In the recent case of Birch -v- Meredith [2026] UKUT6 (LC) the UK Upper Tribunal (Lands Chamber) considered whether the order relating to costs following the service charge determination had been correctly given by the First Tier Tribunal (FTT).
Background
The case involved an appeal brought by the landlord of the FTT decision.
The case originally before the FTT was pursuant to section 27A of the Landlord and Tenant Act 1985 (LTA 1985) for the FTT to determine whether and to what extent the service charges were payable pursuant to the lease. The parties involved were Mr Birch, the freeholder of a property known as 55-57 High Street Arundel, and the leaseholder a Mr Meredith who held a long lease of the residential parts of the building under a head lease.
In the case before the FTT the amount of service charge being considered was £46,918.26 and one point at issue was whether the service charge demands, which did not include an address for the landlord as required by section 47 of the Landlord and Tenant Act 1987 (LTA 1987), were valid.
A landlord demanding service charge is required, pursuant to section 47 of the LTA 1987, to provide a written demand containing the name and address of the landlord and, if it fails to do so, then the service charge being demanded “shall be treated for all purposes as not being due from the tenant to the landlord at any time before that information is furnished by the landlord by notice given to the tenant.” The FTT also considered whether the service charge would be payable if it had been properly demanded.
The FTT determined the service charge to be reasonably incurred, with only a minor reduction of £417.37.
The FTT also considered the leaseholder’s application pursuant to section 20C of the LTA 1985 and under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002. Pursuant to these provisions, a leaseholder may seek an order from the FTT that the legal costs incurred by a landlord in connection with proceedings should not be recovered as a service or administrative charge pursuant to the terms of the lease and that the FTT fee be reimbursed to the leaseholder.
The FTT ordered that the landlord was not entitled to recover legal costs on the basis that the leaseholder had achieved “complete success” in challenging the service charges as demanded.
Appeal
The landlord appealed the FTT’s decision on the grounds that the FTT should not have taken into consideration section 47 of the LTA 1987 in deciding the legal costs recovery.
In addition, the landlord claimed the FTT was mistaken in concluding that the leaseholder had “achieved complete success”, in challenging the reasonableness of the service charge as there was only a small reduction in the service charge recovery. The landlord appealed the decision regarding the section 20C costs and the paragraph 5A costs. The landlord set out in his appeal that the FTT could have considered making an order in respect of part only of his costs rather than the full extent of his costs and the FTT fee.
The leaseholder defended the appeal on the basis that the landlord was aware of the failure to comply with section 47 of the LTA 1987 and was able to correct that mistake well in advance of the hearing rather than shortly before. The leaseholder’s position was that if the landlord had corrected this in advance, he may not then have proceeded with that argument before the FTT.
Decision
The Upper Tribunal allowed the appeal and concluded that the FTT was wrong in concluding that failure to comply with section 47 of the LTA 1987 extinguished the contractual obligation to pay the service charge. The effect of non-compliance suspends the obligation until section 47 of the LTA 1987 is satisfied.
In addition, the Upper Tribunal concluded that the landlord had in fact been successful in obtaining a determination as to the reasonableness of the service charge with only a small reduction of just over £400 on the service charge demanded. Based on that determination, the landlord had been successful in proving that the service charge was reasonable. Considering that conclusion, it would be an incorrect decision to limit the landlord’s contractual recovery of legal costs in accordance with the lease terms. The leaseholder was therefore unsuccessful in seeking to maintain the costs orders granted by the FTT to limit the landlord’s costs or to obtain a reimbursement of the tribunal fee.
The Upper Tribunal decided that the landlord had been able to prove its case as to the reasonableness of the service charge and therefore would be entitled to recover the legal costs pursuant to the terms of the lease.
Points to Note
It is important if you are a landlord to ensure that any demands for service charge or rent are compliant with the relevant statute. Service charge is not validly due until correctly demanded.
If you are a leaseholder, it is always worthwhile checking the validity of a service charge demand as, if not compliant with the relevant statute, it may suspend the landlord’s right to recover sums from you until a valid demand is served. It is important that both parties bear in mind that the tribunals confirmed that an invalid service charge demand may only suspend the recovery of the service charge, not extinguish it.
If you are a lessor or a lessee and are concerned about service charge recovery, please get in touch using our online enquiry form or by calling 0345 646 0406 and a member of the team will be in touch.