Service charges – Lease providing for payment on account in advance and final balancing payment following certification – Respondent tenants paying sums on account – Appellant management company not providing certificate – Whether certificate condition precedent to any service charge being payable – Whether leasehold valuation tribunal (LVT) correctly finding no service charge payable for years when certificate not provided – Whether LVT entitled to order repayment of service charges – Appeal allowed in part
The respondents held leases of premises in a development from the second appellant landlord. The first appellant was the management company for the purposes of those leases. The tenants covenanted to pay service charges on account for each period of six months in advance in “such sum as the Management Company shall reasonably deem appropriate” to take account of future costs, plus any balance due “upon receiving the summary referred to in Clause 3 of Part III of the Seventh Schedule hereto”. The summary in question was part of the first appellant’s obligations under Part III. At lease once a year, it was required to have its auditor or accountant prepare an annual account of its income and expenditure in respect of service charges and to certify the total amount of such charges for the relevant accounting period and the amount due from each tenant; it was also obliged to send a summary of the accounts and certificates to the tenants as soon as practicable after their preparation.
Over a number of years, the appellant fixed the service charges payable on account but failed to obtain the necessary certificate. The respondents applied to the leasehold valuation tribunal (LVT) under section 27A of the Landlord and Tenant Act 1985 for a determination of the service charges payable for those years. An issue arose as to whether the absence of any such certificate meant that no service charges were payable in respect of those years. The LVT decided that the first appellant’s compliance with Part III was a condition precedent to any sum of service charge being payable. It found that, in the absence of such compliance, no service charge was payable for the years in question and that the appellants were obliged to repay the sums paid by the respondents. However, it went on to decide how much service charge would be payable were it be wrong on that point, and concluded that the amounts paid by the respondents were more than would be due.
The appellants appealed. They submitted that the provision of a certificate was a condition precedent only in respect of the final balancing payment and did not alter the tenants’ obligation to pay such sum on account as it reasonably deemed appropriate.
Held: The appeal was allowed in part.
The first appellant’s failure to comply with its obligations under Part III did not mean that it had automatically lost the right to be paid any service charge in respect of the years to which that failure related. To produce such a dramatic result would require clear words in the lease. However, the first appellant could not take advantage of its own breach of covenant and unilaterally delay the tenant’s ability to obtain a final decision as to how much was payable for a particular year. Section 27A contemplated that a tenant could apply to an LVT to obtain a binding decision on that point; if it did so, the LVT had to reach the best informed decision it could upon the material available to it. The absence of a proper certificate was a matter that might weigh against the first appellant and result in the LVT deciding that a lesser sum than it had hoped for was payable. Further, any amount that the LVT decided was payable by the tenants as shortfall would not be payable until a proper certificate, certifying that at least that amount was payable, was provided by the first appellants’ auditor or accountant. If, on the other hand, the LVT decided that the service charge was less than the amount already paid on account, the tenants would be entitled to the benefit of that decision immediately, without waiting for a certificate. In the instant case, the amount of service charge was the alternative amount already determined by the LVT.
None the less, the LVT did not have jurisdiction to order the appellants to make restitutionary repayments to the respondents. The jurisdiction of the LVT, under the 1985 Act, was confined to determining whether a service charge was payable, to whom it was payable and by whom, by which date and in what manner. It did not have jurisdiction to order an overpaid landlord to repay to an overpaying tenant, even if the lease made provision for such repayment.
Dominic Bayne (instructed by Crutes LLP, of Newcastle upon Tyne) appeared for the appellants; the respondents appeared in person.
Sally Dobson, barrister