Landlord and tenant – Service charge – Notices – Appellant local authority landlords seeking to recover service charges from respondent long leaseholders – Whether giving valid notice of estimated service charge under terms of lease – Whether any irregularity waived – Whether appellants validly serving notices under section 20C of Landlord and Tenant Act 1985 so as to preserve entitlement to recover service charge costs incurred more than 18 months before demand made – Appeal allowed
The respondents were the long leaseholders of two flats in a building in London, SE12 under leases granted by the appellant council pursuant to the right-to-buy legislation. Pursuant of para 2(1) of the service charge schedule in the lease, the appellants were to provide a reasonable estimate of the service charge before the commencement of each year. The respondents were then to pay the estimated amount in advance by four quarterly payments on account on the specified payment dates of 1 April, 1 July, 1 October and 1 January in each year. The actual service charge was to be ascertained as soon as practicable after the end of the year, with a credit or balancing payment then to be made accordingly. The service charge provisions stated that time was not to be of the essence of any notice served thereunder. The lease also stated that the deemed service provisions of section 196 of the Law of Property Act 1925 applied “to any notice under this lease”.
In February 2013, the appellants gave a notice of estimated service charge under para 2(1), which covered three separate years, namely 2012-2013, 2013-2014, and 2014-2015, and included the cost of major works to refurbish the building which had been carried out in and around 2012. Various other documents relating to the service charges were also sent.
In late May 2014, the appellants produced a further notice, warning tenants that they had incurred a cost of £4,640,795.80 in respect of the refurbishment. The notice stated that that figure might include costs for works that were not chargeable to the tenants and that tenants would be notified of the actual contract costs and their actual contributions when the final account was agreed. A year later, the appellants gave the tenants another such notice specifying a higher figure.
Both notices set out costs actually incurred by the landlord, but not yet charged to the tenant and were intended to comply with the requirements of section 20B of the Housing Act 1985 to notify tenants of service charge costs within 18 months of them being incurred.
In proceedings between the parties, the first-tier tribunal (FTT) found that neither the para 2(1) notice nor the section 20B notices were valid. It also accepted the first respondent’s contention that the section 20B notices had not been served on her; in that regard, it held that the appellants were not assisted by the provisions for deemed service by post in either section 196 of the 1925 Act or in section 7 of the Interpretation Act 1978. The appellants appealed.
Held: The appeal was allowed.
(1) The para 2(1) notice was valid so far as it related to the estimated service charges for the years 2013-2014 and 2014-2015. There was nothing in the lease to prevent the service of a para 2(1) notice much further ahead than the matter of weeks or months envisaged by the summary of the scheme set out in the service charge schedule. Nor was there anything in the lease to prevent the landlord from serving more than one para 2(1) notice in respect of each year, so long as the tenant knew or could reasonably be expected to work out what to pay. There was no defect in the demands for the years 2013-2014 and 2014-2015. There was nothing confusing in the estimate for 2014-2015 and, although the estimate for 2013-2014 set out a number of charges together in the same notice, that would not have been problematic for the tenant.
(2) The para 2(1) notice was invalid in respect of the estimated service charge for 2012-2013 because the notice had been given after the last quarterly payment date in that service charge year. The whole point of the provision of estimated charges, both for the landlord’s benefit and for the tenant’s, was to require payment by instalments on the quarter days. That gave the landlord a cash flow and the tenant a steady payment obligation. The estimate was to relate to service charges payable “in that year”, and the lease specified the payment days. Where a notice was served after the last of the payment days, the draftsman appeared to have intended that the landlord would instead issue a final demand after the end of the financial year, and therefore make an adjustment to the payments for the forthcoming quarter. Late service of the para 2(1) notice after the last payment day on 1 January did not enable the landlord to take the estimate all at once on 1 April in the following service charge year.
That was so even though the lease provided that time was not of the essence. That provision gave flexibility to the landlord within the year but did not mean that time could be extended indefinitely. The late service of the para 2(1) notice in relation to 2012–2013 had the effect that the appellants had failed to give such a notice for those charges in that year and had therefore lost the opportunity to have that estimate paid in the way envisaged by the service charge schedule, although they remained free to make a final charge for the major works incurred in 2012–2013, subject to the provisions of section 20B of the 1985 Act: Southwark London Borough Council v Woelke [2013] UKUT 349 (LC); [2013] PLSCS 264 applied; Chowdhury v Bramerton Management Co Ltd [2014] UKUT 260 (LC) and Skelton v DBS Homes (Kings Hill) Ltd [2015] UKUT 379; [2015] PLSCS 234 distinguished.
(3) However, the first respondent had waived the invalidity of the para 2(1) notice for the 2012-2013 estimated service charge by taking advantage of one of the appellants’ schemes for deferred payment, involving the grant of a charge over the first respondent’s lease, with payment of the estimated charge deferred until sale but with interest accruing in the meantime. The FTT had been wrong so far as it found the contrary. Waiver was a representation, usually by conduct, that made it clear that an irregularity was accepted. The first respondent had not done or said anything, at the time when she took on the payment plan, to make it clear that she did not agree that the estimated charge was payable or to register a continuing protest. She had taken the step of charging her property with the payment, which, in the context of the preceding disagreement over the service charge, was a clear statement of agreement to pay. It followed that the whole of the sum claimed under the para 2(1) notice was, and remained, payable by the first respondent.
(4) A notice under section 20B of the 1985 Act was a notice “under this lease” for the purposes of the provisions in the lease applying section 196 of the Law of Property Act 1925 to such notices. The purpose of a “section 196 clause” was generally to widen the operation of the statute, which otherwise applied only to notices “required to be served” by a lease. The words “under the lease” were clearly intended to be wider and encompassed “in connection with” or “relating to” in that context. A section 20B notice was not “required to be served” by the lease but was instead created by the statute, which did not impose a requirement but merely stated that certain service charges were irrecoverable unless a section 20B notice was served. However, such a notice enabled the landlord to do something prescribed by the lease: in this case to recover a service charge. In that sense, the section 20B notices were notices “under this lease” and that the FTT had erred in law in finding that section 196 did not apply.
(5) Although section 196 applied to the section 196 notices, the appellants had not made direct use of it since it applied only to notices sent by registered post or recorded delivery and they had used ordinary post. Nonetheless, the application of section 196 had the effect that the deeming provisions of section 7 of the Interpretation Act 1978, which related to notices sent by ordinary post, also applied. Section 7 applied to notices that were authorised or required by any Act to be served by post. In the present context, section 196 of the 1925 Act could be said to authorise service of the section 20B notices by post. It permitted the service by registered post or recorded delivery of notices required or authorised by the 1925 Act or by “any other instrument”. Section 196 therefore authorised the service of certain documents by post. Accordingly, wherever section 196 applied, section 7 of the Interpretation Act 1978 also applied.
It made no difference in that regard that section 196 only applied by virtue of the terms of the lease. Where the parties had said that a statutory provision was to apply, then, in the absence of proviso, they were to be taken to apply it with all its consequences. It followed that section 7 was engaged and the presumption of service was available to the appellants if they could prove what the section required.
(6) The FTT had erred in finding that the appellants could not rely on section 7. A legal presumption like that in section 7 had the effect of reversing the burden of proof. Once the landlord had proved that the notice was properly addressed, pre-paid and posted it had nothing further to do unless the contrary was proved. The presumption arose in the instant case. The notices were properly addressed notwithstanding the absence of any reference to “the leaseholder”. To meet the requirements for the presumption in section 7, the address itself had to be set out correctly but there was no requirement to address the envelope to “the leaseholder” or any named individual. The appellants had also proved that the notices had been pre-paid and posted. They had provided a considerable amount of evidence about the system operated by the company to which they contracted out the sending of the notices and they had supplied paperwork from that company which tracked various stages in the process. It had been perfectly proper for the appellants to use a company to do that work. It was not necessary for the FTT to require proof of every step in a notice’s journey. The standard of proof that it had required was too high and amounted to an error of law. The presumption under section 7 applied and the first respondent had not rebutted it. Her statement that she had not received the notices went no further than a bare denial. A mere assertion without proof was not enough to rebut the presumption. Accordingly, the notices were deemed to be served.
(7) The section 20B notices were valid in substance. It was not necessary to their validity that they should contain the words of section 20C itself, namely that “the lessee will subsequently be required under the terms of his lease to contribute to those costs by the payment of a service charge.” It was simply necessary to convey the substance of that provision. The tenants knew from the words used that they would subsequently be required under the terms of the lease to contribute to the cost of the works by the payment of a service charge. Section 20B did not require the actual amount to be paid or the proportion to be paid to be stated.
Nor was a section 20B notice rendered invalid if the aggregate figure given for the costs incurred by the landlord included costs that were not chargeable to the lessee under the lease. Where the landlord did not know the precise figure that would be charged to the tenants, it could include a margin, to act as a cap on recovery, provided that the eventual charge was lower than the maximum set out in the notice: Brent London Borough Council v Shulem B Association Ltd [2011] EWHC 1663 (Ch); [2011] PLSCS 168 applied.
Further, the FTT had erred so far as it had considered the appellants’ professional fees and administration fees could not be recovered unless specifically identified in the section 20B notice. There was no requirement in section 20B to set out different items of expenditure separately.
Philip Rainey QC and Faisel Sadiq (instructed by the legal department of Southwark London Borough Council) appeared for the appellant; Sam Madge-Wylde (instructed by direct access) appeared for the respondents.
Sally Dobson, barrister
• Read a transcript of Southwark London Borough Council v Akhtar and another here
