In the mix or out of hand? Recent residential service charge lessons

In the mix or out of hand? Recent residential service charge lessons


hands house faces (twitter)Should residential tenants in mixed use premises pay the real cost of insuring the whole of the mixed use block including the normal commercial use of the commercial premises?
In what circumstances should residential tenants contribute to the cost of insuring for property owner’s liability through the service charge where it is placed solely for the benefit of the freeholder and did not provide any cover for the tenants?
Can VAT payable on the salaries of staff employed by managing agents be passed on to residential tenants through the service charge?

These issues were considered by the Upper Tribunal (Lands Chamber) (UT) in two recent cases which we explore in this post.

Liability for insurance premiums between tenants of mixed use buildings

In Sadeh v Mirhan and Azzniv (Charitable Trust) [2015] UKUT 0428 (LC), the dispute centered on the service charge and insurance payable by residential tenants in a mixed use building.

What was the dispute?

The residential tenants argued that the insurance covered risks which were not envisaged by their leases and which could not properly be charged for through the service charge - both in terms of commercial weighting and on property owners’ liability.

Commercial weighting

The residential tenants argued that they should not have any obligation to contribute to the commercial weighting of the premium attributable to the commercial unit on the ground floor (a dry cleaners) whether directly or via the service charge. Instead, their liability should be calculated as if the property was 100% residential.

What did the UT say?
  • The residential tenants could not claim that they were only liable as if the building was 100% residential rather than mixed use i.e. on the basis that it was something that it was not.
  • The UT referred to a leasehold valuation tribunal’s (LVT) decision in Ralph v Peachey (BRI/39/UF/LSC/2009/0018) (although not binding) where the LVT had approved the landlord’s method of calculation where part of the building was

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About the author:

Melissa Moore is a dual qualified in England and Wales and South African lawyer and has 14 years’ experience in property practice in England. She has worked in local government and been a partner at a regional law firm and most recently an associate director at Berwin Leighton Paisner which she joined in 2005. Melissa has wide experience in all areas of property law and specializes in commercial real estate development. She has experience in a number of sectors including hotel, leisure, offices, investment, industrial, motorway service stations and funding. She has worked on large scale strategic developments and government funding initiatives, town centre regeneration schemes and private mixed use developments both for public sector and private developers and investment funds. In 2013 she was ranked by Legal 500 as recommended for local government work.