In this week’s Legal Update we look at how crucial it is to ensure that service charge demands strictly comply with the lease to ensure their validity.

The recent case of H Stain Limited V Carol Richmond [2021] UKUT 0066 (LC) found that a service charge demand issued to a residential leaseholder was not valid. The lease for this property contained the slightly uncommon requirement that the landlord must provide at least one month’s notice in relation to advance service charge demands. The payment due date in the demand served was just a few days short of one month following service of the demand and the Upper Tribunal considered that this was fatal to the validity of the demand. Consequently, the landlord was unable to enforce for the sums demanded.

What did the lease say?

The relevant residential lease clause said the leaseholder must pay upon demand:

‘a due proportion of repair and maintenance costs...and...if so required a contribution in advance and/or to a sinking fund on account of expense and payment anticipated Provided that[…]not less than one month’s notice of such advance payment or contribution is given to the Tenant.’

The landlord’s managing agent served a demand on the leaseholder by post in August 2015. This referred to the amount owed £2,255.77 and stated: ‘Payment due 30 days after date of demand, arrears by return’.

The Defence

It was not disputed that less than one month’s notice was given. The question was, did this invalidate the notice?

At first instance, there was a finding of fact that the landlord had sought to demand payment of the service charge 30 days after the date of the demand. The First Tier Tribunal (FTT) found that as the demand was sent by post, then, with allowing time for delivery of the demand via post, the landlord had only given a maximum of 29 days’ notice to the leaseholder.

The landlord sought to argue that reading the demand in conjunction with the lease would mean that the leaseholder could work out when payment was due, and the sums would not fall due before one month had passed.

In response to the landlord’s position, the leaseholder argued that the service charge recovery mechanism was clear and one month’s notice should be given in the demand for payment, in order for the service charge to fall due as payable.

The FTT held that the demand was invalid because less than one month’s notice had been given.

The landlord appealed to the Upper Tribunal (UT).

The Appeal to the Upper Tribunal

Martin Rodger QC was not persuaded by the above points. He considered the meaning of the requirement to give not less than one month’s notice was ‘quite clear’—the leaseholder was entitled to receive not less than one month’s notice before the liability to pay the demand took effect.

Martin Rodger QC considered the language of the clause in the context of the purpose of the notice provision. The identification of a specific payment date was considered to be important for both parties, so that they knew when the leaseholder’s obligation must be performed and to give the leaseholder time to make arrangements to pay. It was not difficult for the landlord to give one month’s notice, so there really was no reason other than to give the language its ordinary meaning.

The UT found in favour of the leaseholder, commenting that the appearance of the service charge recovery mechanism suggested that it had undergone a significant number of changes between conveyancing solicitors when the lease was initially drafted. This suggested to the UT that the inclusion of “not less than one month’s notice” must have been a significant inclusion on the part of the leaseholder.

It was considered that the FTT were right to find the demand was invalid and the landlord’s appeal was dismissed.

Lesson learnt?

Always check the lease!!

This case is an important warning to landlords and their agents to check the service charge recovery mechanisms in leases before deciding whether service charges fall due and payable. In this decision, the demand for payment was not set out in the manner detailed in the lease and this was crucial to the service charge demand being invalid.

Importantly, the UT pointed out that the landlord should have also taken into account the time it takes to post the demand to the leaseholder, and this demonstrates that not only should there be consideration to what the lease says, but also the practicalities of how the demand is sent to and when it might actually arrive with the leaseholder.

Our Legal Updates from February 2019 - “Service of Notices - Some Considerations” and February 2020 - “Service of demands” set out some useful advice on the importance of getting notices right.

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