Section 19(2), Landlord and Tenant Act 1985 provides that, where a landlord under a long residential lease is entitled to demand service charges in advance of the actual costs being incurred, then the amount that is capable of being demanded is capped at a “reasonable” amount, with any necessary adjustment taking place once the final costs are know.
In this case, the landlord needed to replace a defective membrane which was allowing water penetration into the building. The lease entitled it to demand the anticipated costs in advance, which it duly did. The First Tier Tribunal (Property Chamber) determined that the works were necesary, an appropriate procurement process had taken place and that the anticipated costs were themselves reasonable. It nonethless reduced the amount which could be demanded from the leaseholders. It’s reasoning was that there was a very high likelihood of an insurance policy paying for some (or all) of the works and it required the landlord to give credit for those likely receipts when deciding what could be demanded from the leaseholders.
The landlord argued that the correct approach was to allow it to demand the full amount from the leaseholders and then to give credit for any sums provided by the insurance company once those monies were actually received. The Court of Appeal rejected that contention, holding that it would be wrong to introduce such a structured approach to s.19(2). What was a “reasonable” amount to demand in advance was something best left to the experience and judgement of the FTT.