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Service Charges & Estate Management Update – September 2015

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7th October 2015

Simon v St Mildreds Court Residents Association Ltd [2015] UKUT 0508 (LC)

The requisite consent of a majority of parties to vary a lease in accordance with s.37 of the 1987 Act must have been achieved at the date the application is issued.

Facts

The service charge provisions in the leases provided that the service charge shall be apportioned amongst lessees according to rateable values. The problem was that 3 of the 29 flats did not have a rateable value. On 10 June 2014 the landlord issued an application to vary the terms of the leases proposing that the service charge be paid equally between all lessees. By a letter of the same date (10 June 2014) the landlord invited the lessees to agree or disagree with the application which that day had been issued. Enclosed with the covering explanatory letter was a copy of the application and the proposed new terms of the lease as well as a piece of paper entitled “Agreement” which was to provide the lessees with an opportunity to accept or reject the proposal. A total of 23 lessees consented which, when added to the applicant freeholder, totalled 24 thereby garnering the requisite majority. The FTT was “satisfied on the balance of probability that informed consent to the variation had been given by 26 of the lessees and that none of the points raised affected the validity of the number of consents required to comply with the provisions of the 1987 Act.” One of the lessees appealed.

On Appeal

The respondent landlord submitted that whilst it was accepted that the consent of the requisite majority had not been obtained at the time when the application was issued on 10 June 2014, it had been obtained at the time when an application in relation to the hearing and at the time of the hearing itself which, as a matter of construction, was sufficient.

Held

The UT (HHJ Gerald) held that the consent of at least 75% of the total number of the parties concerned must have been obtained before the application was made because that is what the section says, specifically: “any such application shall only be made if” the requisite majority has approved. Marshall Dixon v Wellington Close Management Ltd [2012] UKUT 95 (LC) applied.

Ingram v Church Commissioners for England [2015] UKUT 0495(LC)

The VAT which the landlord had to pay to its managing agent in respect of the salaries of the agent’s caretaking staff was recoverable through the service charge as such VAT did not fall within the extra-statutory concession set out in VAT Notice 48 para.3.18.

Facts

A lease included an obligation on the part of the landlord to “employ such number of porters and staff as the Lessors shall from time to time think reasonable in and about the performance of the relevant covenants by the Lessors”. The relevant clause continued as follows: “the Lessors may pay to Porters and staff in addition to wages such allowances in respect of uniform rent food and maintenance as the Lessors shall from time to time determine And generally the Lessors may employ and pay such contractors agents or servants (including the Agent) and may incur such costs as they shall think necessary or desirable in and about the performance of the covenants and provisions of this Schedule”. The landlord sought to discharge its obligations under that clause by employing a managing agent, which in turn employed caretakers/staff in relation to the development of which the tenant’s flat formed part. The invoices submitted by the managing agent to the landlord included VAT on the salaries of the staff in question, and such VAT was included as part of the service charges sought to be recovered from the tenants. The issue was whether the relevant items of VAT included in the service charges fell within the extra-statutory concession set out in VAT Notice 48 para.3.18, which exempted “all mandatory service charges or similar charges paid by the occupants of residential property towards the upkeep of the dwellings or block of flats in which they reside and towards the provision of a warden, caretakers and people performing a similar function for those occupants”.

Held

The UT (HHJ Alice Robinson) held that concession did not apply as the agent’s charges were not “mandatory service charges”. The concession did not apply to any charges paid by the landlord (or other person levying the service charge) to third parties for the supply of services even though the cost of those services was passed on to a residential occupier through a service charge. Where a landlord employed staff directly and passed the cost on to the tenants through a service charge, no VAT would be payable on the salaries of such staff. On the other hand, where the same staff were employed by a managing agent who invoiced the landlord for their services, VAT would be payable on the salaries and that could be passed on to the tenants through the service charge. The judge observed, obiter: Given that the standard rate of VAT was 20%, that could give rise to significantly increased service charges and an argument that the service charge was not reasonably incurred for the purposes of s.19 but that was not an issue that the lessee had raised.

Clacy v Sanchez [2015] UKUT 0387(LC)

(1) On the true construction of the lease, the ascertainment and certification of the service charge was not a necessary or essential pre-condition to the ability of the management company to seek payment of the service charge; (2) There had been a course of conduct which constitutes an equitable estoppel by precluding the lessees from seeking to assert that there should now be a certification process in accordance with the terms of the lease, or the lessees had waived any right to resile from the position that had been adopted throughout the period of 19 years or so both by themselves and their predecessors in title.

Facts

Clause 2(2)(ii) of a lease included a covenant on the part of the lessee “To pay to the Management Company without any deduction upon written demand (and in advance if required) an amount equal to the sum of the percentage of the general expense (such sum being here and after called “the service charge”) or any of the general expense and at all times keep the Lessor and the Management Company indemnified in respect of the same.” The provisions regarding the mechanics for preparing and serving a certified service charge account were prefaced by the words “Without prejudice to the covenant contained in clause 2(2)(ii) the following terms and conditions shall apply to the payment of the service charge by the Lessee …” The FTT accepted that there had been a meeting in around 1993 between the landlord and the previous leaseholders at which it had been agreed that certification of the annual service charge was not required.

Issues

(1) was the certification of the service charge accounts a condition precedent to the lessees’ liability to pay the service charge; (2) Was there an agreement giving rise to a common understanding, or assumption, between the parties that certification would not be required and, therefore, had an equitable estoppel arisen in the nature of an estoppel by convention?

Held

The UT (Judge Edward Cousins) held (1) The lease contained a primary obligation on the part of the lessees to pay to the management company upon written demand the service charge. The words “without prejudice” indicated the machinery for the payment of the service charge by the lessees, and the method by which the amount of such charges shall be ascertained and certified annually: the requirement for certification was therefore not an essential pre-requisite to the payment of the service charge by the lessees. (2) There had been a course of conduct which constitutes an equitable estoppel by precluding the lessees from seeking to assert that there should now be a certification process in accordance with the terms of the lease, or the lessees had waived any right to resile from the position that had been adopted throughout the period of 19 years or so both by themselves and their predecessors in title.

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