Southwark LBC v Akhtar Upper Tribunal [2017] UKUT 150 (LC)

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Summary

The Upper Tribunal reversed decisions from the First Tier Tribunal in respect of the validity of estimated service demands, the requirements to prove the service of a notice under section 20B in light of the incorporation of section 196 of the Law of Property Act 1925 in the lease, and whether a tenant had waived the Landlord’s non-compliance with service charge mechanism of the lease by conduct.  

Facts

The Tenant (Ms Akhtar) was the owner of a long lease from the Landlord (Southwark).  The lease was a ‘right to buy lease’ in the same form as that considered by the Upper Tribunal in London Borough of Southwark v Woelke [2013] UKUT 349 (LC).  The lease gave the Landlord power to demand service charges in advance by providing the Tenant with a notice of "estimated charges" for the following service charge year (The service charge year in this case ran from April to March).  The Tenant would then be liable to make payments of the estimated charge in quarterly instalments.  The Landlord’s practice was to demand the costs of major works separately from the day-to-day service charges.  By a notice dated 12 February 2013, the Landlord gave the tenant notice of the  “estimated charges” for major works spanning three service charge years.  The charge was broken down as:

  • Due in year one - £6,530.05 (1 April 2012 to 31 March 2013) Payable in full on 1 April 2013.
  • Due in year two - £31,572.78 (1 April 2013 to 31 March 2014) Payable in four equal instalments [on the usual days under the lease in 2013-2014]
  • Due in year three - £2,598.84 (1 April 2014 to 31 March 2015) Payable in four equal instalments [on the usual days under the lease in 2014-2015]

Ms Akhtar elected not to pay the charges due immediately, but eventually agreed to defer them under the Landlord’s scheme to register the sum owed as a charge against her leasehold title, so that the bill would be repaid upon the sale of the property. Ms Akhtar, however, brought Tribunal proceedings to determine whether the sums were due and owing.

Separately in respect of some of the major works the Landlord had served a “Section 20B” notice on its tenants informing them that charges had been incurred and would be billed to the tenants in due course, with the intention on preserving the right to demand said charges more than 18 months after they had been incurred. Having around 15,000 such notices to deliver to tenants, the Landlord contracted out the mail-out to “Swisspost” and so were not able to call a witness that could confirm that the specific notice had been put in the post. Ms Akhtar claimed that she had never received this notice.

Issues

The issues, put briefly, were (1) Was the notice of estimated service charges valid so as to create a liability for the Tenant to pay? (2) if the demands were not valid to any extent, had Ms Akhtar waived any such invalidity by availing herself of the Landlord’s deferred payment scheme? (3) Did section 196 of the Law of Property Act 1925 apply to the section 20B notice, and the section 20B notice been validly served on the Tenant?

First Instance

The First Tier Tribunal found that the entire demand for estimated major works charges was invalid because (1) the demand for estimated service charges in respect of 2012-2013 was given too late (i.e. during the service charge year to which it referred and after the date for the fourth instalment of the advance service charge), and (2) the notice was generally “confused and confusing” and the tenant was entitled to a clear and unambiguous demand. 

The Tribunal also found that the Tenant had not waived such a default by entering into the deferred payment scheme.  The Tribunal found that the terms of this scheme were not beneficial to the Tenant and that she had agreed to the deferred charge under significant financial pressure and the threat of court action from a Landlord who was refusing to mediate. 

In relation to service of the 20B notice, the Tribunal found that section 196 of the Law of Property Act 1925 did not apply to the section 20B notices in this case and accepted Ms Akhtar’s evidence that she had not received the notice, therefore finding that it had not been properly served by the Landlord.

Decision on appeal

The Landlord’s appeal was successful on all counts.  The Upper Tribunal, Judge Elizabeth Cooke, sitting as a Deputy Judge of the Upper Tribunal, dealt with the issues as follows:

1. The Validity of the Estimated Service Charge Notices

The Tenant did not resist the Landlord’s appeal in respect of the 2013-14 and the 2014-15 charges included in the notice.  The Judge was of the view that there was no reason why the demand was not valid in relation to these service charge years, as the estimate of charges was given (as per the lease) before the service charge year to which they related had begun. 

In relation to the estimate of the 2012-13 charges, the Judge found that the notice was invalid. Her reasoning was that the lease clearly envisaged that a notice of estimated service charges would be given prior to the service charge year, so that the Tenant could pay in instalments on the specified quarter days. In this case, the notice appeared after the final quarter day, so the normal mechanism was unworkable. There was no valid way that the landlord could demand payment of the full sum all at once on the first day of the following service charge year.

2. Waiver

However, the Judge found that the tenant had waived the Landlord’s non-compliance with the strict terms of the lease by availing herself of the deferred payment scheme. The Judge focussed on the content of the Tenant’s act in agreeing to give the Landlord a charge, pointing out that there was no evidence that the Tenant had stressed that she did not agree that the service charges were payable or that she had made it clear that she was paying under protest and would continue to contest the charge. In the circumstances, her conduct was a clear act of waiver and the Tribunal had erred in law by not finding as such.

3. Service

The Judge reminded herself that to prove that a notice has been service it is necessary to prove that it came to the attention of to whom it was addressed.  This can be difficult to establish when a notice is sent by post. Section 196 of the Law of Property Act 1925 was enacted to relieve serving parties of this difficulty, by providing for the deemed service of any notice “if it is sent by post in a registered letter addressed to the [person to be served]” unless the letter is returned by the postal service undelivered. Section 7 of the Interpretation Act 1978 goes further and provides that certain notices and deemed to have been served if they have been sent by ordinary post, unless the contrary is proved.

The Judge disagreed with the Tribunal’s finding that Section 196 did not apply to Section 20B notices relating to service charges under the lease in question. Clause 5(5) of the lease stated that “Section 196 of the Law of Property Act 1925 shall apply to any notice under this lease.”  The Judge found that the word “under” was wide enough to apply to a section 20B notice, as that notice “enables the landlord to do something prescribed by the lease, in this case to recover a service charge.” She contrasted a statutory notice that enabled the tenant to do something not referred to in the lease, such as exercising a right to buy.  Section 196 therefore applied to the section 20B notice by dint of clause 5(5) in the lease. 

In relation to the Interpretation Act 1978, the Judge accepted the Landlord’s argument that, when section 196 permits service of a document by registered post, section 7 also applies, effectively updating the language of the 1925 Act to include documents sent through the normal (non registered or recorded) post.  The Tenant argued that this did not apply when Section 196 is incorporated into a lease.  The Judge rejected that argument on the basis that when the parties have provided for Section 196 to apply to notices under a lease, they should be taken as having intended it to apply as it would to notices under the 1925 Act, without modification.

Therefore, the Tribunal had erred in law by finding that the notice was not properly served, as there was sufficient evidence provided by the Landlord that the Notice had been properly addressed and posted to the Tenant (by Swisspost).  The Tenant’s assertion that she had not received the notice was not enough to discharge the burden that fell upon her in the circumstances, to prove that the notice had not been received. To say that she had not seen the notice was not the same as proving that it had not been delivered.

Comments

The decision contains some very useful discussion of the incorporation of Section 196 and the potential breadth of its application. Though it should be remembered that the precise wording of the lease will be determinative of how far section 196 is incorporated.    The Judge’s wide interpretation of “any notice under the lease” to include the statutory section 20B notice is likely to be quoted in relation to other similarly termed leases.

 

The decision also gives a salient reminder the decision of Universities Superannuantion Scheme v Marks and Spencer [1999] L&TR 237, which held that Service Charge provisions should be interpreted with their purpose in mind, and that the courts should be slow to find that service charges are not recoverable.  That said, this was clearly a case of the Landlord having failed to properly demand at least part of the charges due under the terms of the lease (in relation to the estimated charges for 2012-13) and the Landlord was forced to rely on the tenant’s waiver to recover these sums.