Service Charges: Appeal to consider service charge payments made under a management order (Chuan-Hui and others v K Group Holdings Inc – 2019)

Updating our previous report on the Upper Tribunal’s decision in this case, the Court of Appeal has now considered the lessees’ appeal.

The background

To recap, in Chuan-Hui and others v K Group Holdings Inc [2019], units in a mixed-use block were held by tripartite leases, the parties to which were the head lessor, a maintenance trustee and the lessees. The block was in a poor state of repair and management and service charges were in dispute for many years.

A manager was appointed to manage the property under a management order which ended in 2013. Lessees continued to not pay service charge, and considerable arrears accrued during the term of the order. When the appointment ended, service charge arrears were assigned by the manager to a maintenance trustee, who was then able to pursue the lessees for payment of arrears. A claim was issued in 2016 for arrears amounting to over £1m.

At the First-tier Tribunal, the Court found that the deed of assignment was valid and the maintenance trustee could pursue lessees for the arrears. The lessees appealed on the grounds that the sums demanded were not service charges as defined in the Landlord and Tenant Act 1985. The UT dismissed the appeal, finding that the maintenance trustee was entitled to pursue lessees for accrued service charge arrears. The lessees appealed further to the Court of Appeal.

The decision

The Court of Appeal dismissed the appeal, upholding the decision of the Upper Tribunal. The sums were considered to be ‘service charges’ within the definition at s.18 of the Landlord and Tenant Act 1985, and they were payable to the maintenance trustee.

Charges were payable by lessees in respect of costs incurred by or on behalf of the landlord; the ‘landlord’ is defined as any person who has the right to enforce payment of service charges. The manager in this case enjoyed the right to enforce payment of the service charge, and the lessees were obliged to pay the sums demanded.

Advice and action

The significant amounts of service charge arrears in question meant that this decision was important for the maintenance trustee.

Reinforcing the UT decision, managing agents in particular will note that, where a management order is in place, service charge arrears accrued under it remain recoverable by a trustee following termination of the order. Further, sums demanded by a manager still retain the characteristics of service charge as per the Landlord and Tenant Act 1985, as the manager enjoys the right to enforce payment.