Nyree Applegarth, Head of Property Disputes, looks at a significant Court of Appeal ruling which is good news for tenants when it comes to additional service charges.
Can a landlord of a residential property come back and ask for additional service charges long after a financial year has ended?
It’s an age-old question that has received some clarity recently as the Court of Appeal delivered some welcome news for tenants.
There are millions of people living in the UK who have leases which require them to pay service charges and it is common for leases to include provisions where tenants have to make several payments during a calendar year effectively on account for expected expenditure. It’s usual for the landlord to then have the ability to reconcile the account at the end of the year and come back and ask for more money if the expenditure has been higher than expected.
In order to give tenants some certainty around the amounts that they can be asked to pay and when, it is also usual for a lease to include a provision setting, a deadline by which a landlord has to come back and ask for any balancing payment. Certainly, if you are a residential tenant you want to know sooner rather than later if you are going to be asked to pay even more monies for services that have already been provided or works that have been undertaken.
An example of such a clause in action was the subject of examination by the Court of Appeal in the recent case of Kensquare Limited -v- Boakye. Here, the Court was asked to determine whether time was of the essence where a landlord was coming back after the end of a particular service charge and asking for the tenant to pay more monies.
The tenant had covenanted to pay an interim service charge on 1st April and the 1st October in every year and the maintenance contribution was capped at £360.00 per annum subject to the fact that the landlord could come back and revise the contribution “to such amount as it shall deem necessary in the light of expenditure reasonably anticipated for that year”. That was provided that the notice of increase had to be served on the tenant “not less than one month prior to the commencement of that financial year”.
At the end of the financial year the landlord was supposed to provide the tenant as soon as practical with an account of the service charge for that year and give credit for any interim payments. The tenant was then required to pay the balance within 28 days of service of the final demand.
In August 2009, the landlord wrote to the tenant requesting payment of half yearly estimated service charges due in advance for the periods 2018-2019 and 2019-2020. The total sum claimed was £2,103.52 for each half year.
A dispute about whether the tenant was liable to pay those sums arose and the first tier tribunal found that the tenant was only liable to pay interim service charges in the sum of £360 and £180 respectively for the periods 18-19 and 19-20. It determined that the August 2019 letter failed to comply with the service charge provisions of the Lease. The sums demanded exceeded the £360 cap and, contrary to the Lease, the August 2019 letter purported to give notice in respect of a financial year which had passed and one that had already commenced.
The matter was then referred up to a higher tribunal and they determined that the tenant was liable to pay the full service charges because they didn’t think there was any logical reason why the presumption that time was not of the essence in relation to the service of the final service charge demand should not also apply to the service of an interim service charge demand.
However, the Court of Appeal disagreed. They held that parties to a lease should more readily be found to have intended time to be of the essence in respect of the service charges and the interim service charge demand.
There was no risk that the Landlord would lose its ability to levy service charges at the end of the year and, since the Lease provided that notice had to be served not less than one month prior to the commencement of that financial year, the Landlord was restricted to having to serve a valid notice not less than one month prior to the start of the next financial year.
Obviously, this is a warmly welcomed decision for tenants now the Court of Appeal has deemed that time is of the essence in relation to service of interim service demands.
