Most service charge clauses require tenants to make periodic payments towards the cost of services before they are actually provided by the landlord and the final cost is known. Such contributions are usually based on an estimate of the expected expenditure during the relevant accounting period. Any shortfall or overpayment is usually then paid or credited after the end of each service charge year, following the provision of a certificate by the landlord.
One issue that keeps cropping up in disputes over the payment of residential service charges is whether charges are payable if a landlord has failed to comply with its obligations in respect of service charge certificates. Wigmore Homes (UK) Ltd v Spembly Works Residents Association Ltd [2018] UKUT 252 (LC) concerned the interim service charges levied by a landlord between 2010 and 2016. The tenant claimed that it was not liable for the sums demanded of it because the service charge certificates provided to it had not been signed by the landlord, as was required by the lease, and, although they certified the annual expenditure, there was no annual certificate of the amount of the service charge payable by the tenant in accordance with the lease.
The tribunal cited Urban Splash Work Ltd v Ridgway [2018] UKUT 32 (LC), stating that the function and significance of a service charge certificate will depend on the terms of the parties’ agreement. And, in this case, nothing in the tenant’s covenant to pay “such sum as the landlord shall consider is fair and reasonable on account of the service charge” made payment of the interim charge dependant on certification. That requirement – “and forthwith on receipt of the certificate … to pay to the landlord any balance” – was imposed only in respect of the balancing charge
The tribunal added that the tenant was not without a remedy if it wanted the landlord to certify any balancing charge. It could pursue an action for damages or specific performance against the landlord. Or it could ask the tribunal to determine the service charge.
Were the interim charges demanded by the landlord reasonable? The tribunal noted that the service charge was defined by reference to the expenditure incurred by the landlord. So the interim service charge must be a proportionate part of the estimated expenditure and, in the tribunal’s view, that proportion could not be greater than 100%. In other words, as a matter of construction the interim service charge could not be higher than 100% of the estimated expenses.
The landlord had demanded the same amount from the tenant in most of the relevant years. This suggested that the landlord had not carried out a careful assessment every year, and that the sum claimed was not based on a genuine estimate of the likely expenditure. Furthermore, the service charge accounts revealed that landlord’s expenditure in each year was approximately 50% of the sums demanded. The landlord had not offered an explanation – and, when estimates turn out to be approximately twice the expenditure consistently, this becomes more and more difficult to justify. Consequently, the tribunal concluded that the amounts demanded were unreasonable and reduced them by 50%.
Allyson Colby is a property law consultant
