Cases - Charles Knapper and others v (1) Martin Francis (2) Rebekah Francis

Record details

Name
Charles Knapper and others v (1) Martin Francis (2) Rebekah Francis
Date
[2017]
Citation
UKUT 3 (LC)
Legislation
Keywords
Service charges – Payment on account – Reasonableness – Landlord and Tenant Act 1985, s.19(2)
Summary

The appellant long lessees appealed the FTT’s decision that the amount paid to the respondents on account was reasonable. The lease provided that the service rent was 'to be a fair and equitable proportion of the aggregate sums “actually expended” on services provided by the Lessor in a period ending on the accounting date…' It had been anticipated that £50,000 would be spent employing a site manager and £36,000 spent refurbishing a children’s play area, but the expenditure had not been incurred during 2015. The lease made no provision for what should be done in circumstances when the service charge paid on account exceeded the sums actually expended.

The FTT ruled that the fact that part of the anticipated expenditure had not been incurred by the time it was asked to determine the issue of reasonableness could be ignored. The sum claimed for the children’s play area was allowed in full, but the sum for the cost of the site manager was reduced to £35,000.

The appellants argued that s.19(2) of the 1985 Act imposed a general test of reasonableness. This required the FTT should have had regard to the fact that some of the expenditure had not been incurred by the end of the accounting period. Alternatively the second limb of 19(2) allowed for an adjustment of their liability once it became clear that certain anticipated expenditure had not been incurred.

The Upper Tribunal held that the starting point was the contractual position between the parties. Absent any consideration of the effect of s.19(2) of the 1985 Act, the contractual position was that each of the appellants were obliged to pay on account their proportion of the total budgeted sum on 31 December 2014.

The Second stage of determination was to consider whether the on account payment required under the appellants’ leases exceeded the statutory limit imposed by s.19(2). The effect of the statute was to modify the contractual obligation so that no greater amount than reasonable was payable before the relevant costs were incurred. The language of the subsection suggested that the statutory ceiling applied at the time the leaseholder’s liability arose.

In principle the FTT was correct to disregard matters that which became known only after the appellants’ contractual liability arose. The ability of a landlord to collect funds in advance of expenditure was an important aspect of service charge schemes for the benefit of both parties. It should not be undermined and Parliament was likely to have intended that the statutory protection afforded by s.19(2) should do no more than protect leaseholders from unreasonable demands.

Section 19(2) allowed matters not known to a landlord when its budget was set to be taken into account in determining a reasonable sum to be paid in advance. If matters became known after the budget was drawn up, but before a particular payment became due, those could also affect the reasonableness of the sum to be paid. On the evidence the respondents had reasonably considered on the payment date that they required the sum demanded on account to meet the proposed expenditure and the FTT was correct that the amount was no greater than was reasonable.

The second limb of s.19(2) of the 1985 Act did not confer a jurisdiction on the FTT to direct repayment of any sum which had been collected in advance by a landlord, but which exceeded the expenditure actually incurred during a relevant period.

Appeal dismissed.