Landlord and tenant – Service charge – Liability – Estoppel by convention – Whether appellants liable for interim service charges and sinking fund contributions demanded by respondent service company – Condition precedent of liability that sums approved by majority of members of respondent at AGM – Whether appellants bound by estoppel by convention preventing reliance on absence of AGM approval – Appeal allowed
The appellants held long leases of 11 flats in a 1930s mansion block in London, W1G. They were members of the respondent service company, which held a long lease of the common parts of the building. Pursuant to the terms of their leases, the appellants entered into deeds of covenant under which they were obliged to pay a service charge to the respondent in “such sums… as the Service Company shall at its annual general meeting by majority agree.”
The appellants ceased to pay the service charge in June 2014 owing to a dispute over management problems within the building. In 2015, the respondent brought county court proceedings to recover unpaid service charges of £41,098, plus interest, comprising interim service charges, sinking fund contributions and a modest sum for administration fees.
The matter was transferred to the first-tier tribunal (FTT), which found that the lease did not provide for the collection of an administration fee but that the appellants were liable to pay the interim service charge and sinking fund contribution. It held that: (i) liability for those items was subject to a condition precedent requiring prior approval by a majority at an AGM; (ii) there had been such no prior approval of the interim service charge or the sinking fund contribution for 2014 or 2015; but (iii) an estoppel by convention arose, preventing the appellants from relying on the lack of AGM approval.
In reaching that finding, the FTT took into account that: (i) the appellants had been tenants within the block since 2003; (ii) they were members of the respondent and entitled to attend the AGM; (iii) even though they did not receive notice of the AGMs, they were business people who must have been aware of the requirements for AGMs and who could have enquired about them and attended to challenge the interim service charge and sinking fund contribution had they wished; (iv) they had been content to accept the system of service charge and sinking fund demands until they were suffering the consequences of management problems; and (v) in the absence of estoppel by convention, the respondent would suffer detriment and the appellants would be unjustly enriched by not paying for benefits which they had willingly accepted. The appellants appealed.
Held: The appeal was allowed.
For an estoppel by convention to arise, there had to be a common assumption shared between the parties. The FTT had failed to identify the common assumption on which the estoppel was based. There were two possible common assumptions: first, that the respondent had complied with the obligations in the deeds of covenant and the necessary resolutions had been passed; or, second, that there was no need for any resolution. The matter was important because the parties might have made different assumptions. The respondent might well have assumed that no resolutions were necessary while the appellants might have assumed that the provisions of the lease had been carried out.
The existence of an estoppel by convention also required that the appellants had “crossed the line” and assumed some element of responsibility for the common assumption. However, that requirement was not made out on the facts. The documents sent out and received by the appellants made no reference to any resolution at the AGM. The appellants did not attend any of the AGMs. The highest that the matter could be put was that their predecessors in title in relation to some the flats attended the meetings and that the appellants paid the invoices without objection until 2014. Those facts were insufficient to cross the line.
Further, any detriment suffered by the respondent or benefit conferred on the appellants was insufficient to make it unjust or unconscionable for the appellants to assert the true legal position. It was not the case that, without the estoppel, the appellants would be relieved on liability to pay for the services they received in 2014 and 2015. If that was what the FTT had believed, it was wrong in law.
There was nothing in the deeds of covenant that provided any time limit for the passing of the resolutions or made time of the essence in respect of such resolutions. In those circumstances, there was nothing to prevent the respondent from proposing appropriate resolutions in respect of the 2014 and 2015 service charges and contributions to the sinking fund. If sufficient members agreed and the resolutions were passed, then the appellants would, subject to any rights under the Landlord and Tenant Act 1985, be liable for the sums claimed. Accordingly, the only real detriment to the respondent was the necessity to comply with the terms of the lease in relation to the passing of the resolution. That has to be contrasted with the important safeguard which was provided by the requirement for approval by a majority of members at an AGM. It was neither unfair nor unjust for the appellants to insist that such a meeting take place in respect of the 2014 and 2015 charges: Republic of India v India Steam Ship Co Ltd (the Indian Endurance and The Indian Grace) [1998] AC 878 and Dixon v Blindley Heath Investments Ltd [2015] EWCA 1023 applied; Clacy v Sanchez [2015] UKUT 387 (LC); [2016] EGLR 4 and Admiralty Park Management Co Ltd v Ojo [2016] UKUT 421; [2016] PLSCS 258 distinguished.
It followed that the FTT had erred in law and its decision should be set aside. There was no estoppel by convention preventing the appellants from relying on the absence of any resolutions in compliance with the deeds of covenant.
Alastair Redpath-Stevens (instructed by Withers LLP) appeared for the appellants; Robert Brown (instructed by Guillaumes LLP, of Weybridge) appeared for the respondent.
Sally Dobson, barrister
Click here to read the transcript for Jetha and another v Basildon Court Residents Co Ltd.