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Property Investors Forced to Pay Service Charge on Condemned Student Accommodation Units

Executive Summary: The Upper Tribunal [1] recently found that student accommodation units were not separate dwellings for the purposes of the Landlord and Tenant Act 1985 (LTA), meaning that investors who held long leases on units in a condemned student accommodation block could not dispute a service charge under this Act. This case will interest investors in student housing, who may be forced to pay service charges on buildings that are no longer in use.

Facts: The case concerned a large building that was demised into 93 units of student accommodation. Each unit comprised a room, along with the right to use communal facilities including kitchens and showers. The units were let for a period of 250 years to a number of investors, who were required to pay a service charge. While the units were initially occupied by students, the boiler had failed and a prohibition order had been placed on the building by the local Council. The units were therefore vacant at the time of the case.

A number of the investors then challenged their liability to pay the service charge under the LTA. The LTA gives the tenant of a property that is ‘occupied or intended to be occupied as a separate dwelling’ the ability to appeal an unreasonable service charge. The defendants (the freeholder) argued that the claimants were not tenants of separate dwellings.

Decision: The Court found that the investors were not able to challenge the service charge. It was held that the units were dwellings under the scope of the act, being ‘the place where one lives and makes one’s home’ and also that the lack of separate cooking facilities did not prevent them from being considered dwellings. However, the court found that the dwellings were not separate because of the shared portion of the accommodation.

Comment From Louisa Swanton, Partner: Investors in student accommodation can no longer assume that they will have the benefit of the service charge statutory protections laid down in the LTA. To limit their exposure to service charge liability in the future, investors may wish to consider at the negotiating stage:

  • Pursuing a freehold interest, so repair and management liabilities can be divested under a lease;

  • Where a leasehold interest must be acquired, a FRI lease could be considered - by assuming liability for repair, the investor retains control and could then divest such repair liability by sublease, or sub-contract the implementation to a management company;

  • Where an investor cannot avoid liability for payment of a service charge, contractual safeguards should be built into the lease (as in the commercial lease sector) e.g. service charge exclusions; cessation of service charge liability where the lessee is prohibited from occupying the property for its permitted use.

[1] JLK Ltd v Ezekwe and others [2017] UKUT 277(LC)

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