Service Charges & Estate Management - August 2011 update

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SERVICE CHARGES AND ESTATE MANAGEMENT

AUGUST 2011 UPDATE

Brent LBC v Shulem B Association Ltd [2011] EWHC 1663 (Ch);

Summary: The appellant lessee company (S) appealed against a refusal to strike out the respondent freeholder local authority's claim for service charge costs due under a lease. The local authority owned five blocks of flats. S was the lessee of 15 flats within the various blocks. S covenanted under cl.2(6) of the leases to pay a due proportion of various expenses incurred in respect of the flats. The local authority decided that extensive works were required to the flats, which involved costs incurred in relation to "qualifying works" within the Landlord and Tenant Act 1985 s.20 and "relevant costs" potentially within s.20B. It gave notice to S in March 2004 of the intended works and the estimated cost. It invoiced S in February 2006 for major works carried out in 2003-04, based on those estimated costs. S did not pay. In December 2006 the local authority invoiced S for the actual amount due, which was less than the estimate. S again did not pay. The local authority brought proceedings against S to recover sums due under cl.2(6). S argued that the relevant costs were incurred more than 18 months before December 2006 and applied for the proceedings to be struck out on the basis that the local authority was barred from recovering the costs by virtue of s.20B(1). The judge held that the February 2006 letter was not a valid demand for the purpose of cl.2(6) and/or s.20B(1), but that it had constituted a relevant notification for the purposes of s.20B(2).

Held (allowing the appeal): (1) Clause 2(6) required that a demand specified the figure to be paid by S.  Clause 2(6) allowed the local authority to demand a due proportion of actual expenditure; it did not allow the local authority to require payment of a figure which it stated was not based on actual expenditure, or to claim a sum which was stated to be in excess of its entitlement with an offer to refund any overpayment at a later date. The February 2006 letter did not satisfy the requirements of cl.2(6) with regard to the form and content of a valid demand. The reference to a demand in s.20B(1) presupposed that there had been a valid demand for payment of the service under the relevant contractual provisions. As the February 2006 letter was not a valid demand under cl.2(6), it followed that it was not a "demand for payment of the service charge" within s.20B(1) (see paras 38-43, 45-53 of judgment). (2) With regard to interpretation of s.20B(2), the written notification had to state a figure for the costs incurred by the local authority. Such a notice would be valid for the purposes of s.20B(2) even if the costs later put forward in a demand were in a lesser amount. Also, the notice had to inform S that it would subsequently be required under the terms of the lease to contribute to those costs by the payment of a service charge. It was not necessary for the notice to inform S as to what proportion of the costs would be passed on to it nor what the resulting service charge demand would be. Applying that interpretation to the February 2006 letter, it did not satisfy the requirement under s.20B(2) that it should contain a statement "that those costs had been incurred" when it did not purport to state what the actual costs were and included a statement that the actual costs might be greater than the estimated costs referred to, and that the local authority would wish to recover any such excess (paras 54-68). (3) The February 2006 letter was therefore not a demand for the purposes of cl.2(6) of the lease, nor was it a demand for payment of the service charge or a notification in writing for the purposes of s.20B (para.70).

Amourgam v Valepark Properties Limited [2011] UKUT 261 (LC)

Issue: where a demand for payment of a service charge is made after the coming into force of section 21B of the Landlord and Tenant Act 1985, must that demand comply with section 21B even if the relevant items of expenditure (i.e. the items of expenditure which the landlord seeks to recover through the demand for payment of service charge) were incurred by the landlord prior to 1 October 2007?

Held: (HHJ Huskinson) the fact the items of expenditure for which a service charge is demanded may have been incurred prior to 1 October 2007 does not excuse a demand made after 1 October 2007 from having to comply with section 21B. Section 21B applies to all demands for service charges made after the commencement of section 21B, save in so far as such compliance is excused by the transitional provisions in the 2007 Regulations.

Redrow Homes (Midlands) Limited, Dickens Heath (Phase 5) Management Company Limited, Gala Unity Limited v Hothi & Others [2011] UKUT 268 (LC)

Summary: Without considering the merits of the application and examining the amount of the service charges properly payable for service charge years 2007 and 2008, the LVT decided that nothing whatever was payable on the basis that:

  1. there was an implied term in the Leases that the Management Company would determine the adjustment between the interim and actual service charge within a reasonable time after the end of the year;
  2. a breach of this implied term invalidated any interim (service charge) demand; and
  3. as a reasonable time had elapsed since the end of 2007 and 2008, the interim demands for 2007 and 2008 (which were properly demanded in accordance with the terms of the lease)  were now invalid.

If this were correct, the effect would be that, even if a landlord dutifully and competently provides excellent and valuable services throughout the service charge year, that landlord becomes disentitled to charge anything at all for the relevant year (and in consequence will become obliged to repay or make an allowance to the tenants for anything paid on account) if the landlord does not within a reasonable time after the end of the relevant year calculate the adjustment between the interim and actual service charges.

Held: There was an implied term that the adjustment would be determined in a reasonable period of time.  There was no evidence upon which the appellate tribunal could interfere with the finding that there had been a breach of the implied term.  The crucial question was what the effect of the breach is.  Breach did not automatically mean that all of the Tenant's obligations to make payments of service charge in respect of that year disappeared. The remedies potentially open to the Tenants were either (i) an action for damages or (ii) an action for specific performance or for an account or (iii) an application to the LVT under the Landlord and Tenant Act 1985 for the determination of the service charges payable.

HHJ Huskinson was also critical of the LVT for seeking to uphold its decision (and seeking to justify a refusal of permission to appeal) by reference to new points which were never raised in the original decision: “It may perhaps be that such a new point could properly be mentioned in a refusal of permission to appeal if there was some obvious and unanswerable point which had unfortunately been overlooked in argument before the LVT and in the LVT's decision, being a point which was necessarily determinative of the case. However here the two points raised by the LVT, without any development or reasoning, are not within such a category as last mentioned. In fact in my judgment both points are plainly wrong.”

Rapporteur to review service charges in London

On 6 July 2011 the London Assembly Planning and Housing Committee agreed to recommend to the Business Management and Administration Committee the appointment of a rapporteur to carry out a review of service charges in London with the following terms of reference:

“To understand the nature of service charges in London, how they are calculated, charged and administered by landlords, and paid for by leaseholders”

JONATHAN UPTON

TANFIELD CHAMBERS

AUGUST 2011