Does payment of service charges amount to an admission by the leaseholder?

Leaseholders (and landlords) have a right to apply to the First Tier Tribunal (Property Chamber) for a determination whether a service charge is payable and, if it is, the amount that’s payable.

However, no application may be made to the Tribunal in respect of a matter which has either been agreed or admitted by the leaseholder, or which has been the subject of a determination by a court.

But Section 27A(5) qualifies this and states that a leaseholder “is not to be taken to have agreed or admitted any matter by reason only of having made any payment”.

But what about situations where the landlord has obtained county court judgment(s) against the leaseholder. Does it matter if those judgments relate to on-account charges, or if they relate to costs which have been certified. Can a leaseholder be taken to have “agreed” or “admitted” service charges if they have been making payment of those charges over a period of time without qualification or protest?

These issues (and more) were considered by the Upper Tribunal in Marlborough Park Services Limited v Leitner [2018] UKUT 230 (LC).

 

Relevant background

Under the terms of his leases, the leaseholder was required to pay service charges to the landlord for flats owned. He failed to do so for certain periods, which resulted in judgments being entered against him in default.

When action was taken against the leaseholder to enforce those judgments, the leaseholder made applications to the Tribunal, one in respect of each property, in which the leaseholder sought to challenge service charges going back to 2007.

 

Decision of the FTT

The landlord had obtained two default judgments against the leaseholder, one in respect of each property. The first was obtained on 18 December 2013, and the second on 22 May 2014.

In March 2016, the landlord wrote to the leaseholder in respect of each property, demanding payment of the judgments together with associated further charges.

The leaseholder responded by a letter, in which he indicated that he was “more than happy to pay for any arrears accrued”, but refused to pay any interest, fees or other charges. The leaseholder asked for an up to date statement, together with copy invoices, of what remains outstanding.

An application to the Tribunal followed shortly thereafter.

The landlord applied to strikeout the application, arguing that the service charges had already been “agreed or admitted” by the leaseholder, and that a significant part of them had already been the subject of determination by the court.

 

Decision of the Upper Tribunal

To simplify matters, the Upper Tribunal split the service charges into periods.

  1. the period between 1 April 2012 and 31 March 2013,
  2. the period prior to 1 April 2012,
  3. for charges payable after 31 March 2013.

 

Charges payable between 1 April 2012 and 31 March 2013

Default judgments were entered against the leaseholder on 18 December 2013 and 22 May 2014. The landlord therefore argued that the service charges which were duly certified and the payment of which outstanding debt was ordered by those judgments must be treated as having been the subject of determination by a court.

The Upper Tribunal commented that the “FTT should take a robust approach where it is clear that an application under Section 27A is seeking to challenge service charges which have been the subject of the judgment of the court, whether that judgment follows contested proceedings in the county court or whether it has been entered by default”.

The Upper Tribunal therefore agreed that the FTT should have struck out the application insofar as it related to service charges which had been the subject of judgment of the court and which had been certified prior to default judgments being entered.

However, not all of the service charges which comprise the default judgment had been certified prior to those default judgments being entered. The Upper Tribunal found that the application should not have been struck out in respect of those charges.

 

Service charges before 1 April 2012

The landlord argued that the leaseholder’s conduct in paying service charges since 2007 without qualification or protest had been such that it was safe to infer an agreement that he was liable for those charges.

The Upper Tribunal considered a number of earlier cases, including Cain v Islington BC [2015] UKUT 0542 (LC). In Cain, the following comments had been made:

“[14]…an agreement or admission may be express, or implied or inferred from the facts and the circumstances. In either situation the agreement or admission must be clear, the finding being based upon the objectively ascertained intention of the tenant which may be express or implied or inferred from the conduct of the tenant – usually an act or a series of acts or inaction in the face of specific circumstances or even mere inaction over a long period of time or a combination of the two.

[15]…people generally do not pay money without protest unless they accept that that which is demanded as properly due and owing, and certainly not regularly over a period of time. Whilst it would generally be inappropriate to make such an implication or inference from a single payment it could not be said that the conduct of the tenant was sufficiently clear, where there have been repeated payments over a period of time of sums demanded, there may come a time when such an implication or inference is irresistible.

[18]…it would offend common sense for a tenant who without qualification.”

Accordingly, the Upper Tribunal found that the leaseholder had agreed or admitted the service charges due before 1 April 2012 and, accordingly, that the FTT should have struck this part of the leaseholder’s case out.

 

Service charges after 31 March 2013

The landlord had sought to strike out the application on the basis of the leaseholder’s letter where he had said “I am more than happy to pay for any arrears which accrued on these two properties…”

The Upper Tribunal took a slightly different view, and went on to state that the letter had to be put in context.

It was also important to note that, in the view of the Upper Tribunal, the leaseholder’s letter did not admit any particular sum being owed, but rather admitted a liability to pay service charges under the terms of the lease.

It was not, therefore, an agreement or admission of the amount payable, but simply an acceptance of a general liability to pay.

This element of the application should, therefore, have been determined by the Tribunal.

 

Commentary

This case helps clarify matters on the FTT’s jurisdiction to consider challenges on the reasonableness of service charges when:

  1. judgment has been obtained in default in respect of some of the service charges
  2. where the leaseholder has paid service charges without protest for many years prior to a claim being issued.

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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