Do incorrect apportionments make a service charge demand ‘invalid’?

In Price v Mattey & Ors [2021] UKUT 7 (LC), the Upper Tribunal had to consider whether a demand based on incorrect apportionments was invalid and, if it was, would a landlord be able to re-issue the demand if more than 18 months had elapsed since the relevant costs had been incurred.

It is not an unusual situation for the total units in a scheme to change over time. Caretaker flats, for example, can be developed and the resulting additional units of accommodation can throw out the service charge apportionments that are fixed in the lease. Very often, landlords will manually adjust the apportionments to avoid over recovery. However, if the lease contains a fixed apportionment and the lessees liability to pay is only triggered by receiving a demand based on that apportionment, would anything else render that demand invalid?

In this case, the apportionment created a greater share of the costs but the principle would operate both ways.

The facts

The Respondents were the freehold owners of Oak Close, a development of 31 flats in a number of blocks.

The Appellant, Ms Price, held a 99-year lease for a flat in one of the blocks comprising 8 units, which was managed by a property management company acting on behalf of the Respondents.

In February 2018, the Respondents applied to the First-tier Tribunal (FTT) for a determination of reasonableness and payability of service charges demanded from Ms Price (and three other leaseholds in Oak Close) for the years 2009 to 2017. During the proceedings, it became apparent that some of the blocks at Oak Close were now run by Right to Manage companies. This meant that, for most of the period covered by the disputed demands, the Respondents were in fact only responsible for managing and incurring expenditure in respect of 24 flats, including the block of 8 in which Ms Price lived.

The lease required Ms Price to contribute 1/31st of the costs incurred by the Respondents in respect of services to the development. Although the demands themselves said nothing about the way the charge was calculated, it became apparent from budget calculation concerning Ms Price’s flat that she was in fact charged 1/24th of the Respondents’ total expenditure for all years in dispute.

The FTT, in exercising their jurisdiction to determine the reasonableness of the service charge under s.27A Landlord and Tenant Act 1985, reduced the charge to 1/31st of the expenditure and held that Ms Price was liable to pay the reduced service charges.

Appeal to Upper Tribunal

Ms Price appealed the FTT’s decision and she was given permission in respect of the question of the validity of the service charge demands.

Before the Upper Tribunal, it was argued that the demands were invalid because they did not comply with the lease. Reliance was placed on the decision in Brent London BC v. Shulem B Association Limited [2011] EWHC 1663 (Ch) that whilst minor errors in a demand would not invalidate it (such as simple arithmetical errors) but fundamental errors would (such as demanding sums for a different building, or getting the apportionments completely wrong). It was argued that demanding the Appellant to pay a completely wrong proportion was outside the terms of the lease and therefore invalidated the demand.

The Respondent argued that as each of the demands simply stated the amount payable for the relevant period and that there was nothing on the face of the demands that would make them invalid and that it was clear from the face of the demands that they were demands for service charges. Therefore, it was argued that the demands were formally valid and the FTT had correctly exercised their discretion under s.27A LTA 1985 to determine what was payable, namely the correct proportion being 31%.

The Upper Tribunal agreed with the Respondents’ submissions and held that there was no formal invalidity on the face of the demands. It was accepted that the demands were too high but the Upper Tribunal held that the FTT had jurisdiction under s.27A to permit the Respondents to recover only what the lease entitled them to.

Therefore, the appeal failed.

Comment

Had this appeal been successful if could have created significant issues for the housing sector were regularly we encounter manual adjustment being made to stated apportionments to avoid over recovery. This decision confirms that such a practice is permissible and, perhaps rather strangely, that a landlord who is less specific on the face of their demands is in a better position than one who specifies  the apportionment used, especially where that apportionment turns out to be wrong.

For further information please contact Clive Adams or another member of Birketts’ Social Housing Team.