The Upper Tribunal (UT) addressed whether a tenant’s application challenging the reasonableness of a service charge could be heard by the First-tier Tribunal (FTT) when that charge was set as a fixed annual sum by the landlord.
Facts:
Mr. Barton is the tenant of a flat belonging to Platform Housing Ltd., a registered provider of social housing. Under the terms of his tenancy agreement, which commenced on 21 September 2020, Mr. Barton is required to pay Platform a monthly net rent, a monthly service charge (starting at £95.94), and a separate monthly charge for heating and hot water (starting at £27.61).
The tenancy agreement asserts that both the net rent and the service charge are fixed for a year and can be increased annually on 1 April by Platform, with the consideration of at least one calendar month’s written notice. The agreement does not include any mechanism for calculating the service charge based on Platform’s actual costs, nor does it provide for an annual reconciliation or adjustment. Platform stated that it sets the charge based on a combination of factors, including estimated costs and budgets, and the charge remains fixed, regardless of the actual costs incurred.
Mr. Barton applied to the FTT under Section 27A of the Landlord and Tenant Act (LTA) 1985 to determine whether the service charges he had paid since 2020 were reasonable. The FTT refused his application and struck it out, holding that the charge was not a “service charge” within the meaning of Section 18(1) of the 1985 Act, based on previous binding precedent. Mr. Barton appealed this decision to the UT (Lands Chamber).
Decision:
The UT dismissed the appeal. For a charge to qualify as a service charge, the statute requires that the amount must vary, or may vary according to the relevant costs. The UT, reaffirming the decision in Home Group Ltd. v Lewis [2008], held that this phrase requires a causative link between the landlord’s costs and the tenant’s liability. The service charge must change because the costs change.
The UT found that Mr. Barton’s tenancy agreement lacked this required link. The charge is set as a fixed sum for a 12-month period. During that year, the amount does not change, regardless of whether Platform’s actual costs are actually higher or lower than anticipated. The annual adjustment is made by the independent decision of Platform through a notice. Although Platform may consider estimated costs when setting the new rate, the agreement does not require them to do so, nor does it make the resulting charge mechanically tied to those costs, as the landlord’s decision breaks the direct causative link required by the statute.
The separate charge for heating and hot water was dismissed for the same reason, as the agreement did not require the amount of the charge to be related to the actual costs incurred by Platform in providing those services.
Implications:
This case limits the statutory protections available to many tenants of social housing providers under current law. The key implication is that tenants, like Mr. Barton, who pay a fixed service charge—meaning the charge is set for a year by the landlord and does not reconcile with actual costs—currently have no statutory right to challenge the reasonableness of that charge under Section 27A of the Landlord and Tenant Act 1985 as they are not considered as ‘service charges’.
Tenants paying fixed charges cannot rely on Section 19(2) of the 1985 Act, which limits the amount payable to only what is reasonable. Their annual payments are fixed by the landlord’s notice and are not subject to review for reasonableness. Such tenants must primarily rely on their landlord’s compliance with the standards set by the Regulator of Social Housing, which requires providers like Platform to set “reasonable and transparent service charges”.
The judgement confirms that the model tenancy agreement used by many social housing providers (which uses an annual fixed charge without reconciliation) effectively keeps the service payments beyond the jurisdiction of the FTT under the current legislation.
