Pursuant to section 18(1) of the Landlord and Tenant Act 1985, a “service charge” is defined as “an amount payable by a tenant of a dwelling as part of, or in addition to, the rent – (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs”.
In Aly and another v Wickham and another [2021] EW Misc 12 (CC), the court was tasked with resolving a service charge dispute between the owners of holiday lodges in Umberleigh, Devon, and the appellants, who were long lessees of the holiday lodges held on 999-year terms.
Pursuant to the terms of the appellants’ leases, they were liable to pay as further and additional rent a service charge in advance on 1 January each year, such charge being the greater of either: (a) the sum of £250 per annum multiplied by the relevant RPI; or (b) the sum which shall be one-twentieth of the sum calculated in accordance with the fourth schedule, which set out the calculation of the service charge. An issue in dispute between the appellants and their landlords was whether the estimated service charge fell within the definition of a “service charge” under section 18 of the 1985 Act.
The first instance judge determined that to the extent that the £250 multiplied by RPI was the higher figure, the charge would be classed as a fixed charge and sections 18 to 30 would not apply to it. Accordingly, there was no legal basis for considering the reasonableness of the charge in any particular year. The lessees appealed.
Relying on The Anchor Trust v Waby [2018] UKUT 370 (LC); [2018] PLSCS 196, the landlords contended that charges could fall within the definition of section 18 in one year and not in another. They contended that under the estimated service charge provisions in the leases, in every year the landlords demanded a payment of “service charge” in accordance with (a) above, but as it was not possible to vary this charge by reference to the landlords’ costs, it fell outside the protection of sections 18 to 30.
His Honour Judge Matthews distinguished Waby from the present case because the formula for calculating the service charge in Waby changed after the first year. In the present case, there was only a single estimated service charge to be demanded in advance. The amount of the estimated service charge was calculated in accordance with actual expenditure on services as set out in (b), albeit subject to a “floor”, below which the demand for payment could not fall. Section 18(1)(b) did not require that the charge must vary according to the relevant costs. It required only that it “may vary”, which in this case it did.
Elizabeth Dwomoh is a barrister at Lamb Chambers
