PC Residents (Finchley Road) Limited v Folasade Jibike Abiola

A lease provision requiring a year-end adjustment certified as due to a leaseholder to be credited to that leaseholder prevents the landlord from transferring the resulting service-charge surplus into a reserve fund. A reserve contribution expressly included in the annual estimate is exempt from adjustment, but the landlord cannot treat the product of the adjustment itself as a further discretionary reserve allocation.

When determining service-charge liability under Landlord and Tenant Act 1985, the tribunal must evaluate the relevant certified evidence. An appellate tribunal may set aside a determination founded on a material misunderstanding or overlooking of that evidence. A costs-protection order under section 20C depends on a just and equitable assessment of the actual outcome and all relevant circumstances.

The respondent long leaseholder applied to the First-tier Tribunal under section 27A of the Landlord and Tenant Act 1985 for a determination of service charges for 2019 to 2023. She also sought a section 20C order preventing the landlord from recovering its proceedings costs from her through the service charge.

The FTT held that annual service-charge surpluses were to be credited to leaseholders rather than retained in the reserve fund. It calculated credits for 2019 to 2022, recorded that repair and maintenance issues had been agreed, and made a section 20C order for the respondent’s benefit.

The landlord appealed, contending that the FTT had misunderstood the accounting evidence and the parties’ agreement, and had erred in its costs order. The central issues were the proper treatment of the annual surplus under the lease, the reliability of the FTT’s calculations, and whether costs protection remained just and equitable.

1. Appeal allowed in part. The Tribunal set aside the FTT’s quantified determination of annual surpluses and its section 20C order. It dismissed the appeal against the FTT’s conclusion that surpluses must be credited to individual leaseholders.

2. The FTT had materially misunderstood or overlooked evidence. It calculated surpluses from accrual-based income and expenditure accounts, despite having certified expenditure summaries that recorded payments made during each service-charge year. The different accounting bases were especially material for 2019, when payments made in that year included liabilities for earlier services. The FTT’s figures could therefore not be relied on. It was unnecessary for the Upper Tribunal to substitute figures because the relevant charges were almost entirely agreed; paragraph 23 of the FTT decision was set aside.

3. Under paragraph 2 of the Fourth Schedule, any adjustment certified as due to the tenant must be paid by, or credited to, the tenant. Clause 5(iii) permits the landlord to create a reserve fund and to include a specified reserve allocation in the annual estimate. That allocation is excluded from the balancing adjustment. It would be circular, and contrary to the express obligation to credit the tenant, to allocate the surplus produced by that adjustment to the reserve instead. A sum added to the reserve is available to the landlord for reserve purposes; it is not a credit to an individual leaseholder. Leaseholders may unanimously agree to contribute a surplus to reserves, but no leaseholder can be compelled to do so ([36]–[41]).

4. The FTT had not determined the repair and maintenance dispute after the parties reached agreement, so there was no determination on that issue capable of appeal. Its account created an incorrect impression about the terms agreed. Any subsequent dispute about the unrecorded agreement would require determination in the continuing County Court proceedings.

5. The FTT exercised its section 20C discretion on an overstated view of the respondent’s success. Taking account of the limited matters on which she succeeded, the arrears position, her former directorship, and the collective effect on other leaseholders, it was not just and equitable to protect her from costs differently from her neighbours. The section 20C application was remade and dismissed ([46]–[49]).

• Upper Tribunal (Lands Chamber): Allowed the landlord’s appeal in part in [2025] UKUT 120 (LC). It set aside the FTT’s surplus calculation and section 20C order, but upheld the FTT’s interpretation requiring annual surpluses to be credited to leaseholders.
• First-tier Tribunal (Property Chamber): In FTT reference LON/00AG/LSC/2023/0217, determined the respondent’s section 27A service-charge application, directed credits for annual surpluses, and made a section 20C order protecting her alone.