The Court of Appeal in Kensquare Ltd v Boakye [2021] EWCA Civ 1725; [2021] PLSCS 199 has determined that time is of the essence in relation to the service of interim service charge demands, if such an intention is clear from the terms of the lease.
The respondent was the freeholder of a residential block of flats in Bayswater, London. The appellant was a long leaseholder of a flat within the block. Under the appellant’s lease, she was required to pay an interim service charge in the sum of £360 per annum. Pursuant to clause 4(2)(x) of the lease, if the respondent anticipated that the interim payment would be insufficient to cover its expenditure, it was permitted to give the appellant notice of a requirement to pay a revised amount, “not less than one month prior to the commencement of that financial year”.
Under schedule 4 of the lease, the appellant covenanted to “pay all costs charges and expenses… incurred by the Lessor for the purpose of or incidental to the preparation and service of a [notice under section 146 of the Law of Property Act 1925]”.
In 2017, the respondent applied to the FTT for a determination as to whether its interim service charges for the years 2011 to 2017 were payable (the 2017 proceedings). The FTT found that they were, but the appellant failed to pay. The respondent subsequently served her with a section 146 notice.
On 15 August 2019, the respondent sent the appellant a letter requesting payment of estimated service charges for the years 2018-19 and 2019-20. Further, it sought payment of administration charges in respect of its legal costs of the 2017 proceedings and the preparation and service of the subsequent section 146 notice. The appellant failed to pay and the respondent again applied to the FTT for a determination of the reasonableness and/or payability of the sums demanded.
The FTT found that the August 2019 letter did not comply with clause 4(2)(x) of the lease. The interim service charges claimed were in excess of £360 and purported to give notice in respect of an earlier financial year (2018-19) and a financial year that had already begun (2019-20). The respondent was thus limited to recovering £360 for each of the years in dispute.
In relation to costs, the FTT determined that only £192.50 was recoverable as administrative charges for the preparation and service of the section 146 notice. The costs of the 2017 proceedings were not recoverable under schedule 4 of the lease.
Relying upon United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 EGLR 61, the Upper Tribunal (Lands Chamber) found that clause 4(2)(x) did not stipulate that time was of the essence and therefore late service did not defeat the August 2019 demand. Additionally, the UT found that the administrative charges and costs of the 2017 proceedings were also recoverable.
The Court of Appeal overturned the UT on the effect of the August 2019 letter. Relying on West Central Investments Ltd v Borovik [1977] 1 EGLR 29 and Bunge Corporation v Tradax Export SA [1981] 1 WLR 711, it held that in relation to the service of interim service charge demands, parties should more readily be taken to have intended time to be of the essence. In the present case, the terms of the lease, taken in their context, clearly indicated that the respondent must serve any notice under clause 4(2)(x) “not less than one month prior to the commencement of that financial year” if it was to have effect. It had not done so and was therefore limited to recovering £360 in respect of each disputed service charge year.
The Court of Appeal determined that the costs of the 2017 proceedings were recoverable under the terms of the lease, but the administration charges were not. To construe the wording of schedule 4 of the lease otherwise would involve “bring[ing] within the general words of a service charge clause” something “which does not clearly belong there”.
Elizabeth Dwomoh is a barrister at Lamb Chambers
