Octagon Overseas Limited & Anor v Sandra Cantlay & Ors
[2024] UKUT 72 (LC)
Liam Philip Spender & Ors v Fit Nominee Limited & Anor
26 June 2024
[2024] UKUT 175 (LC)
Upper Tribunal
Leaseholders fought service charges. A judge ruled the landlord's high insurance fees were unfair because a key witness wasn't available for questioning. However, the judge said the high cost of the building's security system was fair because the landlord was stuck with a long-term contract they couldn't easily get out of.
Key Facts
- •Appeal against a First-tier Tribunal (FTT) decision on service charges payable by leaseholders in St David's Square.
- •Two key disputes: insurance commission and Countryside contracts for security systems.
- •Leaseholders challenged insurance commission retained by a broker connected to the managing agent.
- •Leaseholders challenged the high cost of long-term contracts for security systems with Countryside Communications Limited.
- •The landlord argued that contractual obligations justified the costs.
Legal Principles
Service charges are payable only to the extent that costs are reasonably incurred and services are of a reasonable standard.
Section 19, Landlord and Tenant Act 1985
In challenging service charges, leaseholders must raise a prima facie case, often by showing that services could have been obtained more cheaply.
General rule in service charge challenges under section 19(1)(a)
The reasonableness of incurring costs under long-term contracts involves examining whether it was reasonable for the landlord to take on the commitment, considering the outcome for both landlord and leaseholders.
Judge's interpretation of Section 19(1)(a)
When a landlord is contractually obligated to pay, the FTT must consider if the initial contractual commitment was reasonable, not just the payment at the time of the invoice.
Judge's analysis of Burr v OM Property Management and Auger v London Borough of Camden.
The burden of proof shifts to the landlord to show that challenged costs were reasonably incurred once the leaseholders raise a prima facie case.
General principle in section 19 challenges
Outcomes
The FTT's decision regarding the insurance commission was set aside.
The FTT failed to allow cross-examination of the landlord's witness, preventing the leaseholders from challenging the justification for the high commission. The close relationship between the managing agent and the broker raised concerns of potential abuse.
The FTT's decision regarding the Countryside contracts was set aside.
The FTT incorrectly focused on the contract's terms in 2000 rather than whether the landlord acted reasonably in taking on the long-term commitment and the subsequent costs. There was no evidence the 2000 contract was unreasonable at the time.
The Upper Tribunal substituted the FTT’s decision regarding the insurance commission: the landlord did not show the commission was reasonably incurred.
The landlord failed to present the witness who could have justified the commission.
The Upper Tribunal substituted the FTT's decision regarding the Countryside contracts: the costs were reasonably incurred given the landlord’s contractual obligations.
While the costs were high due to unforeseen technological advancements, the landlord’s commitment to the contract was not unreasonable in 2000 and they were contractually bound to pay.