Churchill Retirement Living Limited v Hampton Lodge RTM Company Limited

This is an appeal from a decision of the First-tier Tribunal about the amount of “uncommitted service charges” to be paid by a landlord to a right to manage company once the right to manage has been acquired pursuant to the Commonhold and Leasehold Reform Act 2002. The appeal is against just one aspect of the FTT’s decision, and has been decided under the Tribunal’s written representations procedure. The appellant landlord, Churchill Retirement Living Limited, has been represented by Mr David Peachey and the respondent, Hampton Lodge RTM Company Limited, by Mr Winston Jacob.

Hampton Lodge is a block of 39 flats of which the appellant is the freeholder. They are retirement flats; leaseholders must be aged 55 or over. As is often the case in such communities, the landlord provides a guest room, and leaseholders can pay for their visitors to stay there; in the sample lease provided, paragraph 3 of Schedule 2, Part I gives the leaseholder the following rights:

The present appeal is about the charges imposed by the landlord when residents book the guest room. It is referred to in the lease as a guest room, and by the FTT and the parties as a “guest suite”.

The Commonhold and Leasehold Reform Act 2002 makes provision for the leaseholders of flats to create a nominee company (an “RTM company”) and acquire the right to manage their block. There is no need for the landlord to have been at fault; all the RTM company has to do is to follow the statutory procedure in order to acquire the right to manage. There is of course provision for the landlord to challenge the acquisition on the basis that the correct procedure has been followed.

The respondent RTM company was formed in October 2023. The process of acquisition was fraught with dispute, but on 1 April 2025 the respondent acquired the right to manage Hampton Lodge, and it has been managing it through agents ever since.

Section 94 of the 2002 Act says this:

The rationale for that provision is obvious; if at the date the RTM company takes over the landlord is holding service charges paid by the leaseholders which it has not yet spent in providing services for them, it has to pass those funds over to the RTM company for it to provide those services instead. Disputes can arise about this, as they did in this case, and on 8 November 2024 the respondent applied to the FTT for a determination under section 94(3).

That application was premature as the right to manage had not yet been acquired but, as mentioned, the right was acquired on 1 April 2025 and nothing turns on the date of the application. By the time the FTT heard it, on 30 June 2025, over £50,000 had been paid by the appellant to the respondent but over £12,000 remained in dispute, made up of seven different sums of money. In its decision of 23 July 2025 the FTT determined seven issues; its decision on just one of them is now appealed, namely the dispute about £1,050 income from the guest room, held by the landlord and which it said was not an uncommitted service charge.

The FTT set out paragraph 3 of Schedule 2, Part I (above, paragraph 2). IT noted that it is part of the “common parts” of the property, defined in the lease as follows:

The FTT also noted that the leaseholders pay through the service charge for the repair, maintenance and management of the guest room, and that in the past any income from the guest room had been credited to the service charge account.

The RTM company referred to the Tribunal’s decisions in Cadogan v 27 and 29 Sloane Gardens Limited [[2006] EWLands LRA_9_2005 and Warwckshire Hamlets Ltd v Gedden [2010] UKUT 75 (LC).

The FTT did not say anything about those cases, either in terms of their facts or of the argument made about them. To summarise for present purposes: in Cadogan v 27/29 Sloane Gardens the issue was whether the lease entitled the landlord to include in the service charge a notional rent for the caretaker’s flat. The Tribunal (HHJ Rich QC) concluded that it did, since the lease provided that the services for which the tenants were to pay, through the service charge, included the provision of rent-free accommodation for a caretaker and:

In view of that express wording it might be thought surprising that there was any issue, but argument focused on whether a notional rent was actually a cost to the landlord. In Warwickshire Hamlets the lease specifically provided that payments made by the residents to the landlord for the use of the guest room “shall be credited against the Maintenance Expenses before the Lessee’s Proportion is calculated”. The actual dispute before the Tribunal was not about those payments, but was about whether rent payable by the management company for the common parts (rather an unusual arrangement) could be recovered by it through the service charge.

Be that as it may, in the present case before the FTT the RTM company argued that the landlord was not entitled to retain the income from the guest room, because the lease should be interpreted to mean that the charge for its use was to compensate leaseholders for their payments for its upkeep through the service charge. The FTT agreed. It said:

From that decision the landlord appeals, with permission from this Tribunal; the respondent did not oppose the grant of permission because this is an important issue to both parties, going beyond the actual sum in dispute.

The appellant argues that nothing in the lease requires it to credit the guest room income to the service charge account, and that the FTT was wrong to imply a term to that effect. The FTT was led astray by the Warwickshire Hamlets decision, where the lease specifically provided for guest room income to be credited to the service charge account, and took into account the irrelevant consideration that the landlord had previously credited the income to the service charge. The FTT also ignored the fact that payments for the guest room were a licence fee, which in itself (according to the appellant) means that the appellant was entitled to keep them for its own use.

Furthermore, the appellant argues, even if the guest suite income was a service charge, the Tribunal failed to apply section 96(6) of the Commonhold and Leasehold Reform Act 2002 which provides that the “management functions” which the RTM company has acquired the right to exercise do not include:

The grounds of appeal do not expand on that point, but it is picked up in the respondent’s statement of case.

The respondent in its statement of case argues as follows. First, the FTT was not misled by the Warwickshire Hamlets case; in refusing permission to appeal it confirmed that it did not base its decision upon that case. Second, the FTT was right to construe the lease as it did, in the context of the acquisition of the right to manage. The lease must be construed as a whole (Arnold v Britton [2015] UKSC 36). Paragraph 3 of Schedule 2, Part I, can be read to mean either that the landlord can retain the fee for the guest room, or that the landlord is to credit the fee to the service charge account, and the FTT was right to adopt the latter construction.

The respondent relies upon the Cadogan v 27/29 Sloane Gardens decision as authority for the approach the Tribunal should take to construing the lease. The Tribunal indicated there that it is for a landlord to show that a reasonable tenant would understand the lease to require him to make the payments sought.; that conclusion must emerge plainly from the words used; the landlord will fail if the words used could reasonably be read as providing for some other meaning. Moreover the lease is to be construed contra proferentem if its words are ambiguous; contra proferentem means “against the person who produced it”, and the idea is that since the landlord must have drafted the lease any ambiguity must be resolved against the landlord.

The respondent argues that the FTT was right to construe paragraph 3 as it did, because of the leaseholders’ obligation to pay for the upkeep of the guest room. Furthermore, if the landlord was not supposed to set the guest room income against the service charge it would have an incentive to charge a fee in excessive of the notional market value for visitors’ use, which would reduce its value to the leaseholders, whereas all the leaseholders benefit if the income is credited to the service charge. The landlord’s previous practice of doing so reflected the correct interpretation of the lease, although that was not a reason for the FTT’s decision.

As to the argument that the nature of the payments, being a licence fee, in itself entitled the landlord to keep them, the respondent points to Warwickshire Hamlets to show that there is nothing conceptually inappropriate in a licence fee being credited to the service charge.

In addition, the respondent argues that the right to demand payment for the guest room is a management function and passed to it along with the right to manage. It says that the appellant’s argument from section 96 is a new point which it should not be allowed to raise on appeal.

To deal with that latter point first: the application to the FTT was made under section 94 and was for a determination about the amount of uncommitted service charges to be paid by the landlord to the RTM company. The FTT was not asked to decide, and had no jurisdiction within the context of that application to decide, which of the parties will be entitled to receive the licence fee for the guest room in the future. The impact of section 96 was not an issue before the FTT and it is not an issue in the appeal. I have therefore not set out the respondent’s extensive argument about it.

The issue in the appeal is whether the landlord is required by the lease to credit the licence fee income from the guest room against the service charge. The FTT said it was. It is not clear whether it found that the lease said so expressly, as a matter of construction, or was implying a term.

The only clause the FTT can have been construing is paragraph 3 of Schedule 2, Part 1. I repeat the text of the paragraph:

That paragraph contains no obligation on the part of the landlord to credit the charge for use of the guest room to the service charge. There is no ambiguity whatsoever. Not by any stretch of the imagination could that paragraph be said to include a provision to that effect. None of the arguments raised by the respondent are the slightest bit relevant to the construction of this clause, whose meaning is perfectly clear.

The respondent’s argument that Cadogan v 27/29 Sloane Gardens is authority for special rules of construction in relation to obligations to make a payment to a landlord seems to miss the point that the FTT was deciding whether the landlord is required to make a payment for the benefit of the lessees. In any event it is misconceived. Further development of the rules of construction post Arnold v Britton would be superfluous; it is clear that service charges are not a special case and there is no contra proferentem rule applicable to service charges. Moreover any argument about construction is irrelevant; there is simply no ambiguous wording to be construed.

As to the implication of a term, it is well-established that a term can only be implied in a contract if it is necessary to give it business efficacy, or is something so obvious that it goes without saying. There is no such basis for the implication of the term for which the RTM company argues. The lease functions perfectly well without it. The charge for the guest room is consideration for the use of the landlord’s property. Certainly it would benefit the tenants if it were credited to the service charge. Certainly it might seem unfair for the leaseholders to have to pay for the upkeep of the guest accommodation, but the courts have consistently rejected the idea that a term can be implied because it is fair. In any case, what is fair here is ambivalent; it could be said that the landlord is refraining from granting a lease of the guest room, at a premium or for a rent, in order to keep it free for the leaseholders’ use, and in return the leaseholders pay for the maintenance of the accommodation and pay a charge for using it.

I agree that there is nothing to prevent the landlord charging more than the market rent for the use of the accommodation; but that is irrelevant. The parties to the lease have chosen not to restrict what the landlord can charge, and indeed to give it an express discretion as to what to charge.

As the appellant points out, there is an express obligation on the landlord to credit insurance moneys received against the service charge where relevant (Schedule 4 paragraph 1.1); where the parties to the lease intended to provide for something belonging to the landlord to be paid for the benefit of the tenants they made express provision to that effect. No such provision can be implied in the case of the charge for use of the guest room.

The appeal succeeds. The £1,050 held by the landlord is not an uncommitted service charge and is not payable to the respondent. The FTT’s decision is set aside to on this issue only, and the Tribunal’s judgment substituted.