Landlord and tenant – Service charge – Liability – Appellant landlords providing respondent lessee with estimate of service charge payable in respect of his flat for forthcoming year – That estimate not including cost of contemplated major works – Whether omission of major works rendering estimate invalid – Whether respondent relieved of liability to pay any of estimated service charge – Appeal allowed
The respondent was liable under his lease of a flat in London SE1 to pay a service charge to the appellant local authority landlord. He disputed his liability to pay the estimated service charge for the year 2012/2013 on the ground that it had not been demanded in accordance with the requirements of the lease. The appellants brought county court proceedings to recover the unpaid charges and the matter was transferred to the first-tier tribunal (FTT) to determine the issue of the respondent’s liability to pay.
The service charge provisions were set out in a schedule to the lease, with the respondent covenanting to pay the service charge “at the times and in the manner there set out”. The appellants were to notify the respondent of their reasonable estimate of the service charge at the start of each service charge year, after which the respondent was to pay that sum by four equal payments in advance on the four specified quarter days. At the end of the year, the appellants were to ascertain and notify the respondent of the final service charge for the year, at which point any difference between that sum and the estimate was either to be paid by the respondent or credited against his service charge account.
The estimated service charge for 2012/2013 was £1,277.38. That estimate did not include any sum in respect of major works which the appellants contemplated carrying out during that service charge year and to which to which the consultation requirements of section 20 of the Landlord and Tenant Act 1985 applied.
The appellant subsequently undertook major works in respect of emergency lighting and, after undertaking statutory consultation procedures, notified the respondent of the amount payable in respect of those works. In fact, the cost of the major works proved to be irrecoverable for legal reasons and the respondent never paid any sum in respect of them.
The respondent argued that the omission of the major works from the service charge estimate for 2012/2013 made it invalid, so that he was not obliged to pay any of the estimated service charge for that year. The FTT accepted that argument and the appellants appealed.
Held: The appeal was allowed.
The provisions of the lease regarding service charges were intended to constitute practical machinery enabling the appellants to receive appropriate sums towards foreseen expenditure, so that they could properly and efficiently perform their obligations and provide the repairs and services required under their obligations in the lease. It was commonplace for a lease of a flat to contain service charge provisions requiring the tenant to make an on-account payment in advance, on the basis of an estimate. It had to be possible to say immediately, in respect of an estimate, whether it was valid or invalid. The validity of the estimate could not depend on subsequent events. An apparently valid estimate could not become invalid when, at some later date during the service charge year, the appellants decided to carry out some major works during that year for which the estimate included nothing.
In normal circumstances, the only practical consequence of a failure to take account of major works in the estimate would be that the appellants would not be entitled to collect advance payments from the leaseholders which included any contribution towards the cost of those works. It would not result in the estimate in relation to the matters which were included within it, namely the ordinary service charges, being invalid and incapable of giving rise to any liability in the tenant to pay anything on account. If the appellants reasonably anticipated that their expenditure would include expenditure on major works, they were required to include that expenditure in its estimate. The omission of such expenditure from the estimate was not consistent with the contract. However, the fact that the appellants had acted inconsistently with the contract did not have the result of making nothing payable pursuant to the estimate: Southwark London Borough Council v Woelke [2013] UKUT 349 (LC); [2013] PLSCS 264 applied.
It followed that the estimate which the appellants had provided for the year 2012/2013 was a valid estimate giving rise to a liability on the respondent to pay that sum by four instalments pursuant to the lease terms; however, recovery was limited to £1,046.83, taking into account that the final charge had now been ascertained in a lesser amount and the respondent had already made a small payment against that amount.
Christine Cooper (instructed by the legal department of Southwark London Borough Council) appeared for the appellants; the respondent appeared in person.
Sally Dobson, barrister
Click here to download the transcript of Southwark London Borough Council v Proktor