Dwelling on service charges

Cloisters Business Centre Management Co Ltd v Hamid Anvari et al [2026] EWCA Civ 17 recently required the Court of Appeal to consider whether mixed-use premises could satisfy the definition of “dwelling” in the Landlord and Tenant Act 1985 (the Act).

The point matters because, if premises are a “dwelling”, the Act’s statutory controls on service charge recovery will apply.

Context

Cloisters Business Centre Management Co Ltd (the landlord) leased a building to Hamid Anvari et al (the tenant). Under the terms of the lease, the tenant was permitted to use the building as an office, but with ancillary residential use.

In practice, however, the tenant was not exercising its right to use parts of the building for residential purposes. Rather, the residential parts were being used for storage only.

The landlord sought to recover service charges from the tenant. The tenant argued that the statutory service charge protections in the Act applied, on the basis that ancillary residential use was permitted, which meant that the premises was a “dwelling" for the purposes of the Act.

Section 38 of the Act defines "dwelling" as "a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it".

The central question for the Court, therefore, was whether a premises that could be used for commercial and residential purposes could qualify as a “dwelling”.

What the Court decided

Section 38 does not expressly deal with mixed-use premises, and it does not say whether the relevant premises must be wholly or mainly used for residential occupation. This required the Court to consider whether Parliament intended the service charge protections in the Act to be limited to premises that could be used exclusively, or predominantly, for residential purposes.

On the facts, the Court held that mixed-use premises were capable of being a “dwelling”, even where the potential residential use was ancillary and where the property was not currently being used for residential purposes.

Factors influencing the Court’s decision included:

• The lease expressly authorised residential use, demonstrating that residential occupation formed part of the contemplated use of the premises rather than being merely incidental or unlawful.

• The building could function as living accommodation and contained facilities consistent with residential occupation (even though it was not currently being used as such).

• Section 38 appears to primarily be concerned with whether premises are occupied or intended to be occupied as a separate dwelling, not whether residential use is the dominant or primary use.

• If Parliament had intended to exclude mixed-use premises from the definition of "dwelling", it would have done so expressly, as it had done elsewhere in the Act.

Implications

Cloisters confirms that leases of mixed-use premises will attract the Act’s service charge protections. Where the Act applies, there will be significant consequences, including that:

• Service charges are only recoverable to the extent they are reasonably incurred;

• Certain qualifying works and qualifying long-term agreements may require the landlord to carry out a statutory consultation process; and

• If the statutory requirements are not met, the landlord’s ability to recover costs will be limited to nominal sums.

Given the above, landlords should review their portfolios to identify leases where residential occupation is theoretically permitted and, in respect of such leases, ensure that the requirements of the Act are complied with.

Purchasers and lenders should also be aware that mixed-use assets now carry greater statutory risk and that recovery of service charges will be more difficult in respect of such assets.

If you think that you may be impacted by the decision in Cloisters, please do get in touch and we would be glad to assist.