Regulations protecting tenants against unreasonable service charges do not apply to leases of individual rooms.
Student accommodation is an important sector within real estate for both developers and investors. On completion of the construction of student accommodation, the developer may grant long leases of one or more student rooms to investors. In turn, the investors grant assured shorthold tenancies to students who occupy those rooms and generate investment income from the rents that they pay.
A common means of creating student accommodation is to build 'clusters'. Each cluster contains shared accommodation such as a living room, kitchen, toilet and bathroom facilities. Individual bedrooms are then sold to investors who sub-let the bedrooms to the students along with the right to use the communal facilities within the cluster and the common parts of the building. The communal facilities will be managed separately with the management costs charged as service charges under the relevant leases.
Lettings of residential accommodation are not straightforward and there are a number of statutes that regulate residential lettings and the rights and responsibilities of landlords and tenants. In the case of JLK Ltd v Ezekwe the Upper Tribunal had to consider the application of one particular statute to student accommodation that was built and let on a cluster basis.
The case concerned a service charge dispute. The specific issue for the tribunal to decide was whether the landlord had to comply with the regulations affecting service charges in the Landlord and Tenant Act 1985 and, in particular, whether service charges that the tenant was being asked to pay were reasonable under that Act.
The Upper Tribunal held that leases of individual bedrooms together with a right to use communal areas (i.e. a cluster arrangement) did not create leases of separate dwellings. A lease of a single room that did not include a kitchen, toilet or bathroom facilities could not be occupied as a 'separate' dwelling. The rights to use the communal areas, being shared between two or more student lettings, did not affect this analysis.
The reason that this is important is that the requirements of the Landlord and Tenant Act 1985 apply only to leases of 'dwellings'. Because the letting of an individual room was not a lease of a dwelling, the regulations did not apply and so the Upper Tribunal had no jurisdiction to decide the dispute.
This decision has wider implications. A developer who wants to sell completed student accommodation that has been let to investors will want to know whether the investors have rights of first refusal under the Landlord and Tenant Act 1987. The legal position is currently uncertain. However, if the accommodation has been built on a 'cluster' basis, this case is support for the view that rights of first refusal do not apply as the investors do not have leases of flats that are separate dwellings.
When dealing with any form of residential letting, whether or not for student accommodation, it is important to obtain specialist advice. Not only is the legislation itself complex, with many a trap for the unwary, but it is clear that the configuration of the accommodation and the way in which it is let can affect whether or not the legislation applies in the first place.