Churchill Retirement Living Limited v Hampton Lodge RTM Company Limited

On acquiring the right to manage, an RTM company is entitled under Commonhold and Leasehold Reform Act 2002, section 94, to accrued uncommitted service charges, but not to sums which are merely income from the landlord’s property. A clear lease provision requiring payment for use of a guest room does not, without more, require the landlord to credit those payments to the service charge account. Service charge provisions are construed by ordinary contractual principles. There is no special contra proferentem rule for service charges. A term cannot be implied merely because crediting the income would be fair or beneficial to leaseholders; necessity for business efficacy or obviousness is required.

The appellant freeholder owned a retirement development containing a guest room. Leaseholders paid the landlord charges for using it, while service charges funded the room’s repair, maintenance and management. After the respondent RTM company acquired the right to manage, the First-tier Tribunal determined that £1,050 of guest-room income was an accrued uncommitted service charge payable under section 94 of the Commonhold and Leasehold Reform Act 2002.

The landlord appealed. The central questions were whether the lease required the guest-room income to be credited against the service charge, whether such a term could be implied, and whether section 96(6) affected the result.

1. Appeal allowed. The First-tier Tribunal’s decision was set aside on the guest-room issue and the Tribunal substituted its own judgment. The £1,050 held by the landlord was not an accrued uncommitted service charge and was not payable to the RTM company.
2. Section 94 concerns the transfer of service-charge funds held by the landlord at the acquisition date. The application before the First-tier Tribunal concerned the amount payable under that section. It did not determine which party would be entitled to receive guest-room licence fees in the future. The appellant’s argument under section 96(6) was therefore outside the issue on appeal.
3. The lease clause gave leaseholders a right to use the guest room, subject to payment to the landlord of charges which the landlord could impose in its discretion. It contained no obligation to credit those charges to the service-charge account. Its meaning was clear and presented no ambiguity requiring construction.
4. There are no special rules of construction for service-charge provisions. The approach in Arnold v Britton applied, and the suggested contra proferentem rule derived from Cadogan v 27 and 29 Sloane Gardens Limited was misconceived.
5. A term could not be implied. The lease operated perfectly well without the proposed term, and the term was neither necessary to give the lease business efficacy nor so obvious as to go without saying. Fairness or benefit to leaseholders was insufficient. The express provision concerning insurance money showed that, where the parties intended landlord-held money to benefit leaseholders, they made express provision.
6. Warwickshire Hamlets Ltd v Gedden did not assist. The lease in that case expressly required guest-room payments to be credited against maintenance expenses; the present lease contained no equivalent provision.

• Upper Tribunal (Lands Chamber): appeal from the First-tier Tribunal’s decision dated 23 July 2025 allowed on the guest-room income issue; decision set aside and judgment substituted.
• First-tier Tribunal (Property Chamber): determined seven issues concerning accrued uncommitted service charges and held that the £1,050 guest-room income was payable to the RTM company.