Validity of service charge demands

The Upper Tribunal determined the validity of an estimated service charge demand in light of the UT's earlier decision in Woelke. Katie Gray looks at the outcome.

In London Borough of Southwark v Proktor [2016] UKUT 0504 (LC) Southwark were entitled under the terms of their leases to demand service charges on an interim basis by making a reasonable estimate of the amount that would be payable in the following year. Southwark had served a service charge demand for the year 2012/13. At the time of service of the demand, Southwark contemplated that it would have to carry out some major works, however the cost of those works were not included in the estimated demand.

Issues

The tenant argued that the effect of London Borough of Southwark v Woelke [2013] UKUT 0349 (LC) was that the failure to include the cost of the major works invalidated the service charge demand.

First instance

The First Tier Tribunal (Property Chamber) (“FTT”), applying paragraph 51 of Woelke, agreed with the tenant. Woelke was a case involving a lease in identical terms to that in issue in this decision, and paragraph 51 of Woelke stated that “if the appellant reasonably anticipates that its expenditure will include expenditure on major works…it is required to include that expenditure in its estimate. The omission of such expenditure is not consistent with the contract’”.

Decision on appeal

The Upper Tribunal disagreed. It held that paragraph 52 of the decision in Woelke provided important clarification to the earlier paragraphs. Paragraph 52 states that “in normal circumstances, however, the only practical consequence of a failure to take account of major works in the estimate would be that the appellant would not be entitled to collect advance payments from the leaseholders which included any contribution towards the costs of those works”.

The Upper Tribunal held that it must be immediately apparent whether or not a demand is valid. The validity of a demand cannot depend on later events, such as a decision to carry out major works. The effect of the FTT’s decision was that it would become necessary to hold an enquiry about the degree of fixity of the landlord’s intention to carry out works at the date of the demand. That could not be correct. Paragraph 51 of Woelke did not state that a demand that did not include an estimate of all expenditure would be invalid, merely that the consequences set out in paragraph 52 would apply.

Comment

This case provides some clarity on the decision in London Borough of Southwark v Woelke [2013] UKUT 0349 (LC) although its application is likely to be limited.

Katie Gray is a barrister at Tanfield Chambers. This article first appeared on the set's website here.