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The Appellant is the owner of multiple flats in a converted office and factory. The building, which now comprises of 33 residential flats has a history of disrepair and service charge arrears. The Respondent, which is owned and managed by some of the tenants of the block, took over the management in 2012.
In 2015, the Respondent commenced proceedings in the County Court for recovery of ground rent and service charges. The service charge element of the claim was transferred to the First-tier Tribunal (Property Chamber) (‘FTT’).
The Respondent had sent the Appellant what were described as interim service charge demands for payment on account every 6 months. The Appellant had not paid these.
The Appellant sought to rely on the terms of the lease in defending the claim and challenging the demands. It argued that the service charges were not reasonable and that the Respondent had failed to comply with the lease. This argument centred on the fact that the landlord had not properly certified the service charge accounts for each year and so, as a result of this, the service charges demanded had not actually become payable.
The FTT rejected the Appellant’s defence and found that the demands were reasonable and that the amounts demanded were payable. The Appellant was granted permission to appeal in relation to the argument about certification of the accounts. The main issue on appeal was in respect of the fact that the sums demanded by way of interim payments were in excess of expenses for the relevant years.
The Upper Tribunal (UT) found that the requirement to certify the service charge accounts was not a condition precedent for the payment of interim or on account service charges. There was nothing in the lease which made the payment of an interim sum conditional upon certification.
However, the UT found that although the interim amounts demanded by the Respondent were reasonable when they were first demanded, this was not the case in later years. The Respondent had budgeted in excess of £46,000 for each year in question, despite the fact that the actual expenditure was around 50% of this.
Whilst this approach was understandable when the Respondent first took over the management of the block, an increasing amount of knowledge would be available to the Respondent each year to make an informed decision. The Respondent had clearly not carried out a careful assessment and demanding a sum far in excess of what had been incurred in previous years, with no evidence put forward as to why the demands remained high could not be said to be reasonable.
The appeal was allowed and the UT carried out an assessment as to the proper amounts payable by the Appellant in respect of each service charge year.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.