Landlord & Tenant Act 1985 – Service Charges - Interim payments - Conditions Precedent - Reasonableness
The UT (LC) allowed an appeal by the leaseholder where it was argued that (1) the sums demanded on account of service charges were not reasonable because the landlord had failed to comply with the service charge mechanisms required by the Lease and; (2) that the landlord had failed to justify the sums sought.
The landlord issued proceedings in the FTT for the recovery of service charges for a 7-year period, where no payment had been made by the leaseholder. The FTT held that all sums were payable. The leaseholder appealed and permission to appeal was granted on the issue of the role of certificates in the contractual scheme of the lease and whether the lack of a certificate showing overpayments was relevant to the considerations of reasonableness.
The leaseholder’s arguments focussed around the question of whether a valid certificate is a condition precedent to the recovery of monies due in respect of a service charge or interim service charge by virtue of clause 5.1 of the Lease:
The Tenant covenants with the Landlord:
“To pay to the Landlord on the date hereof a proportionate sum on account of Service Charge to the next following 24th March or 28th September and thereafter on 25th March and 29th September in each year such sum as the Landlord shall consider is fair and reasonable on account of the Service Charge and forthwith on receipt of the Certificate (as hereinafter defined) to pay to the Landlord any balance of the Service Charge then found to be owing Provided Always that any overdue Service Charge may be recovered by the Landlord as if the same were rent in arrears.”
The UT found that there was nothing in the first half of the clause which makes the payment of the interim charge dependant on certification; that requirement is only imposed for the balancing charge. The fact that the two halves are in the same clause does not affect the position. In this case the interim payment is set by reference to what the Landlord shall consider fair and reasonable and not by reference to what may be certified.
The UT therefore dismissed the leaseholder’s arguments on condition precedent in relation to the certificate. However, they rejected the argument that the lack of certificate would never be relevant to a reasonableness challenge, holding that the burden was on the landlord to show its demands were reasonable and should be justified by reference to evidence.
In this case, the UT decided that the landlord had not produced the necessary evidence to show that the demands were reasonable. Rather than remit the matter back to the FTT (which would have involved considerable additional expense to the parties) the UT remade the decision reduced the demands by 50% for six out of the seven years that were subject to challenge.