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Upper Tribunal allows appeal in service charge payments claims

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Elysian Fields Management Company Ltd -v- John and Patricia Nixon and Imperial Buildings Management Company Ltd -v- John Nixon [2015]:

Upper Tribunal allows appeal in service charge payments claims.

The claims concerned two separate properties; Elysian Fields, which is a modern, luxury development of residential flats with a ground-floor restaurant in Liverpool, and Imperial Buildings, an older, mixed-use development in Rotherham.

Leases of the apartments were all tripartite, made between landlords, the management companies and inpidual tenants. Tenants were obliged to pay service charge under the leases and the management companies were obliged to provide the services:

“To pay … to the Management Company on the 1st October in every year (or on such other appropriate date or dates to be determined by the management company acting reasonably) the amount of the Service Charge estimated by the Management Company as being required to enable the provision of the Services during that year, and

Forthwith upon demand to pay to the Management Company any underpayment in respect of the provision of the Services for any previous calendar year”.

The management companies were required to keep proper accounts in relation to the service charge costs, charges and expenses. Accounts were to be audited by a chartered accountant who was to certify the total sums and the proportions to be paid by each tenant. Notices were to be served on tenants within one month of the date of certification specifying the amounts due.

Although service charge was demanded by way of invoices containing little information, no accounts were supplied to Mr Nixon and he brought the claims to argue that no service charge was therefore owed as the management companies were in breach of their obligations.

The Law

County Court claims were brought against the Nixons by the management companies. The Nixons argued that the sums demanded were unreasonable, that no audited accounts had been supplied and that the claims should be transferred to the First Tier Tribunal.

The claims were duly transferred, at which point the management companies supplied the certified accounts, although they were unaudited.

The FTT held in the Nixons’ favour, judging that they were not liable for service charge payments because insufficient information had been supplied to enable them to come to a decision as to whether the sums demanded were fair and, as the management companies had breached their obligations in not supplying the information, it could not then recover the service charge it demanded.

The management companies appealed to the UT, asking whether provision of the accounts was a condition precedent to the payment of service charge and to address the scope of the FTT’s jurisdiction.

The UT discussed Redrow Homes v Hothi [2011] which held that time was not of the essence in respect of the provision of service charge accounts; breach of the term did not mean that the tenant did not have to pay service charge but instead that the tenant had several options:

  • to make a claim for damages;
  • to obtain an injunction requiring the management company to supply accounts; or
  • to make an application under section 27A of the Landlord and Tenant Act 1985 in order to determine the service charge apportionment.

The UT also referenced Pendra Loweth Management Ltd v North [2015] which supported the view that the tenants’ obligation to pay service charge was not conditional on supply of audited accounts.

The Decision

The UT allowed the management companies’ appeal and directed that the tenants were to pay service charge. The management companies were ordered to supply the missing and fully-audited accounts within 28 days of the date of the Order.

In terms of the question of jurisdiction, the management companies had argued that the orders transferring the claims to the FTT limited its role to assessment of the reasonableness of the service charge only; this point was dismissed by the UT which held that it was “inconceivable that the parties or [the County Court] intended there to be a different jurisdiction” for each of the transferred claims.

JB Leitch’s Phil Parkinson comments:

“Whilst the appeal was upheld in Elysian Fields, the case is a useful reminder for landlords and management companies to ensure that service charge accounting practices are in order, therefore avoiding costly litigation. It is not economical or advisable to allow service charge arrears to develop, particularly over a number of years as was the case here, and legal support should be sought at an early stage if problems such as this arise.”

Whilst the appeal was upheld in Elysian Fields, the case is a useful reminder for landlords and management companies to ensure that service charge accounting practices are in order, therefore avoiding costly litigation.

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