What is reasonable? The Court of Appeal provides clarity on the meaning of ‘reasonableness’ and landlords’ decision making powers in service charge disputes

A recent judgment from the Court of Appeal provides valuable guidance on the meaning of “acting reasonably” when a landlord exercises discretion under a lease to apportion service-charge costs.

The case of Bradley & Rhodes v Abacus Land 4 Ltd [2025] EWCA Civ 1308, arose from long-running disputes over the costs of maintaining a communal gym in a mixed-use Westminster building.

The decision from the Court of Appeal settles a question that has divided tribunals: does a landlord’s contractual duty to act “reasonably” require it to reach a decision that is objectively reasonable, or merely one that is not irrational in the Braganza sense?

What is Braganza?

In Braganza v BP Shipping Ltd [2015], the Supreme Court held that decision-makers exercising contractual discretions had to do so in good faith, rationally, and for proper purposes, rather than arbitrarily or capriciously.

The Court of Appeal has confirmed that, although a landlord must act reasonably, courts and tribunals are not to re-make the landlord’s decision: they may interfere only if no reasonable landlord could have reached it. The ruling marks a notable rebalancing of the law in favour of the landlord.

The case: Bradley & Rhodes v Abacus Land 4 Ltd

Romney House, in Marsham Street, Westminster, was converted from an office block into 168 residential flats and four commercial units, including a basement gym. The long leases of the flats (each for 999 years) granted leaseholders the right to use facilities designated by the landlord for communal use, which included the gym.

Each lease required the leaseholder to pay a “Residential Service Charge Proportion” of specified costs — defined as “such fair proportion as the Landlord acting reasonably shall from time to time determine.”

From 2006 to 2013, the gym was used exclusively by residents, and the landlord charged 100% of its running costs to the residential leaseholders. However, in 2013, the then freeholder granted a separate 999-year lease of the gym to a private operator, Nash City Ltd (later assigned to a Mr White). Although the gym lease gave Mr White the right to run a personal-training business, it made clear that residents retained rights of use, and that the landlord — not the gym tenant — would bear all costs of maintaining and replacing the gym equipment.

The new arrangement meant that residential leaseholders continued to use the gym but shared it with the gym tenant’s clients. However, to soften the impact, the landlord agreed to offset the £5,000 annual gym rent against residents’ service charges.

In 2021, after a dispute with Mr White about repairs, Abacus (which had by then acquired the freehold) agreed to refurbish the gym at a cost of over £200,000 and to grant the gym tenant a three-year rent free holiday. It then sought to recover all refurbishment and maintenance costs from the residential leaseholders through their service charges.

The leaseholders’ challenge: what is ‘reasonable’ in apportioned service-charge costs

Two leaseholders, Mr Graham Bradley and Mr Michael Rhodes, applied under section 27A of the Landlord and Tenant Act 1985 to the First-tier Tribunal (“FTT”) for a determination that the gym-related service charges were not properly payable. They argued that once the gym had been leased to a third-party operator, it ceased to be a purely residential facility and it was no longer fair or reasonable to charge the leaseholders 100% of the costs.

They also contended that the landlord’s decision to designate all gym costs as “Residential Service Charge Items” was not “reasonable” within the meaning of the lease.

The FTT dismissed their application, holding that:

1. For 2013–2020, the leaseholders had paid without objection and were therefore barred from challenge; and
2. For later years, the landlord had acted reasonably in allocating 100% of the gym costs to the residential leaseholders.

The leaseholders then appealed to the Upper Tribunal (Lands Chamber), which allowed their appeal in part, holding that the landlord’s decision was objectively unreasonable, on the basis that, by 2020, residents had lost exclusive access to the gym and could not fairly be made to bear all its costs. The decision of the Upper Tribunal distinguished between a discretion that must be exercised rationally (in the public-law or Braganza sense) and one that must be exercised reasonably (in the objective sense).

Abacus appealed to the Court of Appeal, arguing that the Upper Tribunal had adopted too intrusive a standard and that its discretion as landlord should only be overturned if the decision was one that no reasonable landlord could have made.

The issue on appeal - what does ‘acting reasonably’ mean?

The key question before the Court of Appeal was: what does “acting reasonably” mean, in a lease that gives the landlord discretion to determine service-charge proportions?

Does it:

1. Require the landlord to make a decision that is objectively reasonable, allowing the tribunal to substitute its own judgment?
2. Or alternatively, does it impose only a duty not to act irrationally, dishonestly, or arbitrarily (the Braganza standard), meaning the tribunal can intervene only if the decision falls outside the range of reasonable options?

The Court also had to decide whether, if the landlord’s decision was flawed, the tribunal could substitute its own apportionment — a point the Upper Tribunal had answered “no”.

Decision - the meaning of “acting reasonably”

The Court of Appeal agreed with both tribunals that the lease provided for a two-stage process in deciding how service charges are calculated:

1. First, the landlord had to decide, acting reasonably, what expenditure should fall into each service charge “pot” (e.g. residential or building service charge items).
2. The landlord had to then determine each leaseholder’s “fair proportion” of that expenditure.

The present dispute concerned only the first stage – i.e. whether it was reasonable for the landlord to designate costs relating to the gym as a Residential Service Charge item.

Delivering the leading judgment, Lord Justice Nugee accepted that where a lease confers a discretion qualified by the words “acting reasonably” or “reasonable discretion”, that qualification must have some meaning. It cannot be identical to an absolute discretion. However, that did not mean the tribunal could step into the landlord’s shoes as the “primary decision-maker.”

In particular, the Court of Appeal held:

1. The FTT’s role under s. 27A is to review contractual lawfulness, not to substitute its own view of fairness.
2. The landlord’s decision will only be unlawful if it falls outside the range of decisions a reasonable landlord could reach.
3. The landlord will have acted unreasonably only if it made a decision that no reasonable landlord could have made.

The judgment concluded that this test aligns with the long-established standard used for landlord’s consent clauses - for example, whether consent has been “unreasonably withheld” (Ashworth Frazer Ltd v Gloucester City Council [2001]).

In examining the meaning of “reasonableness”, among other authorities, the Court of Appeal looked closely at Braganza v BP Shipping Ltd [2015]. The court emphasised that Braganza does not create an objective reasonableness test but a rationality test - one concerned with process, not outcome. It concluded the landlord’s discretion here was similar: the court’s concern is to ensure the landlord acted within the bounds of rational and reasonable judgment, not to decide whether the outcome was the best possible for, or even fair to, all parties.

Applying that standard, the Court of Appeal found the decision of Abacus to charge the residential leaseholders 100% of the gym costs was within the range of decisions a reasonable landlord could reach.

Although leaseholders had lost exclusive use of the gym, they continued to enjoy certain access rights and substantial benefit from its existence. Moreover, the gym tenant’s lease placed full repair obligations on the landlord without requiring any contribution from the tenant. In that contractual setting, it was not unreasonable - let alone irrational - for Abacus to treat the gym costs as falling within the residential service-charge pot.

Accordingly, the Court allowed the appeal, restoring the First Tier Tribunal’s original decision.

Implications for landlords and leaseholders

The judgment provides welcome clarity after several years of uncertainty. Where a lease requires a landlord to act “reasonably” or exercise a “reasonable discretion” in allocating or apportioning service-charge costs, the Court confirmed that “a decision is permissible if it is one that a landlord acting reasonably could reach; conversely, it is flawed only if no reasonable landlord could have reached it.” This formulation squarely aligns the test with that applied to the withholding of consents and with the Braganza-style rationality review — not a full merits review.

Separately, this case is a reminder that, under section 27A, Courts and Tribunals are not the “primary decision-makers”. Their role is to review whether the landlord’s decision was contractually and procedurally proper, not to substitute their own view of fairness. That distinction narrows the scope of leaseholders’ challenges and will likely reduce the success of arguments based on perceived unfairness in mixed-use developments.

Further, the Court’s approach reinforces that while Braganza principles do apply in property law, they do so only in a limited, analogical way. They imply duties of honesty, good faith, and rationality, but do not transform “acting reasonably” into an objective test of fairness. This reasserts the autonomy of contractual discretion in leases.

Key takeaways for landlords and leaseholders

1. For landlords: The decision is broadly landlord-friendly. It confirms that a reasonably defensible apportionment decision will be upheld even if others might have reached a different conclusion. However, landlords should still record their reasoning and show that relevant factors were considered — particularly in mixed-use schemes or where some occupiers have reduced access to facilities.
2. For leaseholders: The judgment narrows the grounds for challenging the reasonableness of service charges, where landlords retain discretion with regard to apportionment. In such case, it is not enough to show that a landlord’s decision was arguably unfair; it must be shown that no reasonable landlord could have reached it. Alternatively, if parties intend to impose a truly objective standard on landlord discretion, they must say so expressly - for example, by requiring that the apportionment itself be “fair and reasonable,” rather than simply that the landlord must act “reasonably.”

The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you are a landlord or tenant seeking clarity on a lease or service charge and would like a conversation to find out how we might help you, please get in touch.