Mr and Mrs Francis acquired a holiday park and leased the chalets on the site. In 2020, the owners sought a payment of £18,000 under service charge provisions in the chalet leases to cover the estimated costs of providing accommodation for the site manager and two wardens. The two wardens were the owners' sons and both occupied one of the 176 chalets on the park, which had been internally apportioned to create two separate areas of accommodation.
Services charges were equally distributed across 176 chalets.. The leaseholders failed to pay and the owners brought a claim in the First Tier Tribunal (FTT) for a determination of the reasonableness and payability of the estimated charges. The FTT concluded that the owners incurred only notional costs in providing the accommodation to the wardens, as they owned the chalet. The leases did not permit a deduction of notional cost as service charge. The FTT also determined that the wardens' apportioned chalet created 2 units and service charges should be distributed between 177 chalets. The owners appealed the decision.
The Upper Tier Tribunal (UTT) considered two issues on appeal. Firstly, as to whether the leases permitted the landlord to add any amount of rent it would otherwise have received from the service charge. The UTT decided that this sum was not a sum actually expended or incurred. It could therefore not be recovered as part of the service charge. However, costs actually incurred, such as payment of utilities and taxes associated with the chalet could be recovered.
Secondly, the UTT concluded that the FTT was wrong in treating the wardens' chalets as two units and total expenditure should be distributed between 176 units.
As an important aside, the UTT also considered Section 27A(6) of the LTA 1985 which renders void any lease term which might fetter the ability to seek a tribunal determination on service charge payability. As the "fair and equitable" test in the lease was to be determined at the sole discretion of the owner, it was void and the tribunal retained authority to determine the point.
It is worth noting that courts and tribunals will look at the heads of service charge expenditure closely. Landlords should not think that service charge provisions will be interpreted generously, because they will not be.
