By Nicholas Kissen – Senior adviser at LEASE
June 2017
A loan from your landlord to pay service charges means you agree those charges even where they may not be payable.
The recent decision in the Upper Tribunal (Lands Chamber) of London Borough of Southwark v. (1) Runa Akhtar and (2) Stel LLC dealt with a number of issues relating to service charges and in particular held that a leaseholder, who had taken a loan from their landlord to pay a service charge, could not subsequently challenge the service charge.
The basic facts
Both Runa Akhtar and Stel LLC were long leaseholders of two flats within a block known as John Kennedy House in Rotherhithe, South London, where the London Borough of Southwark were the landlords.
Their leases provided for a service charge involving four advanced payments during the financial year based on a reasonable estimate notified to the leaseholders before the start of each year. The service charge accounts would then be reconciled at the end of the year and either (a) in the case of an underpayment a balance paid or (b) in the case of overpayment a credit given against the next advance payment (or payments) due from the leaseholder.
Southwark demanded more than £40,000 in respect of major works to be undertaken over a three year period starting in April 2012. Ms. Akhtar took issue with the demand, claiming it did not follow the provisions of the lease. She applied to the First-tier Tribunal (Property Chamber) (“the Tribunal”) for a decision that it was not payable. However, prior to her application, Ms Akhtar had accepted a loan from Southwark for the full amount demanded and agreed to repay it in full. The loan was secured against her flat as a charge.
What happened in the Tribunal?
Southwark conceded that the service charge demand did not follow the terms of the lease but contended that Ms Akhtar had abandoned her rights to challenge it by agreeing to the loan.
The Tribunal found that Southwark had been pressing Ms. Akhtar very hard to pay and declared itself “not satisfied that the taking of the loan was a voluntary act…. such that it might amount to a waiver” and that she had paid “under protest”.
Southwark appealed.
What did the Upper Tribunal decide?
The Upper Tribunal agreed with Southwark feeling that by accepting the loan and agreeing to pay the demand Ms. Akhtar had foregone/waived her right to insist upon strict compliance with the terms of the lease. Accordingly, the sum was payable in full.
Technically, the issue regarding the implication of the loan was whether Ms Akhtar had ‘waived’ Southwark’s lapse. To quote the Upper Tribunal:
“It is well-established that waiver is a representation, usually by conduct, that makes it clear that an irregularity is accepted….(she) took the step of charging her property with the payment, and her doing so in the context of the preceding disagreement was a clear statement of agreement to pay….”
Takeaways from this decision
- Leases may set out a strict procedure to be followed before a service charge can be collected. Not following this may give a leaseholder cause to argue that the charge is not payable.
- Advice should be taken before agreeing to a loan from the landlord to pay the service charge. By doing so, the right to challenge the service charge may be lost.
Related information
- Advice guide: Service Charges and other issues
- Podcast: Service Charges
- Webinar: Service charges
