Court of Appeal Update: Whether a freeholder could charge fees for service of s.166 notice that ground rent is due (Stampfer v Avon Ground Rents Ltd -2022)

In our previous report, the Upper Tribunal considered an appeal as to whether a freeholder was entitled to charge a £30 fee for service of a s.166 notice to leaseholders that ground rent was due.

The Upper Tribunal allowed the appeal, finding that the lease contained no provisions entitling the freeholder to charge the ground rent collection fee. The Court of Appeal has now handed down its judgment, which is set to create an important precedent in the leasehold management sector.

The background

In Stampfer v Avon Ground Rents Ltd [2022], the appellant was the leaseholder of a flat held under a 125-year lease where the respondent was the freeholder of the building. The lease obliged the leaseholder to pay the landlord’s costs for pursuing arrears or service of notices where the tenant was in default of ground rent payments or other lease covenants.

Ground rent for the flat was paid every 6 months. S.166 of the Commonhold and Leasehold Reform Act 2002 requires service of a notice by the freeholder to advise the leaseholder that rent is due. The freeholder in this case charged a fee of £30+vat for service of 2 notices each year, referred to as a ‘ground rent collection fee’.

The leaseholder, together with others in the building, applied to the First-tier Tribunal for determination as to reasonableness and payability of the £30+vat. The FTT found the fee to be reasonable, considering it a sum incurred in the administration of ground rent collection. The freeholder needed to serve the notice in order to collect the ground rents. The leaseholder appealed, and the UT allowed the appeal finding that collection of the ground rent collection fee was not supported by the terms of the lease. The landlord appealed to the Court of Appeal.

The decision

The Court of Appeal dismissed the landlord’s appeal, upholding the decision of the Upper Tribunal.

The Court considered whether the fee was a charge for attending to collection of rents and therefore whether it fell into the lease provisions at para 7-2.3.2.4. The landlord argued that service of a s.166 notice was necessary in order to make payment of the ground rent due, therefore making the s.166 notice an integral part of the process of rent collection.

The UT had decided that rent could not be collected until it was due. The service of the s.166 notice made the rent an actual liability, payable on the date contained in the notice; before service of the notice, rent was only a potential liability. Without service of the s.166 notice, rent did not become due at all.

The service of the s.166 notice was part of the process of making the rent due, but was not part of the rent collection process as it occurred prior to rent becoming due.

Advice and action for landlords

The Court of Appeal’s decision sets an important precedent for landlords and managing agents in the sector.

The Court’s decision is clear, stating that whilst notices served under s.166 of the Commonhold and Leasehold Reform Act 2002 make the rent payable under a lease due, they cannot be classed as part of the rent collection process for the purposes of recovery of costs under the service charge as they occur prior to rent collection.

Landlords should be aware of this decision and ensure that, if necessary, service charge provisions contained in leases expressly allow for the recovery of costs in serving s.166 notices.