The Upper Tribunal concluded in the last few weeks an appeal from the FTT in the matter of Powell & Co Investments Ltd v Aleksandrova [2021] UKUT 10 (LC). This is an interesting case, and another reminder of the need for a landlord or managing agent to be careful in their reading of the lease and following the rules set out therein. It acts as a warning that a failure to follow those rules will potentially present to the landlord an inability to recover charges that it has incurred in the management of the block or, at the very least, incur potentially irrecoverable legal costs in trying to recover those charges.

We highlighted this issue in our article here back in 2018 on the case of Wigmore Homes (UK) Limited -v- Spembly Works Residents Association Limited.

The lease

The Lease of the Flat contained a conventional service charge provision by which the lessee covenanted to pay 18% of the annual costs expenses and outgoings incurred by the lessor in complying with its maintenance and insurance obligations.

Clause 3(2)(ii) of the Lease explained how the service charge was to be calculated and paid, as follows:

The service charge shall be calculated and paid in accordance with the following provisions:

1. [two half-yearly payments on account]

2. on or as soon as possible after the twenty fourth day of June in each year the respective annual costs expenses and outgoings of the matters referred to in sub-clause (i) of this clause shall be calculated and if the Lessee’s share of such annual costs and expenses and outgoings under the provisions hereinbefore contained shall fall short of or exceed the aggregate of the sums paid by him on account of his contribution the Lessee shall forthwith upon production of a certified account pay to or shall be refunded by the Lessor the amount of such shortfall or excess as the case may be notwithstanding any devolution of the Lease to the Lessee for the time being subsequent to the commencement of the accounting period to which such shortfall or excess (as the case may be) relates

3. [interest]

4. the liability of the Lessee under the provisions hereinbefore contained shall be certified by a Chartered Accountant to be appointed by the Lessor.

The landlord’s agent had produced accounts (a one page document) which it had passed by a firm of accountants who confirmed that the figures therein were supported by the receipts and dockets (of which they had carried out a check of a selection). Notably the “accounts” did NOT mention, or otherwise certify, the specific sum due from the individual leaseholder but rather the balances of expenditure and income for the development as a whole.

The leaseholder took the view that the accounts served did not amount to the certificate required to comply with the lease terms above and therefore that she was not liable to pay the service charges said to be due. The FTT agreed.

The landlord appealed to the Upper Tribunal who concluded also that no service charges were due because the accounts document provided by the landlord “was deficient because it did not certify the liability of the individual leaseholders as required by the lease.”

See the full case note of the decision here.

Conclusion

This is not a harsh decision perhaps (as it is correct) but it is a tough awakening for the agent and landlord because the provision is perhaps unusual. At first glance the lease provisions seem fairly standard and it is only when read again it becomes clear that the provision is not your standard certified accounts provision but something wholly different requiring a wholly different approach. It therefore requires a special arrangement and clear notes on the landlord/agent file to ensure that those requirements, specific to this lease, are followed and thus the action in this matter avoided.

It is, and has always been, dangerous to quickly scan leases on the presumption that they are all the same or even similar. They often do differ, sometimes in a big way and some times, as Powell & Co found here, in a relatively minor way such that that difference might easily be overlooked or appear insignificant.

If you or your clients would like further advice on the implications of the Powell & Co case, please get in touch with Kevin Lever at Kevin.Lever@kdllaw.com or 01435 897297. See also here for details on the Covenants Review Service that KDL Law provides to its landlord, RMC, RTM and professional managing agent clients which should minimise the issues found in this case.

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