A couple of Upper Tribunal appeal decisions on service charge issues, with the second of particular significance.

Cookson v Assethold Ltd (LANDLORD AND TENANT – SERVICE CHARGES) (2020) UKUT 115 (LC)

An appeal on section 20B Landlord and Tenant Act 1985. In this case, the service charge year ran from 25 March. In 2016, a right to manage company (RTM) had taken over management from the freeholder on 9 October 2016. The freeholder appears to have considered that it was then up to the RTM to collect charges for the expenses of the freeholder between March and October. No demands were served by the freeholder on the leaseholders, rather a schedule was given to the RTM. There was a purported demand in February 2017 (which we’ll come back to).

The leaseholder had challenged the payability of these charges under s.20B:

“(1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred.

(2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge.”

The FTT had apparently accepted that a least one of three documents amounted to a notification of incurred costs within the 18 month period under s.20B(2). The freeholder had apparently argued that ““We do not understand the notion that the 18 month rule should apply. The final accounts were provided to the RTM company when they took over the management and well within the 18 months of the expenditure.”

The leaseholder appealed the s.20B point to the Upper Tribunal.

The Upper Tribunal looked closely at the various documents.

There is a demand for service charges dated 27 February 2017 (“the 2017 demand”), which states that the amount outstanding for the previous year is £3,387.48 but does not itemise the charges; it is a single sheet and does not appear to be certified or to contain the statement of the tenant’s rights and obligations. There are later service charge demands in the bundle, for the years 2018/19 and 2019/20, which are not relevant to the year 2016/17.

There are two candidates to be the “sufficient notice” to which the FTT referred in its paragraph 15 quoted above. One is the RTM schedule. It is undated; it is addressed to the RTM company, it is not certified as required by the lease, and it does not set out the tenant’s rights and obligations as required by section 21B of the Landlord and Tenant Act1985. It therefore cannot be regarded as complying with section 20B(1).

The other is the 2017 demand. It does not itemise the charges. The copy in the bundle is a single sheet; it is not certified and does not contain the requisite information. Accordingly the 2017 demand is not a demand for service charges for the period 2016/17.

The fact that the lessees were made aware that a charge would be made for that period, by the RTM schedule and by the 2017 demand, does not amount to compliance with section 20B (Skelton v DBS Homes (Kings Hill) Limited (2017) EWCA Civ 1139 paragraph 18: “it is not enough under section 20B that the tenant has received the information that his landlord proposes to make a demand”).

Further, on a 4 March 2016 demand for the estimated service charges for 2016/17

That estimate cannot be a notice that satisfies section 20B of the 1985 Act because it does not inform the tenant that charges have been incurred. It is a demand for service charges on an estimated basis. Therefore I cannot accept the appellant’s invitation to regard this as a notice that complies with section 20B(2) of the Landlord and Tenant Act 1985.

There was no s.20B notice for the relevant period. Appeal allowed.

And then there is

Williams v Lessees of 38 Flats in Vista (LANDLORD AND TENANT – SERVICE CHARGES – apportionment of liability for service charges) (2020) UKUT 111 (LC)

This was an appeal on the payability of service charges. The relevant lease terms provided that the leaseholder would pay:

your share of the insurance costs is 0.7135% or such part as the Landlord may otherwise reasonably determine

your share of building services costs is 0.7135% or such part as the Landlord may otherwise reasonably determine

your share of estate services costs is 0.5427% or such part as the Landlord may otherwise reasonably determine.

(Specified percentages varied by floor area of the flats, but the phrasing was the same).

For some years, the landlord had been apportioning the charges in different percentages than those originally provided for in the leases. Some leaseholders had challenged that change.

The issue was the effect of s.27A Landlord and Tenant Act 1985, which provides, so far as relevant:

“(1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to—

(a) the person by whom it is payable,

(b) the person to whom it is payable,

(c) the amount which is payable,

(d) the date at or by which it is payable, and

(e) the manner in which it is payable.

(2) Subsection (1) applies whether or not any payment has been made.

…

(4) No application under subsection (1) … may be made in respect of a matter which—

(a) has been agreed or admitted by the tenant,

(b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party,

(c) has been the subject of determination by a court, or

(d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement.

(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.

(6) An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination—

(a) in a particular manner, or

(b) on particular evidence,

of any question which may be the subject of an application under subsection (1)…”

And the effect of the Upper Tribunal decision in Windermere Marina Village Limited v Wild and Barton [2014] UKUT 163 (LC) (our report).

In Windermere, it was decided that as apportionment of service charges was something that could be the subject of an application to the Tribunal under s.27A(1), lease clauses such as

“To pay a fair proportion (to be determined by the Surveyor for the time being of the Lessors whose determination shall be final and binding) of the expense of all communal services…”

were caught by the anti-contracting out provisions in s.27A(6).

And then

In Gater and others v Wellington Real Estate Limited (2014) UKUT 561 (LC) (“Gater”) the Tribunal had to consider an obligation to pay:

“a due and fair proportion of the Service Cost (such proportion to be determined by the Landlord or its surveyor (in each case acting reasonably)”

There is no stipulation in that clause that the landlord’s determination was to be final and binding. But it was held nevertheless to fall within the scope of the words of section 27A(6); it purported to provide for a determination in a particular manner of a question (namely the apportionment of the service charge) which could be the subject of an application under subsection(1). At paragraph 73 the Deputy President said:

“A determination of proportions by the landlord’s surveyor is such a provision, whether it is said to be final and binding or not.”

The FTT had held that:

What those cases (Windermere and Gater) say is that the Tribunal’s jurisdiction to determine a reasonable apportionment is not ousted by wording purporting to provide that the matter is one for the landlord or the landlord’s agent. But in this case the Respondent is not trying to say that the landlord can alter the apportionment at its own discretion and that the Tribunal has no say in the matter. On the contrary the Respondent accepts that the Tribunal does have jurisdiction to say whether the apportionment is reasonable or not. So, the two cases quoted by the Applicants do not have the effect of nullifying the lease provision.”

However, the Upper Tribunal in this appeal is very certain that this is not the case

That is a misunderstanding of the decision in Windermere and in Gater. Those decisions say that a clause purporting to provide for a determination of apportionment by the landlord or the landlord’s agent is void. It is void whether or not it provides that the landlord’s decision is “final and binding” or similar, and whether or not the landlord agrees to submit to the jurisdiction of the Tribunal.

Accordingly in the leases in question in this appeal the words “or such part as the Landlord may otherwise reasonably determine” are void. They are deleted. They no longer appear in the lease.

That left the original specified percentages as the actual proportion.

Comment

This gives clarity, if not in some instances much comfort, that any clause that permits the landlord or their agent to vary the apportionment of a service charge is void. If the leases do not contain a specified apportionment, this may require an application to the FTT to decide an apportionment. Otherwise, as here, the original contracted apportionment stands.