Challenging the reasonableness of service charges
A recent decision of the Upper Tribunal (Lands Chamber) (“Upper Tribunal”) considered the charges that can be challenged by tenants at Tribunal.
In Anchor Trust v Waby  UKUT 370 (LC) the Upper Tribunal held that fixed management costs did not fall within the definition of service charges as set out in section 18(1) of the Landlord and Tenant Act 1985.
In Anchor Trust the leases of a block of retirement flats provided for a service charge, as part of which the landlord was allowed to include its own management costs. The allowance was to be set for the first year of the term (1994), and thereafter it was to increase annually by reference to the Retail Prices Index.
When Anchor took over as manager in 2005, they applied a different index and the First-Tier Tribunal (“FTT”) determined that the management allowance should be recalculated.
The Upper Tribunal held that the FTT did not have jurisdiction and its decision had to be set aside. A tribunal has the power to assess the reasonableness of service charges as defined in section 18 of the Landlord and Tenant Act 1985. One element of that definition is that service charges are charges “the whole or part of which varies or may vary according to the relevant costs.” The Upper Tribunal held that fixed management charges did not fall within that definition as they are not variable. The Upper Tribunal said that service charges don’t have to be considered as a whole, any stand-alone part of the overall charges could fall outside the definition of “service charge” and therefore outside the tribunal’s jurisdiction. This means that tenants cannot challenge fixed charges at tribunal.