One of the issues that keeps cropping up in disputes over the payment of residential service charges is whether charges are payable if a landlord has failed to comply with its obligations to provide service charge certificates.
In Klosterkotter-Dit-Rawë v Greyclyde Investments Ltd [2017] UKUT 289 (LC); [2018] PLSCS 158 the First Tier Tribunal had decided that certification of the annual service charge was not a condition of the tenant’s liability to pay the landlord’s interim service charge invoices. The tribunal acknowledged thatAkorita v Marina Heights (St. Leonards) Ltd [2011] UKUT 255 (LC); [2011] PLSCS 183had gone the other way, but distinguished the case on the ground that the express words of that lease clearly indicated that the service charge was to be calculated on the basis of sums duly certified by the landlord’s surveyor. Consequently, the First Tier Tribunal felt able to follow Warrior Quay Management Company v Joachim (LRX/42/2006); [2008] PLSCS 56, in which it was held that certification was not a condition precedent to the tenant’s liability.
The tenant appealed to the Upper Tribunal. It stressed that different leases adopt different approaches and that decisions must turn on the particular language of the lease in question. Previous decisions were each fact-specific and should not be relied on as precedents because each case concerns the interpretation of an individual contract. Consequently, the judge rejected arguments about which of these cases the Upper Tribunal should follow.
The question was whether, on a true interpretation of the lease, certification was a condition precedent to the tenant’s liability to pay service charges. In every case the function and significance of a certificate will depend on the terms of the parties’ agreement. And, where payments on account are set by reference to an estimate of future expenditure, rather than by reference to a definitive certification of past expenditure, non-compliance with the certification regime will not necessarily bar the recovery of such payments.
The Upper Tribunal understood and sympathised with the tenant’s view that the landlord had blatantly disregarded its obligations under the lease. But, on construing the lease, the judge agreed with the landlord. The lease contained a stand-alone clause permitting the landlord to demand interim payments in advance, and the tenant’s payment obligation was not conditional upon certification by an accountant. Indeed, the lease contained clear words to the contrary, enabling the landlord to maintain an action against the tenant “notwithstanding that the Accountants’ Certificate had not been furnished … at the time”.
The tenant had not criticised the items in the landlord’s uncertificated service charge accounts. And the First Tier Tribunal had limited the tenant’s liability to pay for those items where the interim service charges demanded by the landlord had exceeded what was actually spent, restricting recovery to the landlord’s actual expenditure. Therefore, the interim service charges for each year were not unreasonable for the purposes of section 19(2) of the Landlord and Tenant Act 1985, and the tenant was liable to pay up.
Allyson Colby is a property law consultant
