Liam Philip Spender & Ors v Fit Nominee Limited & Anor

For the purposes of section 19(1)(a) of the Landlord and Tenant Act 1985, a leaseholder may raise a prima facie case concerning an insurance commission through evidence of a connected and non-arm’s-length arrangement and an unexplained fee for asserted services. The landlord must then show that the commission was a reasonable price for the services or that no better arrangement was available.

Where costs arise under a contract, the inquiry is not confined to the date of the invoice. It concerns whether it was reasonable for the landlord to undertake the contractual commitment which made the costs inevitable. A long-term contract does not disapply section 19(1)(a), but hindsight alone does not establish that an earlier agreement was unreasonable when made.

The leaseholders challenged service charges for 2018 to 2020 at St David’s Square under section 27A of the Landlord and Tenant Act 1985. The First-tier Tribunal found that insurance-broker commission could not be challenged without proof that it increased the premium. It also found that charges under long-term security-system contracts with Countryside Communications Ltd had not been reasonably incurred, reducing them to 19% of the sums demanded.

The leaseholders appealed the insurance ruling. The landlords appealed the Countryside ruling. The central issues were whether the insurance evidence shifted the evidential burden to the landlord, and whether section 19(1)(a) required an assessment of the original contractual commitment rather than only the position when invoices were presented.

1. Both appeals were allowed. The First-tier Tribunal’s insurance decision was set aside. The Tribunal substituted a determination that the landlord had not shown that the broker’s commission was reasonably incurred. The challenged commission was therefore not payable, while the underlying question remains open in a future challenge on evidence.

2. The leaseholders had raised a sufficient prima facie case. The landlord’s managing agent procured insurance through a closely connected broker, and the commission was said to pay for services which the broker’s absent witness had described. In that setting, and applying Octagon Overseas Limited v Cantlay [2024] UKUT 72 (LC), it was for the landlord to show either that the commission was a reasonable price for the services or that a better arrangement was unavailable. The First-tier Tribunal wrongly proceeded without giving the leaseholders an opportunity to test that evidence.

3. The landlord’s appeal concerning the Countryside contracts also succeeded. Under section 19(1)(a) of the Landlord and Tenant Act 1985, costs incurred under a contract must be assessed by considering whether it was reasonable to take on the contractual commitment that made later invoices inevitable. The statutory protection is not disabled merely because a landlord is contractually bound when an invoice is presented. The assessment requires both a rational process and an objectively reasonable outcome, as explained in Waaler v Hounslow London Borough Council [2017] EWCA Civ 45.

4. The Tribunal disagreed with the analysis in Auger v London Borough of Camden (2008) LRX/81/2007, which treated contractual commitment as effectively answering a section 19 challenge to price. Nevertheless, the evidence did not show that the 2000 Countryside contracts were unreasonable when made. The later fall in technology costs established no more than hindsight. The landlord was consequently entitled to recover the charges, subject to its conceded 25% reduction for 2020.

5. The leaseholders could not introduce, for the first time on appeal, a contention that the contracts had not been novated to the landlord. It had not formed part of their First-tier Tribunal case and could not fairly be raised after the time for evidence had passed.

• Upper Tribunal (Lands Chamber): Allowed the leaseholders’ appeal on insurance commission and substituted a determination that the landlord had not shown the commission was reasonably incurred. Allowed the landlords’ appeal on the Countryside charges and substituted a determination that the charges were payable, subject to the landlord’s 2020 concession.
• First-tier Tribunal (Property Chamber): In decisions dated 22 March 2023 and 3 May 2023, rejected the insurance challenge and held that the Countryside charges were reasonably incurred only to the extent of 19% of the sums demanded.