By Nicholas Kissen, Senior Legal Advisor
June 2016
The Upper Tribunal has recently handed down its decision in the case of Balkhi v Southern Land Securities Limited
The upper residential sections of a mixed use building were held by the landlord under a headlease, which did not include the structure.
Under the terms of the headlease, the landlord was required to contribute towards the freeholder’s sinking fund.
Giving consideration to the terms of the relevant underlease, the Upper Tribunal decided that the landlord was entitled to recover a proportion of the sinking fund contribution from the owner of one of the flats through an underlease.
That being said, liability to pay to the landlord the amount in respect of the sinking fund was not based on the fact that it had been paid by the landlord to the freeholder.
It was still subject to the statutory requirement of reasonableness, and the amount demanded was reduced accordingly. The Tribunal stated that the sinking fund of £70,000 was not reasonable, and the leaseholder’s contribution should be based upon a £40,000 sinking fund instead.
The Upper Tribunal took the view that the landlord had not acted reasonably in simply paying to the freeholder the amount demanded relating to the sinking fund, without obtaining justification for it first.
What are the implications of this decision?
• Liability for service charges turns on the terms of the lease
• The leaseholder could not escape responsibility for paying the sum attributable to the superior landlord’s sinking fund
• This sum was still subject to the test of reasonableness
• Before paying towards sinking funds head landlords should consider whether to challenge an amount which appears to be unreasonable.
