Landlord and tenant – Service charge – Liability of tenant – Respondent landlord seeking to recover unpaid service charges from appellant tenant – Estimated “maintenance contribution” notified to appellant in accordance with lease but no audited accounts provided at end of year – Whether failure to provide audited year-end accounts preventing respondent from recovering estimated sums demanded in advance for each year – Appeal allowed in part
The appellant was the lessee of one of four flats in a building under a lease for a term of 99 years from 1989. The appellant was liable to pay a “maintenance contribution” to the respondent landlord under the terms of the lease, to be calculated in accordance with clause 3 thereof.
Clause 3 provided that the appellant’s contribution was to be one-quarter of the aggregate annual maintenance provision for the whole of the building, with that maintenance provision representing the amount that the respondent computed, in accordance with a schedule to the lease, as the expenditure that it estimated as likely to be incurred in the maintenance year. The appellant was to pay his contribution in two equal half-yearly instalments in March and September of each year.
As soon as practicable after the end of each maintenance year, the respondent was to procure audited accounts for that year in accordance with the provisions of the Housing Finance Act 1972, after which the appellant was to pay any shortfall or be credited with any excess accordingly.
The respondent brought county court proceedings against the appellant to recover unpaid service charges and administration charges for the period 2004 to 2010, which included amounts notified to the appellant in respect of the estimated maintenance provision and a separate contribution in respect of insurance premiums. Those proceedings were transferred to the leasehold valuation tribunal (LVT) for a determination of the amount properly payable. One of the appellant’s contentions was that he was not liable to pay the sums claimed since the respondent had failed to comply with a condition precedent under the lease, namely the requirement to provide audited accounts at the end of each maintenance year.
The LVT rejected that argument, holding that, on the proper construction of the lease, the failure to provide an audited account did not mean that the respondent lost the right to demand service charges or that such demands were not payable. The appellant appealed.
Held: The appeal was allowed in part.
Where there was provision for the payment in advance of half-yearly estimated sums by way of service charge on account, plus provision for the accounts to be audited after the end of the year and for any shortfall or surplus to be dealt with appropriately, the failure to provided audited end-of-year accounts did not prevent the respondent from recovering those parts of the service charge demands that were in respect of the on-account payments based on an estimate. The respondent was entitled to require the payment of the half-yearly sums on account if it had made the relevant computation of the estimated annual service charge provision. There was no evidence that the respondent had failed to compute that estimated expenditure in accordance with the requirements of the lease. Accordingly, as regards the demands for on-account payments of service charge in the estimated half-yearly sums, those sums were not irrecoverable by reason of the subsequent failure by the respondent to procure the auditing of the accounts for the year in question. The on-account sums fell due in each relevant March and September, remained payable and could be recovered once the statutory formalities were complied with: Warrior Quay Management Co v Joachim LRX/42/2006; [2008] PLSCS 56 applied.
The position was different with regard to the demands for insurance premiums; the separate demands for insurance premiums had not been made in accordance with the provisions of the lease and were not payable. The lease did not give the respondent the power to demand half-yearly payments based on estimates and then also to demand separately, at such time of the year as it happened to fall due, a contribution towards an insurance premium. The respondents could and should have cast their estimate so as to include within it the estimated cost of placing the insurance. If they had not done so, and had consequently estimated too small a sum, the solution was for the respondent to procure audited accounts and to demand payment of the shortfall. The insurance premiums were not payable until audited accounts in accordance with the requirements of the lease had been prepared and a proper demand for the relevant shortfalls for the relevant years had been served.
The appellant appeared in person; Andrew Morrell, solicitor advocate (instructed by SLC Solicitors) appeared for the respondent.
Sally Dobson, barrister