Liam Philip Spender & Ors v FIT Nominee Ltd & Anor

Under section 19(1)(a) of the Landlord and Tenant Act 1985, the question is whether it was reasonable, in all the circumstances existing when the landlord assumed the relevant contractual obligation, to incur the costs. For a long-term agreement, the assessment includes the goods or services, the term, the contractual terms and the price, together with what was available in the market at that time. Later market prices are relevant only insofar as they shed light on the reasonableness of the original commitment. A landlord is not automatically entitled to recover costs merely because it is contractually bound to pay them. A tenant must identify the disputed costs and establish a prima facie case of unreasonableness. The landlord must then justify those costs.

Leaseholders challenged service charges for 2018–2020 arising from long-term contracts for the hire and maintenance of communal systems at a residential development. The contracts had been entered into by the developer in 2000, varied in 2008 and novated to the landlords in 2014. The First-tier Tribunal found that the charges were not reasonably incurred under section 19(1)(a) of the Landlord and Tenant Act 1985 and reduced them. The Upper Tribunal set that decision aside and substituted a determination that the charges were reasonably incurred.

The Court of Appeal considered the correct temporal focus under section 19 and the respective burdens of proof, including the effect of the parties having advanced their cases on an incorrect basis.

1. Appeal allowed and remitted. The matter was remitted to the First-tier Tribunal for determination under the correct legal test.
2. Section 19(1)(a) limits recovery to relevant costs that were reasonably incurred. For contractual costs, reasonableness is assessed by reference to the circumstances when the landlord assumed the obligation to pay, not solely by the market position when later invoices were rendered. Later costs remain relevant insofar as they illuminate whether the original commitment reasonably led to those costs.
3. For a long-term contract, the tribunal should consider the nature of the goods or services, the length of the term, the particular contractual terms and the price, judged against the circumstances and market available when the contract was made. If the commitment was reasonable in process and outcome at that time, later market reductions do not alone prevent recovery.
4. A landlord is not automatically entitled to recover costs merely because it is contractually bound to pay them. The broad reading of Auger v London Borough of Camden was rejected, although that decision was confined to its particular facts, including regulated procurement and strong reasons for entering the agreements.
5. Pragmatically, the tenant must identify the disputed costs and establish a prima facie case of unreasonableness. The landlord must then adduce evidence justifying the costs, and the tribunal determines the issue on the whole evidence.
6. The Upper Tribunal Judge identified the correct temporal test but decided the case without giving the parties an opportunity to address it. The evidence could support a prima facie case concerning the 2000 contracts, but that was not the case advanced below. Lords Justices Snowden and Nugee agreed.

• Court of Appeal (Civil Division) — [2025] EWCA Civ 1578: appeal allowed and case remitted to the First-tier Tribunal.
• Upper Tribunal (Lands Chamber) — [2024] UKUT 175 (LC): the landlords’ appeal concerning the Countryside Contracts was allowed and a substituted determination was made that the costs were reasonably incurred.
• First-tier Tribunal — decisions dated 22 March 2023 and 3 May 2023: the tenants’ objection was upheld and the recoverable charges were reduced.