Jetha v Basildon Court Residents Company Ltd  

[2017] UKUT 58 (LC), 16 February 2017

HHJ Behrens

The Upper Tribunal (Lands Chamber) has given guidance on the approach to be followed by the First-tier Tribunal (Property Chamber) when considering whether there is an estoppel by convention which prevents a leaseholder from denying the payability of a service charge which has not been demanded in accordance with the terms of the lease.

Robert Brown of Arden Chambers, instructed by Guillaumes Solicitors, represented the service company

Service charges

Long leases of flats typically require the landlord to keep parts of the building comprising the flats in repair, e.g. the structure and exterior. Many long leases also provide that the landlord or some other party may carry out improvements to the building.

Long leases usually provide for the tenant to bear a proportion of the expenditure on the building. It is not uncommon for the tenant’s liability to pay to be predicated upon the fulfilment of some condition by the landlord or other party, such as the provision of certified accounts.

Estoppel by convention

An estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law: Republic of India v India Steam Ship Co Ltd [1998] AC 878, HL. The effect of an estoppel by convention is to prevent one party from denying the common assumption if it would be unjust to allow them to go back on it.

In Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023, the Court of Appeal set out five principles applicable to estoppel by convention.

First, it is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. Agreement to the assumption may be inferred from conduct or even silence.

Secondly, the expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely on it.

Thirdly, the person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter.

Fourthly, that reliance must have occurred in connection with some subsequent mutual dealing between the parties.

Finally, some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true position.

In two recent Upper Tribunal (Lands Chamber) decisions, it has been held that the tenants were estopped by convention from disputing the payability of service charges even though they had not been demanded in accordance with the terms of the leases: Clacy v Sanchez [2015] UKUT 387 (LC); and, Admiralty Park Management Co Ltd v Ojo [2016] UKUT 421 (LC). In another UT(LC) decision, decided after the first instance decision in the present case, it was, however, held that estoppel by convention did not apply on the facts of that case: Bucklitsch v Merchant Exchange Management Co Ltd [2016] UKUT 527 (LC).

Facts

The respondent was the service company under tripartite leases of flats in a block in London. The leaseholders of the flats were all members of the respondent. By separate deeds of covenant, each leaseholder covenanted to pay to the respondent a service charge and contributions to a sinking fund in such sum and “in advance or arrear as the Service Company shall at its annual general meeting by majority agree”.

The appellants acquired the long leases of 11 flats between 2003 and 2011. They entered into deeds of covenant for each flat. The respondent issued demands for on-account payments of service charges in advance of each year and for contributions to a sinking fund. The appellants paid these demands until 2014. The appellants did not pay for 2014 and 2015. The respondent issued proceedings for the unpaid demands. The appellants contended that the on-account demands and sinking fund contributions had not been agreed at an AGM, as required by the deeds of covenant.

The proceedings were transferred to the First-tier Tribunal (Property Chamber). The F-tT(PC) held that the appellants had not received notices or minutes of the AGMs and that the demands had not been agreed at an AGM. The appellants were, nonetheless, still liable to pay them because there was an estoppel by convention based on the appellants’ payments over several years of the service charge and sinking fund demands without previously challenging the failure to agree the demands at an AGM. The appellants appealed to the Upper Tribunal (Lands Chamber).

Decision

The UT(LC) referred to the decision of the Court of Appeal in Blindley v Bass, which set out the steps necessary to establish an estoppel by convention. In particular, the FTT(PC) needed to identify what common assumption is shared between the parties, especially where the parties could be proceeding on the basis of different assumptions. The FTT(PC) also needed to determine whether it could be said that the appellants had “crossed the line” and assumed some responsibility for the common assumption. Mere payment of invoices over time was not sufficient where, as here, the appellants had not known that the demands were not being agreed at an AGM. Any detriment suffered by the respondent was insufficient to make it unjust or unconscionable for the appellants to assert the true position as there was nothing to prevent the respondent from proposing and passing appropriate resolutions in respect of the 2014 and 2015 demands, at which point the appellants would have to pay them. The appeal was therefore allowed.