The litigation in Elysian Fields Management Co Ltd v Nixon [2015] UKUT 427 (LC); [2015] PLSCS 260 concerned a lease that required the tenant to pay estimated service charges to fund the provision of services and to pay any balancing charges for any previous year on demand. In return, the management company covenanted to keep proper service charge records and to have the service charge accounts prepared and audited by an accountant, who was required to certify the total service charge cost and the proportion payable by the tenant. The management company also covenanted to send the tenant notice in writing stating the total amount of the service charge, and the tenant’s share, within a month of obtaining such certificates.
The tenant tried to hold the management company to account for its failure to provide audited accounts for the years from 2009-2012, and refused to pay the estimated service charges demanded of him. Consequently, the Upper Tribunal had to consider whether compliance with the management company’s obligations was a condition precedent to the recovery of estimated service charges under the lease.
The judge sympathised with the tenant, who had repeatedly requested audited accounts without success, but decided that the management company’s failure to provide annual certified accounts did not suspend the tenant’s obligation to pay the estimated charges. The lease provided for advance payments based on the amounts estimated to be due to the management company, and there was nothing in the provision requiring the advance payments that necessitated the provision of audited accounts first. Furthermore, there was no reason to imply such a term.
There was no connection between the performance by each of the parties of their respective obligations. The obligation to pay the estimated service charge was not expressed to be subject to the production of the audited accounts, and the management company was able to estimate the payments required in advance every year whether service charge accounts were available or not. Therefore, there was no practical reason to treat the production of audited accounts as a condition of payment. However, the tribunal sent the case back to the First-Tier Tribunal so that it could consider the reasonableness of the service charges, since this was also in dispute, and directed the management company to produce fully audited accounts before the hearing.
The judge added that tenants who find themselves in this position do not lack remedies. They can pursue an action for damages against their landlords or, alternatively, an action for specific performance requiring their landlords to provide the requisite accounts. Alternatively, tenants can invoke section 27A of the Landlord and Tenant Act 1985 (which enables the leasehold valuation tribunal to consider whether a service charge is payable and, if it is, by and to whom, and when, in what sum, and in what manner the charge is payable), and can ask the tribunal to determine the service charges for the years for which no service charge accounts have been produced.
Allyson Colby is a property law consultant
