Avon Ground Rents Limited & Anor v Mark Pilgrim & Anor

Where leaseholders raise a prima facie case that service-charge expenditure was not reasonably incurred, or that an estimated charge is unreasonable, the evidential burden shifts to the landlord or manager to establish reasonableness. A landlord need not use roof-mounted solar panels for leaseholders’ benefit unless the lease so provides. However, unexplained non-use of panels capable of supplying communal electricity may support a finding that external electricity costs were not reasonably incurred.

A tribunal determining charges for specified years cannot impose binding conditions on future charges unless an application for that determination has been made under Landlord and Tenant Act 1985.

The freeholder and management company appealed a First-tier Tribunal determination concerning service charges payable by the long leaseholders of a flat in Highview Court.

The lease required the provision of electricity to the common parts but did not mention solar panels. The leaseholders challenged communal electricity charges from 2019/20 onwards, contending that roof panels had previously supplied the common parts and that the appellants had not justified using an external supplier. They also challenged an additional management fee for a consultation concerning a key-fob entry system.

The First-tier Tribunal disallowed the electricity charges, purported to address future charges, and disallowed the additional management fee. The central issues were whether those conclusions were justified and whether the Tribunal had determined matters beyond the application before it.

1. The appeal was allowed in part. The Upper Tribunal upheld the First-tier Tribunal’s conclusion that the communal electricity costs for 2019/20 to 2023/24 were not recoverable, but set aside its determination insofar as it addressed future electricity charges. It also varied the management-fee determination.

2. The lease imposed no contractual obligation on the appellants to use solar-generated electricity for the common parts or for the leaseholders’ benefit. The planning condition did not alter that contractual position. Nevertheless, the issue under section 19 of the Landlord and Tenant Act 1985 was whether the costs charged were reasonably incurred.

3. Once the respondents advanced a prima facie case—based on the planning condition, the connection of panels to the communal supply, and the earlier absence of communal electricity charges—the evidential burden shifted to the appellants. Their evidence was found to be neither useful nor reliable. The First-tier Tribunal was entitled to conclude that they had not explained why external electricity costs had become necessary or why the available panels were unused. Its findings on the charges in the years applied for therefore disclosed no error of law.

4. The First-tier Tribunal had no application before it for a determination about future service charges. Although section 27 A(3) permits a prospective determination concerning costs of a specified description, that jurisdiction had not been invoked. Its observations and purported restrictions on future electricity charges were therefore set aside.

5. The First-tier Tribunal’s disallowance of the whole additional management fee was illogical. It had treated half of the annual fee as reasonable for work within the management contract, while treating the separate consultation work as work that ought already to have been done under that fee. The Upper Tribunal substituted a pragmatic determination that 7.5% of the contract price, plus VAT, was reasonably incurred for that work.

Obiter: any later challenge is likely to require evidence explaining the non-use of the solar panels and reconciling estimated electricity bills with actual consumption.

• Upper Tribunal (Lands Chamber): appeal allowed in part in [2024] UKUT 400 (LC). The determination on electricity charges for the years in issue was upheld; the prospective part of the decision was set aside; and the management-charge determination was varied.
• First-tier Tribunal (Property Chamber): determined the service-charge application under reference CAM/OOKA/LSC/2023/0019.