UKUT 252 (LC)
HHJ Behrens and Mr McCrea FRICS
The Upper Tribunal (Lands Chamber) has allowed an appeal by a leaseholder in a case where it was contended that sums demanded on account of service charges were not reasonable for the purposes of s.19(2), Landlord and Tenant Act 1985, on the grounds that the landlord had failed to comply with the service charge machinery under the lease and had otherwise failed to provide adequate evidence to justify the sums sought.
Annette Cafferkey appeared for the appellant leaseholder.
Where a service charge is payable before costs are incurred, no greater amount than is reasonable is payable: s.19(2), Landlord and Tenant Act 1985. Where a lease provides for the amount payable as a service charge to be certified by the landlord’s surveyor or accountant, the issue of a valid certificate will usually be a condition precedent to the tenant’s liability to pay. Whether certification requirements have to be complied with as a “condition precedent” in relation to a payment on account will, similarly, depend on the lease provisions.
Spembly Works was a former factory converted into 33 residential flats, held on long residential leases, the landlord of which was the residents’ association, owned or managed by some of the leaseholders. Thirteen of the flats were registered to Wigmore Homes (UK) Limited (“the leaseholder”).
Then landlord issued proceedings for the recovery of service charges. All the sums sought were in respect of interim invoices raised in the years 2009/2010 to 2015/2016 for sums on account of service charges, none of which had been paid by the leaseholder. The F-tT held that the sums sought were payable. Permission to appeal was granted to the leaseholder on the issue of the role of certificates in the contractual scheme of the lease and on the issue of whether the lack of service charge certificates showing overpayments was relevant to the considerations arising under s.19(2).
The lease required the leaseholder to pay to the landlord an amount that it considered fair and reasonable on account of the service charge and, forthwith on receipt of “the Certificate”, to pay the balance of the service charge. “The Certificate” was further defined to be the amount of service charge ascertained and certified annually by the landlord or managing agents, and had to contain a fair summary of the landlord’s incurred expenditure. The landlord was also obliged to provide the leaseholder with an account of the service charge payable for costs carried forward and to carry forward any amounts overpaid.
After noting that demands for most years (2011-2016) were in exactly the same amount, and that the interim amounts demanded were approximately twice as much as expenditure, and despite finding that there was no doubt that the landlord had failed to comply with lease provisions as to the certification of the amount of the service charge, the Upper Tribunal dismissed the leaseholder’s arguments on condition precedent.
The Upper Tribunal went on, however, to reject the argument that the absence of certification would never be relevant to s.19(2), holding that the onus was on the landlord to establish the reasonableness of its demands, which could not be done on the basis of inference, but should be justified by reference to evidence which, in this instance, the landlord had not adequately provided. The amounts claimed had not be shown to be reasonable for the purposes for s.19(2). Doing the best it could with the available evidence, the Upper Tribunal reduced the demands by 50% for six out of the seven years under challenge.