Coughing up the cash: are leaseholders inadvertently admitting their service charge is right by paying it?

Articles
25 Apr 2024

This article was published before the decision in Gorrara Ltd v Kenilworth Court Block E Rtm Co Ltd [2024] UKUT 81 (LC) which reconsiders Cain and an update from the authors is imminent.

In light of a recent decision of the FTT in Poplar Housing and Regeneration Community Association Ltd v Samuel Khan LON/00BG/LSC/2023/0205, Laura Tweedy and Callum Reid-Hutchings of Gatehouse Chambers consider when service charges are deemed to be ‘admitted’ by payment.

What is a s27A application?

  1. Section 27A Landlord and Tenant Act 1985 (“the Act”) applications are commonly made by lessors or lessees (and can be made other persons or bodies to whom or by whom service charge is payable) of long residential leases, to the First Tier (Property) Tribunal (“FTT”) to have it consider whether service charge (which has been sought or is planned to be) is payable. It is often used by a landlord as a precursor to forfeiture.

s27A(1): An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to—

(a) the person by whom it is payable

(b) the person to whom it is payable

(c) the amount which is payable

(d) the date at or by which it is payable, and

(e) the manner in which it is payable.

(2) Subsection (1) applies whether or not any payment has been made…

 

s27A(3): An application may also be made to the appropriate tribunal for a determination whether, if costs were incurred for services, repairs,

maintenance, improvements, insurance or management of any specified

description, a service charge would be payable for the costs and, if it would, as

to—

(a) the person by whom it would be payable,

(b) the person to whom it would be payable,

(c) the amount which would be payable,

(d) the date at or by which it would be payable, and

(e) the manner in which it would be payable.”

Admitting charges

2. No application can be made under section s27A in respect of a matter which has been agreed or admitted by the tenant. But, the tenant is not to be taken to have agreed or admitted any matter by reason only of having made payment (s27A(4) of the Act). Often payments are made, even those in dispute, to avoid the risk of forfeiture. Hence why the law inserts this relevant provision to protect tenants that do pay:

s27A(4):  No application under section (1) or (3) [as set out above] may be made in respect of a matter which –

(a) has been agreed or admitted by the tenant…

(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.”

The jurisdiction of the FTT

3. The FTT is a creature of statute, so if it does not have the jurisdiction to deal with, assess or reduce service charges which have been admitted, that takes those charges out of the FTT’s hands.That is an attractive route for landlords to get the full service charge sought. Thus, it is important for both landlords and tenants alike to know when the FTT may regard the tenant’s actions as admitting the service charge, when considering payment and the other circumstances of the case…

In what circumstances will the FTT find that the service charge has been agreed or admitted through payment?

4. Below we consider the cases which came before Poplar v Khan in which the tribunal grappled with whether the lessee had admitted the charges by payment coupled with other factors.

5. In Shersby v Greenhurst Park Residents Co Ltd [2009] UKUT 241 (LC) the lessee made payments towards insurance premiums pursuant to his obligations under the lease between 1997 and 2004, only challenging the payments demanded in 2007 and having made a separate application to a leasehold valuation tribunal in the interim in relation to service charges in the course of which he did not raise the issue of insurance. The Upper Tribunal (“UT”) held in conducting a re-hearing on appeal from the FTT, that the lessee must be taken to have agreed or admitted the insurance premiums. It was important, in the Tribunal’s view, that an agreement or admission was found to be established from a combination of a series of payments over a period of time coupled with (a) substantial delay before challenge and (b) other proceedings in which the applicant had the opportunity to but failed to challenge those elements.

“[44]: As regards the years 1997-2004 … I find that he has agreed or admitted these sums and that section 27A(4) prevents his application in respect of these years. As regards section 27A(5) this provides that the Appellant is not to have been taken to have agreed or admitted any matter by reason of only having made any payment. However, the Appellant has done substantially more than merely make payment in respect of these years. He has not only made the payments but has waited a long time (namely until the 2007 application) before seeking to challenge them, and has in the meantime made a separate application to an LVT raising various matters regarding charges but not raising any matter as regards these insurance premiums. The 2005 proceedings were then withdrawn without the insurance premiums having been raised as an issue. The combination of these repeated payment, without any complaint or reservation, coupled with the lapse of time and with the express challenging in the form of the 2005 proceedings of certain matters (but not these insurance matters) leads me to conclude that the Appellant must be taken to have agreed or admitted these premiums.”

6. In Cain v Islington BC [2015] UKUT 542 the lessee paid service charges between 2001 and 2007 without any protest, only challenging those sums by application to the FTT in 2014. The FTT took the view that it was “now no longer appropriate[1] for those years to be litigated.  Not only had the lessee made multiple payments, he had made them without protest, had also waited an extremely long time before making his challenge and in the meantime there had been other cases involving the same parties. The Upper Tribunal upheld the decision of the FTT to treat the lessee as having admitted or agreed the amounts of service charge over the period between 2001 and 2007. The admission must be “based upon the objectively ascertained intention of the tenant” [14]. Following the reasoning in Shersby, the UT addressed section 27A(5) at [14]-[15] & [17]-[18]:

[14] … An agreement or admission may be express, or implied or inferred from the facts and circumstances. In either situation the agreement or admission must be clear, the finding being based upon the objectively ascertained intention of the tenant which may be express or implied or inferred from the conduct of the tenant – usually an act or a series of acts or inaction in face of specific circumstances or even mere inaction over a long period of time or a combination of the two.

 [15] Absent [section 27A(5)] and depending upon the facts and circumstances, it would be open to the FTT to imply or infer from the fact of a single payment of a specific sum demanded that the tenant had agreed or admitted that the amount claimed and paid was the amount properly payable, a fortiori where there is a series of payments made without challenge or protest. Part of the reason for this is that people generally do not pay money without protest unless they accept that that which is demanded is properly due and owing, and certainly not regularly over a period of time. Whilst it would generally be inappropriate to make such an implication or inference from a single payment because it could not be said that the conduct of the tenant was sufficiently clear, where there have been repeated payments over a period of time of sums demanded, there may come a time when such an implication or inference is irresistible.”

[17] The effect of sub-section (5), however, is to preclude any such finding “by reason only of [the tenant] having made any payment”. The reference to the making of “any payment”, and “only” such payment, indicates that whilst the making of a single payment on its own, or without more, will never be sufficient to found the finding of agreement or admission, the making of multiple payments even of different amounts necessarily over a period of time (because that is how service charges work) may suffice. Putting it another way, the making of a single payment on its own, or without more, will never be sufficient; there must always be other circumstances from which agreement or admission can be implied or inferred. And those circumstances may be a series of unqualified payments over a period of time which, depending upon the circumstances, could be quite short, it always being a question of fact and degree in every case.

[18] Looking at the reasoning behind this provision, no doubt the reason why the making of a single payment on its own, or without more, would never suffice is that such will often be insufficiently clear but also, in the peculiar area of landlord and tenant, it is common enough for tenants to pay (even expressly disputed) service charges so as to avoid the risk of forfeiture and preserve their home and the value of their lease. But the reason why a series of unqualified payments may, depending on the circumstances, suffice is because the natural implication or inference from a series of unqualified payments of demanded service charges is that the tenant agrees or admits that which is being demanded. Putting it another way, it would offend common-sense for a tenant who without qualification or protest has been paying a series of demanded service charges over a period of time to be able to turn around and deny that he has ever agreed or admitted to that which he has previously paid without qualification or protest. Self-evidently, the longer the period over which payments have been made the more readily the court or tribunal will be to hold that the tenant has agreed or admitted that which has been demanded and paid. It is the absence of protest or qualification which provides the additional evidence from which agreement or admission can be implied or inferred.”

7. In Gateway Holdings Ltd v McKenzie [2018] UKUT 371 the UT expressed that the FTT should not look at the subjective intention of the tenant, but rather, should consider, whether, objectively, there has been an admission or agreement [28].

8. In Marlborough Park Services Ltd v Leitner [2018] UKUT 230 the FTT was found to have erred in law in failing to recognise the significance of the payment of service charge without protest over a period of time long before the application to the FTT was made [33].

A recent decision: Poplar Housing and Regeneration Community Association Ltd v Samuel Khan LON/00BG/LSC/2023/0205

9. The relevant facts are as follows:

    1. Mr Khan was a long leaseholder of Poplar and he rented out the property to tenants;
    2. Mr Khan’s service charge account had been in arrears since 2015, with a balance at the hearing of £6,443.31. There was also a major works account with a balance of £3,300.78 outstanding at the hearing. Total arrears: £9,744.09;
    3. In June 2023, Poplar made an application to the FTT under s27A of the Act. Mr Khan responded to the application but did not raise any issues with the major works completed but did challenge the reasonableness of all charges in the round. He had previously made 11 payments towards these costs. Poplar promulgated to the FTT that because of this lack of protest in the application, multiple payments and lapse of time, the Respondent should be taken to have admitted the major works costs. If the FTT agreed, it took the major works out of its jurisdiction to determine the amounts payable (section 27A(4)(a) of the Act) and meant that Mr Khan would be prevented from challenging those particular costs.

10.  In agreeing with Poplar’s position on lessee’s admission of the major works service charge the FTT held:

“[24] The major works took place in 2014 and primarily involved works to the windows and the flat roof. The Respondent was charged over £9000 for his proportion of the total cost… Ms Tweedy argued that in relation to the major works alone that the Respondent had by implication accepted the cost of the work and it was not now open to him to challenge that cost. It is right that the Respondent had made a number of payments towards the major works without any indication that those payments were being made under protest. The case of Shersby v Greenhouse Park Residents Co Ltd [2009] UKUT 241 (LC) supports Ms Tweedy’s proposition that the payments could constitute an implied admission and we accept that argument. Accordingly, the major works costs are payable in full.”

11. It was of particular relevant that the Respondent had made a number of payments, that they had been over a period of time, that he had given no indication that those payments were being made under protest and he had not raised any specific objection to the major works his response to the s27A application.

How to approach service charge admissions

It is important to note that there is not any specific statutory guidance as to when a charge is taken to be admitted. Thus, the tribunals have incrementally sought to piece together what this admission could look like, although, ultimately, it will all depend on the facts of the case. Nevertheless, the following key sentiments could be emphasised:

  1. One payment will not likely be enough to establish acceptance of the service charge on behalf of the tenant, however multiple payments could;
  2. If a payment has been made, coupled with other factors, for example other proceedings in which the lessee could have raised the problem with the service charge but did not, then agreement or admission can more easily be implied or inferred;
  3. If a tenant has a problem with a particular part of the service charge, then they need to say so. However, be wary of the FTT’s often lenient inquisitorial approach at the hearing;[2]
  4. Waiting a long time before challenging the service charge can be a factor that weighs against the lessee: “the longer the period over which payments have been made the more readily the court or tribunal will be to hold that the tenant has agreed or admitted that which has been demanded and paid;[3]
  5. The absence of some form of a challenge or protest when paying repeated service charges which the lessee later goes on to dispute, may be taken against the lessee. The inference of the admission may become “irresistible” for the tribunal: “It is the absence of protest or qualification which provides the additional evidence from which agreement or admission can be implied or inferred;”[4]
  6. Every case warrants its own consideration, the tribunal should look at all the facts and circumstances of that case to establish whether or not there has been an admission;
  7. The subjective intention of the tenant is irrelevant when determining admission, it is an objective assessment.

Article by Laura Tweedy and Callum Reid Hutchings

[1] At paragraph 6 of the UT’s decision.

[2] If a new point is raised the proper approach is for the tribunal to adjourn to give the parties an opportunity to respond: Admiralty Park Management Co Ltd v Ojo [2016] UKUT 421 (LC).

[3] See [18] of Cain.

[4] See [18] of Cain.

Authors

Callum Reid-Hutchings

Call: 2022

Laura Tweedy

Call: 2007

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