Service charge disputes frequently come before the First-tier Tribunal (FTT) and continue to raise important questions for managing agents, freeholders and leaseholders alike. A recent decision of the Upper Tribunal in Birch v Meredith provides helpful clarification on how tribunals should approach section 20C costs orders, particularly where procedural defects in service charge demands are alleged.
The case offers valuable guidance for anyone involved in leasehold property management, especially where disputes involve technical compliance issues and the recoverability of legal costs.
Background to the Dispute
The dispute concerned service charge demands totalling just under £47,000 for the 2023–2024 year in relation to a mixed-use property in West Sussex. The leaseholder applied to the First-tier Tribunal challenging the demands on two principal grounds. First, that the demands failed to comply with section 47 of the Landlord and Tenant Act 1987 by not including the landlord’s address, and second, that the service charges were unreasonable.
The FTT accepted that the demands did not comply with section 47 and were therefore not payable as demanded. However, the tribunal went on to assess the reasonableness of the charges and concluded that the vast majority were reasonable, making only a modest reduction of around £400.
Despite this limited adjustment, the FTT considered that the leaseholder had achieved “complete success” and made orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002. These orders prevented the freeholder from recovering legal costs through the service charge and required reimbursement of the leaseholder’s tribunal fee. The freeholder appealed to the Upper Tribunal.
The Upper Tribunal’s Decision
Section 47 Non-Compliance Does Not Invalidate a Demand
The Upper Tribunal, reaffirmed an important and well-established principle: failure to comply with section 47 does not invalidate a service charge demand or extinguish the tenant’s liability. Instead, non-compliance has a suspensory effect, meaning that the sums are not payable until the required information is provided.
This distinction was central to the appeal. A technical omission, such as the absence of a landlord’s address, does not automatically render a service charge demand void. When assessing success in proceedings before the FTT, it is therefore necessary to look beyond procedural defects and consider whether the tenant has genuinely succeeded on the substantive issues in dispute.
Section 20C Costs Orders Are Discretionary
The Upper Tribunal was critical of the FTT’s approach to costs. It emphasised that section 20C orders are discretionary and exceptional, as they interfere with a freeholder’s contractual right to recover legal costs through the service charge.
In this case, the Upper Tribunal found that the freeholder had been overwhelmingly successful on the key substantive issue: the reasonableness of the service charges. The limited reduction made by the FTT did not justify treating the leaseholder as having achieved complete success, nor did it warrant depriving the freeholder of the ability to recover costs. The Upper Tribunal therefore allowed the appeal and set aside the section 20C order.
This aspect of the decision reinforces that tribunals must take a balanced and proportionate approach, considering the overall outcome of the proceedings rather than focusing narrowly on isolated procedural points.
Comments Outside Jurisdiction Should Not Influence Costs
The Upper Tribunal also addressed the FTT’s qualitative comments, including remarks suggesting that the freeholder had “just about scraped through” on reasonableness. It made clear that such observations were not legally relevant to the exercise of discretion under section 20C.
More broadly, the decision serves as a reminder that matters falling outside the tribunal’s jurisdiction, including commentary on future works or speculative issues, should not influence decisions on costs. Costs determinations must be grounded in the tribunal’s findings on the issues it is properly required to decide.
What this Means in Practice
For those regularly involved in proceedings involving the FTT, this case provides helpful reassurance that minor procedural defects will not automatically determine the outcome of costs applications. While compliance with statutory requirements such as section 47 remains important, tribunals are required to look at the substance of the dispute when deciding whether a section 20C order is appropriate.
The decision also underlines the importance of proportionality in costs decisions and confirms that success before the FTT should be assessed realistically, taking into account the overall result rather than technical victories alone.
Conclusion
The Upper Tribunal’s decision in Birch v Meredith offers clarification on how costs should be approached in service charge disputes heard by the FTT. It confirms that section 47 non-compliance suspends, rather than invalidates, service charge demands, and that section 20C costs orders should only be made where justified by the substance and outcome of the dispute as a whole. Overall, the decision promotes a balanced and principled approach to costs in leasehold disputes, consistent with the Upper Tribunal’s supervisory role over FTT decision-making.
