Landlord and Tenant: Service Charges – Audited Accounts are not a pre-requisite for payment of on-account service charges
Elysian Fields Management Company Limited –v– (1) John Nixon (2) Patricia Nixon and between Imperial Building Management Company Limited –v- John Nixon Re: Apartments 52, 53 and 97 Elysian Field, Colquitt Street, Liverpool, L1 4DL and Apartments 6, 10, 20 and 25 Imperial Buildings, High Street, Rotherham, S60 1FF
- There were two “apartment blocks” both comprising mixed residential and commercial premises. One had a Chinese restaurant. Both blocks had similarly worded leases containing a provision that the tenants reimburse a proportion of the costs and expenses incurred by the managing agents, those costs to include Building Insurance Premiums.
- Clauses 5 and 6 to the 7th Schedule of the Lease stated that the managing agents were required to obtain audited accounts of all expenses incurred and thereafter to serve certificates of the accounts upon the tenants.
- The tenant’s complaint was that the invoices submitted by the managing agents had no information as to how the charges and costs were calculated, there were no summaries of the works provided and no audited accounts had been produced despite numerous requests.
- The First-tier Tribunal found that compliance with Clauses 5 and 6 to the 7th Schedule of the Lease, in particular the requirement to supply audited accounts, was a condition precedent to payment of the service charges. As this was their finding, they assessed the service charge at “nil”.
- Of its own motion, the First-tier Tribunal also recommended that the Landlord should take into account the higher risk posed by a Chinese restaurant when apportioning the building insurance premium between the apartments.
Upper Tribunal findings (on appeal)
- The FtT lacked jurisdiction to recommend that the landlord should take into account any increased risk attached to the Chinese restaurant when fixing the apportionment of insurance. Additionally, there was no evidence to support this statement.
- The FtT interpretation of the effect of Clauses 5 and 6 to the 7th Schedule of the Lease was contrary to Clause 1 of Schedule 5 to the Lease, which clearly stated that payment is based on a determination of the amount estimated as due to the management company. The management company was in a position to make an estimate each year, whether or not the audited accounts were available. The FtT therefore had no jurisdiction to make the production of audited accounts a pre-requisite to payment of the on-account service charge.
- The FtT were wrong to assess the service charges at a nil balance having found that they were entitled to estimate the on-account service charge. Additionally, if the tenant was not being provided with the requested audited accounts, it was entitled to apply to the County Court for damages or for specific performance.
- Although the Management Company will have been pleased with this decision, it is worth noting that the Upper Tribunal directed it to submit fully audited accounts within 28 days to the tenant. The Tribunal also required the tenant to provide details as to which parts of the service charge it is seeking to challenge.
News & Insights
Leases and licences: Sizing up the available options
Lauren Fraser and Jacqueline Lean answer queries on the right of forfeiture.
Managing risk in property management companies – corporate governance and considerations for directors
We take a closer look at the guide launched by the Companies House highlighting key considerations for flat management company directors.
Property Patter: What can the property world expect from Parliament and the courts in 2021?
Our team look at what’s ahead in the world of property law