UPPER TRIBUNAL (LANDS CHAMBER)

`

UT Neutral citation number: [2013] UKUT 376 (LC)

LT Case Number: LRX/159/2011

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT - services charges - construction of lease - whether lessor had failed to comply with an alleged condition precedent to payment - limitation

 

 

 

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

LONDON RENT ASSESSMENT PANEL

 

 

BETWEEN GRAHAM PETER WRIGLEY Appellant

and

LANDCHANCE PROPERTY MANAGEMENT LIMITED Respondent

 

 

 

Re: 4B Chislehurst Road

Richmond

Surrey TW10 6PW

 

 

Before: His Honour Judge Huskinson

 

Sitting at: Upper Tribunal (Lands Chamber) 45 Bedford Square, London WC1B 3AS

on 17 July 2013

 

The appellant appeared in person

Mr Morrell, instructed by SLC solicitors, on behalf of respondent

 

 

© CROWN COPYRIGHT 2013

The following cases are referred to in this decision:

Warrior Quay Management Company v Joachim and Others (LRX/42/2006)

Akorita v 36 Gensing Road Ltd (LRX/16/2008)

 

DECISION

Introduction

1.           This is an appeal from the decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”) dated 3 May 2011 whereby the LVT determined the reasonableness of and liability for service charges (for the period 1 January 2004 – 28 February 2010) and administration charges claimed as payable by the respondent (as landlord) from the appellant (as tenant) in respect of 4B Chislehurst Road.

2.           The manner in which the matter came before the LVT was not pursuant to an application by the appellant for the determination of the amount payable by way of service charge.  Instead the matter came to the LVT through being transferred from the Wandsworth County Court.  The respondent as claimant had brought proceedings against the appellant as defendant in the Shrewsbury County Court, and these proceedings were transferred to the Wandsworth County Court.  In these proceedings the respondent claimed that the appellant had failed to pay service charges properly due and invoiced in respect of the period 1 January 2004 – 28 February 2010; that as a result the respondent had incurred costs and had invoiced for reasonable administration charges; and that the total payable by way of arrears of service charge and administration charges payable was £7,642.71, which was claimed together with interest and legal costs.  The order of Deputy District Judge Gittens made in Wandsworth County Court on 22 September 2010 was to the effect that:

“The action be transferred forthwith to the London Leasehold Valuation Tribunal.”

The LVT stated (paragraph 2) that it did not have jurisdiction to deal with interest and court fees and that those must be determined by the county court.  It also stated that it had no jurisdiction to deal with alleged arrears of ground rent, but it is unclear to me that the claim in the county court brought by the respondent included any claim for ground rent.  The LVT was concerned with the respondent’s claim for service charges and administration charges.

3.           This appeal had for a substantial period been listed to be heard on 17 July 2013 before the Upper Tribunal.  The parties had been notified of this.  On 16 July an application was made by the appellant for an adjournment, which was refused.  He was informed that he could renew his application for an adjournment on 17 July and that the case would remain in the list for that day.  On 17 July the appellant did not attend at 10.30am.  I considered further whether there should be an adjournment and, having heard from the respondent, concluded the matter should not be adjourned.  The hearing commenced.  However shortly before 12.30pm the appellant arrived.  He was given documents which his solicitors, who had been previously acting for him, had submitted to the Tribunal on his behalf. He had the opportunity of considering these over an extended luncheon adjournment.  When matters resumed the appellant did not make any application for an adjournment.  He adopted the matters which had been submitted on his behalf by his solicitors.  He also himself addressed me by way of argument.  I am satisfied that there were no grounds for the matter being adjourned, that ultimately the appellant did not seek an adjournment, and that no prejudice has been sustained by the appellant by reason of the matter going ahead on its scheduled hearing date on 17 July 2013.

4.           As remarked by the LVT in its decision, it seems that an acrimonious relationship between the appellant and the respondent has developed.  This appears to stem from the circumstances surrounding the purchase in 1990’s by the respondent of the freehold of the building containing the appellant’s flat.  This building comprises in total four flats.  The LVT correctly observed that matters concerning any complaints the appellant has which stem from this purchase of the freehold by the respondent were not matters which were before the LVT for consideration.

5.           The appellant holds the first floor flat in the building from the respondent pursuant to the terms of the lease dated 3 February 1992 whereby the respondent’s predecessor demised flat 4B to the appellant for a term of 99 years from 25 December 1989 at a rent of £100 per annum (rising in stages to £300 per annum).  There was expressly reserved by way of further rent.

“… such sums of service charge (hereinafter called “the Maintenance Contributions”) as are payable in accordance with the provisions of Clause 3 hereof”.

6.           The lease included the following provisions:

(1)        Clause 3 contained a covenant by the appellant in the following terms:

“3.  THE Lessee hereby covenants with the Lessor that the Lessee will in respect of every year ending on the 31^st December during the term hereby granted (each such year being hereinafter called “the Maintenance Year”) pay a Maintenance Contribution to the Lessor being a sum equal to one quarter of the aggregate annual maintenance provision for the whole of the Building (computed in accordance with the provisions of Part 1 of the Fourth Schedule hereto) Such Maintenance Contributions shall be paid by the Lessee to the Lessor by equal half yearly instalments on the 25^th day of March and the 29^th day of September in every year during the term hereby granted together with the rent hereinbefore reserved PROVIDED THAT in respect of the first Maintenance Year the Maintenance Contribution (subject to any adjustment as provided in Paragraph 4 of Part 1 of the Fourth Schedule) shall be the sum of £100 and the Lessee shall on the execution hereof pay a due proportion thereof in respect of the period from the date hereof to the rent day next following AND if any Maintenance Contribution or any part thereof shall remain unpaid for fourteen days it shall bear interest at the rate of 4% per annum above the base rate of Midland Bank Plc for the time being from the date due until payment.”

(2)      Part I of the Fourth Schedule is in the following terms:

“Computation of annual maintenance provision

1.     The annual maintenance provision in respect of any Maintenance Year (hereinafter called “the Annual Maintenance Provision”) shall be computed not later than the expiration of two months immediately following the commencement of the said Maintenance Year and shall be computed in accordance with Paragraph 2 hereof

2.     The annual Maintenance Provision shall consist of a sum comprising the expenditure estimated as likely to be incurred in the Maintenance Year by the Lessor for any of the purposes mentioned in Part II of this Schedule

3.     As soon as practicable after the end of each Maintenance Year the Lessor shall procure that the accounts for that Maintenance Year shall be audited by an accountant in accordance with the provisions of the Housing Finance Act 1972 (as amended) and such audited account for each Maintenance Year shall be conclusive of the amount of the Annual Maintenance Provision or the amount of any adjustment thereof for the Maintenance Year

4.     Upon receipt of the audited account the Lessor shall deliver a copy thereof to the Lessee and shall notify the Lessee of the amount by which the estimate under 2 above shall have exceeded or fallen short of the actual expenditure in that Maintenance Year and the Lessee shall be allowed or shall pay (as the case may be) the proportion appropriate to the Demised Premises of the excess or deficiency.

5.     The Lessor shall procure that there shall be open to inspection by the Lessee during ordinary business hours at the office of the Lessor’s Surveyor in every period of three months ending on the last day of the fifth month after the expiration of each Maintenance Year during the term of this Lease (other than in the first year of this demise) copies of the accounts relating to the Maintenance Account for the preceding Maintenance Year PROVIDED THAT the Lessee shall give to the said Surveyor not less than fourteen days’ written notice of his desire to see such copies.”

(3)    Part II of the Fourth Schedule listed the various types of expense which may be incurred by the lessors and which were to be reimbursed through the Maintenance Contribution.

(4)    Clause 5(iii) provided that the lease was to incorporate the regulations respecting notices contained in section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962.

The LVT’s decision

7.           In paragraph 8 of its decision the LVT summarised the appellant’s defence to the respondent’s claims for service charge and administration charge;

“8. In a Defence served in the Shrewsbury County Court, the Respondent raised a number of matters referring to the disposal of the freehold without reference to himself, which are not within the jurisdiction of this Tribunal.  The Respondent relied upon the lack of compliance with sections 47 and 48 of the Landlord and Tenant Act 1987, and sections 21 and 21A of the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002).  The Respondent also sought to rely on the Applicant’s lack of compliance with paragraph 4 of the Fourth Schedule of the lease, and the requirement to obtain and provide audited accounts to the Respondent.  The Respondent additionally questioned valid service of demands within the 18 month time frame of costs being incurred pursuant to section 20B of the Landlord and Tenant Act 1985.  The Respondent denied the charges made were reasonable or reasonably incurred, although he did not give any particulars of the basis for those assertions were made.  A failure to repair was also raised said to give rise to damage in the Respondent’s flat and damages.  Any entitlement to administrative or legal costs was denied.”

8.           The LVT recorded that it was the respondent’s case that an annual Maintenance Charge was due from the appellant for estimated expenditure likely to be incurred in the Maintenance Year in accordance with paragraph 2 of the Fourth Schedule; that half-yearly demands were made for these charges; and that also a separate contribution was sought in respect of insurance premium.

9.           The LVT made its findings in paragraph 13 of its decision.  The LVT’s findings can be divided into three categories, namely:

(1)        Points found by the LVT in favour of the appellant.  These points are obviously not appealed against by the appellant and there is no cross-appeal by the respondent.  Accordingly these aspects of the LVT’s decision will in any event stand.

(2)        Points on which the LVT found against the appellant, being points in respect of which the appellant has not appealed.  Once again the LVT’s decision on these points will stand.

(3)        Points found by the LVT against the appellant on which the appellant does appeal to the Upper Tribunal in this present appeal.

10.        As regards the points in paragraph 9(1) above these in summary were as follows:

(1)        The LVT found that the service charge demands sent by the respondent to the appellant did not comply with sections 47 and 48 of the Landlord and Tenant Act 1987 and did not contain the requisite information pursuant to sections 21 and 21A of the Landlord and Tenant Act 1985.

(2)        In respect of the roof works (which were major works) carried out in 2004 the LVT found that the consultation provisions in section 20 of the Landlord and Tenant Act 1985 had not been complied with; that no application for dispensation from the consultation procedures had been made; that in any event the LVT would not have granted such a dispensation and that in the result the cost of the appellant’s contribution to these works was limited £250.

(3)        The LVT found that the appellant was not required to contribute towards the costs of running the respondent company (filing/late fees) and that he should not be required to pay administration costs incurred to date in respect of solicitor’s letters are.

11.        As regards the matters falling within paragraph 9(2) above:

(1)        The LVT determined that the service charges incurred during the relevant period were reasonable in their entirety and had not been unreasonably incurred in so far as they related to the costs of cleaning, insurance, plumbing and drainage and soil stack works and management agent fees.  The LVT found that these had all been supported by documentary evidence and that the charges were reasonably incurred.

(2)        The LVT found that the appellant had failed to particularise or establish any set-off against the claim for service charges.

12.        As regards the matters following within paragraph 9(3) above, i.e. the points on which the LVT found against the appellant and on which the appellant appeals to the Upper Tribunal, these points can be summarised as follows:

(1)        The LVT found that all the service charge demands were sent to the appellant at the appropriate time.  On this point the LVT stated it preferred the evidence of Mr Jackson (a witness on behalf of the respondent) and did not accept certain matters given in evidence by the appellant.  The appellant challenges this finding.  If the appellant were to succeed upon this challenge then this would affect the LVT’s further finding, against the appellant, that the appellant had been notified within the appropriate period of the relevant costs such that section 20B of the Landlord and Tenant Act 1985 as amended did not operate to prevent recovery by the respondent.

(2)        The LVT found that the failure to comply with the provisions of paragraph 3 of the Fourth Schedule (provision of an audited account) could not be properly construed so as to mean that the respondent had lost the right to demand the payment of service charges from the appellant or that such demands were not payable.  The LVT referred to the decision of the Lands Tribunal (His Honour Judge Huskinson) in Warrior Quay Management Company v Joachim and Others (LRX/42/2006).  It is central to the appellant’s case in the present appeal that the LVT wrongly construed the lease and wrongly applied the decision in Warrior Quay and that the LVT should have concluded that a condition precedent to the recovery of service charges has not been fulfilled and that therefore nothing was payable.

(3)        The LVT also concluded that the service charges were not reserved as rent and were therefore not limited to a six year limitation period but were instead subject to a twelve year limitation period from the date on which the arrears became due.  The appellant’s case on this is simple, namely that the service charges were expressly reserved as rent and that therefore the six year limitation period applicable to rent applies to claims for arrears of service charge.

13.        It will be seen that the effect of those parts of the LVT’s decision which are not the subject of the present appeal is that:

(1)        The LVT has decided that nothing was payable by way of service charge or administration charge at the date of the LVT’s decision (and hence nothing was payable in respect of these matters as at the date of the commencement of the county court proceedings) because no proper demand had been made so as to satisfy sections 47 and 48 of the Landlord and Tenant Act 1987 and sections 21 and 21A of the Landlord and Tenant Act 1985.

(2)        Once the requirements of sections 47 and 48 of the 1987 Act and sections 21 and 21A of 1985 Act have been complied with, the respondent will even then not be entitled to recover more than £250 in respect of the roof works in 2004.  Also the respondent will not be entitled to recover the costs of running the respondent company (filing/late fees) and will not be liable to pay administration costs incurred up to the date of the LVT’s decision in respect of solicitor’s letters.

However if the appellant loses in the present appeal, such that the LVT’s decision is upheld, the effect of the LVT’s decision will be that once the requirements of these provisions of the 1985 and 1987 Act have been complied with the appellant will be liable to pay the service charges claimed in respect of insurance, cleaning, plumbing and drainage and soil stack works, and management agent fees.  The appellant argues in the present appeal that the LVT was wrong upon these points and, in particular, that the amounts demanded are not in any event properly payable because the respondent has failed to comply with the provisions of the lease.

14.        The appellant sought permission from the LVT to appeal.  The LVT granted permission only upon the limitation point.  However the Upper Tribunal granted the appellant permission to appeal upon the four grounds raised in the grounds of appeal.  It was ordered that the appeal should proceed by way of review.

Appellant’s submissions

15.        The appellant was represented by solicitors, C L Clemo & Co, until about October 2012.  These solicitors submitted the appellant’s grounds of appeal and also his statement of case which again sets out the matters raised in the grounds of appeal.  At the hearing before me the appellant adopted the matters raised in the statement of case.  I take the arguments raised by the appellant from this statement of case.

16.        By reference to this statement of case the appellant raises the following points:

(1)        The recoverability of a service charge primarily rests upon the terms of the lease.  It is necessary to see whether what is being demanded is a sum which is contractually due in accordance with the provisions of the lease.

(2)        The lease in paragraph 3 of the Fourth Schedule expressly requires that as soon as practicable after the end of each Maintenance Year the respondent shall procure that the accounts for that year shall be audited in the manner specified.  Paragraph 4 makes provision for a copy of the audited account to be delivered to the appellant. 

(3)        The respondent has failed during any of the relevant years to comply with these provisions.  It seems the respondent decided not to get the accounts audited (as required by the lease) because it would cost in the region of £500 per annum to prepare such audited accounts.

(4)        It is argued that it is a condition precedent to the appellant being liable to make payments of service charge that the respondent has procured audited accounts in accordance with these provisions.  The respondent makes reference to Woodfall’s Law of Landlord and Tenant paragraph 1.780:

“Where a lease provides for the amount payable to be certified by the landlord’s surveyor or accountant, the issue of a valid certificate will usually be a condition precedent to the tenant’s liability to pay.”

(5)        It is submitted that the LVT was wrong in failing to distinguish the Warrior Quay case and in failing to find that the requirement for an audit and the other requirements in the Fourth Schedule was a condition precedent to any liability of the appellant to make payments of service charge.

(6)        It is further submitted that the provisions of the present lease differ from the provisions which were relevant in the Warrior Quay case because in the present case there is a requirement that the Annual Maintenance Provision shall be computed not later than the expiration of two months immediately following the commencement of the relevant year (i.e. in effect prior to 1 March in each year).  A point is taken that the LVT should have found that this had not occurred and that as a result nothing was payable by way of the on account payments.

(7)        As regards ground 2 of the grounds of appeal, this appears in substance to be a reiteration of the points advanced under ground 1, but with reference being made to the contra proferentem rule.

(8)        As regard ground 3, it is submitted that the service charges are reserved expressly as additional rent and therefore the six year limitation period referable to rent is applicable.

(9)        As regards ground 4, it is submitted that the LVT erred in deciding that the various service charge demands had been properly sent to the appellant at the appropriate time.  The appellant argues that the LVT did not consider the method for service laid down in the lease; he asserts that he normally lives in Yorkshire; he draws attention to the fact that Mr Jackson could not give evidence about what occurred prior to Mr Jackson’s arrival in 2005; he refers to the decision of the Lands Tribunal in Akorita v 36 Gensing Road Ltd (LRX/16/2008), a decision of  the Lands Tribunal regarding the service of documents; and he argues that even if documents were left for him as described by Mr Jackson (some being placed under his door and some left in the communal area for his collection) these would not have been properly served.

(10)     The appellant further complains that the LVT erred in allowing the respondent to submit various documents at the hearing, which were submitted late. 

Respondent’s submissions

17.        On behalf of the respondent Mr Morrell advanced the following submissions:

(1)        The fact that the respondent had never procured that the relevant accounts were audited as required by paragraph 3 of the Fourth Schedule would be relevant if the respondent had sought to recover payment of an end of year balancing payment as contemplated by paragraph 4, namely the payment of an amount representing the shortfall between what had been paid on account and what the actual audited accounts for the year in question showed was payable by the appellant.  The audited accounts drive this end of year reckoning.

(2)        However the lease makes provision for payments on account in advance half-yearly based upon the expenditure estimated as likely to be incurred in the relevant year.  The obligation to make these payments in respect of any year arises prior to the time when “as soon as practicable after the end” of the relevant year the accounts are required to be audited.  The requirement of an audit has no effect upon whether or not these payments on account in advance pursuant to clause 3 and paragraphs 1 and 2 of the Fourth Schedule are payable.

(3)        In response to a question as to whether the various demands could be identified as all being demands for payment on account of these half-yearly instalments based on estimates, Mr Morrell accepted that there were demands for an estimated amount in advance on account in rounded sums (e.g. at page 222 of the bundle there is an example of £200 being demanded as a half-yearly sum payable it seems as the second instalment in 2007), but also the respondent would separately charge the insurance premium as a one-off charge to each lessee (each paying one quarter of the premium) once the premium had been agreed and either had been or was about to be paid.  As regards the demand for payment towards the insurance premium he argued that this was not a demand for a balancing charge after the end of the year (which would require an audit pursuant to paragraph 3 of the Fourth Schedule) but should instead be viewed as part of the demands for the on account payments – in effect the respondent had formed the following view regarding the estimate of likely expenditure, namely £x plus whatever is to be paid for insurance.  In just the same way as the respondent could recover the estimated £x through the provisions regarding on account payments, so could the respondent recover from the appellant his share of the insurance premium.  The respondent did not need to rely upon the provisions regarding the end of year balancing charge (which requires an audit) in order to recover it.

(4)        As regards the suggestion in the appellant’s grounds of appeal that there may been some failure by the respondent to compute the Annual Maintenance Provision not later than the expiration of two months immediately following the commencement of the relevant year, he submitted that this was not a live point which had been raised before the LVT.  The LVT had not been invited to make findings of fact upon the point.  If the point had been raised evidence could have been given by the respondent’s witnesses as to when the respondent computed its estimate for each year in question.  On an appeal by way of review this was not a point upon which the appellant could succeed.

(5)        It was recognised that the demands for half-yearly payments of service charge appeared to have been demanded not strictly by reference to half yearly periods commencing on 25 March and 29 September (as required by the lease) but instead by reference to periods which were described for instance as September 06 - March 07, or perhaps 1 October 2009 – 30 April 2010.  However he submitted that this should not invalidate the demands for half yearly payments on account in advance.

(6)        He submitted that the LVT had correctly followed the decision in Warrior Quay to the effect that failure to carry out an audit in a case such as this does not effect the tenant’s liability to make the payments on account in advance – it only affects the landlord’s ability to recover alleged shortfalls after the end of the year.

(7)        As regards the limitation point, Mr Morrell pointed out that the point was in fact of only academic interest bearing in mind the LVT’s finding that sections 47 and 48 of the 1987 Act and sections 21 and 21A of the 1985 Act had not been complied with.  The result of this finding is that whatever amounts the respondent may be entitled ultimately to recover by way of service charge had not become due and would not become due until those sections had been complied with.  Accordingly time will only start to run from the date when these sections have been complied with.  However on the substance of the point Mr Morrell was reluctant to concede that the six year limitation period applicable to rent was the relevant period, but he did not think he could advance any specific argument to the effect that the twelve year limitation period was applicable.

(8)        As regards the appellant’s challenge to the LVT’s finding that all the relevant service charge demands were sent to the appellant at the appropriate time, Mr Morrell submitted that this was a finding of fact by the LVT after it had heard oral evidence from Mr Jackson and the appellant.  The LVT preferred the evidence of Mr Jackson.  This was a finding of fact the LVT was entitled to make.  There is no basis upon which the Upper Tribunal can interfere.  I asked Mr Morrell whether the LVT should be taken as finding that the demands had been served as contemplated in clause 5(iii) of the lease incorporating section 196 of the Law of Property Act 1925.  He submitted that the answer was yes and that the respondent was entitled to treat flat 4B as the appellant’s last known place of abode and to leave the demands for him there.  This is what Mr Jackson said had happened.

Discussion

18.        I remind myself that this appeal is proceeding by way of review.  I am reviewing the LVT’s decision not substituting my own judgment.  The Upper Tribunal can only interfere if the LVT has gone wrong in principle, or left material factors out of account, or its balancing of the material factors led it to a result which was clearly wrong.

19.        I deal first with the question of limitation.  I agree that, for the reasons given by Mr Morrell, the point would seem to be only of academic interest for the purposes of the present case.  However the LVT has given a decision in paragraph 13(i) that the service charges referred to as Maintenance Contributions are not reserved as rent and are therefore not limited to a six-year limitation period, but are instead subject to a twelve year limitation period.  With respect to the LVT it appears that it may not have had drawn to its attention the provisions in the reddendum clause which reserve the Maintenance Contributions as a further rent.  I conclude the service charge which is payable in accordance with the provisions of Clause 3 of the lease must be treated as a rent and is therefore subject to a six year limitation period.

20.        As regards the complaint in the grounds of appeal that the LVT allowed late documents to be submitted to it, the LVT was entitled to control its own procedure.  There is nothing before me to show that they erred in receiving late documents or to show that the appellant suffered any prejudice from this.

21.        As regards the LVT’s finding that all the service charge demands were sent to the appellant at the appropriate time, the appellant cannot succeed upon his challenge to this finding.  The finding was reached by the LVT after hearing oral evidence from Mr Jackson, a tenant since 2005 who had dealt with the service charge matters, and the appellant himself.  This finding of fact cannot be successfully challenged in this appeal.  There is however the separate question of whether the LVT properly directed its mind to what was required for the purpose of serving these demands.  It is true that the LVT did not expressly remind itself of the provisions of clause 5(iii) of the lease nor of section 196 of the Law of Property Act 1925, sub-section (3) of which provides as follows:

“Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee ….. or in case of a notice required or authorised to be served on a lessee… is affixed or left for him on the land or any house or building comprised in the lease…”

In the present case it appears to me to be clear that flat 4B was the appellant’s last known place of abode.  There is nothing in the LVT’s decision nor anything to which my attention has been drawn in the bundle to indicate that the LVT should have reached a different conclusion as to what was the appellant’s last known place of abode.  I am confirmed in the conclusion that flat 4B was the appellant’s last known place of abode, anyhow as of October 2012, by reason of a communication from his former solicitors informing the Upper Tribunal that the appellant was thereafter acting in person and that his address for service of documents was at flat 4B, Chislehurst Road, Richmond, Surrey, TW10 6PW.  In summary the appellant has failed to persuade me that the LVT was wrong in concluding that the service charge demands were properly served on the defendant at the appropriate time by being left for him either under his door or in the communal area for the collection of post.  For the avoidance of doubt I confirm that in my judgment a document would be left at the appellant’s last named place of abode if it were left in the communal area for the collection of post within the building in which his flat was situated.  Leaving a document at the last known place of abode is not the same thing as affixing or leaving a notice on the land or house or building comprised in a lease (in this latter case it may be necessary actually to affix it or leave it on the demised flat itself rather than in some communal area – see the Akorita case).

22.        The foregoing conclusions bring me therefore to what is the central point in the case, namely whether the respondent’s admitted failure to comply with the terms of the lease by procuring the auditing of the accounts in accordance with paragraph 3 of the Fourth Schedule has the effect claimed by the appellant, namely to make the amounts demanded of him irrecoverable.  In the Warrior Quay case the relevant leases made provision for payment on account, for each relevant period of six months, of such sum as the management company should reasonably deem appropriate to take account of certain anticipated future costs.  There was a provision that at least once each year the landlord would procure that the auditors or accountants should prepare an account and give certain certificates regarding the service costs and the amounts due from the tenant.  The only sums which the landlord had demanded from the tenants in that case were sums which were payable by way of on-account payments – the landlord had not purported to make a demand for a final balancing charge.  The landlord accepted that the absence of the relevant certification meant that it could not properly demand any end of year balancing charge, but argued that the absence of auditor’s certification after the end of the year did not make irrecoverable money which had already properly been demanded (and perhaps paid) by the tenant in respect of the on account payments.  In respect of this argument I stated as follows in paragraph 25:

“25. It is clearly unsatisfactory that WQMC has failed to comply with its obligations under the Seventh Schedule Part III paragraph 2.  However, I am unable to read the lease as meaning that if WQMC has failed to comply with this provision then this automatically thereby proclaims that in respect of the service charge year to which the failure relates WQMC had lost the right to be paid any service charge whatever, such that the entirety of any sum paid on account must be dealt with on the basis that the leaseholder is either entitled to credit for this sum or to be re-paid (as to which see below) the whole of the amount paid on account.  I agree with Mr Bayne that for this dramatic result to ensue from a failure to comply in proper time with the obligation under the Seventh Schedule Part III paragraph 2 would require clear words.  However, I also conclude that WQMC cannot take advantage from its own breach of covenant and cannot unilaterally put off into the future the ability of a tenant to obtain finality of decision as to how much is payable for a particular year.  Section 27A of the 1985 Act clearly contemplates that a tenant can apply to an LVT to obtain a binding decision on this point.  I therefore also agree with Mr Bayne’s submissions that, if in such circumstances a leaseholder does make an application to the LVT for a decision (as happened in the present case), the LVT must reach the best informed decision it can upon the material available to it.  The absence of any proper certificate is a matter which may weigh against WQMC and may result in the LVT deciding that a lesser sum than hoped for by WQMC may be decided to be the amount payable.  Also the absence of the certificate should result in the position being that the amount which is decided by the LVT to be payable by way of shortfall will not be payable until a proper certificate (certifying that at least this amount is payable) is provided by WQMC’s auditors or accountants.  However, if the LVT’s decision is that the service charge payable for the relevant year is less than the sum paid on account, then the leaseholder is entitled to the benefit of that decision immediately (and without waiting for a certificate from the relevant auditor or accountant).”

23.        The terms of the leases in that case are not identical to the lease in the present case, but the principle is the same.  Here there is provision for the payment in advance of half-yearly estimated sums by way of service charge on account.  There is then 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 LVT were in my judgment correct in following the reasoning in Warrior Quay so far as concerns those parts of the service charge demands which were in respect of the on account payments based on an estimate.

24.        The lease itself had in respect of the first year of the lease provided that the Maintenance Contribution should be £100.  Thus a round sum was taken.  It appears that the respondent has continued to adopt round sums, for instance demanding £200 separately for each of the two payments to be made on the half-yearly dates in 2007 (see page 222 of the bundle).  I can see no reason why the respondent should not adopt a broad estimate such as this rather than seek to get a precise figure (which bearing in mind it is only an estimate, would no doubt prove to be inaccurate in due course).  The respondent is entitled to require the payment of these half-yearly on account sums if the respondent has made the relevant computation in accordance with paragraphs 1 and 2 of the Fourth Schedule regarding the Annual Maintenance Provision.  It appears that before the LVT there was no challenge as to the date by which such estimate was computed in each year.  Nothing has been drawn to my attention from the material that was before the LVT (or indeed at all) to show that the respondents failed to compute this estimated expenditure in accordance with paragraphs 1 and 2 of the Fourth Schedule.

25.        Accordingly as regards the demands for on account payments of service charge in the estimated half-yearly sums I conclude that these are not irrecoverable by reason of the subsequent failure by the respondent to procure the auditing of the accounts for the year in question.  Thus these on account sums are recoverable once the statutory formalities (which so far have been overlooked – see paragraph 10 above) have been complied with.  I consider it puzzling and inappropriate that the respondent has chosen to make these half-yearly demands not by reference specifically to the stipulated quarter days, namely 25 March and 29 September, but instead either by reference to other dates (lying not so far away from these dates) or merely on the basis of March or September.  However on the basis that, as I find, these on account payments did fall due on each relevant 25 March and 29 September I find that they remain payable notwithstanding they may have been demanded by reference to an inappropriate date.  The substance is what matters and the substance is that the landlord has demanded these half-yearly payments in advance by way of on account payments of service charge pursuant to an estimate having been made.

26.        However the demands for insurance premiums stand in a different position.  The respondent has in effect two opportunities to obtain money by way of service charge from the appellant, namely first by way of the on account half-yearly payments on 25 March and 29 September based upon estimates, and secondly by way of a claim for payment of a shortfall, which needs to be calculated in accordance with paragraphs 3 and 4 of the Fourth Schedule and will require audited accounts.  The lease does not give the respondent the power to demand half-yearly payments based upon estimates and then to demand separately at such time of the year as it happens 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.  It seems they have not done this and have as a result estimated too small a sum.  The solution for the respondent if it has estimated too small a sum and if there is therefore a shortfall is for the respondent to procure audited accounts and to demand payment of a shortfall.  This however has not happened.

27.        In consequence I find that the amounts demanded half-yearly by way of on account estimated sums are recoverable (subject to satisfaction of the relevant statutory requirements, see paragraphs 10 and 13 above) but that the separate demands for insurance premiums have not been demanded in accordance with the provisions of the lease and are not payable.  They may become payable if and when audited accounts in accordance with paragraph 3 have been prepared and a proper demand for the relevant shortfalls for the relevant years has been served.

Conclusion

28.        In the result:

(1)        I allow the appellant’s appeal on the limitation point and I find that (although the point appears academic at present) the service charges are reserved as rent and a six year limitation period therefore applies.

(2)        I dismiss the appellant’s appeal against the LVT’s finding that all the service charge demands were sent to him at the appropriate time.

(3)        I allow the appellant’s appeal based upon the respondent’s failure to comply with paragraphs 3 and 4 of the Fourth Schedule, but only to the extent of finding that the demands for insurance premium have not been made in accordance with the provisions of the lease and are not at present payable.

(4)        The demands for the on account half-yearly estimated sums are however payable, but subject always to the LVT’s ruling that no sums are due until proper demands have been served complying with sections 47 and 48 of the Landlord and Tenant Act 1987 and sections 21 and 21A of the Landlord and Tenant Act 1985.

Costs

29.        Mr Morrell on behalf of the appellant argued that I should make an award of costs against the appellant.  He recognised the limited powers of making such an order as contained in the Commonhold and Leasehold Reform Act 2002 section 175.  I observe that the points which the appellant has raised in this appeal are points which were prepared by solicitors, were thought worthy of being given permission to appeal by the President of the Upper Tribunal (Lands Chamber) and which have in part succeeded.  I do not see the appellant’s late application for an adjournment, which was not persisted in and which caused no ultimate prejudice to anyone, to be unreasonable conduct.  The application for costs is refused.

30.        The appellant made an oral application to me at the hearing under section 20C of the Landlord and Tenant Act 1985.  Bearing in mind that he has to a significant extent succeeded in his appeal I order that all of the costs incurred by the respondent in connection with these proceedings before the Upper Tribunal are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the appellant.

 

 

 

Dated:  10 September 2013

 

 

His Honour Judge Huskinson