribution of the gym rent, and did not challenge the arrangement for eight years.
4. The lease imposed a two-stage decision-making process. The landlord had to allocate expenditure between residential and building service-charge items and determine each tenant’s fair proportion. Those decisions were not hermetically sealed. The requirements of fairness and reasonableness informed the process as a whole.
5. An express obligation to act “reasonably” meant objective reasonableness. It required more than a rational process and an outcome falling outside the narrow Wednesbury threshold. By contrast, an unqualified contractual discretion was subject only to rationality review.
6. Charging the residential leaseholders the whole gym cost after 2020, when their use was shared with the gym tenant’s customers and materially restricted, was manifestly unfair and therefore objectively unreasonable. The respondent had acquired the freehold subject to the predecessor’s contractual generosity and could not transfer its consequences to the residential lessees.
7. The Tribunal could not remake the landlord’s contractual decision. The respondent had to reconsider the allocation, preferably after discussion with the residential lessees. The concession concerning litigation costs was also accepted, with the relevant payments to be refunded.

• Upper Tribunal (Lands Chamber): appeal allowed in part. The FTT’s decision was set aside for charges from 2021, 2022 and 2023.
• First-tier Tribunal (Property Chamber): determined that the gym-related service charges were payable and declined the appellants’ section 20C application.