Will mistakes made on a service charge demand invalidate the whole demand?
In Price v Mattey , the appellant was a long leaseholder of a flat in a development comprising 31 flats within several blocks. The respondents were the lessors under the lease and the appellant’s landlord. Under the terms of the lease, service charge was to be apportioned equally between each flat meaning that each leaseholder was liable for 1/31 of the expenditure. Management of some of the blocks within the development was later taken over under the right to manage. The respondent landlord was therefore responsible for management and expenditure for 24 flats only. Expenditure was apportioned equally between those 24 flats and demands were raised accordingly. The appellant’s lease had not been varied, and still referred to the lessee’s proportion as being 1/31.
The landlord made an application to the First-tier Tribunal, requesting determination of the reasonableness and payability of service charges. During these proceedings, the landlord acknowledged that the leaseholder was liable for 1/31 only of the expenditure and that the sums demanded should be adjusted as a result. The Upper Tribunal was asked to consider whether the demands were valid, given that they demand a 1/24 of the landlord’s expenditure rather than 1/31 as per the lease. The appellant leaseholder argued that this was a fundamental mistake which invalidated the demand.
The Upper Tribunal dismissed the appeal, finding that a demand seeking a sum greater than the landlord’s entitlement, or erroneously claiming irrecoverable expenses, does not automatically invalidate a demand.
The appellant cited Brent London Borough Council v Shulem B Association Ltd , wherein it was held that a demand for ‘estimated service charges’ was not a valid demand for ‘incurred service charges’. The lease in Brent allowed only for recovery of incurred service charges, but the landlord had relied on estimated charges as the demand for incurred charges was served out of time. In Price v Mattey , the appellant claimed that a fundamental error invalidated the demand.
The UT distinguished Brent as it related to ‘circumstances where what was said on the face of a demand will invalidate it’, rather than the effect of fundamental or minor mistakes made in a demand. Brent also found that where a sum demanded is greater than a landlord’s entitlement, the Court should give its judgment in the lower sum, on the basis that the demand was valid but could not entitle the landlord to the full sum demanded.
Advice and action
This case is an important reminder for landlords to ensure that service charge demands accurately reflect the terms of the lease. A mistake such as a demand for expenditure incurred outside the scope of services allowed for in the lease, or for a wider scope of property than the lease allows, may invalidate the demand.
Landlords are also advised to ensure that lease terms accurately reflect the current status of a development. The issue in this case initially arose as a result of the reduced number of flats of which the landlord was responsible for the maintenance and expenditure for; by completing a straightforward variation to the lease at the time the right to manage in respect of the other 7 flats was acquired, litigation could potentially have been avoided.
The Upper Tribunal dismissed the appeal, finding that sums demanded were valid. A demand seeking a sum greater than the landlord’s entitlement did not automatically invalidate a demand.