The case of C&A Gorrara Ltd v Kenilworth Court Block E RTM Co Ltd [2024] UKUT 81 (LC) was recently heard in the Upper Tribunal ("UT"), on appeal from the first-tier tribunal ("FTT"). The case considered an application made by the leaseholder under section 27A of the Landlord and Tenant Act 1985 ("LTA").
What is a section 27A LTA application?
Section 27A LTA applications can be made by landlords or leaseholders to the FTT for determination as to whether a service charge is payable, and if so, the person to whom it is payable, the person by whom it is payable, the amount payable, the date it is payable and the manner in which it is payable. This application can be made whether or not any payments have been made.
The facts of the case
The leaseholder (appellant) had paid their service charges monthly, up until 2017 when they ceased making payments, on the basis that the final service charges were not properly determined and there were breaches of covenants, so they were entitled to a set off. Multiple sums were in dispute from 2012/2013 to 2019/2020.
The leaseholder sought a determination as to the amount of final service charges payable for each of the years in dispute. This differs from most section 27A LTA applications, which generally ask for a determination of whether the service charges that have been paid are payable, or challenge a specific service charge arguing it is unreasonable in amount or not payable under the lease.
The issue
This case concerned the wording of subsections (4) and (5) of section 27A LTA. Subsection 4 states that no application can be made here where a service charge has been agreed or admitted by the tenant, and subsection 5 states that the tenant will not be taken to have agreed or admitted payment by having made payment. The appellant here had been paying service charge without issue until around 2017, before they began to question various charges – with payments being withheld in the same year.
The determination by the FTT
The FTT held that following the previous decision of the UT in Cain v London Borough of Islington [2015] UKUT 542 (LC), where there has been a substantive delay in challenging service charges now in dispute and the service charges had been paid, the leaseholder will be taken to have agreed those amounts were due by their conduct in paying and subsequently not challenging the sum until years after they fell due. The FTT ruled the leaseholder had therefore accepted and agreed the service charge in the correct amount was due via the payments made, so the section 27A LTA application could not be brought and was dismissed.
The determination by the UT on appeal
The leaseholder appealed the FTTs decision to the UT. The UT ruled that the FTT had interpreted Cain incorrectly, as a series of payments alone is insufficient for admission or agreement. The key component here is a broader assessment of the facts and the circumstances. In Cain, the leaseholder had similarly challenged the service charges he had already paid, but the leaseholder had made multiple payments without protest, had many opportunities to challenge the service charge, had knowledge of whether such services that were challenged were being carried out, and had waited seven years from the last payment before challenging them. These payments were held to be an admission and agreement, which was based upon the intention of the leaseholder.
Consequently, the UT found that the FTT had incorrectly interpreted section 27A LTA subsection (4) and (5). The leaseholder had not admitted or agreed their services charges by paying them, as upon analysis of the further details and circumstances, the leaseholder had not been provided with the necessary information to assess the final service charges payable. The UT went as far as to say that if Cain did decide payments without further context, details or circumstances were enough to warrant admission or agreement, then it had been wrongly decided.
As a result, the appeal was allowed and passed back to the FTT for a trial to determine the correct amount of service charge payable for the years 2012/2013 to 2019/2020.
Comments
So, are leaseholders admitting their service charge is right by paying it? The short answer is that it depends upon the facts of the case and the circumstances surrounding the payment. This case shows that it is possible to challenge service charges from previous years that have been paid under section 27(A) LTA. It seems that this is only possible though where historically, there have been issues or concerns.
It should also be noted that the Judge in the UT encouraged the parties to attempt settlement discussions, to avoid the costly 2-week trial that would likely occur in the FTT. This highlights the attitudes of the tribunals – although they are there to determine issues, parties will always be encouraged to settle disputes away from the tribunals to save time and costs whenever possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.