Service Charge: First-tier Tribunal refuses application by ultimate freeholder for amendment to service charge apportionment (HVM (Crystal House) Ltd v RMB 102 Ltd – 2021)

JB Leitch successfully defended an application made by the freeholder of a mixed-use block for amendment to the service charge proportions specified within the residential head lease at the property in order that residential leaseholders became liable for 100% of the costs of fire safety works to be undertaken.

The background

HVM (Crystal House) Ltd v RMB 102 Ltd [2021] concerns a 10-storey mixed-use building in Preston, containing 3 floors of commercial units above which are 7 storeys of 48 residential flats. Fire safety concerns at the property resulted in the implementation of a ‘waking watch’ scheme to protect residential occupiers.

The applicant freeholder instructed local building surveyors to establish a remedial works programme to the exterior wall system. An application for determination as to reasonableness and payability of service charge was made in respect of the costs of the surveyors’ report, it being argued that long residential leaseholders at the property should be responsible for 100% of the costs of the report, which would undoubtedly result in the subsequent costs of the implementation of fire safety remedial works being 100% attributable to the residential elements of the property. Our landlord client who owned the head lease to the residential parts of the property, opposed the application.

The decision

The First-tier Tribunal found in favour of our landlord client, refusing the application to vary service charge proportions.

The FTT referenced paragraph 2.3 of Schedule 7 to the leases, which stated:

“If at any time during the term the property…is increased or decreased on a permanent basis or the benefit of any of the services is extended on a like basis to any adjoining or neighbouring property or if some other event occurs a result of which is that the Service Charge is no longer appropriate to the Premises the Service Charge will be varied with effect from the beginning of the Service Year following such event in such a manner as may be deemed to be fair and reasonable in the light of the event in question by the Landlord’s surveyor whose decision will be final.”

The Tribunal considered whether ‘some other event’ had occurred. The applicant argued that the ‘event’ was the redefining of the fire safety landscape post-Grenfell Tower, and the responsibilities on parties obliged to address fire safety issues. The Tribunal considered that for there to be an ‘event’, there must be:

1. An occurrence that has an effect on a single occasion which is sufficient to have a considerable and significant influence on the service charges demanded. This may be an increase or decrease in the size of the building;
2. Something which has effected a change to the building. In the present case’s circumstances, there had been no such change, the FTT finding that the circumstances existing prior to Grenfell still existed and only the perception of danger had changed; and
3. No artificial construction such that an event occurs when a state of affairs is discovered (such as the change in the perception of danger or that considerable expenditure should be incurred on building remedial works).

The FTT concluded that no such ‘event’ had occurred and, as a result of this decision, did not need to then determine the proportion of fire safety works costs attributable to the residential leaseholders. The application failed.

Advice and action for landlords

JB Leitch is pleased to have delivered a successful outcome for our respondent landlord client in this application, which was defended on principle.

The Tribunal’s comments in its decision regarding the construction of ‘some other event’ in the lease wording will be noted by landlords and managing agents, finding that a change in a state of affairs or perception of danger, particularly with reference to fire safety issues post-Grenfell, are not sufficient to constitute an ‘event’ leading to a change in the apportionment of service charges.