Property Service Charges: to dwell or not to dwell?

Posted on January 23, 2018

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Property Service Charges: to dwell or not to dwell?

In this article advocate Chris Brooks reviews the law relating to property service charges; something which will be of interest both to tenants of apartments in the Isle of Man generally but also specifically Manx residents investing into student accommodation schemes in the UK.  In this regard, Chris looks at the recent decision of the (English) Upper Tribunal in JLK Limited v EC Ezekwe & Others [2017] UK UT 277 (LC) which clarifies the level of protection such investors have.

Where a person owns a flat in a block of apartments, it is normal for a service charge to be paid for the expenses of the landlord or management company in running the building as a whole.  This usually covers expenses like the maintenance, repair and cleaning of the structure exterior and internal common parts.  There may additionally be other services such as a concierge or security and some developments might also include leisure facilities paid for through the service charge.  Often, in a new development, the developer may retain control of the management of the building rather than transferring ownership and control to a company run and managed by the owners of the flats (or leaseholders) and this in particular may give rise to problems regarding the amount spent on services or management charges.

The Isle of Man Property Service Charges Act 1989 is based on the UK Landlord & Tenant Act 1985.  Both Acts grant rights to leaseholders to protect them against exorbitant service charges levied by management companies of blocks of apartments.  Essentially, tenants are only liable to pay expenses that form part of the service charge in so far as those expenses are reasonably incurred and, where they are incurred on the provision of services or the carrying out of works need only pay if the services or works are of a reasonable standard.

A tenant may make application to a Tribunal to decide whether expenses are indeed reasonable or whether works or services were of a reasonable standard.  In the UK, this is the first tier Tribunal; in the Isle of Man it is the Rent & Rating Appeal Commissioners.  Whilst such proceedings are ongoing, the landlord or management company cannot forfeit the lease and evict the leaseholder based on non-payment of service charge.

The Acts also impose requirements to consult on works and impose a time bar on claims arising out of works done more than eighteen months before a demand for service charge is served.  A full and comprehensive list of rights is beyond the scope of this article.

The above will be of interest to anyone who has an apartment on the Isle of Man.  However, there is another way in which the Acts may be of interest.  Isle of Man investors may be interested in buying off plan student accommodation in the UK.  There has been a tremendous growth in this sector for a number of reasons.  Such investments are relatively hands off, many developers provide guaranteed rent periods of perhaps three years or more at attractive rates of return.  Purchasing ordinary buy to let investments in the UK is now more expensive owing to the changes in stamp duty legislation which impose an additional levy on anyone buying residential property which is not their main home whereas Purpose Built Student Accommodation attracts no stamp duty.  For the students, despite increasing debt levels, expectations of the standard of accommodation available are higher than they used to be and this kind of accommodation promises clean modern facilities often in a student village setting.

It sounds like a win-win but it is important that service charges are considered.  Following the end of any rental guarantee period, investors would do well to understand how management charges are to be calculated and whether there is any protection if things go wrong.

In JLK Limited v Ezekwe a dispute arose regarding an historic building in Liverpool recently converted into ninety three student pods.  Between 2014 and 2016 it became impossible to use the building because a prohibition order, banning occupation, was served on the building pursuant to section 20 of the Housing Act 2004.  For some reason, the communal boiler in the building had broken down and there was no supply of hot or cold water.  It is not immediately obvious why this was not rectified straightaway!   Unfortunately, the investors/tenants were still charged service charge for the period when the building was not in use.  They sought the protection of the Tribunal.

Could student accommodation like this be regarded as a ‘separate dwelling’?  If not, then the Tribunal would have no jurisdiction.  Answering this question involved an assessment of whether to be a dwelling, a unit had to be occupied as someone’s home; and also whether each unit was separate.

The first tier Tribunal ruled that the units were “separate dwellings”, something required by section 38 of the LTA 1985.   and so it had jurisdiction to determine the amount of service charges payable.  The landlord appealed.

It is important at this stage to explain different styles of student accommodation.  More expensive units are typically self-contained in that they are en-suite and have cooking facilities of their own.  They are essentially studio apartments.  Cheaper units, by contrast, often called ‘Student Pods’, have individual bedrooms around a communal living area and kitchen and they may also share bathroom facilities.

On appeal, the upper Tribunal held firstly that the student pods under discussion were ‘dwellings’ even if the students had homes elsewhere and they were not the main home of the student.  However, they couldn’t be considered as ‘separate dwellings’. This was because of the “right to share a kitchen, lounge, shower and WC with every other tenant on the same floor”.  The distinction between a right to occupy shared living spaces and a right to use them was rejected as immaterial.

Relying on Cole v Harris [1945] 1KB 474 and Baker v Turner [1950] AC401, President Martin Roger QC found that it was the sharing of essential living spaces such as a kitchen that was fatal to the investors.

It follows from this that investors in student pods need to be aware that they have no statutory rights regarding service charges.

In contrast, investors in student studios with no shared living rooms or kitchens do have that protection.  It seems that where students have access to amenity spaces such as cinema rooms or gymnasia that they would not be counted as living rooms, these are not living rooms ie. it would appear to be shared kitchens and lounges that are fatal to the Tribunal having jurisdiction.

Incidentally, were there ever to be any student accommodation schemes on the Isle of Man, the problem would not arise because the Manx Act makes no reference to any requirement that a dwelling should be separate.

So, investors in UK student pods need to beware losing out financially; and law students need to beware all this coming up in an exam question.

Advocate Chris Brooks is able to advise on property service charge disputes.  The advice given in this note is generic and given without liability.  For all real life situations please ensure that appropriate legal advice is obtained.

Contact:  cmb@mplegal.im

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