Whether a tenant can object to calculation of service charges after making payment
The respondent tenant held a lease of a flat in London contained within a purpose-built block on a site occupied by a number of similar buildings, subject to the payment of service charges to the appellant management company. The tenant commenced an action against the management company to recover £5,228.88 in service charges for the period 2010 to 2014.
The case was referred to the First-tier Tribunal, which requested details of the tenant’s objections.
The service charge scheme set out in the lease was of standard construction; the tenant pays a specified sum in advance on account of service charge each year, followed by payment on demand of any year end deficit. Service charges were paid in respect of ‘Management Expenditure’; the definition of this term did not include expenditure by the management company on estate buildings other than the respondent’s own building.
During the proceedings, it was presented to the Court that the service charges invoiced to the tenant in fact comprised a proportion of the management company’s charges in managing all buildings on the estate, and did not relate purely to the tenant’s own building. The appellant admitted that it had not apportioned service charges in accordance with the terms of the leases on the estate.
The First-tier Tribunal quickly noted that the lease terms had not been complied with. It determined that the management company had been unable to present any justification for its calculation of the service charges demanded of the tenant, and therefore the tenant’s service charge liability was calculated as nil for the full period; the FTT held that it was unable to calculate what the tenant’s apportionment should be on the basis of the evidence presented.
The management company appealed to the Upper Tribunal on three bases:
1. Whether the FTT was able, with regards to either jurisdiction or procedural fairness, to reach its decision given that this was based on a point which had not been relied upon during the proceedings;
2. Whether the tenant was able to argue against the charges demanded given that he had not objected in over 6 years; and
3. To calculate the figure which the tenant was liable to pay for the period if different to that demanded.
When discussing the first point, the UT held that the FTT was entitled to use its own expertise in assessing points of significance and disregarding points of argument which have little merit. The FTT was right to consider the management company’s failure to appropriately apportion the service charge sum, but having not afforded the management company a sufficient right of response the FTT’s decision was deemed to be procedurally unfair, referencing Rule 3(1) of the Civil Procedure Rules which enable the FTT to deal with cases ‘fairly and justly’. This overriding objective formed the basis of the UT’s decision.
The second point addresses estoppel by convention. Both parties had accepted that the service charge had been calculated in a manner which did not meet the terms of the lease. The Upper Tribunal referenced Republic of India v India Steam Ship Company Limited , which stated:
“…an estoppel may arise where parties to a transaction act on an assumed state of facts…the assumption being either shared by both of them or made by one and acquiescing from the other…[A] concluded agreement is not required for an estoppel by convention.”
The UT held that the tenant had had ample opportunity to raise the issue; in 2011, during an earlier action relating to service charge, the tenant stated that he did not deny his contractual liability to pay the service charges and he did not raise any issue as to their method of calculation. It was obvious in the information available to him how the apportionment was calculated and had made payments during the period; the tenant was therefore estopped from arguing otherwise.
On the third point, the UT directed that the tenant owed the sum of £4,206.35 to the management company.
The Upper Tribunal held in favour of the management company. Although the FTT had reached its decision in a manner deemed to be unfair, the tenant was estopped from relying on an argument relating to apportionment of service charge by virtue of the fact that the approach had not changed in many years and he had never raised any objection to it, in particular during an earlier hearing. The information was freely available to him, including the lease terms and the service charge calculations, but these had not been considered.
J B Leitch’s Richard Owen comments on the decision:
“This case very much turns on its facts, addressing procedural fairness in a number of respects. Although the FTT’s decision was judged to have been unfair, it was also unfair for the tenant to subsequently rely on an argument relating to calculation of the service charge when it had not raised any objection during the preceding years, despite having plenty of opportunity.”
It was obvious in the information available to the tenant how the apportionment was calculated and he had made payments during the period; the tenant was therefore estopped from arguing otherwise.