A thorny service charge problem
In December, the Upper Tribunal (Lands Chambers) (UT) gave judgment in English Rose Estates v Menon & others . This was the landlord's appeal of a First Tier Tribunal (FTT) decision in which it was held that the landlord was not permitted to recover insurance charges from leaseholders.
The problem was that the schedule to the lease which dealt with the service charge did not refer to the landlord's insuring obligation. Although the leaseholders had challenged the reasonableness of the premiums, the particular issue regarding the wording of the lease had only been raised for the first time on the morning of the FTT hearing. In the appeal, the UT considered the fairness of the proceedings in the FTT as well as the correctness of its conclusion on the insurance issue.
The leaseholders had been acting in person until shortly before the FTT hearing when they instructed Counsel who raised the point about construction in his skeleton argument. The FTT declined the landlord's request to adjourn the hearing and instead invited written submissions.
In the landlord's submissions, it conceded that the lease did not contain an express provision, but argued that one should be implied, or alternatively that an estoppel by convention had arisen over the years, prohibiting the leaseholders from disputing their liability to pay. It also argued that the procedure adopted by the FTT was unfair.
On the issue of procedural unfairness, the UT found that whilst the FTT's decision to allow the new point to be argued was a "robust one", it was not outside the range of decisions available to it.
At the hearing of the appeal, the landlord's Counsel accepted that the FTT reached the correct conclusion on the basis of the arguments raised and did not suggest that the outcome would have been different if further evidence had been allowed. Therefore the point was capable of being determined on legal argument alone and the approach taken by the FTT was not unfair.
A new point regarding interpretation of the lease was raised by the landlord in the appeal; the failure to include a provision for the recovery of insurance costs was a clear mistake and that the lease should be rectified. This was rejected by the UT as being beyond the scope of rectification in the equitable sense. Although the drafting meant the landlord could not recover its insurance costs, which was a surprising and unusual outcome, it was not an entirely irrational one. The suggested mistake was not amenable to a corrective construction because it would involve reallocating responsibilities rather than correcting a linguistic or arithmetic slip in the drafting.
The appeal was accordingly dismissed, although the UT recognised this was not a particularly satisfactory conclusion for either party. The parties were encouraged to reach agreement over past and future insurance obligations, with the assistance of mediation if necessary.