Is time of the essence in the context of making an interim service charge demand? Elizabeth Dwomoh finds out.
Key points
- The parties’ intentions were relevant when determining whether time is of the essence in serving interim service charge demands
- Time should be deemed to be of the essence in the service of interim service charge demands
In West Central Investments Ltd v Borovik [1976] 241 EG 609, the House of Lords determined that time was not of the essence in relation to the service of a final service charge demand. The question that arose for determination in Kensquare Ltd v Boakye [2021] EWCA Civ 1725; [2021] PLSCS 199 was whether the same presumption applied to service of an interim service charge demand.
The lease
Mary Boakye was a long leaseholder of a flat situated at 54/55 Kensington Gardens Square in London. Kensquare was her landlord.
Under the service charge provisions of Boakye’s lease, she covenanted to pay an interim service charge referred to in the lease as a “maintenance contribution” on 1 April and 1 October each year. The maintenance contribution was capped at £360 per annum subject to clause 4(2)(x), which gave the landlord the right to revise the maintenance contribution, for any financial year, to “such amount as it shall deem necessary in the light of expenditure reasonably anticipated for that year”. The notice of such increase was to be served on the lessee “not less than one month prior to the commencement of that financial year”.
At the end of the financial year, the landlord was required to provide the lessee, “as soon as practical”, with an account of the service charge payable for that year, giving credit for interim payments. The tenant was required to pay the balance within 28 days of service of the final demand.
The dispute
Section 81 of the Housing Act 1996 prohibits a landlord from exercising a right of re-entry or forfeiting a lease of residential premises for non-payment of service charges, which includes the service of a section 146 notice. The prohibition does not apply where the tenant has admitted liability or the same has been established by legal or arbitral proceedings.
In 2017, Kensquare applied to the First-tier Tribunal for a determination under section 27A of the Landlord and Tenant Act 1985 as to whether Boakye was required to pay interim service charges for the years 2011 to 2017 (the 2017 proceedings). The FTT determined that the service charges were payable. Boakye failed to pay and she was served with a section 146 notice by Kensquare.
In August 2019, Kensquare wrote to Boakye requesting payment of “half-yearly estimated service charge due in advance” for the periods 2018-19 and 2019-20 (the August 2019 letter). The total sum claimed was £2,103.52 for each half-year.
Timing
The FTT found that Boakye was only liable to pay interim service charges in the sums of £360 and £180 respectively for the periods 2018-19 and 2019-20. It determined that the August 2019 letter failed to comply with service charge provisions of the lease. The sums demanded exceeded the £360 cap and, contrary to clause 4(2)(x) of the lease, the August 2019 letter purported to give notice in respect of a financial year that had passed and one that had already commenced.
The Upper Tribunal (Lands Chamber) determined that Boakye was liable to pay the service charges demanded by Kensquare in full. It found that there was no logical reason why the presumption that time was not of the essence in relation to the service of a final service charge demand should not also apply to the service of an interim service charge demand. Relying on United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 EGLR 61, the UT observed that the presumption could be rebutted by express words or necessary implication. The Court of Appeal disagreed.
Relying on West Central Investments Ltd and Bunge Corporation v Tradax Export SA [1981] 1 WLR 711, the Court of Appeal observed that parties to a lease should more readily be found to have intended time to be of the essence in respect of the service of an interim service charge demand. A relevant factor was the intention of the parties to the lease. The issue was essentially one of timing. There was no risk that the landlord would lose its ability to levy service charges at the end of the financial year. In the present case, the question was whether the landlord would be restricted to recovery of final service charges only at the end of the financial year or it could exercise its right to recover interim service charges.
To recover a revised interim service charge, any notice served in accordance with clause 4(2)(x) had to be served “not less than one month prior to the commencement of that financial year”. Kensquare had failed to serve a valid notice for the periods claimed and therefore could only recover £360 from Boakye for the disputed interim service charge periods.
Good news
The decision in Boakye will be welcomed by tenants. As the Court of Appeal recognised, deeming time to be of the essence in relation to the service of interim service charge demands preserves the advantage that a tenant with a similar provision in their lease would have to budget for the payment of their service charges.
Elizabeth Dwomoh is a barrister at Lamb Chambers
