The Court of Appeal dismissed the appeal and concluded that the Upper Tribunal had been right to hold that the service charge payable by a lessee should not be calculated without reference to the receipt of funds from a commercial third party, where those funds had been specifically intended to meet the cost of part of the works.
Relevant facts
Ms Oliver was the leaseholder of a flat (‘the Property’) where Sheffield City Council (‘the Council’) was her landlord. The Property was one of a small number of flats held by leaseholders on the Landsdowne and Hanover estate (‘the Estate’), the remaining residential units were occupied by social housing tenants. Under the terms of her lease, she was required to pay a service charge consisting of a “fair proportion… [as]… determined by the City Treasurer….” in respect of the costs which were “incurred” by the Council in respect of, inter alia, repairs and improvements to the building containing her flat.
In 2011, the Council embarked on a large-scale refurbishment; the proposed work included, inter alia, re-cladding, a new central heating system, new boilers and the provision of thermostatically controlled radiator valves; the works were completed in 2013, costing £11,438,801.80. The Council sought to recover £615,323.64 through the service charge provisions and £9,378.72 from Ms Oliver specifically. As part of the refurbishment scheme, the Council had been provided with financial assistance via the Community Energy Savings Programme which required commercial gas and electricity suppliers to fund energy saving measures for low income consumers. It enabled gas and electricity suppliers to meet carbon emissions targets either by making arrangements with individual home owners or with social housing providers.
The Council claimed and received £2,210.41 for work done specifically to Ms Oliver’s flat together with a ‘whole house bonus’ being an uplift worth 100%. The Council decided not to deduct the amounts received from the service charges levied against leaseholders (including Ms Oliver) on the basis that some blocks had not qualified for funding; as such, it was considered unfair to allow some leaseholders an allowance against their contribution but not others.
Appeal to the Upper Tribunal
In proceedings before the First-tier Tribunal, the Council had succeeded in establishing that the service charges to be incurred in respect of the proposed refurbishment scheme were reasonable. Ms Oliver appealed, and lost again on the reasonableness point but succeeded on the question as to whether the Council should have deducted the CESP receipts. Martin Roger QC determined, inter alia, that the relevant costs had not been ‘incurred’ by the Council within the meaning of the Lease and, as a consequence, the retention of the funding whilst recovering the leaseholders’ contributions towards the cost of the work in full amounted to double recovery.
Court of Appeal
The Council appealed to the Court of Appeal arguing that it was not a permissible construction of the relevant provisions in the Lease to conclude that the Council had not “incurred” costs in relation to items of refurbishment. Rather, it was contended that the manner in which the Council recouped the expenditure, whether from CESP funding or from service charge contributions levied against long leaseholders, was irrelevant. In addition, there was nothing unfair about the apportionment adopted by the Council.
The Court of Appeal rejected this argument; allowing a double recovery ‘would produce a result which reasonable parties in the position of the Council and Ms Oliver could not sensibly have intended.’ To that end, the requirement that a leaseholder a pay “fair proportion” of the costs incurred by the Council should be read to include any credit given for CESP monies.
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