Landlords, RTM companies and RMCs often receive disputes from leaseholders as to why they are required to pay service charges for a service that they are not receiving. Whilst most leases require leaseholders to contribute to all costs for their development regardless of whether they have access to them or not, sometimes it is not so clear-cut (an example of which was covered in an earlier Legal Update here).

That was the case in the recent judgment passed down in Notting Hill Home Ownership Ltd v Samoail and others [2026] UKUT 235 (LC), in which the Upper Tribunal had to consider whether on a proper construction of the leases in question certain charges were payable for services those leaseholders did not have access to and, if the charges were not so payable, whether the leases should be varied to provide for such.   

Background 

Notting Hill Home Ownership Ltd (“NHHO”, part of the Notting Hill Genesis group), is a housing association holding the headlease of Block V1 at Viridian Apartments in Battersea (an affordable/shared ownership block). NHHO sought to recover from its shared ownership sub-lessees the full service charges it was obliged to pay under its headlease to the estate management company.

These included costs relating to the wider multi-block development (communal gardens, concierge, gym, and other facilities) to which the Block V1 residents had no contractual right of access or use. Block V1 had its own separate entrance and is physically isolated from the rest of the estate.

The sub-leases required the leaseholders to contribute only to expenditure “reasonably incurred by the Landlord in connection with the repair management maintenance and provision of services for the Building” (and related common parts of the limited “Estate” as defined by reference to NHHO’s own title).

The leaseholders challenged the payability of certain service charges before the First-Tier Tribunal (Property Chambers) (“FTT”). They argued that they should not have to pay for those areas and services which were unavailable to them. In response, NHHO argued that it was a benefit to those leaseholders to ensure that the whole development was maintained. Additionally, it said there was an obvious mistake in the sub-leases, with an obvious solution: the term “Estate” in the sub-lease should be read to mean “the Development” as defined in the headlease, which would enable it simply to pass all service charges it incurred on to its leaseholders.

In the alternative, if those arguments failed, NHHO also made its own application under Section 35 of the Landlord and Tenant Act 1987 to vary the sub-leases, on the basis that it failed to make “satisfactory provision” for recovery of expenditure incurred “for the benefit” of the sub-lessees (Section 35(2)(e)) or for the computation of the service charges (Section 35(2)(f)). The proposed variation was to substitute the term “Estate” with “Development”, to enable NHHO to recover all costs it incurred in connection with the entire Development.  

The FTT’s decision

The FTT held that the majority of the disputed charges were not payable under the sub-leases.

The FTT found that on a proper construction of the sub-leases, the sub-lessees were only required to pay for services provided for their own building. The FTT said that “the leases do make sense and are not an obvious nonsense”, and found that it was not intended to provide for the sub-lessees to pay for services from which they did not benefit.

The FTT also said that, as the sales particulars for the flats had expressly excluded access to the gardens, concierge and gym, this only re-enforced the intention of the parties when the sub-leases were granted, to maximise affordability by restricting the services that the sub-lessees could access and would have to pay for.

In relation to the Section 35 application, the FTT said the fact that NHHO had contracted in its headlease to pay for services from which it received no benefit did not make the sub-leases unsatisfactory. The FTT noted that Block V1 was well-maintained and that NHHO had other resources from which it could pay the service charges which it could not recover from its sub-lessees.

NHHO appealed to the Upper Tribunal (“UT”).

The decision of the UT

The UT dismissed the appeal.

1. Construction of the sub-leases service charge liability)

The UT rejected NHHO’s argument that there was an obvious mistake in the sub-leases, capable of correction by construction. The UT agreed with the FTT that while the sub-leases were poorly drafted; they made “perfect sense” insofar as the definition of “the Estate” was concerned.

2. Section 35 application (variation of the leases)

The UT held that the sub-leases already made satisfactory provision: they allowed recovery of “all expenditure reasonably incurred by the Landlord in connection with the repair management maintenance and provision of services for the Building”. Those clear words made satisfactory provision for the recovery of expenditure that benefited the sub-lessees.

Whilst the UT agreed that it is nice to have neighbours’ gardens well-maintained, it said that does not mean each leaseholder has to pay for that pleasure. That is far too indirect a benefit to fall within what Section 35(2)(e) requires.

In closing, the UT said :-

“…the root of the problem is not the Sub-lease but the Headlease, whose service charge obligations do not match those of the Sub-lease. The service charge provisions in the Sub-lease are satisfactory, and there is no basis on which they can be amended to solve the problem that arise  for NHHO from the starling different provisions in the Headlease”.

The important message to Landlords and management companies

The UT stressed that its decision did not detract from the principle that, in theory, leaseholders could be made contractually liable for something which they do not benefit from. But in the absence of plain words making them so liable, it is “extremely implausible” to rectify the lease by construction (e.g. to interpret the lease in such a way) so as to make it the case.

So the take away is, landlords and management cannot simply pass on headlease liabilities that do not match the rights and obligations in the occupational leases. Leaseholders are only required to pay as a service charge what is outlined in the precise terms of their leases, even if that results in a shortfall that the landlord or management company is unable to recover from its leaseholders.

The decision therefore underlines the importance of precise drafting and commercial alignment between headleases and underleases, particularly in the shared ownership and affordable housing sectors, to avoid situations like this where there are costs which cannot be passed on to the paying leaseholders.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.