Service Charge recovery: an unusual but salutary lesson

In the case of Sheffield City Council v Oliver the Court of Appeal looked at the impact of third party contributions – in this instance Government funding – on service charge recovery. Both landlords and tenants should take note, as the principles go beyond the specific facts of the case.

Most of the flats within the estate in question, which was owned by Sheffield City Council, were social housing, whilst some (including Ms Oliver’s) were let on long leases. There was the usual provision in Ms Oliver’s lease requiring her to pay, as part of her service charge contribution, a reasonable proportion of the costs incurred by the Council in carrying out repairs and improvement works to her building.

Sheffield City Council embarked on a wide scale refurbishment project which cost more than £11 million, with funding received under a government scheme of £2.913 million. However this funding contribution was not taken into account when calculating the proportion of the service charge owed by Miss Oliver.

Perhaps unsurprisingly, the Court of Appeal concluded that credit should be given to third party contributions when calculating the service charge due. In this particular case that meant the Government funding, but it went beyond that. Third party contributions, the Court said, could include monies from insurance claims, building guarantees, or damages.

They held that the avoidance of double recovery was part of a common sense understanding between the two parties to the lease, reflected in the lease provisions.

In short, Landlords must give credit for any third party contributions when calculating service charges. Common sense, perhaps. But now with firm judicial authority.

This article was written by Sarah Reynolds, Senior Solicitor, Real Estate, with assistance from Georgina McDonald, Paralegal, Real Estate.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.