UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 597 (LC)
UTLC Case Number: LRX/16/2015

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – Leasehold – Service Charges – Covenant in lease - Whether invoices for major works supplied by the landlord were compliant with terms of the lease –– Assignment of lease after interim demand – Final adjustment to demand made after assignment - Whether assignee liable to pay adjusted demand – whether the First-tier Tribunal misdirected itself in law - Landlord and Tenant (Covenants) Act 1995, section 23. 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE
FIRST TIER TRIBUNAL (PROPERTY CHAMBER) (RESIDENTIAL PROPERTY)

BETWEEN:
LONDON BOROUGH OF SOUTHWARK
Appellant
and
VICTORIA JANE CLARK
Respondent
Re: 43A Naylor Road,
London
SE15 1QJ

Before: Judge Edward Cousins

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL
on
25 August 2015

Michael Walsh, of Counsel instructed by the London Borough of Southwark, Legal Department, for the Appellant
The Respondent did not appear and was not represented.

© CROWN COPYRIGHT 2015

There are no cases referred to in this Decision:

DECISION
Introduction
1.	This is an appeal, by way of review, against the decision of the First-tier Tribunal (“Property Chamber) (Residential Property”) (“the F-tT”) handed down on 1 October 2014 (“the Tribunal Decision”) in a dispute over the entitlement of the London Borough of Southwark, as lessor, to recover service charges amounting to £6,734.10 owed by the lessee, Ms Victoria Jane Clarke (“the Respondent”), pursuant to the provisions of section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”). 
2.	The London Borough of Southwark (“the Appellant”) is the owner of the freehold reversion in 43A Naylor Road, London SE15 1QJ (“the Property”) immediately expectant upon the term demised by a long leasehold interest (“the Lease”) granted on 5 May 2003 to the Respondent’s father, Mr Peter Joseph Clarke (deceased). Mr Clarke purchased the Lease pursuant to the Right to Buy provisions contained in the Housing Act 1985.  On 4 September 2008 the unexpired residue of the term demised by the Lease was assigned by Mr Clarke to the Respondent.
3.	In October 2006 an estimated demand for service charges for major works dated 25 October 2006 was sent to Mr Clarke, but never paid.  Following the assignment of the leasehold interest, a credit note and notice entitled “Final Account Notification and Summary” dated 16 May 2013 in the sum of £8,562.66 was sent to the Respondent demanding payment for the final sum for the major works.  A credit note was subsequently issued in the sum of £3,960.74 on the basis that the major works cost less than estimated in October 2006.
4.	The Respondent failed to pay the demand and the proceedings were issued in the Northampton County Court on or about 11 November 2013.  An order dated 4 March 2014 was made by District Judge Philippa Smith sitting at Chelmsford County Court transferring the matter to the F-tT.  Before F-tT the Appellant sought a determination pursuant to section 27A of the 1985 Act as to the amount of service charges payable by her in respect of the service charge year commencing 1 April 2007 relating to Major Works Contract 06/022P2.  After hearing evidence the F-tT determined that there was no financial liability on the part of the Respondent in respect of the claim made by the Appellant.  The F-tT reasons are set out between paragraphs 12 and 28 of the Tribunal Decision, and in particular in paragraph 28 thereof.  It was determined by the F-tT that the Respondent was not liable to the Appellant for the sums demanded by reason of the operation of section 23(1) of the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”).  In effect it was held by the F-tT that on a true construction of that provision in the context of the operation of the assignment of the Lease to the Respondent on 4 September 2008, and the interim demand made, the Respondent therefore had no liability under the Lease covenants to pay service charges in respect of the invoice sent to her father on 26 October 2006. Accordingly, it was found that the Appellant’s claim must fail.
5.	 It is to be noted that the F-tT fell into error in paragraph 12 of the Decision in stating that the Respondent had not been issued with a demand by the Appellant to pay the arrears. The Appellant had issued and sent the Final Account Notification and Summary to the Respondent, to which reference has been made above.
6.	The Appellant sought permission to appeal the Tribunal Decision. This was rejected by the F-tT in a decision dated 21 January 2015.  The reason given was that the F-tT had considered and taken into account all the points raised by the Appellant in its submission when reaching its original decision on 1 October 2014.  The F-tT made a number of specific comments in the Appendix to the Decision in refusing Permission to Appeal.
7.	The application for permission to appeal was then renewed in the Upper Tribunal.  The reasons are set out in the Appellant’s Statement of Case and Grounds of Appeal.  On 15 April 2015 the Deputy President granted permission to appeal and made a number of observations. In paragraph 2  he stated:-
	“The [Appellant’s] claim in the County Court proceedings was not for the sum demanded of her father in 2006, but was for the reduced sum which had been the subject of a separate “Final Account Notification” sent to Miss Clarke herself on 16 May 2013.  The Tribunal gave no explanation why the [Appellant] was not entitled to that sum, and it does not have appeared to have considered that question.  The Tribunal had already rejected each of the grounds on which [the Respondent] sought to deny her liability for the reduced sum and she would appear to have no obvious defence to her liability for that amount.”
It was on this basis that the Deputy President observed that the proposed appeal has a realistic prospect of success, and accordingly granted permission to appeal by way of a review.
The Lease provisions
8.	At clause 2(3)(a) of the Lease the tenant covenanted to pay the service charge contributions as set out in Part I and Part II of the Third Schedule.  The Third Schedule provides as follows:
	“1(1) In this Schedule ‘year’ means a year beginning on 1st april and ending on 31st March.
	 (2) Time shall not be of the essence for service of any notice under this Schedule.
	 2(1) Before the commencement of each year (except the year in which the lease is granted) the [Lessor] shall make a reasonable estimate of the amount which will be payable by the Lessee by way of Service Charge (as hereinafter defined) in that year and shall notify the Lessee of that estimate.
	 (2) The Lessee shall pay to the [Lessor] in advance on account of Service Charge the amount of such estimate by equal payments on 1st April, 1st July, 1st October and 1st January in each year (hereinafter referred to as ‘the payment days’).
	 (3)………………………………. 
	 4(1) As soon as practicable after the end of each year [the Lessor] shall ascertain the Service Charge payable for that year and shall notify the Lessee of the amount thereof.
	 (2) Such notice shall contain or be accompanied by a summary of the costs incurred by the [Lessor] of the kinds referred to in paragraph 6 of this Schedule and state the balance (if any) due under paragraph 5 of this Schedule.
	 5(1) If the Service Charge for the year (or in respect of the first year hereof the apportioned part thereof) exceeds the amount paid in advance under paragraph 2 and 3 of this Schedule the Lessee shall pay the balance thereof to the [Lessor] within one month of service of the said notice.
	 5(2) If the amount so paid in advance by the Lessee exceeds the Service Charge for the year (or the apportioned part thereof for the first year hereof) the balance shall be credited against the next advance payment or payments due from the Lessee (or if this Lease has then determined repaid to the Lessee).”
9.	Thus by virtue of sub-paragraph 5(2) it is provided that if the amount paid in advance by the Lessee exceeds the service charge demanded for the year, the balance shall be credited against the next advance payment due from the Lessee. 
Discussion
10.	It is apparent that the F-tT proceeded on the basis that the claim made by the Appellant was for the estimated cost of work which had formed part of the service charge demanded from the Respondent’s father in 2006.  The essence of the Tribunal Decision was that the F-tT considered that by reason of the provisions of section 23 of the 1995 Act, there was no liability on the part of the Respondent to pay the estimated sum demanded because it related to a time before the lease had been assigned to her by her father in 2008.  
11.	In my judgment this interpretation was made in error, and I find that the F-tT misdirected itself in law.
THE DECISION
12.	Drawing together the various strands in this Review, in my judgment this appeal must be granted.  My reasons are as follows:- 
(1)	It is apparent that the F-tT misapplied the law and diverted itself into a misinterpretation of the relevant legal principles, and in particular the provisions contained in section 23 of the 1995 Act, in determining that there was no financial liability on the part of the Respondent in respect of the claim made by the Appellant.  
(2)	Section 23 of the 1995 Act provides the framework for the transmission of covenants on assignment to the effect that all covenants and obligations between Lessor and Lessee are enforceable between the landlord and tenant for the time being, and that rights and obligations under covenants should pass on assignment. However, the section does not limit the Respondent’s liability to pay as the F-tT appeared to consider that it did as the Respondent herself had received a valid demand to pay the final account after the Lease had been assigned to her.
(3)	The service charge machinery, to which I have made reference above clearly indicates that there is a two stage process, namely the interim payment provided for under sub-paragraphs 2(1) and 2(2), and the final amount as provided for in paragraph 4 of schedule 3.  However, the F-tT failed to recognise that the liability for the payment of the service charge on the part of the lessee was a two stage process.  In the first instance an interim payment was sought by the Appellant from Mr Clarke, Senior, which he failed to pay.  Subsequently the final account was produced post assignment. It is noteworthy that this was the subject of a separate notification for the final reduced sum sent to the Respondent in May 2013.  The Appellant’s claim in the County Court proceedings was not for the interim sum demanded by the Appellant from the Respondent’s father, but for the final reduced sum which was sought from her as the assignee of the Lease, an appropriate credit having been made accordingly.
(4)	In my judgment, a valid demand was served upon the Respondent for the adjusted sum of £6,734.10 in accordance with the provisions contained in the Lease. A valid demand was made in accordance with paragraph 4 of the Third Schedule, a credit note and final account notification was sent to the Respondent dated 16 May 2013, thereby triggering liability.  The F-tT in effect, in my judgment, did not grasp the point and seems to have considered that the provisions of section 23 in some way limited the Respondent’s liability on the basis that part of the accounting period preceded the assignment. 
(5)	There is accordingly a breach of covenant to pay, and as the Respondent failed to pay the final amount demanded pursuant to the covenant proceedings were issued. Accordingly she is therefore liable to pay the demand for the sum in question. 
13.	In such circumstances, I will overturn the decision made by the F-tT and determine that the Respondent’s liability is for the sum of £6,734.10 together with interest thereon at the appropriate rate.  I also overturn the ruling made in respect of section 20C of the 1985 Act, as to the refund of fees.
Dated 6 November 2015

Judge Edward Cousins