Service charge

Requests for rental charges and tenant’s liability for litigation costs: the Court of Appeal renders an important judgment

On Monday, November 22, 2021, the Court of Appeal (Newey, Stuart-Smith & Andrews LJJ) rendered its judgment in a major service fee litigation case. David Peachey (managed by Mark Warwick QC) represented the Respondent Owner.

Summary

The Kensquare Limited v Boakye case [2021] EWCA Civ 1725, dealt with two main issues. The first question was whether time was of the essence for a provisional service charge request, which had been served after the date of payment of the provisional request and, in the case of a request, after the end of the year of service. relevant service charge. The tenant was successful on this point, which means that the landlord will have to seek to recover the relevant service charge from that particular tenant by way of a final request (time is usually not of the essence in claiming fees. final service).

The second question asked if a landlord could recover the costs it had incurred in a previous dispute with the tenant, using the terms of the lease, rather than through a costs order issued by the FTT in these earlier proceedings. . This second question had two parts: recovery from the individual tenant through the administration fee and recovery from the tenants as a whole through the service charge. This is a very contentious issue, on which many decisions have been rendered on various wording in previous leases.

The Court of Appeal ruled that under this lease, the landlord could recover the relevant litigation costs from the individual tenant. However, the service charge provisions were not broad enough to include legal costs associated with pursuing this tenant for service charge arrears. Therefore, the landlord could not recover these litigation costs from all tenants through the service charges.

The relevant context

Ms Boakye was a long-term tenant of an apartment in Kensington under a 125-year lease signed in 1982. She did not pay service charges owed under the lease for a number of years. Pursuant to Section 81 (1) of the Housing Act 1996, a landlord cannot waive a residential lease for non-payment of service charges unless a court has determined that the service charge are due, or the tenant admits they are due. Ms. Boakye did not admit that the service charge was due. As such, in 2017, the Owner applied to the Court of First Instance (“FTT”) to determine that Ms. Boakye’s was responsible for the service charge (“the 2017 proceeding”). This was to allow the landlord to perform by serving a notice under section 146 and, if necessary, to waive the lease.

At the end of the 2017 proceedings, the TTF found that the corresponding service charges were due in full, but did not order costs. The landlord served a section 146 notice regarding the service charge, but the tenant did not pay. Ultimately, the tenants’ mortgagee paid the unpaid service charge to the landlord.

Some time after the 2017 proceedings, the owner demanded an additional interim service charge. However, the requests were made after the date on which the interim service charge was due and, in one case, after the end of the relevant service charge year. The landlord also claimed, as administrative costs, the legal costs that he incurred in continuing the 2017 proceeding. The tenant refused to pay, and at the end of 2019, the landlord filed further requests to the TTF to determine the tenants’ responsibility to pay the interim service charges and court costs of the 2017 proceedings.

Interim service charge requests

The TTF found that the service charge requests did not comply with the terms of the lease. The owner appealed to the Upper Tribunal (“UT”) where the judge found that time was not an essential factor in the service of the claim and that the relevant mechanisms had been followed.

The tenant appealed to the Court of Appeal. In rendering the court judgment on November 22, 2021, Newey LJ considered that “the presumption against time being of essence is misplaced”By the service charge machines in the lease.

Recovery of costs by the landlord under the lease

This will probably be the most important question for practitioners. The landlord relied on the following undertaking given by the tenant (the “cost undertaking”):

“To pay all costs and expenses (including attorney’s fees and surveyor’s fees) incurred by the lessor for the purposes of preparing and serving a notice under section 146 of the Act on the 1925 property, notwithstanding the confiscation, avoided other than by an adjustment granted by the Court… ”

The FTT ruled that the cost pact only entitles the owner to the costs of drafting the notice under Section 146 itself, just £ 192.20 of the thousands claimed by the owner in under the 2017 procedure.

The lease also allowed the landlord to recover the following costs from all tenants, through the service charge (“the service charge provision”:

“The cost of employing professional advisers and agents reasonably required in the management of the building”

The FTT found that the lawyers hired by the landlord to recover the service charges were not “Professional advisers … [engaged] in connection with the management of the Building ”. The overall consequence of the TTF’s decision was that the owner could not recover his legal costs, neither from the defaulting tenant nor from all the tenants, even though he had won the 2017 procedure.

The owner appealed successfully to the Upper Tribunal on both points. The tenant, Ms. Boakye, then appealed to the Court of Appeal.

The Court of Appeal’s decision on costs

With respect to the undertaking for costs, the tenant pointed out to the Court of Appeal that until 1996 there was no requirement for a determination of default and, therefore, no requirement for a TTF procedure before that a notice under section 146 cannot be served. The tenant argued that this meant she could not have committed to paying the landlord’s fees for any TTF proceedings – such a procedure did not even exist when the lease was signed in 1982.

The landlord argued that the parties would have considered changes to the legislative framework over the 125-year period. Basically, and whatever the legal framework in 1982, in 2017 FTT procedures were necessary “in order to” serve a section 146 notice because no section 146 notice could be served without such a procedure. An undertaking as to costs should be given its ordinary meaning in English.

In rendering the court judgment, Newey LJ agreed with the landlord with respect to the costs undertaking. He argued that:

“[The landlord] had no choice but to bring [the 2017 proceedings] whether he wished to serve a notice under section 146. It is true that at the date of the lease, a landlord did not need to apply to the FTT (or any other court or tribunal) before to serve a notice under section 146. This requirement came years later … It doesn’t matter, though. The parties to the lease have agreed that the lessee should bear the costs incurred for the purpose of serving a notice under section 146, and the costs that Kensquare incurred in connection with the 2017 FTT proceeding correspond to this. description.

Regarding the service charge provision, Newey J understood why the Upper Tribunal found its construction “difficult”. However, “overall” the service charge provision has focused on management rather than litigation. A finding that the landlord could recover legal costs under the service charge provision would involve “Incorporating the general terms of a clause on service charges [something] which does not clearly belong to it “ (quoting Lord Neuberger in Arnold vs. Britton).

The landlord could therefore recover the costs of the 2017 proceedings from the tenant, Ms. Boakye, but could not add these costs to the service charge payable by all tenants.

Comment

With regard to service charges, this case is notable because, on the particular wording of the lease, the Court of Appeal held that time was essential for the service of the request for provisional service charges (which did not is usually not the case with final requests).

With regard to costs, the Court rejected the tenants’ argument that the lack of an express reference in the Pact on costs to “procedure” Where “litigationMeant that the owner could not recover the litigation costs. As long as the plain English meaning covers these costs, no specific words are required.

The restrictive covenant was intended to ensure that a defaulting tenant compensates the landlord for the measures taken to enforce the restrictive covenants of the lease, even if those measures did not exist at the time of the lease. Therefore, unlike the provision on service charges, the cost recovery of the 2017 FTT under the restrictive covenant did not involve “bringing [in] something that clearly does not belong there.

Generally speaking, the Court of Appeal noted that “Comparison with leases that have appeared in other cases does not provide a reliable guide to how Ms. Boakye’s lease should be interpreted”. The Court of Appeal considered the natural wording of the clauses in the present case and recorded the principle established in Arnold vs. Britton that lease clauses must be interpreted according to their wording and context, like any other contract.