Fitzroy Place Residential Limited & Ors v Angus Lovitt & Ors

A contractual power to adopt a different method of apportioning service-charge expenditure must be construed in the context of the lease as a whole. Where a lease states that apportionment is to be calculated primarily by area, a discretion relating to an item or type of expenditure permits ad hoc reallocation where fair and reasonable. It does not, without clear language, authorise a permanent and wholesale replacement of the agreed primary method.

A separate power to vary the tenant’s proportion, subject to specified circumstances and notice requirements, reinforces that distinction. General words such as “or otherwise” do not displace the structure and safeguards of the lease.

The appellants were the freeholder, head-leaseholder and management company of a mixed residential and commercial development. They appealed a decision of the First-tier Tribunal (Property Chamber), published on 9 March 2023, concerning service charges under the standard private residential leases.

The leases provided that the estate service charge was to be calculated primarily by comparing the area of a flat with the lettable areas of the estate. The management company had instead permanently divided estate expenditure between residential and commercial elements using a different methodology. The First-tier Tribunal held that paragraph 6.2 of Schedule 6 did not permit that wholesale change.

The sole issue on appeal was whether paragraph 6.2 authorised the company to replace the primary basis of apportionment for all estate expenditure.

1. Appeal dismissed. The First-tier Tribunal correctly interpreted paragraph 6.2 of Schedule 6. Contractual interpretation required consideration of the clause in its full documentary, factual and commercial context, consistently with EMFC Loan Syndications LLP v The Resort Group Plc [2021] EWCA Civ 844.

2. Paragraph 6.1 made area comparison the primary, meaning main or predominant, method for calculating the tenant’s proportion. The lease anticipated change, but made detailed and distinct provision for it.

3. Paragraph 6.2 concerned the attribution of particular expenditure or a particular type of expenditure. It allowed a fair and reasonable alternative method within the general area-based framework, including where premises benefited, or did not benefit, from an item of expenditure. It did not permit a blanket and permanent substitution of a new basis for all estate service-charge expenditure.

4. Paragraphs 6.3 and 6.4 instead provided the mechanism for varying the tenant’s proportion permanently, subject to stated circumstances and written notice. The appellants’ construction would deprive those provisions and their safeguards of practical effect.

5. The company’s methodology therefore could not justify estate-service-charge apportionments under the private residential leases. The financial and accounting consequences remained for the resumed First-tier Tribunal proceedings. If agreement could not be reached on the applications under Landlord and Tenant Act 1985, section 20C, the appellants could make submissions on costs protection.

• Upper Tribunal (Lands Chamber): dismissed the appeal from the First-tier Tribunal’s decision of 9 March 2023.
• First-tier Tribunal (Property Chamber): held that paragraph 6.2 of Schedule 6 did not authorise a wholesale replacement of the primary service-charge apportionment method. No citation is stated for that decision.