Bucklitsch v Merchant Exchange Management Company Limited [2016]:

Whether accountant’s certification of service charge was a condition precedent to tenants’ payment

The background

The central issue to this case arose as part of a service charge dispute between the parties. The tenant occupied a property under a lease which stated that service charge demands should be certified by an accountant:

“The account referred to…shall be prepared and audited by a competent accountant who shall certify the total amount of the said costs and expenses (including the audit fee of the account) for the period to which the account relates and the proportionate amount due from the Tenant to the Landlord”

The certification had not been undertaken, but this was not raised by either party prior to the day of trial. At trial, the tenant argued that service charge was not payable as a result of the lack of certification, stating that certification was a condition precedent to recovery of service charge. Further, during proceedings several years earlier, neither party had raised the issue.

The law

The First-tier Tribunal considered whether there had been an abuse of process in the tenant’s failure to raise this issue when it had ample opportunity prior to trial. In addition, the FTT also assessed whether the tenant was estopped from using this argument as a result of having both failed to raise the issue previously and having paid the service charges to which the dispute related.

The FTT held that, although certification of the accounts was a condition precedent to the recovery of service charges, the tenant was estopped from relying on the argument. This was for a number of reasons: the tenant was a member of the management company and had been in occupation of the property for eleven years without ever having raised the non-compliance as an issue.

The tenant appealed to the Upper Tribunal, stating that the FTT had reached a conclusion outside of its remit in raising the abuse of process and estoppel concerns.

The UT disagreed; the FTT was entitled to ask the parties to address the abuse of process and estoppel points (notwithstanding that such points had not been advanced by either party) as the non-certification point itself had been raised very late. In examining the FTT’s decision, insufficient evidence presented to the FTT meant that it was unable to rule that the tenant was estopped and the UT could not uphold this judgment. Further, as the FTT had not made any ruling in connection with the abuse of process point, the UT was unable to consider it.

The decision

The UT set aside the FTT’s decision and remitted the case back to the FTT which was asked to consider:

· whether any condition precedent existed as to the recovery of service charges;

· whether the tenant was estopped or had waived its right to rely on such an argument; and

· whether an abuse of process had taken place as a result of the late submission of the argument.

JB Leitch comments on the judgment:

“The Bucklitsch case is a useful reminder of the importance of preparation before hearings, particularly where parties are self-represented. Good legal advice and thorough examination and presentation of the issues at FTT could have prevented this costly appeal. The case also makes an authoritative point in affirming that the Tribunal may raise points of law with the parties even where neither party raises such points themselves.”