The Chimes (Blackpool) Ltd v The First-Tier Property Chamber

A service-charge covenant is not a covenant to pay rent merely because rent is payable under the lease. The wording of the particular covenant determines its character.

When determining whether service charges are payable, the First-tier Tribunal must consider relevant information such as a breakdown of the charges. The absence of final accounts is not necessarily relevant to whether charges for the relevant period are reasonable. Where the Upper Tribunal has the material needed to decide the issue, it may set aside the First-tier Tribunal’s decision and substitute its own determination.

The appellant, the landlord of a block of flats, appealed against a determination of the First-tier Tribunal concerning service charges for Flat P, The Chimes. The First-tier Tribunal found most of the charges reasonable and payable, but declined to determine the charges for an 18-month period because it considered that insufficient information had been provided. It also held that legal costs incurred in the proceedings were not recoverable under the lease covenant.

The appeal concerned whether the service-charge covenant treated the charges as rent, whether the legal costs fell within the covenant, and whether the First-tier Tribunal had sufficient information to determine the reasonableness and payability of the charges.

1. The appeal failed in relation to recovery of the legal costs. The lease distinguished between costs payable “by way of further or additional rent” and the service-charge covenant, which simply required payment of service charges. The service charges were therefore not reserved as rent, and proceedings to recover them did not fall within clause 3(7).

2. The First-tier Tribunal’s decision concerning the 18-month period from 1 July 2021 to 31 December 2022 was set aside. The Tribunal had failed to take account of a relevant consideration, namely the breakdown of the charges, and had taken account of an irrelevant consideration, namely the absence of final accounts.

3. The First-tier Tribunal’s jurisdiction under section 27A of the Landlord and Tenant Act 1985 required it to determine whether the charges for the period were reasonable and payable. Final accounts were not necessary for that determination where the charges were otherwise sufficiently identified.

4. There was no need to remit the issue. The Upper Tribunal had the necessary material and substituted its own decision. The breakdown was sufficiently detailed, the charges were lower than estimates for a later period already found reasonable, and there was no challenge by the tenant. Service charges of £1,070 for the 18-month period were therefore reasonable and payable.

5. The Tribunal declined to address other matters, including interest, because permission to appeal had been granted only on the two grounds decided.

• First-tier Tribunal (Property Chamber): determined that most service charges were reasonable and payable, but made no determination concerning the 18-month period from 1 July 2021 to 31 December 2022 and rejected recovery of the legal costs under the lease.
• Upper Tribunal (Lands Chamber): set aside the determination concerning the 18-month period, substituted a determination that £1,070 was reasonable and payable, and dismissed the appeal concerning legal costs.