Avon Freeholders Ltd v Garnier [2016] UKUT 477 (LC)

In this recent case, the Upper Tribunal (UT) were asked to consider and give an interpretation as to an administration charge which was paid by a leaseholder; however the leaseholder paid the charges whilst in dispute.  This scenario is quite common, for leaseholders to pay service charge and or administration charges and then to seek a determination later from the First Tier Property Tribunal (FTT) as to the reasonableness of these charges.  What this does is ensures that the leaseholder is not in breach of the covenants of their lease.

In this particular case the leaseholder carried out some structural work to his bathroom and plumbing.  Work of this nature would normally have required the consent of the freeholder.  However in this case no such consent was obtained from the freeholder.  As a result the leaseholder was effectively in breach of the terms of his lease.  The leaseholder sought consent months later, when the property was put on the market.  The leaseholder would have had to disclose to the new purchaser that work was carried out and that he failed to obtain the necessary consent.

The leaseholder realising that he would be unable to sell his property, without the necessary consent, sought retrospective consent.  The freeholder advised the leaseholder that a non-refundable consultation fee of £500 plus VAT was payable.  The leaseholder paid and it was made clear to him that payment of this fee did not guarantee consent, and that this was only a consultation fee.

The freeholder requested a further fee of £1500 plus VAT towards its legal costs and £5000 towards the consent fee.  The leaseholder being under pressure to complete a sale agreed to payment of these fees.  The central issue here is that that the leaseholder agreed to payment of all the fees.

Like most leaseholders, the leaseholder paid the administration charge and then sought a determination from the FTT.  The leaseholder made an application to the FTT under Schedule 11 of Commonhold & Leasehold Reform Act 2002 to determine whether an administration charge was payable and, if so, how much.  Schedule 11 goes on to state:

(1)In this Part of this Schedule “administration charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly—

(a)for or in connection with the grant of approvals under his lease, or applications for such approvals,

(b)for or in connection with the provision of information or documents by or on behalf of the landlord or a person who is party to his lease otherwise than as landlord or tenant,

(c)in respect of a failure by the tenant to make a payment by the due date to the landlord or a person who is party to his lease otherwise than as landlord or tenant, or

(d)in connection with a breach (or alleged breach) of a covenant or condition in his lease.

(2)But an amount payable by the tenant of a dwelling the rent of which is registered under Part 4 of the Rent Act 1977 (c. 42) is not an administration charge, unless the amount registered is entered as a variable amount in pursuance of section 71(4) of that Act.

(3)In this Part of this Schedule “variable administration charge” means an administration charge payable by a tenant which is neither—

(a)specified in his lease, nor

(b)calculated in accordance with a formula specified in his lease.

The FTT took the view that the payment of these charges was paid under duress.  Whilst it may be understandable as to why the FTT took this view, as the leaseholder was under pressure to complete and without payment of these charges, the sale would have fallen through.  The FTT further went on to consider the reasonableness of these administration charges.  The FTT felt that £1500 plus VAT was more appropriate rather than the actual payments made by the leaseholder in the sum of £1500 plus VAT and £5000.

The freeholder disagreed with this determination and sought to appeal this decision to the Upper Tribunal (UT).  The UT held that the FTT had applied the law incorrectly.  The UT held that the freeholder had not applied any wrongful or illegitimate threat.  At no stage did the freeholder threaten to take any action.  However this must not be confused by the fact that the freeholder was entitled to take legal action against the leaseholder for breaching the terms of his lease by not obtaining the necessary consent.  The leaseholder should have obtained the consent before the work was carried out , rather than leaving  it to the last minute, when he was under pressure to complete the sale.  The UT held, whilst allowing the appeal that as the leaseholder agreed to pay the administration charges in writing, he therefore could not rely on Schedule 11 and challenging the administration charges.

Summary

The main issue in this case centres on the leaseholder’s agreement to pay the administration charges.  At no stage did the leaseholder raise any arguments that he disagreed with the admin charges or that payment was being made under protest.  It is therefore important that there is clear communication.  A court determination will offer relief for freeholders as to the amount they can charge a leaseholder for retrospective consent.  However, the decision also highlights the difficulty for leaseholders in seeking to challenge administration charges that they have previously reached agreement to pay.

Should you have any further queries regarding this decision or to discuss any leasehold issue please do not hesitate to contact Naveed Ansari in our Property Management Team on 01905 730467 who will be happy to assist you.

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