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Service charges: Reasonableness of charges caused by breaches of other leaseholders covenants

An interesting case recently came before the Upper Tribunal (Lands Chamber) relating to what is the position when service charge costs have risen because of the breach by some leaseholders of their covenants.

 In the case of Liverpool Quays Management Limited v. Carol Ann Moscardini [2012] UKUT 244(LC) The President of the Upper Tribunal considered these points and various other points on appeal from the LVT.

 The facts were that this development in Liverpool was directly adjacent to the Liverpool Echo Arena which opened in 2008.  As a result of this and the fact that the development was experiencing problems from short term lettings of the flats the cost of providing security for the estate escalated significantly with the costs approximately doubling.  The Respondent challenged these sums and the LVT at first instance disallowed part reducing the amount to that of previous years stating that there had been “excessive increases over previous years”.

 The leases contained no covenant against short term letting although they did contain the usual provisions re nuisance and covenants that the properties only be used as private apartments and not for trade or business.  There was a covenant for enforceability by the management company but Mrs Moscardini had not exercised this.  Mrs Moscardini submitted that the real reason for the increase was as a result of the management company not properly policing and controlling short term and hotel type lettings leading to various problems including a large number of incidents involving the police.

 Invoices were produced by the management company and a director explained how the contractor had been chosen.  The President was satisfied that the increase was due to the opening of the arena and the problems with the short term lets.  He was satisfied that the response was adequate and the service provided was of a reasonable standard.  Whilst he recommended that the management company did look at taking some enforcement action he did accept that there response in increasing security was proportionate (and recoverable under the lease) and even if they had taken action this may not have successfully dealt with the problem during the period in question. Such action was a long term solution and would not alter the need for security.

 What is clear is that the President in reaching his decision was trying to balance the invidious position the management company found themselves in.  This is a not unusual situation where leaseholders are faced with a proportion of leaseholders not sticking to the terms of the lease.  For the management company they may not have funds available to take action directly themselves without some mandate from the leaseholders.  Most leases today have a mutual enforceability covenant which can be relied upon although as in this case it may require the leaseholder to offer some form of costs indemnity.   It would have been interesting to see if the decision would have been different if Mrs Moscardini had looked to exercise this or the application was supported by a wider group of leaseholders who could show a pattern of complaints to the management company.  The implication is that it might have been different if the management company had not then acted to deal with this nuisance. 

 Clearly if you are faced with a situation where you believe service charges are increasing due to breaches of covenant pressure should be bought to bear upon the management company to take action.  You should try and involve other leaseholders for them also to complain and require action by the freeholder or management company.  Records should be kept.  Whilst some freeholders will then take action if asked for an indemnity or some money on account it would always be wise to take advice to check what your liability is going to be or what action you can expect.

 One of those situations where perhaps it is important to understand fully your lease not just for what you can do but what you can prevent other doing!

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