The Court of Appeal has overturned the Upper Tribunal’s decision in Bradley & Another v Abacus Land 4 Ltd [2025] EWCA Civ 1308, showing that freeholders may have a broad degree of discretion when establishing service charge apportionments, provided their decision falls within the range of what a reasonable freeholder could have decided.
A quick recap
Readers may recall our previous blog on this case, where the Upper Tribunal found that the landlord’s decision to charge residential leaseholders 100% of the costs of a gym was objectively unreasonable.
The background was that, in 2013, the freeholder granted a 999-year lease of the on-site gym to a third party, while the flat leaseholders retained rights to use the facility. Despite that change, the freeholder continued to recover all the gym costs, including a substantial refurbishment bill of over £218,000 from the residential leaseholders.
The flat leases required the freeholder to act “reasonably” when deciding which costs to include within the service charge, and the leaseholders argued that it was unfair for them to bear all the costs given that their access had been reduced, particularly after the 2020 lockdowns.
While the First-tier Tribunal (FTT) had sided with the freeholder, the Upper Tribunal (UT) took a stricter view, concluding that the freeholder’s decision was no longer reasonable and that the costs should not be fully recoverable from the residential leaseholders.
The Court of Appeal’s decision
The freeholder appealed, and the Court of Appeal has now reinstated the FTT’s original decision.
The key issue was how “reasonableness” should be interpreted when a lease gives the freeholder a discretion, for example, to decide how costs are designated or apportioned.
The Court of Appeal held that the correct test is whether the freeholder’s decision was one that no reasonable freeholder could have reached, not whether it was the best or fairest decision available. In other words, the Tribunal’s role is not to substitute its own judgment but to decide whether the freeholder’s decision fell outside the range of reasonable outcomes.
Whilst the ‘range of reasonable decisions’ test was used to ascertain the verdict for this case, it is important to note that the tribunal does not always apply the same test, as the test used is dependent upon the wording of the lease. Additionally, this case is not a blanket rule that all cost allocations are discretionary, as again it depends upon the wording of the lease.
On the facts, the Court found that:
- The leaseholders still retained rights to use the gym;
- The commercial tenant did not have exclusive use; and
- The freeholder remained contractually obliged to maintain the facility as part of the common parts.
As such, the decision to include the gym costs within the residential service charge was one that a reasonable freeholder could reach, even if other options might also have been reasonable.
Why this matters for managing agents and freeholders
This decision will be welcomed by freeholders and managing agents, as it provides clarity and reassurance when exercising discretion under lease terms.
It confirms that if a freeholder takes a rational, documented approach when deciding how to allocate or recover costs, and remains within the wording and spirit of the lease, the FTT or UT will not intervene simply because an alternative approach might have seemed fairer.
However, the case also serves as a timely reminder that communication and transparency are key. When making service charge decisions that could be open to interpretation, freeholders and managing agents should:
- Keep clear records of the reasoning behind any discretionary decision;
- Ensure the decision aligns with the lease wording and established practice;
- Communicate the rationale to leaseholders early, especially where changes affect cost sharing or amenity access; and
Take legal advice where the lease wording around “acting reasonably” may be ambiguous.
For leaseholders
The judgment highlights that where a freeholder has contractual discretion, the bar to challenge that decision is high.
A Tribunal will only intervene if the decision is beyond the bounds of what any reasonable freeholder could decide, not simply because it appears harsh or could have been handled differently.
Brady Solicitors’ view
This decision brings welcome certainty for managing agents and freeholders who often must make pragmatic decisions on service charge apportionments and cost recovery.
It reinforces the importance of following a clear, reasoned process, and offers comfort that, provided such a process is followed, a freeholder’s discretion will be upheld.
For leaseholders, it is a reminder to consider carefully whether a challenge under section 27A of the Landlord and Tenant Act 1985 is likely to succeed where the freeholder’s decision is one that could reasonably be justified.
