Service Charges & Estate Management - September 2013

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SERVICE CHARGES AND ESTATE MANAGEMENT

SEPTEMBER 2013 UPDATE

London Borough of Southwark v Woelke [2013] UKUT 0349(LC)

Summary: The appellant landlord was not entitled to recover £4,039.26 from the respondent towards the cost of major works because it had billed the service charges for the major works separately from more routine recurring service charges and, accordingly, it had not followed the terms of the lease.

Facts: The service charges claimed by the appellant landlord related to the respondent tenant's share of the cost of two programmes of major works carried out at Tabard Gardens Estate in London SE1 (“the Estate”).  In 2004, windows were replacement in 19 blocks on the Estate.  On 6 July 2005 the landlord delivered a document headed “Service Charge Invoice, Major Works” to the tenant, seeking payment of £3,486.27, referred to as “estimate charge: window renewal”. On the reverse of the invoice, under the heading “Terms of Payment”, it was said that payment could be made by equal instalments over 12-months “from the due date”, although the invoice itself did not specify what that due date was.

Separately from the major works involving the replacement of windows, the landlord began to consult leaseholders on a programme of works to refurbish or replace the cold water storage tanks on the Estate.  On 7 October 2009 the landlord wrote to the tenant enclosing an invoice for £518.49, representing the estimated charge for the replacement of the cold water storage tanks. The covering letter stated that under the terms of the tenant’s lease he was liable to pay the invoice by four equal instalments over a period of 12 months, but drew attention to the landlord’s willingness to accept payment by standing order over 36 months.

The replacement of the water tanks went ahead and on 4 November 2010 the landlord informed the tenant that the final account had now been drawn up. The cost of works to the tenant’s block was identified as £20,867.12, and the tenant’s contribution was stated to be £552.99. As this was greater by £34.50 than the estimated sum a further invoice for the balance of the respondent's contribution was provided. A statement was also delivered showing the total sum of £552.99 said to be due from the respondent for the cold water storage tanks, reflecting the fact that he had not paid the invoice delivered in October 2009.

The tenant refused to make any payment for either the windows or the cold water storage tanks and eventually the landlord commenced proceedings in the county court for the recovery of the aggregate sum of £4,039.26. That claim was transferred to the LVT.

The service charge mechanism in the lease followed a conventional pattern of charging for services by reference to defined years, with equal quarterly payments based on an estimate of expenditure for the forthcoming year followed by a balancing payment or credit once a final year end account has been prepared.

First Instance: At the hearing before the LVT, the landlord explained that it was estimating, billing and attempting to collect annual service charges for the other services it provided to the Estate separately from its attempts to recover the cost of the major works.  The LVT decided that because the appellant had billed the service charges for the major works separately from more routine recurring service charges it had not followed the terms of the lease, and that as a result the sum claimed was not yet payable

Issue: The UT was concerned with whether the invoices delivered by the landlord on 6 July 2005, 7 October 2009 and 4 November 2010 complied with the lease so as to create a liability on the part of the tenant to pay. The landlord argued that not only was the LVT’s decision wrong in requiring a single composite demand for both routine and major works charges, but also that it followed from the decision that the service of a revised demand after notice of the final sum due had been given was precluded, even where an item had been omitted from the calculation of the service charge by mistake.

Decision on Appeal:  The starting point was the service charge obligation of the leaseholder and in particular on how and when his obligation to pay arises. The obligation was to pay the Service Charge “at the time and in the manner” set out in the Third Schedule. The minimum requirements of a valid notification (which are common in long leases of flats) depended on the terms of the Third Schedule.

The Deputy President (Martin Rodger QC) rejected the landlord’s submission that certain elements of the description of a notice should be regarded as subsidiary, inessential or merely directory: “The service charge machinery is not complex or technical; it is clear and straightforward, and the parties are not likely to have intended that it would be deviated from by omission of any of the simple steps by which the sum due is quantified and explained. Without each of the pieces of information to be notified to the leaseholder a purported notice would therefore fall short of the requirements of paragraph 4(1) [of the Third Schedule] and would create no liability on the part of the leaseholder.”

The requirements of notice should, however, be approached in a non-technical manner and that it was not necessary that all of the information be provided in a single document or even on a single occasion.  A departure from the minimum requirements for effective notification was not irremediable but the landlord was required to provide revised or additional notification which, either alone or in conjunction with material previously supplied, is compliant with [the requirements in the Third Schedule] and allocates costs to the years in which they were incurred.  There was no scope for saying that the provisions of the landlord’s standard lease only give it one opportunity to get its demands right.

Dismissing the appeal, the Deputy President held that the invoices did not comply with the requirements of the Third Schedule and did not therefore create a liability on the part of the tenant to pay the sums demanded. 

Comment: This case emphasises the importance of understanding and following the service charge machinery in the lease.  The service charge will not be recoverable unless it is demanded in accordance with the terms of the lease.

R (on the application of Ground Rents (Regisport) Ltd) v Upper Tribunal (Administrative Appeals Chamber) [2013] EWHC 2638 (Admin)

Summary: The Upper Tribunal's refusal of permission to appeal against a decision of the LVT was quashed where the decision to refuse permission had been taken on the basis of a mistaken assumption.

Facts: The Claimant landlord, Regisport, acquired the freehold to three blocks of flats from the developer, Countrywide, on 1 October 2004. Countrywide had previously entered into an agreement with Thames Water to pay for water supplies, intending to recover the costs from leaseholders through the service charge.  Thames continued to send demands for payment to Countrywide after the freehold had been transferred and, as a result, no water charges for two of the three blocks of flats were paid to Thames or collected from the leaseholders between June 2005 and early 2011.  

When Regisport sought to recover from the leaseholders the sums charged by Thames, the leaseholders disputed liability on the grounds the demands had not been served within 18 months of the costs being incurred.  The LVT found in favour of the leaseholders.

Regisport applied to the UT for permission to appeal contending that the fact that Countywide had been sent invoices did not mean that Regisport incurred liability.  The UT refused permission based on the mistaken assumption that the demand sent to Countrywide was sent before the transfer of the freehold to Regisport.  In a subsequent letter, the UT acknowledged its mistake and invited Regisport to consider asking the tribunal to review its decision.  It stated that any such application would need to satisfy the tribunal that it had the power to review the decision.

Regisport took the view that the UT did not have power to review its decision and so made a claim for judicial review on two grounds: (1) there was no evidence to support the assumption that the demands for payment were sent to the previous landlord sent before the freehold was transferred; (2) the assumption was contrary to findings of fact made by the LVT.

Held (Leggatt J): There had been a mistake of fact which the UT had itself acknowledged.  The refusal was quashed and the matter remitted to the UT.

Comment: The Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 do not expressly provide that the tribunal can review a refusal by it to give permission even in circumstances, such as the instant case, where the refusal was based on a mistake of fact.  It is doubtful that such a power exists.   

JONATHAN UPTON

TANFIELD CHAMBERS

SEPTEMBER 2013