Service charge: Liability to pay service charge deficit where no estimate or certificate issued (Network Homes Ltd v Blessing – 2020)

Was a tenant liable for the payment of service charge where the landlord had failed to supply a certificate or estimate of service charges for one service charge year?

The background

In Network Homes Ltd v Blessing [2020], the respondent was the leaseholder under a shared ownership lease granted by the appellant landlord. The landlord was itself a leaseholder under a headlease granted by Taylor Wimpey. The service charge year under Mr Blessing’s lease was defined as the period 1^st April to 31^st March (the “Account Year”), and he covenanted to pay any deficit of service charges incurred upon receipt of service charge certificates at the end of each service charge year. The headlease also reserved the right for the Taylor Wimpey, as landlord, to demand service charges from Network Homes. However, the service charge year was defined within the headlease as the “Calendar Year”.

The chronology of events is summarised as follows:

1. In March 2017, Network Homes had not received any demands for service charges under the headlease. As a result, it did not prepare service charge certificates or request any balancing payments from Mr Blessing for that service charge year.

2. In July and November 2017, Network Homes received demands under the headlease for the period November 2016 – December 2018. It paid the sums demanded.

3. On 13^th December 2018, Network Homes issued a service charge certificate for periods 2016-2018 which showed estimated and actual costs for the Account Year ending 31^st March 2018. A deficit of £1,599.40, resulting from the sums Network Homes had paid under the headlease, was demanded by Network Homes from Mr Blessing for payment within 28 days.

4. The demand was disputed by Mr Blessing as he did not consider a demand in respect of 2 years’ service charge was reasonable, and on the basis that no certificate had been provided by Network Homes for the Account Year ending 31^st March 2017.

The First-tier Tribunal found in favour of the leaseholder; that the demanded sum was not payable as Mr Blessing had not received a proper estimate of service charges for the period in question. The First-tier Tribunal further commented that Network Homes had not recalculated the sums to account for the differing accounting years in the headlease and the shared ownership lease. Network Homes appealed to the Upper Tribunal.

The decision

The Upper Tribunal allowed the appeal, finding in favour of Network Homes. Contrary to the First-tier Tribunal decision, the Upper Tribunal found that the sum demanded by Network was not an estimate, but rather was a balancing sum calculated by deducing payments made by Mr Blessing from the charges incurred.

Whilst the sum that Network Homes had paid under the headlease related to November 2016 – December 2018, the charges were incurred by Network Homes within the Account Year ending March 2018 and so were payable by Mr Blessing under the mechanism in the lease.

The lease did not require Network Homes to apportion charges such that it differentiated between the Account Year under the shared ownership lease and the Calendar Year under the headlease. Network Homes was clearly entitled to include sums paid on account for Calendar Years 2017 and 2018 when calculating the balancing charge payable for 2017/18 Account Year.

Advice and action

This case was interpreted based upon the construction of the leases and provides authority that unless the lease provides otherwise, landlords will not be required to account for differing accounting periods within the headlease and underlease(s) when demanding under the underlease.

Whilst the sum that Network Homes had paid under the headlease related to the period November 2016 – December 2018, the charges were incurred by Network Homes within the account year ending March 2018 and so were payable by Mr Blessing under the mechanism in the lease.