Can investors in student accommodation challenge their service charge?

In the recent case of JLK Ltd v Ezekwe, the Upper Tribunal looked at the question of whether owners of long leases of units within shared accommodation blocks will be entitled to challenge their service charge.

It found that investors who had purchased long leases of individual bedrooms in a block of student accommodation with shared living facilities did not benefit from the usual protection afforded to owners of residential leasehold property and could not challenge the service charge in the First-Tier Tribunal (FTT).

The leaseholders brought proceedings against the Landlord disputing the service charge after the communal boiler failed to function, causing the building to become unusable. The Upper Tribunal considered whether the leases fell outside the scope of the service charge protection in the Landlord and Tenant Act 1985 (the 1985 Act).

In making its decision the Upper Tribunal addressed the following issues:

1. Whether, for a unit of accommodation to be a ‘dwelling’ for the purpose of the 1985 Act, it is necessary that it should be used as, or intended to be used as, someone’s home
2. If so, whether the bedrooms at the student accommodation satisfied that requirement; and
3. Whether, in any event, the units were occupied or intended to be occupied as a separate dwelling or whether the availability of communal facilities meant that the necessary element of separateness was missing.

The Upper Tribunal found that there was no requirement for the unit to be a ‘home’ in order to satisfy the definition of ‘dwelling’. However, due to the level of shared facilities, the bedrooms were unable to be classified as ‘separate dwellings’ and therefore fell outside of the scope of the 1985 Act.

It is evident that whether the units can be classified as ‘separate dwellings’ will depend on what facilities they share. The bedrooms in question shared kitchens and living areas and, in some cases, bathroom facilities.

The Upper Tribunal indicated that if the kitchen and living area were comprised in the unit, then they might be considered ‘separate dwellings’ even if they shared bathroom facilities. Such an arrangement is common in bedsit accommodation. On the other hand, some rooms in student and retirement housing with shared living areas would be unlikely to satisfy the requirement for separateness, even if the bedrooms have en suite bathrooms.

The Upper Tribunal commented that the purpose of the legislation was not to protect the lessee in his home, but rather to enable the challenging of unreasonable service charges levied by landlords. Nothing in the wording of the 1985 Act suggests that it was only intended to apply to homes.

Unfortunately for the investors, the decision means that they are required to continue to contribute to the service charge, regardless of the fact that the student accommodation is uninhabitable. This is a considerable burden for those investors tied into a long lease.

The decision of the Upper Tribunal highlights the deficiencies of the legislation in catering for investors in student accommodation. Unless the law in this area is brought up-to-date to reflect the evolving and growing investment market in student accommodation, investors are advised to check the terms of the lease carefully before committing to an investment that could leave them out of pocket if they are unable to challenge the service charge.

If you require further assistance, please contact any member of the Edwin Coe Property team.

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