We look at the decision below and consider its possible implications.
The key takeaways
· The Landlord and Tenant Act 1985 (LTA 1985) contains various provisions intended to benefit residential leaseholders, including sections 18 to 27A which give long residential leaseholders certain rights to keep the payment of service charges in-check.· Conversely, tenants with leases of purely business premises enjoy very little statutory protection.
· Whether leases of mixed-use premises - such as a shop with flat above - fall under the commercial service charge regime (with little statutory protection) or the residential system (with significant statutory controls), has previously been unclear.
· The Court of Appeal has provided clarity in Cloisters v Anvari [2026], confirming that leases of mixed-use premises can in principle benefit from sections 18 to 27A of the LTA 1985. Whether a lease in fact benefits may turn on the wording of the lease and physical layout of the premises.
· The decision could give mixed-use tenants additional scope to challenge their liability to pay services charges.
Service charges in residential leases
In addition to any express contractual provisions in the lease, long residential leaseholders benefit from certain statutory rights and protections concerning the payment of service charges, in particular under sections 18 to 27A of the LTA 1985.Section 18 contains the primary definition of “service charge” for these purposes. It means an amount payable by a tenant of a “dwelling” as part of, or in addition to, the rent, which is payable for services, repairs, maintenance, improvements, insurance or the landlord’s management costs.
Currently, the definition only covers variable service charges (which vary, or may vary, according to the relevant costs). This definition is, however, due to be extended to fixed service charges by provisions in the Leasehold and Freehold Reform Act 2024 (LFRA 2024).
Where a service charge is payable under the terms of the lease, section 19 of the LTA 1985 applies an additional rest of reasonableness. The landlord may only include costs in the service charge to the extent that they were reasonably incurred and the works or services to which they relate were carried out to a reasonable standard.
Section 20 of the LTA 1985 imposes an obligation on landlords to consult leaseholders where they intend to carry out major works to the building or enter into certain longer-term contracts.
Under sections 21, 22, 23 and 30A of the LTA 1985, leaseholders have statutory rights to seek information about service charges and insurance cover. If a landlord fails to comply, the landlord may be guilty of a criminal offence.
For the purposes of these provisions, a “dwelling” is defined (in section 38) as “a building or part of a building occupied or intended to be occupied as a separate dwelling…”.
Service charges in commercial leases
Tenants of commercial premises have very few statutory protections relating to service charges.The tenant’s liability to pay service charges under a business lease is governed almost entirely by the express terms of the lease itself.
What about mixed-use leases?
There are some leases of premises that are partly commercial and partly residential.This is not uncommon, for example, where a landlord might grant the tenant a lease of a shop together with the use of a residential flat above.
There are other situations where the lease, and sometimes a planning permission, might allow the tenant to live and/or work in the premises.
So, under which regime do leases of mixed-use premises fall?
Do they benefit from the statutory protections afforded to residential leaseholders, or are the tenant’s rights restricted purely by what the lease says?
This was the question at the heart of Cloisters Business Centre Management Co Ltd v Anvari [2026].
What did the Court of Appeal decide in Cloisters v Anvari?
Cloisters Business Centre is a large Victorian convent in Battersea that was converted into units in the late 1980s.This particular case concerned Unit 6.
Unit 6 is on the top floor of the converted building, and consists of a number of rooms that include a kitchen and shower room.
A 999-year lease of Unit 6 was granted in 1989. The lease described the premises as a “self-contained unit”. It contained a covenant by the tenant to pay a service charge.
Importantly, the lease said that Unit 6 was to be used as “offices (and ancillary residential use)”.
The lease was, accordingly, of mixed-use premises as it was intended to be used primarily as offices but allowed some residential use as well.
At the time of the court case, Unit 6 was in fact being used for storage.
It is understood that the landlord brought a claim against the tenant for unpaid service charges. In response, the tenant argued that its lease, which permitted ancillary residential use, was a “dwelling” for the purposes of the statutory controls in the LTA 1985
and that it was therefore entitled to challenge the reasonableness of the service charges in the First-tier Tribunal.
The key question was whether section 18 of the LTA 1985 applies to mixed-use premises.
The Court of Appeal agreed with the Judges in the courts below, that it can.
The Court of Appeal looked at the history of the LTA 1985 and noted that different parts of the Act were stated to apply to different types of tenancy.
Some sections of the Act were, for example, expressly restricted to leases granted wholly or mainly for residential purposes.
Some sections were expressly stated not to apply to business leases, and therefore benefitted residential tenants only.
However, in other sections of the Act there was no such restriction at all.
Giving the leading judgment, Lewison LJ, thought that the starting point was that, where Parliament intended to restrict protection to tenants whose use of property was predominantly residential, it said so.
Conversely, where there is no such express restriction in a provision in the LTA 1985, mixed-use premises were not excluded due to that fact alone.
The Court of Appeal concluded that the definition of “dwelling” in section 38 – being the definition that applies to the service charge controls in sections 18 to 27A of the LTA 1985 - fell into the latter category.
The definition (“a building or part of a building occupied or intended to be occupied as a separate dwelling…”) does not require that occupation as a residential dwelling should be the whole or even the main form of occupation. Nor is there any express provision stating that section 38 does not apply to business tenancies.
The Judge considered that the policy underlying the serve charge protections in the LTA 1985 was to provide a tenant with a way of challenging unreasonable service charges levied by their landlord. They therefore protect tenants in their pockets, rather than in their homes. With this in mind, there is no reason why, and no requirement that, the tenant has to live in the premises themselves or that the dwelling should be the only property contained in the tenancy.
The definition looks at whether the premises are “occupied or intended to be occupied as a separate dwelling”. Accordingly, either the premises are occupied as a separate dwelling, or they are intended to be occupied as such. However, in either case, there is no requirement that the premises be wholly or mainly occupied, or intended to be occupied wholly or mainly, as a dwelling.
Whether the dwelling is “separate” is a physical question, rather than being about use. For mixed-use premises, the terms of the lease will usually strongly indicate the objective purpose for which the premises were intended to be occupied (which is why many commercial leases will prohibit residential use absolutely), but the physical configuration of the premises may also be relevant.
As for the meaning of “dwelling”, the word does not imply that the premises have to be used as someone’s home. There are also a line of cases that have held that, in certain statutory contexts, “dwelling” has an extended meaning and can apply to premises used partly for residential purposes and partly for some other purpose. This is, for example, why landlords of mixed-use premises can only forfeit by commencing court proceedings rather than by peaceable re-entry (because “let as a dwelling” in the Protection from Eviction Act 1977 means “let wholly or partly as a dwelling”). The Court of Appeal considered that, for the purposes of sections 18 to 27A of the LTA 1985, mixed-use property could be a “dwelling” in this extended sense.
The Court of Appeal also considered that mixed-use premises were capable of being a dwelling even where the residential use is ancillary to the business use. It does not matter that the letting is primarily for business use and only to a minor degree for residential use.
Drawing this together, the Court of Appeal concluded that Unit 6 was “separate” (it was a self-contained unit) and that it was “intended to be occupied” as a dwelling as the terms of the lease permitted ancillary residential use. The fact that it was let mainly for office use and only subordinately for residential use did not preclude it from being a “dwelling”.
The lease of the mixed-use premises at Unit 6 was therefore found to benefit from the statutory controls on service charges in sections 18 to 27A of the LTA 1985.
The tenant will presumably now be able to pursue its application in the First-tier Tribunal for a determination as to the liability to pay and reasonableness of the service charges.
Why is this important?
This is not a particularly long judgment but it is densely packed and may have far-reaching implications.The dividing line between commercial and residential landlord and tenant law has, in reality, never been straight or clear. This decision shows that the distinction is more blurred and nuanced than perhaps many previously thought.
The conclusion – that mixed-use business leases may benefit from at least some of the protections that purely residential leaseholders enjoy – means that we may potentially see more commercial tenants seek to challenge the service charges who might previously have thought they had no statutory right to do so.
It will turn on the particular wording of the lease in question, and possibly on the physical design of the premises, but we may start to see more business tenants bring applications in the First-tier Tribunal for a determination as to their liability to pay service charge demands, and possibly arguing that the landlord should have involved them, as well as the purely residential tenants, when consulting about major works or qualifying long-term agreements.
The statutory controls in sections 18 to 27A of the LTA 1985 are also going to be expanded when the relevant provisions of the LFRA 2024 are brought into force. These provisions will, for example, require service charge demands to be in a specified form and give tenants new rights to require information regarding the charges. It will be essential to check each provision, but it is very possible that tenants of mixed-use leases may benefit from these new rights too.
How the courts and tribunals might approach cases involving leases of mixed-use premises in the future remains to be seen. Particular complications might arise in situations where there is a conflict between the statutory rights under the LTA 1985 and the contractual service charge machinery in such a mixed-use lease.
The key message for landlords of mixed-use leases is, however, that they will now have to take extra care in relation to service charges.
If it looks like a business lease, and quacks like a business lease, this does not necessarily mean that that is what it is.
