This week we cover cases that relate to interim service charges; discussing matters such as timing, reasonableness and an application for dispensation when the requirements to consult under section 20 of the Landlord and Tenant Act 1985 (LTA) are triggered.
Kensquare Limited v Boakye  EWCA Civ 1725
Is time of the essence when demanding an interim service charge?
On 22 November 2021 the Court of Appeal handed down judgment in this case and held that in respect of interim service charge demands, in so far as there is any presumption against time being of the essence, this can be displaced by the wording of the lease.
The case is important because if "time is of the essence" for exercising a contractual right, then the right is generally lost if not exercised within the time set.
In this case, the lease made clear provision for the notification of the amount to be one month prior to the start of the financial year and provided for an interim amount of £360 in default of that. The landlord did not comply with this deadline. On 15 August 2019 it demanded service charges in excess of £360 for the financial year which had already started (2019/2020).
In light of the wording of the lease, notwithstanding the general legal presumption against time being of the essence – at least in respect of rent reviews and final service charge demands – the Court of Appeal held that time was of the essence.
This case is significant because it is now more likely that time will be of the essence in relation to estimated or interim service charge demands, especially where the lease provides for advance notification by a set deadline. It is therefore more important than ever that landlords comply with the lease terms when demanding interim service charges, otherwise they run the risk of needing to recover the relevant service charges by way of the final service charge demand at the year-end (where usually the presumption stands that time is not of the essence).
Wynne v Yates and another—Reasonableness of Interim Charges
This case will be of interest to landlords with residential property due to undergo major works. The case considers the reasonableness and payment of service charges demanded.
The case concerned a landlord (the appellant) who owned a mid-terrace Victorian house of four storeys, where the lessees (the respondents) had a long lease of the upper floors known as 12A.
The arrangement for payment of service charges were as follows: The landlord was required to maintain the building and the lessees were to pay 50% of the landlord's expenditure in complying with his obligations. Six monthly on-account payments were due on 24 June and 25 December each year. After 29 September, the landlord was to produce a notice of actual expenditure for the previous year, and any deficit or surplus was to be paid or repaid within 14 days. However, where there were monies owed to the lessee because there was a surplus, the landlord also had the option of putting this towards the next interim payment, or to retain it as part of the sinking fund.
Work commenced on the external redecoration of the building in summer 2019. As the work was going to cost the lessees more than £250, this triggered the consultation requirements of section 20 LTA. The landlord complied with those requirements and engaged a contractor to do the work (Mr Ramjedas). However, Mr Ramjedas was unable to complete the works relating to the rear of the building due to ill health, so in December 2019 and January 2020, the landlord engaged different contractors to finish the job and to do some roof repairs. However, no new section 20 consultation was carried out.
There was some confusion about the demands made and payments received. Initially a demand was sent in June 2018 for that half year demand and the lessee paid that demand (for £405.18). However, the landlord later attributed that payment to the interim charge for December 2017 and sought payment again for June 2018.
The next demand the lessees received was dated 29 January 2020. The January 2020 invoice showed three interim payments due, relating to the charges for December 2018, June 2019 and December 2019. These amounted to £1,215.54 (£405.18 each). The lessees were told that this sum was required to meet additional external decorating costs. Then in July 2020, they received correspondence from a debt recovery agency, which included a schedule demanding payment of £405.18 in respect of each of June and December 2018 and June and December 2019 together with interest and expenses (totalling £2,274.20).
The lessees commenced proceedings before the FTT, challenging those four charges of £405.18.
During the period leading up to the hearing in November 2020, the landlord made an application for dispensation from the requirements of section 20 in relation to the work done by the new contractors.
Initially the FTT refused to grant dispensation, on the basis that they said that the additional work done to the roof amounted to a fresh 'set of works' and should have been consulted on – they said there was prejudice to the lessees because of this failure.
Although the decision of the FTT was not very specific, it appeared that the Judge determined that payment for the additional work of the second contractor could not be charged. This was on the basis that the estimates in the section 20 notices had been exceeded and there had been no consultation for the additional costs. They FTT held that the reasonable costs should not exceed Mr Ramjedas's estimated price.
The landlord appealed to the Upper Tribunal (Lands Chamber) (the UT). Before the UT, it was accepted by the landlord that the interim service charge for June 2018 had been paid when demanded and was not now payable. It should not have been listed as payable in the debt recovery agency's schedule in July 2020.
Upper Tribunal's Decision
The appeal was successful. The UT decided that: (i) of the four service charges in issue, it was agreed by the landlord that the one of them had been paid without dispute, and therefore there was no jurisdiction to make a decision on this; the last three were payable and the challenge to their reasonableness had failed. There was no evidence produced by the lessees that the price or quality of the work was unreasonable, and the costs should not be capped simply by virtue of the fact that they exceeded the quote given within the section 20 process; and (ii) with regard to the application for dispensation, the UT found that the additional roof repairs did not amount to a fresh set of works and no fresh consultation was required.
This case established that the Tribunal is likely to find interim service charges reasonable and payable if landlords can prove they took a pragmatic approach resulting in the work being carried out and the lessees have neither challenged the quality of the work nor produced any evidence that the price is unreasonable.
Landlords should consider how they specify the works that need to be done to their property when issuing notices under section 20, as this directly influences whether a fresh consultation would be required should the need for additional work arise. The UT ruled in the landlord's favour because the works on the roof fell within the description of works provided by the landlord before the works began.
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