Avon Ground Rents Limited v (1) Cowley & others (2) Metropolitan Housing Trust

Avon Ground Rents Limited v (1) Cowley & others (2) Metropolitan Housing Trust (3) Advance (4) May Hempstead Partnership

[2019] EWCA Civ 1827

The question raised in this appeal was whether, when a landlord proposes to carry out works, the total cost of which is reasonable, but there is the possibility that a third party will contribute to those costs, in assessing the residential service charge payable in advance, does section 19(2) of the Landlord and Tenant Act 1985 require the landlord (depending on the facts of the case) to give credit for the anticipated third party contribution when assessing a reasonable advance payment or are third party contributions only to be taken into account once they are actually received ?

In this case, which related to major repairs required to a mixed-use commercial/residential development, a claim had been made under NHBC insurance schemes. Liability in principle was admitted prior to the issue of service charge demands, however the service charge demands issued to the tenants, both residential and commercial, were based on the full cost of the works.

The First Tier Tribunal concluded that the landlord should give credit for the anticipated receipt of insurance monies and determined that a reasonable advance payment would be the amount of the excess payable by the tenants under the policies. The Upper Tribunal upheld the decision.

The Court of Appeal (McCombe LJ, Coulson LJ, Nicola Davies LJ), dismissing the further appeal, held that the Upper Tribunal had been correct to conclude that whether an amount is payable in advance is not generally to be determined by the application of rigid rules but must be assessed in the light of the specific facts of the case. The wording of section 19(2) of the 1985 Act is intended to allow for flexibility. What is reasonable is a question for the relevant tribunal to determine, taking into account all relevant circumstances as they exist at the date of the hearing giving such weight to the various factors as it considers just and reasonable. The question as to whether the possibility of third-party payments can be taken into account in deciding what might reasonably be demanded on account will depend on the facts of the individual case. If certainty were to be required, this would constrain the discretion of the tribunal. The purpose of the statutory provision is to protect tenants from unreasonable demands. Where, as here, there exists an anticipated schedule of works, the total cost of which is reasonable and there is a possibility of a third party making a contribution to those costs, in assessing the residential service charge payable in advance of those works, the landlord does have to give credit for the anticipated third party payment.

Timothy Clarke of Three Stone appeared for the Second Respondent, Metropolitan Housing Trust.

Timothy Clarke

timclarke@threestone.law