20 February 2018
Charges must be reasonable to be reasonably incurred
The leases relating to tenancies in blocks of flats and similar buildings will normally require the tenants to make a reasonable contribution towards the 'estate' costs of the property. The estate costs are those which apply to the whole of the premises or are for the benefit of all the tenants. Typical estate costs will be those for the cleaning of common areas, lift maintenance, buildings insurance etc. In addition, the landlord will have the right to recover costs for repairs and so on.
It is usual for such costs to fall on the tenants only when they have been 'reasonably incurred' by the landlord.
A recent case dealt with the situation in which a landlord sought to charge tenants for expenses which, though they may have been reasonably incurred, were thought to be unreasonably high.
The 16 tenants of a block of flats were faced with demands for payment of their relevant contributions towards a block insurance policy. It is reasonable for tenants to be required to make such payments but the premium payable was some four times that which could be obtained in the open market for similar cover.
The tenants went to court to oppose their liabilities, and the Upper Tribunal (UT) agreed with them that the amount charged was not reasonable. The landlord advanced no reason why there should be such a large discrepancy between the premium it incurred and the market premium and as a result the UT took the view that the expense was not reasonably incurred and could not be passed on in full to the tenants.
Senior associate Janine Gibbs commented: "Although this case involved a residential block, it has potentially wider implications. Landlords are well advised to keep the expenses they recharge to tenants under periodic review to ensure they do not drift significantly higher than open-market rates, as tenants may seize the opportunity to oppose the service charges levied."