Jetha v Basildon Court Residents Company Ltd [2017]:

Whether estoppel by convention arises where service charge has not been demanded in accordance with the lease

The background

The Appellants owned long leases of 11 flats at a block in London. The leaseholders of the block were all members of the Respondent management and service company, and each had covenanted with the Respondent to pay service charge and to contribute towards a sinking fund. The members of the Respondent company were to pay a sum either in advance or in arrear as agreed at the company’s AGM.

Demands were issued for service charge and sinking fund payments on account, and the Appellants paid these until 2014. The Respondent commenced proceedings to pursue payment for 2014 and 2015’s demands, but the Appellants argued that the amounts had not been agreed at an AGM.

The First-tier Tribunal held in favour of the Respondent. Although it found that notices or minutes of the AGMs had not been issued, and that the amounts had not been agreed at AGMs, the Court decided that the Appellants were estopped by convention from contending the demands as they had made payments during earlier years without having raised any challenge.

The law

The Upper Tribunal referred to Blindley Heath Investments Ltd v Bass [2015] and the five estoppel by convention principles set out in the Court of Appeal’s decision:

• The common assumption between the parties should be expressly shared between them, which may be by conduct or silence;
• The party alleged to have been estopped – in this case the Appellants – must demonstrate some responsibility for the other party relying on the common assumption;
• The party alleging the estoppel must have relied on the common assumption;
• That party’s reliance on the common assumption must arise as a result of further dealings between the parties; and
• The party alleging the estoppel must have suffered some detriment, or alternatively the party alleged to have been estopped must have received some benefit.

Further, the Upper Tribunal cited Clacy v Sanchez [2015] and Admiralty Park Management Co Ltd v Ojo [2016], both of which held that tenants were estopped from disputing whether service charges were payable even though the demands had not been made in accordance with lease terms. In both instances, estoppel was by convention.

The decision

Referring to the five-part test in Blindley, the Upper Tribunal noted that the First-tier Tribunal needed to consider what the common assumption may be between the parties, and whether the Appellants could hold some responsibility for reliance on the common assumption. The fact that the Appellants had continued to pay demands was not sufficient to confer responsibility as the Appellants knew that agreement had not been reached at AGMs as to the figures demanded.

The Respondent did not suffer sufficient detriment; it could have passed resolutions to have quantified and appropriately recorded the amounts to be demanded in 2014 and 2015, which would require the Appellants to pay the sums.

The Upper Tribunal allowed the appeal, finding in favour of the Appellants.

JB Leitch comments on the decision:

“The five-part test set down in Blindley has been reinforced as an authority in this case, providing guidance as to the practical application and interpretation of estoppel by convention. Landlords and management companies are best advised, of course, to ensure they are familiar with the terms of their leases, in particular relating to the recovery of service and management charges. Processes should be systemised wherever possible, ensuring that dates are met and a paper trail in place to avoid placing any tenant in a situation where they may be able to withhold monies. Where a resolution is required to agree sums for a demand, proactive steps should be taken to ensure this is appropriately documented.”