Service Charges & Estate Management Update – October 2015

Cain v Islington LBC [2015] UKUT 542 (LC)

A tribunal could infer from a series of payments made without protest that the tenant had agreed that the amount claimed was the amount properly payable. The longer the period over which payments had been made, the more readily a tribunal would find that the tenant agreed that which had been demanded. The tenant was barred by s.27A(4) from proceeding with the application.

Facts

The appellant acquired the lease of his flat in 2002. In 2014, he issued his application challenging the reasonableness of the service charge under s.27A of the 1985 Act for a period of 12 years from the service charge year 2002/2003 up until 2012/2013. In respect of each year, the lessee paid most if not all of the total service charge claimed without any specific provision or retention or qualification in respect of any sums and continued to make sometimes quite large service charge payments, the last one being for more than £890 paid in respect of the 2012/13 service charge year.

First Instance

The FTT determined, as a preliminary issue, that the lessee should be prevented from challenging the reasonableness of any service charges for periods more than 6 years ago. It found that the lessee was to be treated as having agreed or admitted each of the elements of the service charge by virtue of s.27A(4) and notwithstanding sub-section (5) , the material sub-sections of which are as follows:

“(4) No application under section (1) or (3) may be made in respect of a matter which:

(a) Has been agreed or admitted by the tenant…

(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.”

On Appeal

The lessee submitted that there was insufficient evidence to found any agreement or admission, in particular, no specific date or act or failure to act was identified by the FTT so that, on analysis, all that was left was payment which, by virtue of s.27A(5), cannot found an admission or agreement. Further, as a matter of law, an admission or agreement cannot be inferred from a lessee’s conduct under s.27A(5).

Decision

The UT (HHJ Gerald) held, dismissing the appeal, an agreement or admission for the purposes of s.27A(4) may be express, or implied or inferred from the facts and circumstances. An agreement or admission may be inferred by mere inaction on the part of the tenant over a long period of time. The effect of s.27A(5) is that the making of a single payment on its own, or without more, will never be sufficient; there must always be other circumstances from which agreement or admission can be implied or inferred. Those circumstances may be a series of unqualified payments over a period of time which, depending upon the circumstances, could be quite short. It is a question of fact and degree in every case. Accordingly, in the instant case, the FTT was entitled to conclude that the lessee had agreed or admitted the service charge.

Comment

This is yet another missed opportunity (following Parissis v Blair Court (St John’s Wood) Management Ltd [2014] UKUT 503 (LC)) to determine whether or not any limitation periods apply to applications made under s.27A. It is, however, a very useful case for landlords in circumstances where the tenant seeks, for the first time, to challenge service charges that were paid in full many years ago.

Amanda Gourlay of Tanfield Chambers represented the appellant.

Cowling v Worcester Community Housing Ltd [2015] UKUT 496 (LC)

The First-tier Tribunal had no jurisdiction to determine the reasonableness of a service charge when a money judgment for the full amount of the charge had already been entered by the county court on the basis that the charge was fixed rather than variable. The tribunal’s jurisdiction was excluded by the Landlord and Tenant Act 1985 s.27A(1).

Chaplair Limited v Kumari [2015] EWCA Civ 798

It is common for landlords to issue debt proceedings in the county court to recover service charge arrears, often as a pre-cursor for forfeiture. In the vast majority of cases the amount claimed is less than the small claims limit (£10,000) and the claim is allocated to the small claims track (CPR Part 27). Unless a party acts unreasonably, in such claims the general rule is that there be no order as to costs. In many cases, service charge disputes are transferred to the First-Tier Tribunal (“the FTT”) which is often (wrongly) described as a ‘costs-free’ jurisdiction. Where, however, a lease includes a tenant covenant to indemnify the landlord against any costs incurred arising out of the lessee’s breach or to pay the landlord’s legal costs in recovering the service charge the landlord will seek to recover his costs. Thus, there is a tension between the costs rules in the small claims track and the FTT on one hand and the terms of the contract (i.e. the lease) on the other.

The issue has now been resolved by the Court of Appeal in Chaplair Limited v Kumari [2015] EWCA Civ 798. The court held that when a lease has a costs recovery clause, the court can and should permit recovery of costs in a small claim, including those incurred in tribunal proceedings, notwithstanding the small claims costs rules. In so holding, the Court of Appeal followed a line of authority which began with the mortgage case of Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 and was followed by Church Commissioners v Ibrahim [1997] EGLR 13. Ibrahim decided that, if the lease has a costs recovery clause the court can and should award costs in line with the recovery clause notwithstanding the fixed costs regime for possession claims under Part 45.

In Chaplair Arden LJ held that the reason Part 27 does not prevent costs recovery is that the costs the landlord seeks are contractual costs under the lease. The court retains a discretion as to whether to award contractual costs, but the contractual right to costs is highly relevant to the exercise. CPR 27.14 which limits small claims costs must be read subject to CPR 44.5 (which deals with contractual costs) which gives statutory effect to Gomba Holdings, and is not excluded by CPR 27.2. The contractual costs are recoverable subject to the court’s equitable jurisdiction to disallow unreasonable expenses.

Gomba Holdings and Ibrahim, are decisions of long standing, but their effect on costs in the small claims track has been much less clear, hence the varying decisions below in this case. The precise reasoning for the disapplication of the small claims costs rules has also been unclear; CPR 27 works differently from fixed costs in possession claims under Part 45, where the court retains an express discretion not to follow the fixed costs rules. In Part 27, there is no such discretion, unless there has been unreasonable conduct. In Chaplair Patten LJ explained that where costs are payable under the contract, not as part of the courts general costs jurisdiction, Part 27 does not exclude the contractual entitlement. This is clearly a useful case for landlords.