Service Charges: The Legal Implications of a Tenant Paying Service Charges Demanded (Poplar Housing and Regeneration Community Association Ltd v Khan – 2024)

In circumstances where a leaseholder makes payment for service charges demanded in respect of major works, is the leaseholder then able to challenge the reasonableness of those charges in the First-tier Tribunal?

The background

In Poplar Housing and Regeneration Community Association Ltd v Khan [2024], the housing association applicant sought a determination in the First-tier Tribunal pursuant to s.27A Landlord and Tenant Act 1985 to assess the reasonableness of service charges demanded for the years 2018-2024, and the leaseholder’s liability to pay the service charges. The leaseholder respondent owned the lease of the property, comprising a leasehold flat in a block containing 6 units, but did not live in the premises and rented them out to a third party.

An application may be made under s.27A by either a landlord or leaseholder, or by anyone else who is liable to pay or receive service charges under long residential leases, to the First-tier Tribunal for a determination as to whether service charges are payable. Matters which have been agreed or admitted cannot be the subject of an application, but the provisions do allow for leaseholders to make payments in order to avoid forfeiture without such payment being considered agreement or admission of charges.

Under the terms of the lease, the leaseholder agreed to pay an interim charge and balancing service charges in accordance with the provisions contained at Schedule 5. The leaseholder had accrued more than £9,000 in service charge arrears, comprising contributions towards costs for major works and the usual, day-to-day service charges. The leaseholder challenged the reasonableness of the charges.

The housing association had carried out major works to the windows and flat roof of the building in 2014. The leaseholder made a number of payments towards the costs of these works, and had not given any indication that he protested the charges. The applicant argued that, by making such payments, the leaseholder had accepted the costs of the works, and this view was accepted by the Tribunal.

The decision

The Tribunal found that the costs of the major works were payable by the leaseholder in full.

By making interim payments without any indication of challenge, the leaseholder had accepted by implication the charges demanded. Further service charges were also deemed reasonable and payable by the leaseholder, and the housing association was wholly successful in its application.

The issue as to whether a leaseholder admits charges are due when they make payments has been extensively debated in the Tribunal. In earlier cases, such as Shersby v Greenhurst Park Residents Co Ltd [2009] and Cain v Islington BC [2015], the Tribunal found that leaseholders had accepted charges by having made a series of payments, by there having been a substantial delay in a leaseholder challenging charges, and by failing to take the opportunity to challenge charges during previous proceedings.

In G & A Gorrara Ltd v Kenilworth Court Block E RTM Co Ltd [2024], the Tribunal did not have jurisdiction to consider years during which leaseholders had paid service charges without protest or challenge, finding that leaseholders had admitted those charges.

The Gorrara case broadens the criteria to be considered when determining whether a leaseholder has admitted charges by making payment. A Tribunal will assess not only whether payments have been made, but other factors such as delay, the information available and other opportunities to bring challenge.

Advice and action for landlords

The Poplar decision, and others relating to the payment of service charges by a leaseholder who subsequently challenges their reasonableness, is a useful reference point for landlords and managers.

The leaseholder in this case had not only made payments, but had given no indication of his protest or challenge to the charges when he had the opportunity. In other decisions, leaseholders were deemed to have accepted charges where they had not only made payments, but where they had delayed raising any challenge or where other factors – such as the information available to a leaseholder – were relevant.

Landlords and managers will be reassured by the Tribunal’s pragmatic approach to this issue, deciding each case on its facts and disregarding a leaseholder’s subjective intention in favour of an objective assessment of the circumstances.

Further, it is natural to assume that estoppel by convention may apply in service charge cases such as these. The Tribunal has made it clear that s.27A(4)(a) of the LTA 1985 is the appropriate mechanism here, and estoppel by convention is not relevant.