Landlord and tenant – Service charge – Certification –Respondent landlord applying for interim service charges over six-year period – Issue arising as to appellant’s liability to pay interim service charge – Whether certification being condition precedent to liability for interim service charge – Appeal dismissed
The appellant was the tenant under a long lease of a flat in Jefferson House, Basil Street, London, SW3. The lease provided for a service charge so that the outgoings incurred by the respondent during its financial year in respect of certain heads of expenditure were recharged to and divided between the tenants.
Provision was made for the landlord to charge separately for major works and for a reserve fund. Clause 2(2) of the lease set out the mechanism by which the appellant had to be notified of the amount of the service charge each year. For many years she had been in dispute with the respondent, her immediate landlord, which was the long-leaseholder of the property, concerning the service charges payable under her lease.
The appellant appealed against a decision of the First-tier Tribunal (FTT) that certification of the annual service charge under clause 2(2)(f) was not a condition of her liability to pay it. The respondent accepted, for the purposes of the appeal, that no certificates were issued during the disputed period which complied with any certification provisions contained in the lease. However, the respondent argued that the appellant was liable to pay the interim service charge in any event.
The FTT had referred to two previous decisions of the same judge in Warrior Quay Management Company v Joachim (LRX/42/2006); [2008] PLSCS 56 and Akorita v Marina Heights (St. Leonards) Ltd [2011] UKUT 255 (LC); [2011] PLSCS 183.
In Warrior Quay, the landlord had failed to provide a certificate as required under the lease, but it was held that certification was not a condition precedent to the tenant’s liability to pay the service charge. In Marina Heights, the opposite conclusion was reached because the express words of the lease clearly indicating that the service charge was to be calculated on the basis of duly certified sums.
The FTT concluded that it should follow Warrior Quay as there were no clear words indicating that a failure to provide the end of year certificate meant that no charges at all were recoverable. Absence of the end of year certification however meant that the respondent was unable to recover any balancing charge.
Held: The appeal was dismissed.
(1) It was common for the service charge machinery in leases to require tenants to pay, in advance, an amount on account of their service charge liability for each relevant accounting year. The contractual purpose of such a provision was to put the landlord in funds to discharge its obligations under the lease, typically to repair and clean common parts, to carry out maintenance, and to insure.
After the service charge year had ended, the landlord knew how much had actually been incurred. That amount could be compared with the amount demanded on account and paid by the tenants, and a balancing exercise carried out to ascertain whether the tenants have underpaid or overpaid for that year. Section 19(2) of the Landlord and Tenant Act 1985 required that any necessary adjustment should be made by repayment, reduction or by subsequent charges or otherwise, depending on the provisions of the lease. The wording of the lease, reflecting the agreement which the parties made (and any subsequent landlord or assignee tenant inherited) was crucial and different leases adopted different approaches. Each case concerned the interpretation of individual contracts.
Previous decisions were all fact-specific and should not be relied upon as precedents. The question was whether, on a true interpretation of the lease, certification was a condition precedent to the tenant’s liability to pay the service charge. It so happened, on the interpretation of the current lease, the FTT came to the view that certification was not a condition precedent, which was consistent with the result in Warrior Quay.
It might well be the case that, ordinarily, non-compliance with a certification regime would not prevent a landlord from recovering service charges payable on account but, if so, that was because payments on account were likely to be set by reference to an estimate of future expenditure, rather than by the definitive certification of past expenditure. In every case the function and significance of the certificate would depend on the terms of the agreement: Urban Splash Ltd v Ridgeway [2018] UKUT 32 (LC) followed.
(2) In the present case, clause 2(2)(h) was a stand-alone clause which permitted the landlord to render an on-account service charge in advance requiring half yearly payment. That payment obligation was not conditional upon the accountant’s certificate being made available. Clause 2(2)(j) specifically envisaged the certificate not being available at that point. Therefore, the FTT was correct in deciding that there were no clear words which would indicate that a failure to provide the end of year certificate meant that no charges at all were recoverable. There were clear words indicating the contrary.
While the respondent’s failure to comply with the requirement to provide an accountant’s certificate in respect of the sums actually expended in each year blatantly disregarded its obligation under the lease, it did not excuse the appellant’s own obligation to pay the sums claimed on account, since her liability was not conditional on the performance by the respondent of its obligation under clause 2(2)(f).
Despite the repeated disregard of the respondent’s obligation, the appellant remained liable to pay the service charge pursuant to her contract with the respondent, and there was no basis upon which she could properly resist the respondent’s claim. No criticism had been made of individual items in the actual accounts by the appellant, and for the years that the interim service charge exceeded the actual accounts, the appellant’s liability had been limited accordingly. Therefore, the interim service charge for each year, in so far as they might have been unreasonable, had been properly adjusted by the FTT in accordance with section 19(2) of the 1985 Act.
The appellant appeared in person; Ben Stimmler (instructed by Mark Wagner and Co) appeared for the respondent.
Read the full transcript Klosterkotter-Dit-Rawë v Greyclyde Investments Ltd
Eileen O’Grady, barrister
