Landlord and tenant – Service charge – Calculation – Appellant management company claiming unpaid service charges from respondent leaseholder of flat – First-tier tribunal determining respondent’s service charge liability – FTT holding respondent not liable on ground that service charges not calculated in manner prescribed by lease – Whether procedural unfairness arising – Whether respondent estopped from disputing method of calculation on basis of long use of that method without objection – Appeal allowed
The respondent was the long leaseholder of a first-floor flat in a purpose-built block on an estate. His lease provided for the payment of a service charge to the appellant as the management company for the block, with the charge to comprise a proportion of the costs incurred in relation to the respondent’s building, plus a different proportion of the costs relating to communal areas of the estate managed by the appellant.
In practice, since at least 2009 and possibly earlier, the appellant had departed from the method of calculation prescribed by the lease. Rather than charging leaseholders of flats only for costs incurred in relation to their own building, it had charged them for a proportion of the costs of maintaining and administering all nine of the buildings that it managed on the estate.
In 2014, the appellant commenced county court proceedings against the respondent to recover £5,228.88 in unpaid service charges for the years 2010 to 2014. Pursuant to an order of the county court, the respondent then applied to the first-tier tribunal (FTT), under section 27A of the Landlord and Tenant Act 1985, for a determination of his service charge liability.
The FTT gave directions which were intended to define the issues, with the respondent being required to identify the grounds on which he challenged his liability to pay the sums claimed. The respondent did not advance any contention that the service charge had not been calculated in accordance with the lease.
However, at the hearing, the FTT raised that point of its own motion. It refused to allow an adjournment to enable the appellant to respond to the new point and it held that, in the absence of any advance notice to the respondent, the appellant should not be allowed to argue that, as a result of long usage, no objection could now be taken to the adopted method of calculating the service charge. It concluded that the respondent was not liable to pay the disputed service charges because they had not been calculated by the method prescribed by the lease.
The appellant appealed. It contended that the FTT’s decision should be overturned on the ground of serious procedural irregularity in the conduct of the proceedings.
Held: The appeal was allowed.
(1) Where an application was made to the FTT for a determination under section 27A of the 1985 Act, the overarching question to be addressed was usually what sum, if any, was payable as a service charge by leaseholder. Under r 3 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the FTT’s overriding objective was to deal with cases fairly and justly, avoiding unnecessary formality, seeking flexibility and using its expertise effectively. In light of that objective, the FTT should take care to avoid adopting an approach that was too narrow, technical or fixated on adherence to procedure for its own sake. That was especially the case where one or more of the parties was unrepresented and where the FTT was likely to be very much better equipped than the parties to identify all the important issues that needed to be considered before the correct sum due from the leaseholder could be identified. An experienced tribunal, guided by the overriding objective, would have no difficulty in distinguishing between a point of significance that the parties might have overlooked and a point with no real merit which it would be in nobody’s interest to raise for consideration.
In the instant case, the appellant’s departure from the scheme of accounting required by the lease was so fundamental that it was both proper and inevitable that the FTT should raise the issue at the hearing. When it appeared to the FTT that sums had been claimed and included in the service charge which fell outside the scope of the service charge provisions because they related to other buildings, it was entitled to ask for an explanation.
(2) Nonetheless, the FTT’s failure to allow the appellant to answer the point that it had raised was a breach of natural justice and a significant procedural irregularity. Where a tribunal raised a new point that had not previously been referred to by either party, it was obliged as a matter of natural justice, before reaching its decision, to give both parties an opportunity to make submissions and, if appropriate, to adduce further evidence in respect of the new issue. While it might have been unfair to allow the appellant to put forward an argument based on long practice without giving notice in advance to the respondent, the same unfairness was visited on the appellant by the failure to give it adequate notice of, or a sufficient opportunity to respond to, the point taken by the FTT. The FTT’s decision was therefore reached on an unfair basis and should be set aside: Regent Management Ltd v Jones [2012] UKUT 369 (LC) and Birmingham City Council v Keddie [2012] UKUT 323 (LC); [2012] 3 EGLR 53; [2012] 49 EG 71 applied.
(3) The respondent now had notice of the appellant’s contention that, where the same system of accounting had been adopted for a prolonged period without objection from the respondent, he was now estopped from relying on that point. That point was a good one. It would have been clear to anyone who considered the service charge statements issued to leaseholders that the expenditure on building maintenance was not being divided amongst the flats in a single building but was being apportioned among a much greater number. The respondent had acquiesced in that manner of calculating the charge. While he might not have fully appreciated the requirements of the lease, he had the opportunity to read his lease and understand how service charges were supposed to be accounted for. On that basis, and taking into account the fact that, in earlier proceedings in 2011, the respondent had not disputed liability in principle for charges computed in the same way, the proper conclusion was that a conventional mode of dealing existed between the appellant and the respondent giving rise to an understanding that the service charges would be apportioned in the manner adopted by the appellant. It would be unfair now to allow the respondent to dispute his liability on grounds that he had chosen not to raise for many years: Republic of India v India Steam Ship Co Ltd [1998] AC 878 applied.
It followed that the respondent’s service charge liability should be ascertained on the assumption that the lease allowed the appellant to apportion liability for costs incurred in relation to the estate as a whole amongst all of its leaseholders, rather than requiring it to apportion liability for work to an individual building only amongst the leaseholders of that building. Calculating the charges on that basis, the sum for which the respondent was liable was £6.621.69, which, after credit for sums paid, left an outstanding balance of £4,206.35.
Carl Fain (instructed by Brethertons LLP) appeared for the appellant; the respondent did not appear and was not represented.
Sally Dobson, barrister
To read a transcript of Admiralty Park Management Co Ltd v Ojo, click here
