Landlord and tenant – Service charges – Notification – Respondent landlord granting lease of flat to appellant – Service charges to be ascertained by certificate signed by auditor – First-tier Tribunal determining service charges reasonable and payable subject to provision of valid certificates – Appellant appealing – Whether notification given within time limit for purpose of section 20B(2) of Landlord and Tenant Act 1985 – Whether appellant entitled to reimbursement of service charges paid on account – Appeal allowed in part
127 Ladbroke Grove, London, was a Victorian house converted into five separate flats. The appellant was the lessee of flat 4, originally under a lease granted in 1983. In 2004, the lessees of all of the flats in the building exercised their collective right to enfranchise and acquired the freehold. On 17 January 2013, the appellant was granted a new lease extending the original 99-year term until 3011. The terms of the new lease were the same as those of the original lease except that the rent was reduced to a peppercorn.
The original lease reserved a ground rent payable by equal quarterly instalments on the usual quarter days. By clause 3(2), the appellant covenanted to pay a service charge as further and additional rent.
By clause 3(2)(a), the amount of the service charge was to be ascertained and certified by a certificate signed by the lessor’s auditors, acting as experts and not as arbitrators, annually and so soon after the end of the lessor’s financial year “as may be practicable”.
An issue arose concerning the liability of the appellant to pay service charges to the respondent. In March 2018, the respondent obtained judgment against the appellant in the county court for interim service charges and interest together totalling £8,610.
The First-tier Tribunal (FTT) subsequently decided that, subject to proper certification in accordance with the terms of the lease, service charges which had been claimed in respect of the years from 2014 to 2018 were both reasonable and payable by the appellant.
The FTT dismissed the appellant’s argument that any process of certification which could now be undertaken would occur more than 18 months after the date on which the relevant expenditure had been incurred so that all the service charges were rendered irrecoverable by section 20B of the Landlord and Tenant Act 1985. The appellant appealed.
Held: The appeal was allowed in part.
(1) The reference to a demand in section 20B(1) presupposed that there had been a valid demand for payment of the service charge under the relevant contractual provisions. In the absence of a valid contractual demand within 18 months of a relevant cost being incurred, a landlord would only be able to recover a service charge based on that cost if it could bring itself within the limited exception in subsection (2). That exception required that the landlord inform the tenant within the relevant 18-month period that costs had been incurred and that the tenant would subsequently be required to contribute to them by the payment of a service charge: Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168; [2011] 1 WLR 3014 and No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 [2021] EGLR 37 considered.
Because only a contractually valid demand would suffice for the purpose of section 20B(1), the FTT’s implicit finding that the service charges for 2014 to 2018 had never been certified in the manner required by the lease inevitably meant that the requirement of section 20B(1) had not been satisfied for any of the disputed charges.
(2) The only question for the FTT was therefore whether sufficient notice had been given to the appellant within the 18-month period to stop time running.
The FTT had identified no document which satisfied section 20B(2) and found specifically that nothing had been provided by the respondent containing a statement in the precise form required by section 20B(2). Notification for the purpose of section 20B(2) was required to be in writing. The FTT was not entitled to find that some unspecified document must have been sufficient to provide the required notification. At the very least, it was essential that such documents should be identified so that the parties and the Upper Tribunal (UT) could consider whether they contained the necessary information. It could not simply assume that the necessary documents existed. There was no evidence to support such a finding. Therefore, the FTT’s decision that section 20B(2) was satisfied had be set aside.
(3) The appellant’s liability to pay the interim service charges was definitively resolved by the judgment of the county court in March 2018. Clause 3(2)(h) of the lease required the account and balancing calculation to be carried out as soon as practicable after the signature of the certificate. No valid certificate had yet been signed, so the time to carry out the balancing calculation had not yet arrived. The question whether there was any document, or combination of documents, which satisfied section 20B(2) did not arise until after certification.
Section 19(2) of the 1985 Act provided that where a service charge was payable before the relevant costs were incurred, no greater amount than was reasonable was payable, and after the relevant costs had been incurred any necessary adjustment was to be made by repayment, reduction of subsequent charges or otherwise. The county court decision established that the interim charges were reasonable so no adjustment was necessary.
(4) Section 20B relieved the tenant of liability to pay so much of a service charge as reflected costs incurred more than 18 months before a proper contractual demand. But having identified that lesser sum, there was nothing in section 20B which provided for repayment of any resulting balance in the lessee’s favour. Section 20B only had the effect of limiting the recovery of sums for which the lessee would otherwise be liable and did not interfere with the contractual machinery for identifying those sums.
The FTT was prevented by the county court judgment, and by section 27A(4)(b) of the 1985 Act, from considering the recoverability of the interim charges at all. It was also prevented by the absence of proper certification from considering what balancing charge was payable under clause 3(2)(h). It followed that the appellant was not entitled to an order for reimbursement of the sum paid to meet the county court judgment. The only part of the FTT’s decision to be set aside was its finding that notification had been given for the purpose of section 20B. The decision would be set aside to that extent.
The appellant appeared in person; the respondent did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Parmar v 127 Ladbroke Grove Ltd
