Landlord and tenant service charges: Marlborough Park Services Ltd v Leitner

September 25, 2018

This article was first published by LexisNexis on 13 September 2018. 

Property Disputes analysis: Lawrence McDonald, barrister at Exchange Chambers, discusses the Upper Tribunal (UT) (Lands Chamber) decision in Marlbrough Park Services v Leitner [2018] UKUT 230 (LC), which clarified the circumstances in which the First-tier Tribunal (FTT) (Property Chamber) might not have jurisdiction to consider a leaseholder’s application to determine the reasonableness of service charges.

What are the practical implications of the case?

Leaseholders who fail to take prompt action to challenge the reasonableness of service charges may not be permitted to challenge them at all.

It was decided that the FTT did not have jurisdiction to consider a challenge to the reasonableness of service charges when:

  • the landlord had obtained a judgment in default in respect of some service charges
  • the leaseholder had paid other service charges without protest for many years prior to a claim being issued

The decision of the Upper Tribunal (UT) should act as a warning to leaseholders that they ought to object to excessive service charges levied against them at the earliest opportunity.

What was the background to this case?

The appellant was the freehold owner of two properties which were let to the respondent on long leases, with provisions for the payment of service charges. The respondent leaseholder had paid the service charges without objection up to and including the service charge year ending 31 March 2012.

The leaseholder failed to pay the service charges for the years 1 April 2012 to 31 March 2013. The landlord issued proceedings and obtained judgment in default in the county court.

The leaseholder continued to fail to pay service charges until the landlord served on him a notice under section 146 of the Law of Property Act 1925 (LPA 1925). He then alleged that he had not received correspondence regarding the service charge for a number of years and said that he was prepared to pay the service charge due, but not any interest or charges.

The leaseholder then issued an application in the FTT (Property Chamber), to determine the reasonableness of the service charge for the years 2007 to 2016.

The leaseholder’s application was brought under s 27A of the Landlord and Tenant Act 1985 (LTA 1985) which gives to the FTT the power to determine whether a service charge is payable and if so the amount payable.

LTA 1985, s27A(4) states:

‘No application…may be made in respect of a matter which-

(a) Has been agreed or admitted by the tenant or
(c) has been the subject of a determination by a court’

This is qualified by LTA 1985, s27A(5) which states:

‘But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.’

The landlord made an application to strike out the leaseholder’s LTA 1985, s27A application. The basis of the strike out application was that the FTT did not have jurisdiction to entertain the LTA 1985, s27A application because it had already been determined by the court and/or agreed or admitted by the leaseholder.

Rule 9(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, SI 2013/1169 states that:

‘the Tribunal must strike out the whole or a part of the proceedings or case if the Tribunal

[…] does not have any jurisdiction in relation to the proceedings or case or that part of them’

The landlord’s case before the FTT was as follows:

  • the service charges from 2007 to 2012 had been paid by the leaseholder without complaint and were
  • therefore agreed
  • the service charge for 2012/13 had been determined by the court by way of default judgment
  • the leaseholder had admitted liability to pay the later service charge years
  • therefore, the FTT did not have jurisdiction to hear the leaseholder’s application

The FTT decided that Rule 9.2 did not apply in the circumstances and dismissed the landlord’s application. The landlord appealed to the UT, which allowed the appeal in part.

What did the UT (Lands Chamber) decide?

The UT dealt with the application in three stages, namely the service charges payable:

  • between 1 April 2012 and 31 March 2013
  • before 1 April 2012
  • after 31 March 2013

Payments subject to a default judgment

With regard to the payments due from 1 April 2012 to 31 March 2013, it was found that the FTT should have struck out the application as those service charges were subject to a judgment of the court and so the FTT did not have jurisdiction to determine the matter. The UT said that the FTT should:

‘Take a robust approach where it is clear that an application under LTA 1985, s27A is seeking to challenge service charges which have been the subject of the judgment of the court, whether that judgment follows contested proceedings in the county court or whether it has been entered by default.’

Payments made without protest

The UT found that service charges demanded before 1 April 2012 had been paid without protest or qualification, and were therefore agreed by the leaseholder. This was particularly so where those payments pre-dated those unpaid service charges in respect of which court judgments had been obtained.

The UT cited with approval a previous decision Cain v Islington LBC [2015] UKUT 542 (LC), in which it was said:

‘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.’

The alleged ‘admission’ in respect of future service charges

For the sums due after 31 March 2013, the UT held that the words used by the tenant were insufficient to amount to an admission of the sums due. The tenant had admitted that service charge was due and if that had been in issue his statement might have been determinative. But admitting that one was liable to pay service charge was not an admission that one was liable to pay the amount of service charge demanded by the landlord.

Therefore, the leaseholder was entitled to seek a determination of the reasonableness of service charges claimed by the freeholder from 1 April 2013 and beyond.

Conclusion

In conclusion therefore, the UT allowed the landlord’s appeal in respect of the first two periods—as the tenant’s application in respect of those periods should have been struck out.

The appeal in respect of the third period was dismissed and that challenge to the service charge after 1 April 2013 would be decided by the FTT.

This case provides some welcome clarification of the limits of the FTT’s jurisdiction to consider challenges to service charges.

Lawrence McDonald is an experienced commercial litigator with particular expertise in property, insolvency and professional negligence cases. He acts for companies, individuals, office holders and public bodies before courts and tribunals of all levels in England and Wales.

Interviewed by Barbara Bergin. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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