In our fifth article concerned with legal cases that give us an insight into service charges and how they should be handled, we find again the importance of acting in accordance with the exact terms of the lease in question. If you don’t it could cost you a quarter of a million pounds plus costs!
The case which was taken to the Court of Appeal involved four separate yet similar leases held by one tenant covering four floors of a thirteen-storey office block in Croydon. Each of the leases provided that the tenant would pay a fair proportion of the service charge costs for each year. This proportion was to assessed by the landlord or its surveyor from time to time based on a reasonable and proper basis of apportionment. The landlord could only put costs through the service charge accounts and claim them if they had served an end of year statement which included these costs. In particular there was no mechanism for claiming a sum by means of an invoice outside this route.
In December 2002 the landlord issued an end of year service charge reconciliation mistakenly omitting an item of expenditure. In January 2003 the landlord attempted to recover this expenditure by seeking the correct proportion from the tenant as an additional payment. The tenant’s arguments were that the lease allowed the landlord to raise just one balancing statement and that the additional demand was not lease-compliant because it did not include a statement of total costs nor did it give the breakdown per lease.
The key here was not whether or not the additional charge recoverable by the landlord under the terms of the lease but how the landlord to raise just one balancing statement and that the additional demand was not lease-complaint because it did not include a statement of total costs nor did it give the breakdown per lease.
The key here was not whether or not the additional charge was recoverable by the landlord under the terms of the lease but how the landlord went about the recovery of the required sum. The judge made it clear that there was a “contractual route down which the landlord must travel to be entitled to payment”.
The judge found that the landlord was not limited to serving just one balancing statement but that this demand should have included a revised statement of the total costs incurred and how these costs were apportioned between the four leases.
Once again the wording of the lease proves the key to the decision of the court. Where a lease lays down a mechanism by which the service charge shall become payable this must be stuck to. Landlords and their surveyors must examine the service charge provisions within each lease at a building / development to make sure that not only are the costs incurred lease-compliant but the manner in which they are demanded also fall within the terms of the leases in place.
Please be aware the above article is in no way to be construed as expert legal advice.