Landlord and tenant – Service charges – Interim payment – Appellant tenant appealing against decision of Upper Tribunal that respondent landlord entitled to interim service charges demanded after date charges due to be paid – Whether time of the essence for interim service charge demand – Whether costs incurred in previous litigation with appellant recoverable – Appeal allowed in part
The appellant held a long lease of Flat 10, 54/55 Kensington Gardens Square, London. The freehold of the building was owned by the respondent, a tenant-owned company in which the appellant was a shareholder.
In 2017, the parties were involved in proceedings before the First-tier Tribunal (FTT) concerning interim service charges. Shortly afterwards, the respondent served on the appellant a notice under section 146 of the Law of Property Act 1925 in respect of her failure to pay those charges.
On 15 August 2019, the respondent demanded payment of half-yearly estimated service charges due in advance and a half-yearly contribution to reserve fund from 1 April 2018 to 30 September 2019. However, the demands were made after the date on which the charges were due to be paid. The respondent also claimed its legal costs of the 2017 FTT proceedings and the preparation and service of the section 146 notice.
An issue arose whether the service and administration charges were payable by the appellant. The FTT found that the service charge demands did not comply with the machinery of the lease and were not payable. Further, the appellant could not recover its legal costs of the 2017 proceedings, even though it had been successful. Under the cost covenant in the lease, the respondent could only recover the costs of drafting the section 146 notice.
On appeal, the Upper Tribunal found that time was not of the essence and the relevant machinery had been complied with so that charges were payable as demanded; and the respondent could recover, by way of service or administration charges, the costs it had incurred in the 2017 litigation: [2020] UKUT 359 (LC). The appellant appealed.
Held: The appeal was allowed in part.
(1) There was nothing to prevent parties agreeing that time should be of the essence, thereby defeating the presumption against time being of the essence, provided that that agreement was clearly indicated in the lease. Deciding whether time was of the essence in any particular case involved reference to the parties’ intentions. The court would require precise compliance with stipulations as to time wherever the circumstances of the case indicated that that would fulfil the intention of the parties: West Central Investments Ltd v Borovik [1977] 1 EGLR 29, United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 EGLR 61 and Starmark Enterprises Ltd v CPL Distribution Ltd [2002] Ch 306 followed.
The service charge provisions of leases were practical arrangements which should be interpreted and applied in a businesslike way. When entering into long residential leases, the parties had to be taken to intend that the service charge would be operated in accordance with the agreed terms: Southwark London Borough Council v Woelke [2013] UKUT 349 (LC); [2013] PLSCS 264 and Southwark London Borough Council v Akhtar [2017] UKUT 150 (LC); [2017] PLSCS 95 followed.
(2) The terms of the appellant’s lease, if taken at face value, would signify that any notice to increase the maintenance contribution had to be served at least a month before the beginning of the relevant financial year. The lease said nothing about what was to happen if a notice to revise the maintenance contribution was served after the relevant financial year had started. The terms of the maintenance clause in the lease might not suffice to displace the presumption against time being of the essence which applied in relation to final service charges. However, parties should more readily be taken to have intended time to be of the essence in the context of interim service charges. Parties to a lease should not lightly be assumed to have intended that a landlord should lose any right to recover service charges for a year.
There was no question of the respondent being deprived of all ability to levy service charges. The dispute was essentially as to timing. In the circumstances, it was much more likely that the parties meant the time limits specified in their lease to be strictly complied with. The presumption against time being of the essence was displaced by the service charge machinery in the lease. The terms of the lease, in their context, clearly indicated that the respondent had to serve any notice not less than one month prior to the commencement of the financial year if it was to have effect. The court had to seek to discern the intention of the parties, viewed objectively, with the aid of the presumption. Here, the circumstances indicated that requiring precise compliance would fulfil the intention of the parties. It followed that the respondent’s demand for interim service charges was ineffective.
(3) The relevant lease provision obliged the appellant to pay “all costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the lessor for the purpose of… the preparation and service of a notice under section 146 of the Law of Property Act 1925”. Read naturally, those words were wide enough to apply to the costs of the FTT proceedings which the respondent had no choice but to bring if it wished to serve a section 146 notice.
The parties to the lease agreed that the appellant should bear costs incurred for the purpose of the service of a section 146 notice, and the costs which the respondent incurred in the 2017 FTT proceedings fitted that description. Therefore, the respondent could recover costs of the 2017 FTT proceedings from the appellant.
(4) The lease provided for service charges to encompass “the cost of employing such professional advisers and agents as shall be reasonably required in connection with the management of the building”. Service charge provisions were not subject to any special rule of interpretation, but the court should not bring within the general words of a service charge clause anything which did not clearly belong there. On balance, the respondent’s litigation costs did not fall within the wording of the lease: Sella House Ltd v Mears [1989] 1 EGLR 65, Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47 and No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EGLR 37 considered.
James Fieldsend and Edward Blakeney (instructed by RadcliffesLeBrasseur LLP) appeared for the appellant; Mark Warwick QC and David Peachey (instructed by Dale and Dale Solicitors Ltd) appeared for the respondent.
Eileen O’Grady, barrister