Reasonableness of Service Charge Costs Under Long‑Term Contracts:
Spender & Ors v Fit Nominee Ltd & Anor [2025] EWCA Civ 1578

1. Introduction

This Court of Appeal decision provides an important clarification of how the “reasonably incurred” test in section 19(1)(a) of the Landlord and Tenant Act 1985 (“the 1985 Act”) applies where service charge costs arise under long‑term contracts, particularly those entered into long before most leaseholders acquired their flats.

The case arose out of a large residential development at St David’s Square, Westferry Road, London. The tenant appellants (“the Tenants”) challenged the recoverability, through the service charge, of substantial sums paid by the landlord respondents (“the Landlords”) under long‑term “rental and maintenance” contracts for security and communications systems, principally a video door entry system (the “Countryside Contracts”). The core dispute centred on whether, for the purposes of s.19(1)(a) 1985 Act, it is:

the reasonableness of the landlord’s decision to enter into the long‑term contracts (years or decades earlier) that matters; or
the reasonableness of the actual amounts being paid in the particular service charge years in issue, judged by comparison with market prices at those dates.

The First‑tier Tribunal (“FTT”) substantially reduced the sums recoverable from the Tenants. The Upper Tribunal (“UT”) reversed that decision, holding the costs recoverable subject only to a limited concession. On appeal, the Court of Appeal:

endorsed the UT’s legal test for “reasonably incurred” under s.19(1)(a) in the context of long‑term contracts, but
held that the case had been argued and decided on the wrong basis of evidence and pleading, and therefore remitted the matter to the FTT.

The judgment is significant because it:

establishes that the s.19(1)(a) test looks at whether it was reasonable for the landlord to commit to the liability in the first place – including, where relevant, long before the service charge year in question;
rejects both an “invoice‑date only” outcome test and a “we were contractually bound, so it must be reasonable” test;
clarifies the burden of proof framework in service charge reasonableness disputes under s.27A of the 1985 Act; and
gives practical guidance on how tribunals should deal with historical long‑term agreements.

2. Summary of the Judgment

2.1 The central legal issue

Under s.19(1)(a) of the 1985 Act, service charge “relevant costs” are only recoverable:

“to the extent that they are reasonably incurred”.

All parties accepted that, in light of Burr v OM Property Management, costs are “incurred” at the earliest when the landlord receives the contractor’s invoice. The question was how to assess reasonableness where those costs arise years later under a pre‑existing long‑term contract:

Option 1 (Tenants’ case below): test the amount against the market at the time of the invoice (2018–2020). If the contract price is substantially above market, the costs are not reasonably incurred.
Option 2 (Landlords’ case below): so long as the landlord is contractually bound to pay, costs are reasonably incurred; s.19 does not allow tenants to revisit old commercial decisions.
Option 3 (UT’s approach): reasonableness must be judged by reference to the circumstances in which the landlord originally took on the contractual commitment that made those later costs inevitable.

In the Court of Appeal:

the Landlords’ primary case was that Option 3 (the UT’s approach) was correct; they kept Option 2 as a fallback;
the Tenants advanced a refined version of Option 3, arguing in effect that, even if the initial decision was reasonable, s.19 always limits recovery to the reasonable market cost at the time the costs are invoiced.

2.2 The Court of Appeal’s answers

Correct legal test under s.19(1)(a) The Court approved the UT’s approach (Option 3) and rejected both the Tenants’ “invoice‑date only” theory and the Landlords’ “we were bound, hence reasonable” fallback:
- Section 19(1)(a) asks whether the landlord reasonably incurred the costs – i.e. whether it was reasonable, in all the circumstances, to commit to paying them (including via a long‑term contract).
- In a long‑term contract, that inquiry focuses on the reasonableness of entering into the contract (and any subsequent variations/novations), judged at the time of that decision – not solely on comparison with market rates many years later.
- The later market disparity (e.g. 2018–2020) is a relevant piece of evidence, but only insofar as it helps assess whether the original decision was reasonable, given what was known or reasonably foreseeable at that time.
Rejection of the “contractual obligation is enough” argument The Court held that the mere fact the landlord is contractually bound to pay a third‑party contractor does not automatically satisfy s.19:
- If that were so, s.19(1)(a) would be rendered largely meaningless in all cases where the landlord has contracted out works or services.
- Tenants must retain the ability to challenge a landlord’s decision to commit to unreasonably high costs in the first place.
Burden of proof and procedural fairness On the “burden of proof” issue, the Court:
- restated that, in substance, a tenant must first raise and establish a prima facie case of unreasonableness as to particular items; and
- once a prima facie case is shown, the landlord must justify that the costs were reasonably incurred.
However:
- in this case, the Tenants’ pleaded case below focused on the unreasonableness of the amounts in 2018–2020 compared with then‑current market rates,
- neither party had properly addressed the key question that the Court now holds is decisive: was the decision to enter into (and later adopt) the Countryside Contracts reasonable at the time?
- it was therefore procedurally unfair for either the FTT or the UT to make definitive findings about the reasonableness of the 2000 contracts, when that case had not been properly advanced or met by evidence.
Outcome
- The Court of Appeal upheld the UT’s articulation of the legal test under s.19(1)(a) (and therefore dismissed Ground 1 and related grounds concerning the test itself).
- But, recognising the misalignment between the test and the way the case had been run, the Court allowed the appeal overall on the remaining grounds and remitted the case to the FTT for a fresh determination applying the correct test, with proper pleadings and evidence.

3. Factual and Procedural Background

3.1 The development and the Countryside Contracts

St David’s Square was constructed between 1998 and 2003. Around 2000, the original developer, St George North London Ltd (“the Developer”), entered into a suite of contracts with Countryside Communications Ltd (“Countryside”) for:

door intercom and remote release systems (video entry);
TV and satellite distribution;
car park gates and barriers; and
leisure centre CCTV and alarms.

Only two contracts (TV distribution and door entry) were found, but all were materially similar. The door entry contract – the most expensive – had these key features:

20‑year hire period from 6 July 2000, with automatic yearly continuation unless terminated on six months’ notice expiring no earlier than the end of that period.
First year rental fixed at £85,477, indexed annually to the Retail Price Index.
Countryside retained ownership of the installation; the Developer merely hired it.
Countryside would carry out repairs due to fair wear and tear free of charge; other repairs were at the Developer’s cost.
Early termination at year 7 or 14 was possible but only by paying an exit fee equal to four times the annual rental then current – a very substantial penalty.
Assignment to a successor landlord was only permitted if the assignee entered into a hiring agreement on identical terms.

These contracts were later novated to successor landlords, and ultimately to the present Landlords in 2014. The Tenants’ leases obliged them to contribute through the service charge to the Landlords’ costs of:

“providing, inspecting, maintaining, renting, hiring, renewing, reinstating, replacing and insuring … the electronic door systems (if any) and the emergency system and such other plant machinery or equipment … as the Lessor may from time to time consider necessary or desirable…”

3.2 Earlier challenge and 2008 variation

In 2008, some leaseholders challenged the level of service charges related to the Countryside Contracts. The dispute was settled on terms that:

charges to leaseholders would be capped at 90% of the then‑current payment under the contracts; and
no further RPI increases would be applied.

Countryside thereafter billed only the reduced amount. The evidence did not reveal the detail of any commercial renegotiation behind this change. Importantly, this partial variation demonstrated both:

the weight of the existing contractual commitment; and
that the original contract had created scope for the supplier to charge sums which, by 2008, were open to serious question.

3.3 The 2018–2020 service charge dispute

The present proceedings dealt with the years 2018–2020, during which:

Total charges under all Countryside Contracts: £590,541.44.
Charges specifically for the door entry system: £398,440.73.

The Tenants argued that these sums were unreasonably high compared with:

the cost of purchasing a new replacement system outright (evidence suggested about £268,000 in 2021); and
the costs of maintaining similar systems in comparable nearby developments (around a tenth of the annual cost here).

Complicating matters further, the Landlords inadvertently missed the deadline to exercise the termination right in July 2020, so the contracts rolled on. A later tender process led most leaseholders to opt, after 2022, to continue hiring from Countryside at a 50% reduced rent. The Landlords accepted that their failure to terminate in 2020 was unreasonable and conceded a 50% reduction in the charge for the second half of 2020 before the FTT.

3.4 Proceedings before FTT and UT

In the FTT

The Tenants, under s.27A 1985 Act, challenged various service charge items; the dispute ultimately narrowed to 16 items, including the Countryside costs.
Their stated case on the Countryside Contracts was that the costs in 2018–2020 were unreasonable because they “far outstripped”:
- the cost of a proposed replacement system; and
- the costs at comparable developments.
In a Reply, the Tenants also included a passing statement that the decision to enter the contracts in 2000 was not objectively reasonable, but that allegation was not properly developed or evidenced, and at the UT stage the Tenants expressly eschewed reliance on the circumstances of the original contracts.
The Landlords’ response was that:
- one must focus only on 2018–2020, and
- they had no choice but to pay the sums contractually due to Countryside.

The FTT nevertheless went further and, at [44], condemned the 2000 arrangement as a “short‑sighted” and “onerous” rental deal, effectively holding that:

tenants should not bear the consequences of such a “bad deal” made long before; and
the Tenants should only have to pay what would represent a reasonable maintenance‑only cost.

Unable to obtain any breakdown between “rental” and “maintenance” from Countryside, the FTT used market estimates to reduce the Tenants’ liability by about 81%.

In the UT

On appeal, the UT (HHJ Elizabeth Cooke) held:

that s.19(1)(a) required examination of whether it was reasonable to have taken on the contractual commitment giving rise to the costs, not solely whether the amount looked high in 2018–2020; but
that there was no evidence that the original 2000 contracts were a “bad deal” when entered into. Therefore, the FTT’s conclusion was not open to it on the evidence.

The UT set aside the FTT’s decision and substituted a determination that the costs were reasonably incurred (subject only to the Landlords’ 25% (later 50%) concession on the second half of 2020).

4. Detailed Legal Analysis

4.1 Precedents and authorities cited

4.1.1 Waaler v Hounslow LBC [2017] EWCA Civ 45

Waaler is the leading modern authority on s.19. Lewison LJ emphasised that:

s.19’s purpose is to protect tenants from:
- paying for unnecessary or defective services; or
- paying more than they should for necessary and adequately performed services.
For decisions involving discretion (e.g. whether to improve or how to repair), a rationality test governs the landlord’s decision‑making process, but s.19 imposes an additional objective reasonableness test on the outcome – looking at the amount and the standard of work/services.
The “outcome” inquiry is not confined to the landlord’s thought process; tribunals can and must evaluate the substantive reasonableness of what was done and what was spent.
Context matters: obligations to repair differ from optional improvements; the financial impact on tenants and their interests must be taken into account.

In Spender, the Court of Appeal uses Waaler as the starting point for the concept that s.19 looks at both process and outcome, but makes an important further refinement for long‑term contracts: “outcome” is not simply “how the price compares with the market many years later”. Rather, outcome must be judged as at the time of entering into (or adopting) the contract, based on what was then known or foreseeable.

4.1.2 Forcelux Ltd v Sweetman [2001] 2 EGLR 173

The Lands Tribunal in Forcelux drew a useful distinction between:

whether the landlord had followed appropriate processes (tendering, compliance with lease terms etc.); and
whether the amounts charged were reasonable when benchmarked against the market.

This supported the idea that a tribunal does not stop at procedural propriety; it must test the quantum of the costs. The Court of Appeal in Spender endorses this general proposition – that the test is not confined to process – but clarifies how it applies where there is a time lapse between contracting and invoicing.

4.1.3 Burr v OM Property Management [2013] EWCA Civ 479

Burr held that, for limitation purposes, service charge costs are “incurred” when an invoice is rendered to the landlord. In Spender, the parties agreed that the relevant costs were incurred in 2018–2020 when Countryside invoiced the Landlords.

Crucially, however, Burr did not address how to judge whether those costs were reasonably incurred. Spender makes clear that while the event of incurring (invoice) is fixed in time, the assessment of reasonableness may require looking backwards to the decision to enter into the underlying contractual commitment.

4.1.4 Auger v London Borough of Camden (2008) LRX/81/2007

In Auger, the Lands Tribunal (HHJ Huskinson) suggested that once long‑term “Partnering Agreements” were in place, it would be difficult for tenants to argue that costs under them were not reasonably incurred, because the landlord was contractually bound to place works with the chosen contractor at the agreed rates.

In Spender, the Court of Appeal carefully limits the reach of Auger:

if Auger were read to mean that tenants can never rely on s.19(1) to challenge costs under a long‑term agreement simply because the landlord is contractually bound, it would be wrong;
properly understood, Auger was decided in a very specific context:
- local authority procurement subject to competitive tender and EU/public procurement rules,
- where the reasonableness of entering into such partnering agreements, at least in procedural terms, was constrained and shaped by that regulatory framework.

Thus, Spender confirms that there is no general safe harbour for landlords under s.19 simply because they are locked into a long‑term contract.

4.1.5 Yorkbrook, Schilling, Enterprise and Gell – burden of proof

Four cases shape the Court of Appeal’s approach to burden of proof under s.19/s.27A:

Yorkbrook Investments Ltd v Batten (1986) 18 HLR 25 (CA) Wood J held that:
- there is no presumption for or against reasonableness;
- a landlord claiming service charges will generally succeed unless the tenant pleads unreasonableness;
- once the tenant gives evidence establishing a prima facie case, the landlord must then meet that case; the court decides on all the evidence.
Schilling v Canary Riverside Development Ptd Ltd (LRX/26/2005) HHJ Rich QC applied Yorkbrook, concluding that:
- in practice, liability for service charges is determined not by rigid burdens but by assessing the whole evidence once a tenant raises a proper challenge;
- obiter, he suggested that the legal burden lies on the party who makes the s.27A application.
Enterprise Home Developments LLP v Adam [2020] UKUT 151 (LC) The Deputy Chamber President reaffirmed the Yorkbrook approach: it is for the party disputing reasonableness (typically the tenant) to establish a prima facie case; otherwise, the FTT need not adopt a sceptical approach.
32 St John’s Road (Eastbourne) Management Co Ltd v Gell [2021] EWCA Civ 789 Edis LJ held that:
- a tenant must plead unreasonableness under s.19; courts will not investigate it of their own motion;
- he endorsed Yorkbrook and Enterprise on the need for the tenant to establish a prima facie case before the landlord must justify costs.

Spender brings these strands together, affirming the “prima facie case” model and clarifying that:

in practice, for s.27A applications, who issued the application is less important than who is challenging the particular service charge item; and
where a proper prima facie challenge is made, the landlord must justify that costs were “reasonably incurred”.

4.2 The Court’s legal reasoning on s.19(1)(a)

4.2.1 The meaning of “reasonably incurred” in long‑term contracts

The Court starts from the statutory language. Section 19(1)(a) does not say that the service charge is limited to “a reasonable amount”; it says that only:

“relevant costs … to the extent that they are reasonably incurred”

may be taken into account.

This distinction is important. It directs attention to the decision to incur the costs:

What did the landlord commit itself to?
Were the terms (including price, duration, break rights, ownership structure) reasonable in the circumstances at the time of commitment?

When the landlord has entered into a contract under which future costs inevitably fall due, the court must ask:

was it reasonable, given the information and market conditions at that time, for the landlord to enter into that contract (or adopt it by novation) on those terms?;
if yes, s.19 does not generally allow disallowance of later contractually due costs just because the market has moved in the tenant’s favour;
if no, then the contract is, in substance, an unreasonable way of incurring those costs and the tenant’s liability is limited accordingly.

The Court emphasises that this principle applies both to:

one‑off contracts (e.g. a single major works project); and
long‑term contracts (e.g. 20‑year hire and maintenance arrangements).

The difference is primarily practical: with long‑term contracts, the risk of significant market change is greater, so the initial decision must be assessed with a “long‑range” perspective on price volatility, technological change, and the availability of alternatives.

4.2.2 Rejection of the Tenants’ “outcome at invoice date” model

The Tenants tried to derive from Waaler and Forcelux a principle that “outcome trumps process”: whatever was reasonable at the time the contract was made, if by 2018–2020 the amount charged was much higher than current market rates, s.19 must cap the recoverable amount at that current market level.

The Court rejected that argument for several reasons:

Textual Section 19(1)(a) speaks of costs being “reasonably incurred”, not of “only a reasonable amount” being recoverable. It is about the reasonableness of incurring the liability, not about the court re‑pricing contracts ex post facto whenever markets move.
Conceptual The Court accepts that “outcome” matters (from Waaler), but clarifies that:
- “outcome” in a long‑term contract setting is the outcome of the landlord’s decision to enter into the contract, judged with the information available at the time of that decision;
- future price movements are part of the risk allocation inherent in contracting: if a landlord reasonably takes a long‑term price risk, tenants cannot later require the landlord to bear 100% of any adverse price movement while retaining the benefit of any favourable movement.
Practical and policy considerations If the Tenants’ approach were correct, a landlord could never sensibly enter into a fixed‑price long‑term agreement (as markets may later become cheaper), because:
- it would pay the full contractual price to the contractor; but
- it could only recover from tenants the lower of the contract price and the contemporaneous market rate;
- it would bear the full downside risk, but could never benefit from the upside (i.e. where the fixed contract looks cheap compared to the future market).
That would be a distorted and “inappropriate allocation of risk” inconsistent with the way s.19 is framed.

The Court accepts that significant later over‑pricing is relevant evidence, but emphasises that it must be used to interrogate the reasonableness of the original decision: for example, did the landlord, in 2000, lock itself into a 20‑year RPI‑linked hire of rapidly depreciating technology with a penal exit fee, when other options were available?

4.2.3 Rejection of the Landlords’ “contractually bound, therefore reasonable” fallback

The Landlords’ fallback submission (Option 2) was that whenever the landlord is contractually obliged to pay, the costs must be “reasonably incurred”. The Court rejects this as inconsistent with the entire scheme of s.19:

If this were right, s.19(1)(a) would be “deprived of all utility”. In almost every case, the landlord incurs costs via a contract. Tenants would never be able to challenge over‑expensive contracts because the landlord could always say “we were bound”.
The whole point of s.19 is to give tenants a defence, despite the contract, where the landlord has entered into unreasonably expensive arrangements that it seeks to pass through as service charges.

The Court distinguishes this from the position under s.19(1)(b):

If work is below a reasonable standard, tenants should not pay for it: either the landlord has a contractual claim against the contractor, or the landlord has failed to procure the right standard of work.
By contrast, if a contract turns out more expensive than anticipated, but was reasonable when made, the landlord usually has no remedy against the contractor. That is a commercial risk of long‑term contracting, and there is no principled reason to shift all of it onto the landlord under s.19.

4.2.4 How reasonableness will be assessed in practice

When a tribunal applies this test to long‑term contracts, it will typically consider (judged at the time of contracting, or novation/adoption):

Nature of the goods/services: Is the subject matter technology likely to become obsolete or much cheaper (as with video entry systems), or relatively stable (e.g. some building fabric works)?
Length of term: A 20‑year commitment with RPI up‑rating raises different concerns from a 3‑year contract.
Ownership vs hire: Was it reasonable to structure the transaction as a hire where the landlord never acquires the asset, rather than buying outright and maintaining?
Exit/break rights: Are there realistic break options? Are the exit fees penal in effect, in that they make it irrational ever to exercise them?
Pricing structure: Fixed price, index‑linked, market‑reviewed? How did the contract compare with alternatives available at the time (tendering, other quotes, standard market practice)?
Regulatory context: For public sector landlords, were there procurement obligations and did they follow them?
Tenant impact and consultation: Especially post‑2002, where s.20 consultation is required for qualifying long‑term agreements; but even pre‑2002, what consideration was given to the ultimate burden on leaseholders?

Evidence may need to include:

contemporaneous documents (contracts, board papers, internal justification, tender material);
expert evidence on the state of the market at the time of contracting; and
evidence about the feasibility and cost of alternative approaches (e.g. purchase vs hire).

4.3 Burden of proof and the Court’s criticism of the FTT and UT

4.3.1 The Court’s synthesis on burden of proof

The Court draws together Yorkbrook, Enterprise and Gell into the following practical principles:

In ordinary court proceedings:
- A landlord claiming service charge arrears bears the legal burden of proving its entitlement, including that costs were reasonably incurred and works/services were of a reasonable standard.
- A tenant counter‑claiming for repayment bears the burden on that counterclaim.
Pragmatic approach in service charge disputes (whether in court or under s.27A):
- The landlord is not required to justify every element of service charge ab initio.
- It is for the tenant to:
  - identify the specific items challenged; and
  - put forward a prima facie case that those costs were unreasonably incurred or the works were sub‑standard.
- Once a prima facie case is established, the landlord must provide sufficient evidence to justify those items as reasonable, and the tribunal decides on the whole evidence.
For s.27A applications:
- Although HHJ Rich QC suggested that the legal burden lay with whoever made the s.27A application, the Court of Appeal criticises this as unhelpful and inconsistent with practical reality.
- What matters in practice is:
  - has the tenant properly put in issue the reasonableness of specific items? and
  - has the tenant adduced enough to make a prima facie case on those items?
- If those conditions are met, the landlord must respond with evidence of reasonableness.

4.3.2 Application to this case

The Court holds that the UT fell into error by effectively reverting to an assumption that the Tenants bore the ultimate burden of proving that the 2000 contracts were unreasonable. The UT stated that:

“the then landlord’s decision to enter into the contracts has not been shown to have been unreasonable”

and emphasised the absence of evidence that the contracts were a “bad deal” when made.

However, the Court of Appeal notes:

There was some evidence capable of supporting a prima facie case that the 2000 contracts were problematic:
- a long 20‑year term in rapidly changing technology;
- ownership retained by Countryside;
- RPI‑linked rentals starting at a high base;
- a very expensive exit fee (four times annual rent) rendering break rights effectively illusory;
- the 2008 renegotiation capping charges at 90% with no further RPI indexation, suggesting room for significant downward adjustment even mid‑contract.
On the other hand, the Tenants had not actually advanced a properly pleaded case that the 2000 decision was unreasonable; their case was built around the unreasonableness of the 2018–2020 prices.
The Landlords thus had no reason to gather historical evidence or expert analysis on market conditions in 2000, because the case had not been formulated that way.

In those circumstances, both tribunals erred:

The FTT erred by making definitive findings that the 2000 contracts were a “bad deal” when that specific case had not been pleaded or evidenced.
The UT erred by reaching the opposite conclusion (that there was no evidence they were bad) and substituting its own decision, while applying the correct legal test but without the factual foundation that such a test requires.

The Court concludes that procedural fairness requires a remittal to the FTT, with:

the Tenants given a chance to plead a case that the contracts were unreasonably entered into (if they wish to);
the Landlords then able to file a full response and adduce evidence; and
the FTT determining, on proper evidence, whether the costs were reasonably incurred in light of the correct legal test.

5. Complex Concepts Explained in Plain Terms

5.1 “Reasonably incurred” vs “reasonable amount”

It is easy to conflate these two, but they are different:

Reasonable amount – asks “What would a fair price be today for these works or services?”
Reasonably incurred – asks “Was it reasonable for the landlord to take on this particular obligation to pay this amount, on these terms, in the first place?”

Section 19(1)(a) deals with the latter. The court does not act as a price regulator for every service charge item; it checks whether the landlord’s decision to commit to the cost, viewed in context, was reasonable.

5.2 “Outcome” vs “process”

Waaler and Spender both make clear that:

“Process” covers how the landlord went about the decision – did it tender, consult, consider options and tenants’ interests, act in good faith, etc.?
“Outcome” is the result – the substantive reasonableness of what was done and what was spent.

In long‑term contracts like the Countryside Contracts, “outcome” is not just the 2018–2020 invoices; it is the ensemble of consequences reasonably foreseeable from entering into a 20‑year RPI‑linked hire arrangement for high‑tech equipment in 2000.

5.3 Legal vs evidential burden and “prima facie case”

Legal (persuasive) burden: the responsibility a party bears to prove its case to the required standard (here, balance of probabilities). In a landlord’s claim for service charges, the landlord generally has this burden.
Evidential burden: the obligation to produce enough evidence to raise an issue as one for the court to decide.
Prima facie case: enough evidence that, if left unanswered, would justify a finding in that party’s favour.

In service charge disputes, the “prima facie case” concept is used pragmatically: tenants must do more than just assert that charges are unreasonable; they must put forward at least some evidence or logic (e.g. quotations, comparators, glaring price disparities, obvious contractual anomalies). Once they do, the landlord must answer those points.

5.4 Allocation of risk in long‑term contracts

Long‑term contracts necessarily involve risk about future events: costs may go up or down; technology may improve; inflation may outstrip or undercut expectations. The Court is, in effect, saying:

If the landlord unreasonably took on a long‑term obligation – e.g. at a wildly above‑market price without good reason – then tenants should not be saddled with that.
But if the landlord reasonably took on a long‑term obligation, then later market movements (which are the flip‑side of the risk the landlord took) do not justify capping the tenants’ liability down to whatever the market happens to be in a particular year.

6. Practical Impact and Future Significance

6.1 For landlords

Long‑term contracts remain permissible: The Court expressly recognises that it is often reasonable – sometimes necessary – for landlords to enter into long‑term arrangements, especially for complex systems (e.g. combined heat and power, major plant) or in regulated contexts.
But reasonableness at the time of contracting matters:
- Landlords should be able to demonstrate, by contemporaneous records and (where appropriate) expert advice, why entering into the long‑term contract on particular terms was reasonable.
- They should be especially careful about long, rigid hire arrangements where technology is rapidly evolving.
Contractual obligation is not a shield: Landlords cannot simply rely on “we are bound by the contract” if tenants raise a prima facie case that the contract itself is unreasonably costly.
Evidence of market alternatives at the time: Going forward, prudent landlords will:
- keep tenders, alternative quotes, board minutes, and professional advice on file;
- monitor whether mid‑term re‑procurement or renegotiation is commercially and legally feasible.

6.2 For tenants and their advisers

Challenges must be carefully framed: It is not enough simply to show that prices in the service charge years are significantly higher than current market rates. Tenants need to:
- plead specifically that the landlord’s decision to enter into (or adopt) the long‑term contract was unreasonable;
- produce at least some evidence (or expert opinion) about the state of the market and alternatives at the time of contracting.
Legacy contracts can still be examined: The case confirms that:
- even pre‑2002, pre‑s.20 consultation long‑term deals can be challenged through s.19;
- but it will be an evidence‑heavy exercise centred on reasonableness when the deal was made, not just today’s market comparators.
Burden of proof realities: Tenants must accept the initial evidential burden of raising a prima facie case. Unparticularised complaints will fail; focused, evidence‑backed challenges are required.

6.3 For tribunals (FTT/UT)

Apply the correct temporal focus: When dealing with long‑term contracts, tribunals must direct themselves explicitly to the reasonableness of entering into (or adopting) the contract, not just the level of the latest invoices.
Ensure proper pleadings and case management:
- If tenants seek to challenge the contract itself as unreasonably expensive, that must be clearly pleaded;
- Landlords must then be allowed an opportunity to respond with evidence (including expert evidence on historical market conditions if necessary);
- Summary conclusions that contracts were a “bad deal” or “not a bad deal” without such a process will be vulnerable on appeal.
Manage expert evidence proportionately: Where reasonableness of a historical contract is truly in issue, tribunals may need to permit expert valuation or technical evidence on historic market conditions. At the same time, they must ensure proportionality, particularly in lower‑value disputes.

6.4 Interaction with s.20 consultation regime

Although the Countryside Contracts pre‑dated the 2002 amendments to s.20 (which introduced the modern consultation regime for qualifying long‑term agreements), the case has implications for:

post‑2002 agreements where consultation was carried out: s.19 remains a substantive check on reasonableness, even where s.20 formalities were observed;
agreements where consultation was not carried out (or dispensation was granted): s.19 may still be invoked to challenge the substantive reasonableness of the arrangement – consultation is not a guarantee that costs are reasonably incurred.

7. Conclusion: Key Takeaways

Spender & Ors v Fit Nominee Ltd & Anor is a significant refinement of the law on service charge reasonableness where costs are incurred under long‑term contracts:

Temporal focus of s.19(1)(a): “Reasonably incurred” requires examination of the reasonableness of the landlord’s decision to commit to the liability (through a one‑off or long‑term contract), judged at the time of that decision, not simply at the time invoices are rendered.
No automatic safe harbour for contractual obligations: The mere fact that a landlord is contractually bound to pay a contractor does not of itself make those costs “reasonably incurred” for s.19 purposes.
Outcome still matters, but in a structured way: Later price disparities (e.g. between contract rates and current market rates) are relevant, but chiefly as evidence about whether the original decision was reasonable, not as a free‑standing cap on what tenants must pay.
Burden of proof in practice: Tenants must:
- plead and particularise their challenges; and
- establish a prima facie case of unreasonableness.
Once that is done, the landlord must justify the costs. Tribunals decide on all the evidence.
Procedural fairness and remittal: Because neither party had argued the case on the correct legal basis (focusing on the reasonableness of entering into the 2000 contracts), it was unfair for either tribunal to make final findings on that issue. The Court of Appeal therefore remitted the case to the FTT for a fresh hearing on proper pleadings and evidence.

In broader terms, the decision strikes a pragmatic balance:

It preserves landlords’ ability to make commercially sensible long‑term arrangements without being perpetually second‑guessed by reference to hindsight.
It preserves tenants’ statutory protection against landlords committing them to unreasonably onerous contracts, by making such contracts subject to substantive scrutiny under s.19 when suitably challenged.

Future disputes involving legacy long‑term arrangements – especially for technological systems or PFI‑style infrastructure – are likely to be argued and decided by reference to the principles articulated in this case. The focus will now be squarely on whether, at the time of contracting, the landlord acted reasonably in allocating long‑term risks and costs which it now seeks to pass on to leaseholders via the service charge.

Reasonableness of Service Charge Costs Under Long‑Term Contracts: Spender & Ors v Fit Nominee Ltd & Anor [2025] EWCA Civ 1578