One For Leaseholders To Watch: Recoverability of Service Charge

The First Tier Tribunal Property Chamber decision in Gary Tonner and others v London Borough of Waltham Forest (LON/ooBH/LSC/2016/0134) arose out of Leaseholders’ application to the Tribunal concerning their liability to pay service charges demanded by the Council. The claim related to a number of works undertaken by the Council’s contractors which had been applied to the service charge account. The applicant Leaseholders raised various issues concerning breach of the statutory rules relating to service charges, the observance of which is a prerequisite to a Landlord being able to recover substantial service charge expenditure from Leaseholders. The Tribunal found that the Council had failed to comply with those statutory rules and was therefore limited to recovery of only £100 from each of the applicants in any service charge year in respect of each contractor’s cost incurred under a QLTA.

A QLTA is a Qualifying Long Term Agreement, which is an agreement entered into by or on behalf of the Landlord for a term of more than 12 months and which broadly relates to any matter falling within the basic definition of a service charge.

The intention to enter into a QLTA, and also works carried out under a QLTA, are subject to appropriate written consultation by a Landlord with Leaseholders. Imposed under that written consultation are strict time limits incorporating periods for Leaseholders to make their observations on the Landlord’s proposals. If the consultation rules are not complied with, then a Landlord will be limited to recovery of only £100 from relevant Leaseholders of its expenditure under the QLTA during the service charge period.

This is what happened in January 2017 when the Council was unable to recover the full costs of works undertaken by the named contractors as they had importantly not complied with specific time limits imposed by the regulations. In fact the notice periods were arguably short by either one or two days. The Council, during that hearing had argued that they had substantially complied with the rules but the Tribunal ruled that “substantial compliance with the consultation requirements does not negate the need for dispensation.”

As a consequence, the Council has now applied to the Tribunal to dispense with the need to comply with the relevant statutory requirements and therefore that it is able to charge the full cost of the works to relevant Leaseholders.

That application will be heard on the 19th September 2017. The Council’s application will no doubt seek to apply the leading case of Daejan Investments Limited v Benson (2013) and  argue that there has been no prejudice caused by the Council’s non-compliance with the rules and that even if there has been prejudice, Leaseholders can be compensated for that prejudice, maybe by making a reduction in sums charged to Leaseholders.

The case of Daejan, when it was handed down in 2013 provided a sound basis on which Landlords were able to counteract what had been until that time quite strict application of the statutory rules by the Tribunal. It is now a frequently cited case by Landlords where there may have been a formal breach of the rules and that no prejudice has been caused to Leaseholders.

Stuart Merrison is a Senior Solicitor in the Dispute Resolution team at Bishop & Sewell. Stuart has established over a number of years a broad practice in the Civil Courts regularly conducting claims in the County Court, High Court and the Court of Appeal, with particular emphasis on commercial litigation, property ownership and he is in particular concerned with resolving disputes in the wider property field. You can contact Stuart directly on merrison@bishopandsewell.co.uk

If you need advice on Service Charges and /or Property Litigation matters more widely, please contact our Dispute Resolution Team on propertyexpert@bishopandsewell.co.uk or by telephoning 020 7631 4141.