Whether a freeholder could charge fees for service of s.166 notice that rent is due (Stampfer v Avon Ground Rents Ltd – 2022)

The background

In Stampfer v Avon Ground Rents Ltd [2022], the appellant was the leaseholder of a flat held under a 125-year lease where the respondent was the freeholder of the building. The lease obliged the leaseholder to pay the landlord’s costs for pursuing arrears or service of notices where the tenant was in default of ground rent payments or other lease covenants.

Ground rent for the flat was paid every 6 months. S.166 of the Commonhold and Leasehold Reform Act 2002 requires service of a notice by the freeholder to advise the leaseholder that rent is due. The freeholder in this case charged a fee of £30+vat for service of 2 notices each year, referred to as a ‘ground rent collection fee’. The leaseholder, together with others in the building, applied to the First-tier Tribunal for determination as to reasonableness and payability of the £30+vat. The FTT found the fee to be reasonable, considering it a sum incurred in the administration of ground rent collection. The freeholder needed to serve the notice in order to collect the ground rents. The leaseholder appealed.

The decision

The Upper Tribunal allowed the leaseholder’s appeal, finding that the lease contained no provisions entitling the freeholder to charge the ground rent collection fee.

The UT considered whether the lease contained any provision to support collection of the fee and whether ‘collection of ground rents’ included service of s.166 notices, concluding that the FTT had misinterpreted the lease and the relevant provisions of s.166. No such wording was contained in the lease. Moreover, s.166 was intended to protect tenants from forfeiture where trivial sums of rents or fees were at issue.

Parties are entitled to incorporate terms into their leases which permit the recovery of fees such as the ground rent collection fee in this case, but such terms must be express or refer to costs which are ancillary to, or incidental to, the collection of rents. Here, the s.166 notice made the rent due but this did not equate to collection of rent.

Advice and action for landlords

This decision finds that service of a s.166 notice did not constitute collection of rent, and therefore fees incurred in its preparation could only be recovered where expressly provided for in the lease. Landlords and freeholders are advised to ensure that, where required, leases are drafted to allow for the express recovery of administrative or ancillary fees.