Gorrara v Kenilworth Block E RTM Co [2024] considers case law and legislation on whether payments having been made towards residential service charge implies an acceptance of the charges due.
In C&A Gorrara Ltd v Kenilworth Court Block E RTM Co Ltd [2024] UKUT 81 (LC) Judge Elizabeth Cooke of the Upper Tribunal (Lands Chamber), on appeal from the First-tier Tribunal (FTT), recently considered applications under section 27A of the Landlord and Tenant Act 1985 (LTA 1985) in circumstances where leaseholders have made payments in respect of the service charges that are in dispute.
The case considered the wording of two key elements of section 27A, namely subsections (4) and (5). Section 27A(4) states that no application under section 27A may be brought in respect of matters that have been agreed or admitted by the tenant, but section 27A(5) notes that the tenant is not taken to have agreed or admitted any matter by reason only of having made payment.
The Upper Tribunal referred to the application as “an unusual use” of section 27A as the appellants sought a determination as to what the final service charges were for each of the years in dispute, rather than a determination of whether the interim charges that they had paid were payable. This was on the basis that the appellants argued that the balancing exercise in the lease had not been followed. It is more usual for applicants to challenge a specific service charge on the basis that it is not payable under the terms of the lease, or was not payable by virtue of section 19 of the LTA 1985 due to being unreasonable in amount. Various items were in dispute across the service charge years from 2012/13 to 2019/20.
The appellants had paid the service charges without issue until around 2017 when they began to question various elements, and subsequently the service charge was withheld in the same year. While section 27A(5) states that payment of service charge does not mean the leaseholder cannot challenge it, the previous decision of the Upper Tribunal in Cain v London Borough of Islington [2015] UKUT 542 (LC) held that where there has been a “substantial delay in making any challenges to the items now in dispute” and the items had been paid, the leaseholder is deemed to have agreed with those amounts by its conduct in paying and not challenging for years after they fell due.
In the FTT it was held that the appellant had sufficient information to have challenged the service charges had it wanted to at an earlier time, with the effect that, in accordance with Cain, the appellants had accepted and agreed that the service charge was due and was correct in amount.
The Upper Tribunal disagreed with that interpretation of Cain, saying that Cain does not say that a series of payments alone is sufficient for an admission – there needs to be a wider assessment of the facts and circumstances. In Cain, the leaseholder had had many opportunities to challenge the service charge, and he had knowledge about whether or not such services that were challenged were being carried out before he challenged them: for example, he could have looked out of the window to see that the grass was not being mown and therefore realised that gardening charges within the service charges were apparently not being applied to the purpose for which they were collected. In Gorrara the Tribunal went further and said that if Cain did decide a series of payment without further details on the circumstances or context was sufficient to find an admission, then it was wrongly decided.
The Upper Tribunal also made comments on an argument of estoppel by convention in the context of residential service charge disputes, stating that while it may be “tempting to explore estoppel because the situation. feels estoppel-ish” the legislative framework, particularly section 27(4)(a), is sufficient to prevent the leaseholder from changing its position in order to challenge something that it had previously appeared to agree to and therefore there is no gap for an estoppel to fill.
The case is important on the scope of leaseholders and tenants to challenge service charges from years ago, particularly where they may be being pursued for arrears or have had issues with service charges historically, but have not yet acted on their concerns.
In her conclusion, the Judge notably urged the parties to re-approach settlement discussions (notwithstanding that mediation had already been attempted) due to the likely toll that a trial of the 8 service charge years in question could result in a trial of “a fortnight or more” which would further reduce the respondent’s resources away from remedying disrepair at the block in question. This further serves as a reminder that while a Tribunal is able and willing to determine issues, parties are always encouraged to resolve matters away from litigation to save cost and resource wherever possible.
