Today we focus on the recently appealed case of 38/41 CHG Residents Company Ltd v Hyslop [2020]UKUT 21 (LC), an interesting case concerned with whether a leaseholder’s bare denial of receiving service charge demands is enough to avoid liability for service charges.

Background

The appellant (the “Landlord”) was the freeholder of a building in London. The respondent (the “Leaseholder”) was a Leaseholder of a flat in that building.  Under the terms of the Leaseholder’s lease, the Landlord was entitled to demand service charges before incurring the relevant expenditure and the Leaseholder was required to make two “on account” service charge payments with a balancing payment at the end of the year, once the final expenditure was known.  A fairly standard and straight forward service charge collection provision.

The Leaseholder, a persistent defaulter and one prone to raising disputes to action for recovery, had failed once again to pay a number of demands and, as a result, the Landlord issued proceedings in the First Tier Tribunal (the “FTT”) for a determination.  The Leaseholder’s defence included a denial that the Landlord had served demands upon her, insofar as her position was that nothing in the form of a demand had ever been received.

At the first hearing in late 2018 the reasonableness of the service charges was considered and determined.  The FTT adjourned to a later hearing the matter of whether the Leaseholder’s denial that she had ever received the demands was valid and thus would prevent recovery by the Landlord.

After a further hearing in March 2019, the FTT found that the demands had not been received by the Leaseholder and thus there had been no valid demand for service charges meaning that nothing could be enforced.

The Appeal

The Upper Tribunal (“UT”) allowed an appeal which was heard in January 2020.  The Landlord argued that the FTT had asked itself the wrong question when it considered whether it could be said “with any certainty” that the demands had been received.  The correct standard of proof was whether on the balance of probabilities the demands had been received by the Leaseholder.  Additionally, the UT considered whether the FTT had erred in looking to answer the question of whether the demands had been received rather than whether they had been delivered. 

The managing agent was wise to the games of this Leaseholder and had hand delivered to the flat and address of the Leaseholder demands and reminders accompanied by statements and letters requesting payment.  The agent had also taken steps to be able to provide evidence, in the form of a photograph, that the demands had been put through the letter box of the flat and thus had been delivered.  

The Leaseholder argued that the photograph, which was of an envelope addressed to the Leaseholder being posted into a letter box in, or under the flat door, did not provide evidence of what was in the envelope or which flat door it was being posted into.  Accordingly, she argued it was not evidence of service of anything, let alone a demand for charges, on which the action against her could be based.  

The FTT and UT found that it was unlikely that the photograph of the delivery of the demand had been staged or otherwise produced to mislead the FTT. They also found that on the balance of probabilities (the correct standard of proof) the demands had been delivered at the correct address and thus in accordance with section 196 of the Law of Property Act 1925. As a result those demands delivered were deemed received and payable by the Leaseholder. This outcome follows the decision in Kinch v Bullard 1999 4 All ER 650.

Conclusion

This case clearly shows that the FTT made a number of errors in its determination here which resulted in lengthy and expensive litigation.  It also shows the importance, and should help remind Landlords and their managing agents, of the need to be very careful when demanding service charges and keep a sufficient record of when and by what means the demands/notices have been served on a Leaseholder.  The stronger the evidence the better!  The agent was also sensible here in taking steps, beyond posting the demand in the normal post, to hand deliver a demand to a Leaseholder whom they knew to be likely to simply deny receiving anything as a means of avoiding liability.  If you also have Leaseholders of a similar disposition, and we frequently come across them in our work, then going that extra step next time you visit the block and before solicitors are instructed to take action, may be the difference between concluding the matter promptly and costly litigation/trial. 

Our February 2019 Legal Update called “Service of Notices - Some Considerations” (see article here) provided guidance on the requirements of how to correctly complete and validly serve demands/notices.

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com. 

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