Gateway (Leeds) Management Ltd v Naghash  UKUT 333 (LC) Service Charge Recovery
Summary: (1) The cost of renting a gym and concierge office was sufficiently connected to the provision of services to be recoverable as a service charge under s.18 of the 1985 Act. (2) The absence of comparative evidence of the reasonable cost of providing a comparable CCTV service did not preclude the tribunal from making a reduction or from applying a robust, common sense approach in circumstances where the managing agent had given evidence that the costs were structured to recoup the developer’s costs.
Facts: The tenants had leases of flats in a mixed use development. In return for payment of a service charge, the management company was obligated under the leases to provide services including a gym, a concierge facility and a CCTV system. The landlord had leased two units in the development to the management company for use as a gym and a concierge office for fixed terms with annual rent reviews. The CCTV system was provided under agreements originally entered into by the developer and the management company took over the system and payment liabilities for a fixed term.
The management company commenced claims in the county court against the tenants to recover service charge arrears and costs, and both sets of proceedings were transferred to the FTT. The service charges in question included the costs of providing the gym, concierge office and CCTV system.
The majority of the cost of the gym was the rent payable under the lease of the relevant part of the building. No copy of the lease had been provided, and the managing agent was unable to confirm the identities of the parties to the lease or whether it contained a break clause. The managing agent had conceded that “superficially” the rent under that lease seemed expensive, and the FTT rejected the argument that it could not go behind a binding commercial agreement. The FTT held that the overall amount being charged to the service charge account for the gym was unreasonably high for what was being obtained, and reduced it by 50 per cent.
The management company’s managing agent informed the tribunal that the tenants had been paying more for the CCTV system than they should have in order for the developer to defray its construction costs. The FTT held that the cost of the CCTV was 20 per cent higher than reasonable.
The rent for the concierge office was paid under an agreement similar to that in respect of the gym, but again no copy of the agreement or detail as to its terms or parties was provided. The FTT held that the concierge office rent was unreasonably high and should be reduced by 50 per cent. The management company appealed.
Issues: The management company argued that: (1) the tribunal had no jurisdiction to consider the tenants’ challenges to the charges for the gym, the concierge office and the CCTV equipment because they were not variable service charges within the meaning of s.18 of the 1985 Act; and (2) the tribunal had not considered whether the costs had been reasonably incurred within the meaning of s.19 of the 1985 Act.