Recovery of service charge
Year end certificates and whether lessee can set off costs of works against service charge liability
The Respondents held a long lease over an apartment in a building owned by the landlord. The lessee made an application to the First-Tier Tribunal (Property Chamber) in which the lessee sought to challenge (under Section 27A of the Landlord and Tenant Act 1985) the reasonableness of service charges relating to several service charge years.
The Upper Tribunal identified a number of issues arising from the First-Tier Tribunal’s decision, notably whether the terms of the lease dictated that the leaseholders’ liability to pay service charge was conditional on the service of year end certificates by the landlord. Further, the Tribunal also considered whether the leaseholders were entitled to set off the costs of repairs carried out by the lessees against the lessees’ service charge liability.
The Upper Tribunal reviewed a number of recent cases relating to the service charge certificate issue. The Tribunal concluded that there was no general rule that the provision of year end certificates could not be a condition of service charge liability. The exact wording of the relevant clauses of the lease would need to be considered.
As for the set off issue, the Tribunal noted that a covenant in the lease required service charges to be paid “in full without any deduction, counterclaim or set off”. Following a review of the relevant case law, the Tribunal concluded that, as a matter of construction, the relevant covenant precluded the tenant from exercising a right of set off.
Advice and action for landlords
This case hinged on the facts of the case and the wording of the lease.
The decision is particularly positive in respect of the set off issue. Where a tenant has carried out works which, the tenant argues, should have been carried out by the landlord, the terms of many leases will debar the tenant from setting off the cost of such works against the tenant’s service charge liability.
The Tribunal concluded that there was no general rule that the provision of year end certificates could not be a condition of service charge liability, and that, under the terms of their leases, the tenants were unable to exercise a right of set off.