Table Of Contents
Part II reviews:
This post contains my observations. I have decided to use it as a springboard for a few of my thoughts on law reform. They include some of the areas that are highlighted in Mr Roberts’s case, especially section 20B of the Landlord and Tenant Act 1985 and decision-making in the First-tier Tribunal.
We are living in an age where leasehold reform is the subject du jour. The Government has uncheerily referred to the housing market as “broken”. Up and down the country, conferences and seminars are taking place to discuss the future of leasehold as a form of tenure, and the Law Commission is working on leasehold reform as part of its 13th programme.
Sadly, service charges do not fall within the three areas on which the Law Commission is initially to focus. Those three areas are commonhold; enfranchisement and the regulation of managing agents.
A while ago, the general drift of judicial decision-making was towards literal interpretation: think of all those desperate Right to Manage cases where a minor slip in following procedure resulted in failed claims to acquire the right.
The world of landlord and tenant law has moved on.
The judicial horse began to walk away from literality in Osman v Natt  EWCA Civ 1520, a collective enfranchisement case decided in the Court of Appeal in November 2014.
That walk accelerated into an anxious canter in Elim Court Right to Manage Company Ltd v Avon Freeholds Ltd  EWCA Civ 89, a case in which I had visions of Lewison LJ with his head in his hands à la Martin Rodger QC in Geyfords Ltd v O’Sullivan  UKUT 0683 (LC). In Elim Court, Lewison LJ gloomily opens his judgment thus: “It is a melancholy fact that whenever Parliament lays down a detailed procedure for exercising a statutory right, people get the procedure wrong”.
In this case, the canter away from excessive technicality continues, but with the boot, so to speak, on the other foot. This time it is the tenant who was unable to persuade the judicial horse to drink the literal water.
The short lesson to take away from Mr Roberts’s experience before HHJ Robinson is that technical points are not ends in themselves, be you landlord or lessee. Perhaps we had already learnt that lesson from the Supreme Court in Daejan Investments Ltd v Benson  UKSC 54 at . If so, Mr Roberts’s case acts as a timely reminder.
There is however good and bad in both the literal and the purposive, ie “what is its purpose?” approach to the law.
The literal application gives certainty at the expense of flexibility, whereas a purposive interpretation, applied here by HHJ Robinson, allows for flexibility at the expense of certainty.
It might be said that the purposive approach, combined with the principle of reasonableness that peppers service charge legislation, leaves those who advise landlords and lessees prostrate in the dust as their horses bolt for the hills.
It is difficult to advise a party when the range of reasonable outcomes may, from that party’s perspective, run from the just-about-bearable to the perfect.
There is a service charge checklist on the Pointer Pages of my blog.
At present, in addition to compliance with any specific terms of the lease, the contents of a service charge demand are governed by two Acts of Parliament (the Landlord and Tenant Acts 1985 and 1987) and one statutory instrument each for England and Wales (the Service Charges (Summary of Rights and Obligations and Transitional Provisions) (England/Wales) Order 2007/1257; 2007/3160).
Would it not however be simple to have a prescribed form for a service charge demand? Or at least one piece of legislation that identified all of the information that must be provided to a lessee – in one place?
I have sung separate verses of this song before, but I reprise it in its entirety here, this time with some supplementary observations because it sets the accounting cat amongst the legal pigeons.
Section 20B of the Landlord and Tenant Act 1985, aka the eighteen month rule, obliges a landlord to demand payment for a service chargeable item within eighteen months of incurring the cost.
The lawyers say that “incurred” means either the date of receipt of the invoice, or the date of payment.
Since time more or less immemorial, accountants have been using “incurred” to mean an entirely different date, that being the date of crystallisation of the liability, ie the date when the contractual liability to pay arises, whether now or at some future date.
Leaving behind the fur and feathers, what about lessees? They have no obligation to pay a cost that has been “incurred” (as lawyers understand it) more than eighteen months before the demand to which it relates, but obtaining access to the invoices that give rise to the demand can be a real challenge.
I cannot recall ever having seen a lease that requires a landlord, as matter of course, to disclose to its lessees the date on which it received every invoice which forms the subject of a service charge demand.
The sanction for breach of sections 21 and 22 of the Landlord and Tenant Act 1985 is a fine by the magistrates. There is no power for any court or tribunal to order disclosure of the invoices and other supporting documents. Even tribunal proceedings are no guarantee of disclosure, as was clear from the Westmark (Lettings) Ltd v Elizabeth Peddle  UKUT 449 (LC) case.
Further, the legal meaning of “incurred” renders toothless the policy behind section 20B, which, as Etherton J. said in Gilje v Charlegrove Securities Ltd  L.& T.R. 3, is:
“so far as discernible, … that the tenant should not be faced with a bill for expenditure, of which he or she was not sufficiently warned to set aside provision. It is not directed at preventing the lessor from recovering any expenditure on matters, and to the extent, of which there was adequate prior notice”.
All of the above presupposes that the invoices are raised by the supplier, or payment is made by the landlord, within a short period of the service being provided.
As is abundantly clear however from OM Property Management Ltd v Burr  EWCA Civ 479 and, more recently, from the Peddle case, there may be a significant time lapse between the provision of the service and the raising of the invoice by the supplier.
What if, for their own purposes, the landlord and supplier agree that no invoices will be raised until the landlord will be in a position to include them in a service charge demand?
Consider, for example, a new development where a landlord is liable for the service charge contributions of flats that have not yet been sold. It may prefer to wait until all of the flats have been sold and then invite the supplier to raise their invoice, thereby removing itself from the list of contributors to the service charge.
Let’s return to Gilje, because, having identified the purpose behind section 20B, Etherton J inadvertently raises a further, general, problem, saying:
“This does not leave the tenant without a remedy for the failure of the lessor to prepare a final account. In the event of wrongful delay by the lessor, the tenant can apply to the court for the taking of an account and, if the lessor’s delay is culpable, the lessor will have to pay the costs”.
I am not persuaded that a claim for an account of service charges would last long in the county court: it would be transferred to the First-tier Tribunal, where the costs regime is of an entirely different nature.
I will not dwell on it here because a) I have written a general article on how costs operate in the First-tier Tribunal, and b) there are human rights arguments that need to be explored before I pin my colours to the reforming mast.
HHJ Robinson was trenchant in her criticism of the LVT for not having given reasons.
It is settled law that a court or tribunal must give proper reasons for its decision. If we are to search for authority for that proposition, we will probably find ourselves back with the accountants at time immemorial.
It seems to me however that for three reasons HHJ Robinson’s criticism should be particularly heeded in today’s First-tier Tribunal (Property Chamber).
First, the tribunal appears to be developing an increasing tendency to annex excerpts of the “relevant/applicable law” to the back of its reasons, without expressly knitting those excerpts into the cases before it. The law, however flexible, must drive the Tribunal’s decision-making, and it is important for parties to know a) that the law has been applied to their case, and b) how it has been so applied.
I am not persuaded that the tribunal fulfils its function by attaching excerpts of statute as an appendix to a decision without reference to those excerpts in the body of that decision.
Secondly, the tribunal is regularly the forum for the adjudication of complex, multi-million pound disputes that, in the High Court or county court, would be heard on the multi-track before a Chancery judge. They warrant decisions of the same quality as would be handed down by such a judge.
Thirdly, because proceedings in the First-tier Tribunal are not recorded.
I have always found it rather odd in a tribunal where the parties are often unrepresented, and may not therefore consider it necessary to take a detailed note of the hearing, that there is no independent way of checking what each party said.
In Mr Roberts’s case, the lack of a recording does not give rise to any specific issues, but I raise the point because the tribunal’s reasons may be the primary, or only, record of the evidence and submissions.
There is always a risk that it may not manage to take a note of all of that evidence and argument, and/or that it might fail in its duty to give reasons. A recording of the hearing would give the parties the comfort of knowing that the evidence given and arguments advanced at a hearing are not lost forever; cannot become the subject of a satellite, he-said-she-said dispute, and will be available to superior tribunals or courts on any appeal.
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