Service charges, the reasonableness of long-term agreements, and the burden of proof: Spender v FIT Nominee Ltd [2025] EWCA Civ 1578

Philip Rainey KC and Rhys Duncan examine the Court of Appeal’s decision in Spender v FIT Nominee Ltd [2025] EWCA Civ 1758.

Spender v FIT Nominee Ltd [2025] EWCA Civ 1578 is a key decision on whether the costs of a long-term agreement entered into by a landlord are reasonably incurred for the purposes of s19(1)(a) of the Landlord and Tenant Act 1985. Alongside this (subjectively) interesting topic, the Court of Appeal also offers a useful summary of its decision in Waaler v Hounslow LBC [2017] EWCA Civ 45, and expands on the discussion surrounding the burden of proof in s19 cases. 

Philip Rainey KC was instructed by Velitor Law for the successful Appellants in the Court of Appeal.  

Background 

Like many cases, Spender kicked off with an application under s27A of the 1985 Act in the FTT, covering a range of service charges levied between 2018-2020. The true start of this story, however, is back in the year 2000, when the original developers of what is now St David’s Square, Westferry Road, London E14 entered into a series of contracts with Countryside Communications Ltd for the hire of security-related systems for the property.  The present respondent landlords had inherited these contracts when they acquired the reversion in 2014 (but there was no evidence as to the circumstances in which they did so). 

One such contract was for the video door entry system (this was used as a test case by both parties and the court, with the terms of the other security contracts being materially similar). The contract commenced in July 2000, and involved renting a system that was hard-wired into the building, alongside the maintenance of that system. It provided for a 20-year hire period, with Countryside permitted to raise the rent in line with the RPI each year.  The contract included a hirer’s break clause operable on the 7th and 14th anniversaries but subject to a requirement of 12-month’s notice and a payment of four times the annual rent at the time of termination.  By the 2018-2020 period the tenants were paying through the service charge just shy of £200,000 each year across the security contracts (approximately £130,000 of which was for the door system). When a fresh contract was negotiated in 2022, the price was reduced by 50%.  

In the FTT and UT the tenants took the position that the costs would only be reasonably incurred if they were reasonable in amount when tested against the market at the time that they were incurred (i.e. in 2018-2020) when the market rate was significantly lower than the sums being charged. By contrast, the landlord argued that costs were ex hypothesi reasonably incurred if the landlord had no choice but to pay them when invoiced, having committed to do so under a contract made at some earlier date. The tenants position found favour with the FTT, before being overturned by the UT. Permission for a second appeal to the Court of Appeal was granted, with Philip Rainey KC instructed on behalf of the tenants shortly before the Court of Appeal hearing.  

The appeal 

There were two main issues to be addressed in the appeal to the Court of Appeal: (1) the correct test for determining whether costs are reasonably incurredunder s19(1)(a) of the 1985 Act, (2) where the burden of proof lies in making that determination.  

Beginning with the first; having set out an eight-point summary of Waaler (judgment paragraph 21), the court determined that the parties had previously each been seeking to apply the wrong test. Instead, the relevant question was whether it was reasonable for the landlord to bind itself to incur the costs by entering into the contract in 2000. Lord Justice Zacaroli, delivering the only judgment, held that when answering this question, the outcome in 2018-2020 was a relevant factor that should be considered. If the contracts led to an unreasonable result, that could itself be evidence that the decision to enter the original contract was not a reasonable one, depending on the circumstances of the case. 

As to the burden of proof, the court went on to review the existing authorities (paragraphs 79-88) before summarising the correct approach at paragraph 89.  Zacaroli LJ emphasised the existing “pragmatic” approach that, irrespective of where the legal burden lies, it is for the tenant to establish a prima facie case that the charges are not reasonably incurred, at which point the onus of proof then shifts on the landlord to establish that the cost was reasonably incurred.  Departing from long-standing dicta in Schilling v Canary Riverside (LRX/26/2005) Zacaroli LJ held that it probably does not matter where the legal burden lies in a s.27A application to the tribunal, but if it does matter then the legal burden of proof does not depend on who made the application.  It depends on who requires the assistance of the tribunal either to obtain payment or to recover a payment made.  

Applying this approach to the facts of the case, the Court of Appeal accepted Philip Rainey KC’s submission that the UT was wrong to find that there was no evidence sufficient to establish a prima facie case, as there were a number of features of the Countryside contracts suggesting that the decision to enter into the contracts may not have been reasonable. The case was therefore remitted back to the FTT to allow both parties to make submissions and adduce evidence applying the correct legal test under s.19(1)(a). 

The judgment will be of general interest to practitioners dealing with service charge issues, particularly those with evidential uncertainties that might give rise to arguments on the burden of proof. Those dealing with long term agreements should pay particular attention to the court’s reasoning and nuanced approach, and note that it is not enough for a landlord to simply rely on being bound by a long-term contract (in this case entered into by a predecessor in title) as an answer to a challenge to the costs under s.19 of the 1985 Act.