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The Importance of Careful Lease Drafting for Supporting Living Schemes

(1) Retirement Lease Housing Association Limited (2) Fountain Retirement Housing Association Limited v (1) Pauline Schellerup & Phylis Woodford (2) C Martin [2020] UKUT 232 (LC)

The above case was a conjoined appeal to the Upper Tribunal by the landlords of separate supported housing developments.

The First Tier Tribunal had held that the landlords could not recover service charge contributions from the leaseholders towards the notional cost of providing accommodation for a resident manager/warden.

In the first appeal, the resident manager of the supported scheme had been provided with a flat, rent free. The lease provided that "The expenditure to be included in the Service Provision shall comprise of all expenditure of [the landlord] ... and shall include (without prejudice to the generality of the foregoing): 3.1 The cost of the salary of the resident manager and deputy resident manager (if any) and the provision of accommodation for them at the Property and all other direct costs in connection with the provision of the resident manager's service ... ". The Tribunal held that no contribution towards a notional rent for the resident manager's flat was payable by the leaseholders.

On appeal, the Upper Tribunal agreed that the notional cost of providing accommodation to the manager was not recoverable. The lease was clear that leaseholders were to contribute towards "expenditure". Had the intention been for the notional accommodation cost to be recoverable, more specific wording would have been required. The lease specified that the manager's salary was recoverable, along with any "direct" costs, which imposed a limitation on the recovery of the cost of provision of accommodation. In addition, the lease went on to require the landlord to certify the amount by which the estimated Service Provision had exceeded or fallen short of "the actual expenditure". The language in the lease did not suggest any intention that notional expenditure or income foregone was to be recoverable as service charge.

As to the second appeal, the resident warden had been provided with free accommodation. The service charge was stated in the lease to be 5% of "the aggregate of the Landlords' expenses and outgoings ... incurred" in that year. The service charge made provision for "The cost of the warden's salary and the cost of the accommodation for the warden at the Property and all other costs in connection with the provision of the warden's service". Again, the First Tier Tribunal held that the notional cost of providing accommodation for the warden was not recoverable as part of the service charge.

On appeal, the Upper Tribunal agreed. The language used in the lease suggested more of money laid out being recoverable, rather than advantages foregone. Although reference to "cost" could include advantages foregone, the Tribunal considered it wasn't an obvious word to use if wanting to include both monetary expenditure and non-monetary imposition. In addition, the wording of the lease was specific so the Tribunal considered that if the parties had intended to recover the annual rental value of the warden's accommodation, this would have been made clear.

In both appeals, the Upper Tribunal also noted that the leases didn't express how to calculate the cost of the manager's/warden's accommodation. Additionally, the presence of a warden or on site manager was an integral characteristic of retirement housing so it was unconscionable to suggest the accommodation would be used for another purpose from which the landlord would benefit.

These cases serve as a reminder to social landlords of the importance of careful lease drafting when setting up supported living or "extra care" schemes, and thinking ahead to how that will correlate to the actual provision of services. If the intention is for costs to be rechargeable through service charge, it is imperative to make that clear in the wording of the lease, rather than leaving it open to interpretation of the courts and tribunals.

For more information contact Emily Jordan in our Housing & Regeneration department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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