Landlord and tenant – Service charge – Demands – Respondent landlord serving demands on appellant lessees of flats for on-account service charges for three successive years – Demands based on budget estimate prepared by respondent but not enclosed with demands contrary to requirements of lease – Whether demands invalid so as to preclude respondent from recovering any service charge for the relevant years – Whether sums demanded becoming payable on provision of estimate – Appeal allowed
The appellants were all lessees of flats in a recently-constructed block in Bromley under long leases from the respondent as landlord. The leases provided for the payment of an annual service charge to the respondent on the basis set out in a schedule. A dispute arose between the parties regarding the service charge for the years 2011-12, 2012-13 and 2013-14; the appellants claimed that no service charge at all was payable for those years because the respondent, by omitting to serve a copy of its budget estimate when demanding on-account payments, had failed to make valid demands complying with the requirements of the lease and could not now make any fresh demand, by reference both to the terms of the leases and the provisions of section 20B of the Landlord and Tenant Act 1985.
The FTT found that an estimate had in fact been prepared in respect of 2011-2012 and that the service charge demands based on that estimate were valid notwithstanding that a copy of the estimate was not enclosed. The 2011-2012 estimate was provided to the appellants during the course of the proceedings. In respect of the years 2012-2012 and 2013-2014, the FTT found that no fresh estimates had been prepared for those years but that the service charge demands were nonetheless valid since the respondent had regarded the 2011-2012 estimate as being an appropriate calculation which was equally applicable to the subsequent years and had continued to base the demands on it. The appellants appealed.
Held: The appeal was allowed.
(1) The service charge provisions in the leases were ill-drafted or curiously drafted in various respects. It was relevant for present purposes that they did not make time of the essence as concerned the time periods for preparing estimates or complying with other such obligations, nor was any consequence laid down for failure to comply with any time period. Moreover, the respondent as landlord was under an unqualified obligation to provide the services and could not say that its obligation was conditional on proper receipt of a due proportion of the costs by way of service charge from the lessees. There was no provision for the landlord to claim payment of service charge in respect of any shortfall between the amounts actually spent on services during the relevant year and the amounts actually received by way of interim payment. Taking those matters into account, the service charge provisions could not be read as requiring strict compliance, so far as concerned demands for service charge on account by way of interim charge, failing which the respondent would have to go without any payment at all. While there were deficiencies in the provisions dealing with how the lessees were to pay the charge, it was apparent that the purpose of the service charge provisions was to enable the landlord to recover from each lessee a due proportion of all expenditure, overheads and liabilities which it might incur in connection with complying with its obligations in relation to the building. That being so, the tribunal should be slow to construe the service charge provisions in a way which resulted in the respondent being obliged to provide the services without being entitled to receive any payment in respect of them. Properly construed, the lease did not have that effect.
(2) For the year 2011-2012, the respondent had prepared the required estimate in writing of the service costs which it expected to incur during the forthcoming accounting period. It should have enclosed that estimate with the statement which it then served on the appellants, showing the service charge payable on account of the estimated service costs, but it had failed to do so. The demand for payment made by the respondent was nonetheless a demand made in accordance with a properly prepared estimate. The only defect was that the respondent had omitted to enclose a copy of the estimate. That defect was not fatal to the lessees’ liability to pay the service charge so demanded. Once a copy of the estimate was provided, albeit woefully late, the appellants each then had all the information to which they were entitled so far as concerned the demand for on-account payments for the year 2011-12. While the charge was not payable until the respondent complied with the requirements of the lease, as from the date of receipt of the estimate the appellants each became obliged to pay the amount of the demands for payment of interim service charge for the year 2011-12. It was not necessary for any fresh demand to be issued.
The demands made in 2011 for the on-account payments for the year 2011-12 thus became effective demands in 2014. Since they were demands in respect of estimated costs to be incurred, not in respect of costs which had been incurred, the time limits for recovery in section 20B of the 21985 Act did not apply to them: Gilje v Charlegrove Securities Ltd [2003] EWHC 1284 (Ch); [2003] 3 EGLR 9 considered.
(3) The position was the exactly the same for the years 2012-13 and 2013-14. While the respondent had not prepared separate estimates specifically in respect of those two years, it had adopted and applied the estimate for 2011-12 in respect of those years and it was entitled to proceed in that manner. Accordingly, when, in 2014, the respondent eventually provided a copy of the 201-2012 estimate, the sums demanded in respect of those two later years thereupon became payable. The appellants could have challenged the amounts of the demands under section 19 of the 1985 Act, as part of the FTT proceedings, but they but had not done so.
The first appellant appeared on behalf of the appellants; Denis Minns MSc FRICS appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Skelton and others v DBS Homes (Kings Hill) Ltd
