Sameer Rana & Anor v Assethold Limited

Where leaseholders raise a prima facie case that service-charge expenditure was not reasonably incurred, the evidential burden shifts to the landlord. In the absence of responsive evidence, the tribunal must explain any finding that the charge is reasonable.

A cost met through insurance is not a cost to the landlord. Further, under a lease which limits service charges to the building structure and common parts, work within an individual demised flat is not recoverable through the service charge. Under rule 13(1)(b), the tribunal must determine objectively whether conduct was unreasonable, then exercise its discretion whether to award costs, and finally assess the amount.

The leaseholders of flat 3 appealed aspects of a First-tier Tribunal decision under Landlord and Tenant Act 1985, section 27 A, concerning service charges at a five-flat building.

The First-tier Tribunal had largely upheld their challenge, but allowed three disputed charges: internal decoration to another flat after a roof leak, replacement of a fan in the appellants’ flat, and external decoration. It also refused their application for costs under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013.

The landlord had not filed witness evidence or a statement of case and did not participate in the appeal. The central issues were whether the three charges were reasonably incurred and payable, and whether the landlord’s procedural defaults justified a costs order.

1. Appeal allowed on all grounds. The First-tier Tribunal’s determinations allowing the three disputed service charges and refusing costs were set aside. The Upper Tribunal substituted its own determinations.

2. Leaseholders invoking section 27 A must raise a prima facie case that incurred expenditure was not reasonable, or that an estimated charge was not reasonable. Once they do, the evidential burden shifts to the landlord. The First-tier Tribunal erred by requiring the leaseholders to prove unreasonableness or to produce independent evidence when their evidence had not been answered. Its contrary findings were unexplained and, in respect of external decoration, involved an error of law about the evidence.

3. The charges for redecorating flat 2 and replacing the fan in flat 3 were not payable. The available material showed that each cost was covered by insurance, so it was not a cost to the landlord. Independently, the lease limited recoverable service-charge costs to obligations concerning the structure and common parts. It did not permit recovery of work within an individual demised flat.

4. The external-decoration cost of £12,886.58 was not reasonably incurred. Although exterior decoration fell within the landlord’s repairing obligations, the leaseholders had raised a prima facie case that the work was unnecessary or excessively priced. The landlord supplied no evidence in answer. The charge was therefore not payable.

5. Applying Willow Court Management Company (1985) Limited v Alexander [2016] UKUT 290 (LC), as approved in Lea v GP Ilfracombe Management Company [2024] EWCA Civ 1241, a rule 13(1)(b) application requires three stages: unreasonable conduct, discretion to award costs, and assessment of amount. The landlord’s repeated and unexplained non-compliance with directions met the objective unreasonable-conduct standard in Ridehalgh v Horsefield [1994] Ch 205. A costs order of £4,767.60 was reasonable and proportionate. The respondent was also ordered to reimburse £300 in First-tier Tribunal fees.

• Upper Tribunal (Lands Chamber): Allowed the leaseholders’ appeal, set aside the challenged First-tier Tribunal determinations, substituted findings that the three charges were not payable, and awarded costs under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013.
• First-tier Tribunal (Property Chamber): In proceedings under section 27 A of the Landlord and Tenant Act 1985, largely upheld the leaseholders’ challenge but allowed three disputed charges and refused a rule 13 costs order.