Landlord and tenant – Service charge – Long leases of flats – Service charge provisions providing for payment of service charge on written demand and certification of service charge by accountant “without prejudice” to that covenant – Whether respondent lessees liable to pay service charges demanded by appellant landlords in absence of certificate – Whether provision of certificate a condition precedent to liability to pay – Whether waiver or estoppel arising on that issue – Appeal allowed
The appellants were the freeholders of a building in Croydon containing four flats let to the respondents on long leases. The leases were in a standard form, which provided for the payment of a service charge, comprising an estimated service charge payable in advance and a balance to be paid or credited after the end of each service charge year.
The relevant provisions included clause 2(2)(ii), which contained the lessee’s covenant to pay a service charge representing the relevant proportion of the management company’s general expense, “without any deduction upon written demand… and at all times keep the Lessor and the Management Company indemnified in respect of the same”; and clause 2(2)(iii), which, “without prejudice” to that covenant, set out certain “terms and conditions” applicable to the payment of the service charge, including certification of the relevant costs by an accountant as soon as practicable after the end of each financial year and provision of a copy of the certificate to the lessee on written request.
The respondents disputed their liability to pay certain service charge demands on the ground that the relevant costs had not been certified by an accountant. The relevant demands had been issued after the end of the service charge year and there had been no previous demand for estimated payments on account in advance. On an application under section 27A of the Landlord and Tenant Act 1985, the first-tier tribunal (FTT) held that the appellants’ service charge demands were ineffective since, where the service charge demand was made after the end of the service charge year, it was a condition precedent to a valid demand that the costs had been certified by an accountant. There was also evidence before the FTT of an agreement between the first appellant and previous lessees to the effect that certification was not required. While the FTT accepted that evidence, it held that such an arrangement did not affect the legal entitlements of the respondents. The appellants appealed.
Held: The appeal was allowed.
(1) The standard lease provisions in the respondents’ leases contained a primary obligation on the part of the lessees, set out in clause 2(2)(ii), to pay the service charge on written demand, without any deduction, and at all times to keep the lessor and the management company indemnified in respect of the same. The ascertainment and certification of the service charge pursuant to clause 2(2)(iii) was not a necessary or essential pre-condition to the ability of the management company to seek payment of the general expense. On a true construction of the standard form leases, clause 2(iii) provides a mere machinery for the ascertainment and certification of the service charge for the purposes of its payment in accordance with clause 2(ii). It was, in effect, a confirmatory procedure. There was no contractual requirement or stipulation for certification, and thus no condition precedent. That conclusion was reinforced by the use of the words “without prejudice” in clause 2(2)(iii) and by the fact that a copy of the certificate only had to be supplied where the lessee made a written request.
It followed that the absence of the certificate did not prevent the appellants from claiming the service charges due and owing after the end of the financial year. There was no limitation on the certificate being produced subsequently. Although the certificate should be signed by a qualified account as soon as practicable after the end of the financial year, that could still be done.
That conclusion was a matter of the true construction of the respondents’ particular lease. Although the authorities were important on the issue of judicial interpretation, each case was dependent on the strict construction of the lease in question: Warrior Quay v Joachim LRX/42/2006 [2008] PLSCS 56, Scottish Mutual Insurance plc v Jardine Public Relations Ltd [1999] EWHC 276 (TCC); [1999] PLSCS 74 and Bhambhani v Willowcourt Management Co (1985) Ltd LRX/22/2007 [2008] PLSCS 130 considered.
(2) Moreover, even if certification had been a prerequisite of the liability to pay service charges on the strict interpretation of the leases, the respondents would no longer be able to insist on that position, owing to the agreement reached with the first appellant by the former lessees, which had led the appellant, to their detriment, to assume that no certification was required, and the conduct of the respondents and their predecessors in title in accepting and paying demands over a period of 19 years without requiring certification. On the facts of the case, there had either been a course of conduct giving rise to an equitable estoppel, so as to preclude the respondents from seeking to assert that there should now be a certification process in accordance with the terms of the standard lease provisions, or the respondents had waived any right to resile from the position that had been adopted throughout the 19-year period both by themselves and their predecessors in title.
Stephen Fletcher (instructed by direct access) appeared for the appellants; Graeme Kirk (instructed by direct access) appeared for the respondents.
Sally Dobson, barrister
Read a transcript of Clacy and another v Sanchez and others here
