Earlier this month, the Upper Tribunal considered an interesting point of lease construction on this slightly unusual question, in the case of Stampfer -v- Avon Ground Rents Limited [2022] UKUT 68 (LC).

Background

Mr Stampfer was the long-leaseholder of Flat 12, 6 Trinity Mews, London E1. The freehold was held by Avon Ground Rents Limited and the block was managed by a RTM company, who collected the service charges. Avon Ground Rents Limited continued to deal with the ground rents in the usual way.

Under the terms of Mr Stampfer’s lease, a ground rent of £250 per annum was payable, in half-yearly instalments. When issuing the prescribed Section 166 ground rent demands, Avon Ground Rents Limited applied a £30 plus VAT ‘Ground Rent Collection Fee’, seemingly for preparing the Section 166 demand. Mr Stampfer was unhappy with the twice yearly charge, and challenged the payability and reasonableness of the fee in the FTT.

The lease

Mr Stampfer’s lease contained a fairly standard covenant when it came to additional fees payable, over and above the service charge and ground rent (e.g. administration charges), as below :

“The Tenant must pay to the Landlord the full amount of all costs, fees, charges, [etc etc] … incurred by the Landlord in relation to or incidental to: …

5-10.2 the contemplation, preparation and service of  notice under the Law of Property Act 1925 Section 146, or the contemplation or taking of proceedings under Sections 146 or 147 of that Act …

5-10.3 the recovery or attempted recovery of arrears of rent or other sums due under this Lease…”

The following costs were also included as “deemed expenses” under the lease, to be re-charged to leaseholders as service charges in their respective service charge proportions :

“If the Landlord or a person connected with the Landlord or employed by the Landlord attends (where permitted by law) to:

 7-2.3.2.1 the supervision and management of the provision of services for the Building,

7-2.3.2.2 the preparation of statements or certificates of the Landlord’s Expenses,

7-2.3.2.3 the auditing of the Landlord’s Expenses, or

7-2.3.2.4 the collection of rents from the Building

then an expense is deemed to be paid or a cost incurred by the Landlord, being a reasonable fee not exceeding that which independent agents might properly have charged for the same work.”

The Upper Tribunal’s decision

The Upper Tribunal held that ground rent cannot be collected until it is due, and giving a Section 166 demand in order to make it due is NOT the same as collecting it.

Therefore, in disagreeing with the earlier decision of the FTT, the Upper Tribunal decided that the “Ground Rent Collection Fee” charged by the landlord was not payable under the terms of the lease. There was no provision in the lease enabling the landlord to charge for issuing Section 166 demands. Whilst it was open to the parties to agree and include such a provision in the lease, that provision would need either to be express or at the very least to take the form of a reference to ancillary or incidental costs. There was no such reference in Mr Stampfer’s lease.

Conclusion

The Upper Tribunal’s decision was plainly right based on the particular wording of Mr Stampfer’s lease. Indeed, in our experience, it would be unusual for such a provision to be included which would enable the landlord’s time for issuing a Section 166 demand to be charged as a separate expense, as opposed to the costs incurred in pursuing arrears. Whilst a managing agent might charge a landlord for such work within their management fee, whether those costs can be passed on to the leaseholders (either as a direct re-charge or as a service charge expense), will require careful consideration. Each case has to be considered individually based on the exact wording of the lease in question. If in doubt, legal advice should be sought in order to avoid a potentially costly FTT challenge.

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