Graham Peter Wrigley v Landchance Property Management Ltd [2013] UKUT 0376 (LC)

The flat in question in this case, 4B Chislehurst Road, Richmond, Surrey, was let to Mr Wrigley under a 99 year lease:

• An estimated service charge for the forthcoming year was payable half yearly on 25 March and 29 September;
• The actual service charge for each year was to be computed not later than the expiration of two months immediately following the beginning of the new service charge year;
• At the end of each year, “as soon as practicable” the service charge accounts were to be audited;
• The lessee was then to be provided with a copy of the audited accounts and notification of any shortfall or surplus in relation to the estimated amount, and
• The lease incorporated the regulations respecting notices contained in section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962.

This case began in the Shrewsbury County Court with a claim by the landlord for service charge arrears and non-payment of administration charges. It totalled £7,642.71 plus interest and costs. It was transferred to the Wandsworth County Court, from where DDJ Gittens transferred “the action” to the LVT.

The LVT determined the service charges and administration charges, which were the aspects of the case over which it had jurisdiction. The issues were wide-ranging. It resulted in Mr Wrigley appealing the following of the LVT’s findings:

(1) That Landchance should be permitted to adduce documents at a late stage;

(2) That the service charges were not reserved as rent and were therefore subject to a twelve, rather than six, year limitation period.

(3) That all the service charge demands were sent to him at the appropriate time.

(4) That Landchance’s failure to comply with the service charge mechanics, and particularly the provision of an audited account, did not mean that it had lost the right to demand the payment of service charges from Mr Wrigley or that such demands were not payable.

he appeal hearing had a rather rocky start. The day before the hearing, Mr Wrigley applied to adjourn it. His application was refused. On the day of the hearing, he did not arrive at the Tribunal until lunchtime.

HHJ Huskinson reminded himself that the appeal was proceeding by way of review, so that he could only interfere if the LVT had gone wrong in principle, or left material factors out of account, or if its balancing of the material factors led it to a result which was clearly wrong.

Ground 1: Late submission of documents

Referring I think to the new FTT rules rather than the old LVT ones, HHJ Huskinson stated that the LVT was entitled to control its own procedure, and that there was nothing before him to show any error on the LVT’s part in admitting documents or to show that Mr Wrigley suffered any consequent prejudice.

Ground 2: Limitation

This ground of appeal was academic because the LVT had held that Landchance had not provided the information required by sections 47 and 48 of the Landlord and Tenant Act 1987. Time could not therefore begin to run – let alone expire – until that information was provided to Mr Wrigley.

HHJ Huskinson dealt with the point nonetheless.

The lease reserved the service charge as a further rent. Allowing this ground of appeal, he concluded that the service charge must be treated as a rent and was therefore subject to a six year limitation period by virtue of section 19 of the Limitation Act 1980.

Ground 3: Service at the appropriate time

There were two elements to this ground of appeal. Neither succeeded.

(1) The LVT’s finding of fact

The LVT reached a finding about the date when demands were sent after hearing oral evidence on both sides. HHJ Huskinson held that this was a finding of fact which could not be successfully challenged.

(2) The lease and section 196, Law of Property Act 1925

The lease incorporated section 196 of the Law of Property Act 1925. Subsection (3) reads:

“Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee ….. or in case of a notice required or authorised to be served on a lessee… is affixed or left for him on the land or any house or building comprised in the lease…”

HHJ Huskinson considered that flat 4B was Mr Wrigley’s last-known last of abode, and that the service charge demands were therefore properly served.

In a point relevant to the service of documents in buildings with common parts, HHJ Huskinson continued:

“…in my judgment a document would be left at the appellant’s last named place of abode if it were left in the communal area for the collection of post within the building in which [a] flat was situated. Leaving a document at the last known place of abode is not the same thing as affixing or leaving a notice on the land or house or building comprised in a lease (in this latter case it may be necessary actually to affix it or leave it on the demised flat itself rather than in some communal area – see … Akorita [v 36 Gensing Road Ltd (LRX/16/2008)] …)”.

Ground 4: failure to comply with the service charge mechanics

Was the requirement in the lease for the accounts to be audited a condition precedent to the recovery of the service charge?

In HHJ Huskinson’s words: “It is central to [Mr Wrigley’s] case in the present appeal that the LVT wrongly construed the lease and wrongly applied the decision in Warrior Quay Management Company v Joachim and Others (LRX/42/2006)”.

A short overview of Warrior Quay – one of HHJ Huskinson’s own decisions – is therefore called for:

• The lessees made six-monthly on account payments towards the service charge;
• Once a year, the landlord was obliged to arrange for auditors or accountants to prepare an account and give certificates accounting for the service costs and the amounts due from the lessees;
• The landlord had demanded only on-account payments from the tenants;
• There had been no demand for a final balancing charge;

The landlord:

• accepted that the absence of the relevant certification meant that it could not properly demand any end of year balancing charge,
• but argued that the absence of auditor’s certification after the end of the year did not make irrecoverable money which had already properly been demanded by the tenant in respect of the on account payments.

In determining that appeal, HHJ Huskinson held:

“25. It is clearly unsatisfactory that WQMC has failed to comply with its obligations…  However, I am unable to read the lease as meaning that … WQMC ha[s] lost the right to be paid any service charge whatever, such that the entirety of any sum paid on account must be dealt with on the basis that the leaseholder is either entitled to credit for this sum or to be re-paid … the whole of the amount paid on account. …[F]or this dramatic result to ensue from a failure to comply in proper time with the obligation … would require clear words.  However, I also conclude that WQMC … cannot unilaterally put off into the future the ability of a tenant to obtain finality of decision as to how much is payable for a particular year.  Section 27A of the 1985 Act clearly contemplates that a tenant can apply to an LVT to obtain a binding decision on this point. … [I]f in such circumstances a leaseholder does make an application to the LVT for a decision …, the LVT must reach the best informed decision it can upon the material available to it. The absence of any proper certificate is a matter which may weigh against WQMC … The absence of the certificate should result in the position being that the amount which is decided by the LVT to be payable by way of shortfall will not be payable until a proper certificate (certifying that at least this amount is payable) is provided by WQMC’s auditors or accountants.  However, if the LVT’s decision is that the service charge payable for the relevant year is less than the sum paid on account, then the leaseholder is entitled to the benefit of that decision immediately (and without waiting for a certificate from the relevant auditor or accountant).”

Although the terms of the leases in Warrior Quay and Mr Wrigley’s cases were not identical, HHJ Huskinson considered that the principle was the same. The LVT had therefore not erred. The landlord was entitled to retain on-account payments, even if no year-end audit had been carried out.

(1) The on-account payments

Landchance tended to demand round sums as on-account payments, following the example set by the lease, which required that the first year’s advance payment should be £100. This it was entitled to do, held HHJ Huskinson, provided that that figure was an estimate prepared in accordance with the lease.

Following Warrior Quay, Landchance’s failure to audit the accounts at the end of the year had no impact on the recoverability of those demands, which would be payable once it had complied with sections 47 and 48 of the 1987 Act.

The lease required on-account payments to be made on two quarter days: 25 March and 29 September. Landchance had in fact demanded those payments by reference to other, not-too-distant dates or merely on the basis of March or September.

HHJ Huskinson considered that this was puzzling and inappropriate. He concluded however that: “the substance is what matters and the substance is that the landlord has demanded these half-yearly payments in advance by way of on account payments of service charge pursuant to an estimate having been made”.

(2) Insurance demands

Insurance contributions were not included in the on account demands. Those contributions were instead demanded separately.

The lease, observed HHJ Huskinson, did not give Landchance the power to make those separate demands. Under the lease, Landchance was entitled to demand insurance payments either on account, or as a balancing year at the end of the year after audited accounts had been prepared. It had taken neither opportunity.

“In consequence”, he said, “I find that the amounts demanded half-yearly by way of on account estimated sums are recoverable (subject to satisfaction of the relevant statutory requirements …) but that the separate demands for insurance premiums have not been demanded in accordance with the provisions of the lease and are not payable. They may become payable if and when audited accounts … have been prepared and a proper demand for the relevant shortfalls for the relevant years has been served”.

HHJ Huskinson concluded:

“(1) … I find that … the service charges are reserved as rent and a six year limitation period therefore applies.

“(2) I dismiss the appeal against the LVT’s finding that all the service charge demands were sent to him at the appropriate time.

“(3) I allow the appellant’s appeal based upon the respondent’s failure to comply with paragraphs 3 and 4 of the Fourth Schedule, but only to the extent of finding that the demands for insurance premium have not been made in accordance with the provisions of the lease and are not at present payable.

“(4) The demands for the on account half-yearly estimated sums are however payable, but subject always to the LVT’s ruling that no sums are due until proper demands have been served complying with sections 47 and 48 of the Landlord and Tenant Act 1987 and sections 21 and 21A of the Landlord and Tenant Act 1985”.

Section 175 Commonhold and Leasehold Reform Act 2002

Landchance sought an order under section 175 of 2002 Act.

HHJ Huskinson declined to do so:

• The grounds of appeal were thought worthy of being given permission to appeal by the President of the Upper Tribunal (Lands Chamber)
• Those grounds had in part succeeded.
• The late application for an adjournment caused no ultimate prejudice to anyone and did not constitute unreasonable conduct.

Section 20C Landlord and Tenant Act 1985

Mr Wrigely made an oral application for an order under s.20C, to which HHJ Huskinson acceded, “bearing in mind that he has to a significant extent succeeded in his appeal”.

If 2012 was the year when the Lands Chamber chided the LVT for taking points of its own volition, it might be said that 2013 is the year when the spotlight has been turned on the compliance with the terms of leases.

I think that it can fairly be said that this is more fertile ground for interesting legal argument: so far this year, we have had Triplerose Ltd v Khan [2013] UKUT 002 (LC); Moreshead Mansions Ltd v Mactra Properties Ltd [2013] EWHC 224 (Ch) and Paddington Basin v Grits [2013] UKUT 0338 (LC), to name but three. The paradigm case is Arnold v Britton [2013] EWCA Civ 902, which I am yet to post.

One point which is more than worth mentioning here is the nature of the County Court’s transfer of claims to the LVT/FTT.

The FTT does not enjoy the wide powers of the County Court – and certainly not those of the High Court.

It is a creature of statute, with the result that it can only determine those matters which fall within the powers conferred on it. By and large, in service charge and administration charge cases, those powers appear:

• In the Landlord and Tenant Act 1985: under section 27A of the 1985 Act, the FTT has the power to determine the payability of a service charge, where the service charge falls within the meaning of section 18 of the 1985 Act, or
• In paragraph 5 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, pursuant to which the FTT has similar powers in relation to administration charges, as defined in paragraph 1 of Schedule 11 to the 2002 Act.

It follows that, in principle, the FTT has no power to determine the amount of ground rent payable, nor to calculate the amount of interest payable in a claim brought in the County Court.

If therefore a landlord brings a claim in the county court for service charges and ground rent, the county court can transfer the service charge element of the claim to the FTT under section 176A of the 2002 Act: there is no point in transferring the ground rent element because the FTT has no power to determine any issue relating to it.

Section 176A was inserted into the 2002 Act by the Transfer of Tribunals Functions Order 2013. Click here for its text, current as at today’s date, 02 October 2013.

The same rule does not necessarily apply to a defence to a claim for service charges. See here for a good example.

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