Service charges – Implied term – Leases providing for interim payments in respect of estimated service charges with “maintenance adjustment” to actual figure after end of calendar year – Whether implied term that maintenance adjustment to be determined with reasonable time – Whether breach resulting in no service charge payable for year in question – Leasehold valuation tribunal determining no service charges payable to appellant landlords – Appeal allowed
The respondents were the long lessees of properties on an estate. The first appellant was the original lessee but later transferred the freehold to the third appellant; the second appellant managed the estate and was also a party to the leases. These provided for the lessees to pay service charges for each calendar year by way of payments on account, in January and July, in respect of interim demands, based on estimated figures. After the end of the year, there was to be a final calculation to ascertain the actual figure or “maintenance adjustment”, whereupon the lessees were to pay any shortfall or the second appellant was to give credit for, or repay, any overpayment.
In November 2008, the first respondent applied to the leasehold valuation tribunal (LVT) for a determination, under section 27A of the Landlord and Tenant Act 1985, of the amount of service charges payable in respect of his property for the years 2007 and 2008. The other respondents were later joined as additional parties to those proceedings.
In a decision issued in June 2009, the LVT held that: (i) the leases contained an implied term that the second appellant would determine the maintenance adjustment within a reasonable time after the end of each year; (ii) breach of that term invalidated any interim service charge demand; and (iii) since a reasonable time had elapsed since the end of 2007 and 2008, no service charges were payable for those years. The appellants appealed.
Decision: The appeal was allowed.
There had been nothing wrong with the interim demands for payments on account of service charge for 2007 and 2008 when they were made. They had not subsequently been invalidated by a breach of the implied term as to the calculation of the maintenance adjustment within a reasonable time. Although it had been appropriate to imply such a term where the lease did not specify any express period for the determination of the maintenance adjustment, time was not of the essence with regard to that implied term. Accordingly, although the maintenance adjustments for 2007 and 2008 had not been calculated within a reasonable time, that breach of the implied term did not automatically mean that all the lessees’ obligations to pay service charge in respect of those years disappeared. The remedies potentially open to the lessees were: (i) an action for damages at common law in respect of any loss caused by the delay in determining the maintenance adjustment; (ii) an application to the court for the taking of an account or for specific performance; or (iii) a determination by the LVT of the amount of the service charges, pursuant to section 27A of the 1985 Act. There were no grounds on which the LVT could properly decide that the consequence of a breach of the implied term was the total loss of the right to charge any service charge for the years in question. For such a result to ensue, the leases would need to contain some express provision to that effect. Such a term could not be implied as being necessary for business efficacy, or on the “officious bystander” test, or on any other basis. The question of how much service charge was payable for 2007 and 2008 should therefore be remitted to the LVT for determination on the merits.
Andrew Vinson (instructed by the legal department of Redrow Homes Ltd, Manchester DIvision) appeared for the first appellant; Douglas Readings (instructed by Hadgkiss Hughes & Beale, of Birmingham) appeared for the second and third appellants; the first respondent appeared on behalf of himself and the second respondent; the other respondents did not appear and were not represented.
Sally Dobson, barrister
