Service Charges: No Double Recovery

April 5th, 2017 by James Goudie KC

In Sheffield City Council v Oliver (2007) EWCA Civ 225 the local authority was unsuccessful in its appeal from an Upper Tribunal (Lands Chamber) decision concerning the funding of major refurbishment works to several blocks of flats of which it is the freeholder.  Most of the flats were let as social housing.  Some, including the respondent’s, were let on long leases. A service charge provision required the respondent to pay a reasonable part of the costs incurred by the local authority in repairing and improving the structure and exterior of her block. The cost of the refurbishment project was more than £11 million.  The local authority had received government funding of almost £3 million from a community energy programme.  However, only part of the estate, which included the block in which the respondent’s flat was situated, fell within the qualifying area. The local authority claimed some £4,400 of community funding for work done specifically to her property. However it decided to recoup the costs of the works from her through the service charge without deducting the sum received in funding.  It considered that the funding should be treated as a contribution to the project as a whole and allocated equally among all long leaseholders, not just among those who were strictly eligible.  The Upper Tribunal held that the service charge provision in the respondent’s lease did not permit that course; that each leaseholder had only to contribute to the cost of works on his own block, not to the estate as a whole, and that the respondent should be credited with the amount of funding attributable to her property. It concluded that the cost of the government-funded work had not been “incurred” by the local authority within the meaning of the lease.  The issue was whether, on a proper construction of the lease, the local authority had to give credit for the third-party funding.

The Court of Appeal agreed that the authority had, on the proper construction of the service charge provision in the long lease, to give credit for the third party funding. The authority had been entitled to recover from leaseholders a contribution towards the cost of carrying out the major repairs to the blocks of flats, but the provisions of the lease had to be interpreted so as to prevent all forms of double recovery. Reasonable parties in the position of the authority and the respondent could not sensibly have intended that result: paragraphs 42, 45/46, 51, 56, per Briggs LJ, paragraph 60 per Lewison LJ, and paragraph 66, per Longmore LJ.

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