Carlow House RTM Company Limited v Stephen Francis Colchester & Ors

Leaseholders remain liable under their leases for properly incurred service-charge costs of repairing common parts, even where the need for the work arose from a developer’s failure to complete the development. A right-to-manage company assumes the landlord’s management functions when the right to manage is acquired, but it does not become liable for the landlord’s or developer’s earlier breaches. A leaseholder cannot set off claims against the former landlord or developer against the RTM company’s service-charge claim. Contractual liability is determined objectively from the language of the lease and relevant background, not from a party’s subjective understanding.

The appeal concerned the liability of leaseholders in Carlow House to contribute to the cost of repairing its atrium roof. The First-tier Tribunal (Property Chamber) had determined that neither the leaseholders of the original fourth-floor flats nor the leaseholders of flats created during the later conversion were liable for the works, and had directed repayment of relevant contributions.

The Upper Tribunal considered the different lease terms, a 2015 development agreement, a 2017 consent order, the transfer of management functions to the appellant under the Commonhold and Leasehold Reform Act 2002, and the effect of the developer’s failure to complete the roof repairs. The central issue was whether the disputed costs were recoverable as service charges from either category of leaseholder.

1. Appeal allowed. The FTT’s decision was set aside and a determination substituted that the disputed atrium-roof repair costs were payable by the leaseholders in the amounts recorded by the FTT.
2. The category A leases required the leaseholders to contribute to all costs reasonably incurred in complying with the landlord’s repairing obligations, including the cost of initially putting the roof into repair. The words requiring the landlord to initially provide and thereafter keep the roof in good repair did not exclude those costs from the service charge.
3. The 2017 consent order objectively required the category A leaseholders to pay service charges accruing after 25 April 2017. Its provisions concerning the roof, statutory consultation and the release of the developer’s obligations under the 2015 Agreement confirmed that the roof-repair cost was to fall within the service charge. The subjective understanding of one leaseholder could not alter that meaning. The approach to contractual interpretation stated in Arnold v Britton [2015] AC 1619 was applied.
4. The developer’s and freeholder’s failures did not remove the category A leaseholders’ liability. The general principle that delay in carrying out works does not ordinarily reduce or extinguish liability was supported by Continental Ventures v White [2006] 1 EGLR 85 and Daejan Properties Ltd v Griffin [2014] UKUT 206 (LC).
5. Under sections 95 to 103, and particularly section 96, of the Commonhold and Leasehold Reform Act 2002, management functions transferred to the RTM company. The leaseholders’ payment obligations were correspondingly enforceable against that company. The RTM company was not a successor in title and was not responsible for earlier breaches by the developer or landlords. Any set-off available against those parties could not be used against the RTM company. This conclusion was consistent with Edlington Properties Ltd v JH Fenner & Co Ltd [2006] 1 WLR 1583.
6. The category B leases required payment of properly incurred costs of keeping the roof in repair. The RTM company acted reasonably in designating its repair costs as service-charge items and was not required to rely on warranties available only to the category B leaseholders.
7. The FTT’s section 20C order was set aside. No more than 75% of the RTM company’s FTT costs were to be treated as relevant costs for service-charge purposes. The application concerning the appeal costs was left open for further submissions.

• First-tier Tribunal (Property Chamber): on 7 February 2025, determined that neither category of leaseholder was liable for the atrium-roof repair costs and directed repayment of relevant contributions.
• Upper Tribunal (Lands Chamber): set aside the FTT’s decision and substituted a determination that the disputed costs were payable. The section 20C costs order was also set aside and replaced in part.