In the case of First Property Services Ltd v Ahmet we note the long-term, and expensive, implications of a poorly drafted lease.
Background: the Faulkner Estate is a late 1990’s development comprising 231 leasehold properties, with two different freeholder developers. Laing Homes held the freehold interest in 218 properties, whilst the Faulkner’s retained the freehold of the remaining 13. Prior to the development commencing the two freeholders agreed to establish a management company to take care of all communal areas, with each property contributing 1/231 of the costs.
However, this intention was never included within the leases which effectively left the 13 Faulkner properties with no legal requirement to contribute. With no basis upon which to charge the 13 Faulkner properties the management company decided to make up the inevitable shortfall in funds by increasing the service charges to the 218 Laing Homes lessees. Predictably this caused some angst amongst those lessees, one of which, Mrs Ahmet, applied to the First Tier Tribunal for a determination as to the reasonableness of her service charges for the period 2009 – 2014.
Having found in favour of Mrs Ahmet at the FTT, the respondents successfully argued upon appeal to the Upper Tribunal that the actual lease definition was crucial.
The Upper Tribunal confirmed Mrs Ahmet’s service charge as a 1/218 contribution, whilst confirming that the Faulkner estate lessees were under no legal obligation to contribute to any estate costs. In arriving at their decision the Upper Tribunal referred to the 2015 landmark ruling in Arnold v Britton during which Lord Neuberger laid out seven principles to consider when interpreting a lease and stated “the purpose of interpretation is to identify what the parties have agreed, not what the courts think they should have agreed”.
A timely reminder to lessees, their managing agents and developers to seek independent legal advice on all matters relating to service charge obligations prior to commitment.