It is common for buildings to be of mixed residential and commercial use and for the different parts to have separate management arrangements. In a recent case involving the reasonableness of service charges, a mixed use building was owned by a property company called Oakfern Properties Ltd., which managed the commercial premises on the ground floor. Above these were 24 flats which had been let to Publicshield Property Management Ltd. (PPM), which in turn leased them to the tenants.
Under the main lease, Oakfern was obliged to keep the building in ‘good and substantial repair’. 90 per cent of its costs of so doing were recoverable from PPM by way of a maintenance charge. Each lessee of a flat paid 1/24th of that cost to PPM by way of the usual service charge arrangement.
One of the tenants decided to challenge the reasonableness of the maintenance charge and did this by directly challenging the service charge levied by the freeholder (Oakfern) on the head-tenant (PPM).
One important matter of principle to be decided was whether PPM could be the ‘tenant of a dwelling’ as required for the protection offered by the Landlord and Tenant Act against excessive service charges to apply.
In the view of the Court, there was no impediment to the tenant’s challenge to the service charge made by Oakfern on PPM, from whom he rented his flat. Furthermore, a commercial head-lessee is able to challenge service charges levied by the freeholder, using the statutory provisions relating to residential tenants, if the leased premises include a separate dwelling or premises intended to be used as a dwelling.
The case raises the prospect that landlords whose buildings include residential premises held by a head-lessee could face challenges to service charges by sub-tenants.