Landlord and tenant – Service charge – Right to manage – Appellant lessees challenging service charge demands – First-tier Tribunal determining preliminary issues in favour of respondent RTM company – Appellants appealing – Whether payment of service charges constituting agreement or admission under section 27A(4) of Landlord and Tenant Act 1985 – Whether estoppel by convention applicable – Appeal allowed
The appellants were the current and former lessees of flat 3 in Block E, one of five blocks in Kenilworth Court, Hagley Road, Birmingham, built in the 1950s. There were 52 flats, held on long leases. The respondent was the lessee-owned company exercising the lessees’ statutory right to manage their block. The second and third appellants bought their flat in 2004, and in 2016 assigned their lease to the first appellant, their family company.
The lease imposed maintenance and other obligations upon the landlord and required the lessee to pay a proportion of the cost to the landlord of complying with those obligations as a service charge. The appellants challenged the reasonableness and payability of service charges for the years 2012/13 to 2019/20. The Upper Tribunal determined preliminary issues in relation to the construction of the lease: [2022] UKUT 90 (LC); [2022] PLSCS 52.
The First-tier Tribunal subsequently concluded that, by virtue of payments without protest or qualification of the service charges demanded in the years 2012 to 2016, the charges for those years were deemed to be a matter which has been agreed or admitted by the appellants. Consequently, the FTT had no jurisdiction to consider those service charge years.
Further, the second and third appellants were estopped from alleging that the accounts and service charges due from them for service charge years 2012/13 to 2015/16 inclusive were prepared on an incorrect basis, in so far as they had been prepared on the basis that all lessees shared the service charge for all blocks. The appellants appealed.
Held: The appeal was allowed.
(1) The FTT had relied on the decision in Cain v Islington London Borough Council [2015] UKUT 542 (LC); [2015] PLSCS 284, which it took to mean that the effect of section 27A(5) of the 1985 Act (which provided that the tenant was not to be taken to have agreed or admitted any matter by reason only of having made any payment) was limited to a single payment. To the extent that Cain decided that a series of payments made without protest might, absent any other factors, indicate admission or agreement pursuant to section 27A(4), that was a misconstruction of section 27A(5). The effect of section 27A(5) was not limited to single payments.
However, the FTT was entitled to look at matters in the round and find that where there had been substantial delay in making any challenges to the items now in dispute, most if not all of which had long since been paid, the tenant had agreed or admitted the amounts claimed which had long since lain dormant without challenge. Delay was not the only relevant factor. The availability of information might be another. But unqualified payment or payments alone did not meet the requirements of section 27A(4)(a), as was clear when one considered the practical possibilities and as section 27A(5) expressly provided.
In view of the facts in Cain, it was not realistic to draw from it the proposition that the more faithfully and regularly the leaseholder paid service charges, the less opportunity he or she had to seek a determination under section 27A. But in so far as Cain decided that a series of payments was sufficient without more to indicate agreement, it was wrongly decided.
(2) To establish estoppel by convention: the common assumption must have been shared between the parties; the person alleged to be estopped must have conveyed to the other party that he expected him to rely upon the common assumption; the person alleging the estoppel must in fact have relied upon the common assumption; the reliance must have occurred in subsequent mutual dealing with the parties; and some detriment must thereby have been suffered by the person alleging the estoppel, or benefit conferred upon the person estopped, so that it was unjust or unconscionable for the latter to assert the true legal or factual position: Commissioners for HMRC v Tinkler [2021] UKSC 39; [2022] AC 886 followed.
Estoppel by convention was a technical doctrine. It was useful in the contexts in which it was developed, namely commercial disputes where parties had adopted a conventional reading of, for example, a lease or a contract. Its requirements were demanding; the mere sharing of a common assumption was not enough – there had to be communication and there had to be an intention that the person alleging the estoppel was to rely upon the communicated assumption.
(3) In the present case, those requirements would be difficult to satisfy in a service charge dispute where arrangements could drift on for years without there being any communication about them. The Landlord and Tenant Act 1985 was intended to provide a workable code for landlords and tenants in the resolution of disputes about service charges. In a service charge case, where the leaseholder had behaved in such a way that it was unfair to allow them to change tune now, there was no need to explore estoppel; section 27A(4)(a) should be used instead. The requirements of section 27A(4)(a) were simpler than those of estoppel by convention and there was no need to resort to the latter in the context of service charge disputes. Its effect was that for the leaseholder to be prevented from changing its position and challenging something that it had previously gone along with, all that was needed was admission or agreement; there was no need to prove estoppel.
(4) In the present case, the “convention” or common assumption did not correctly describe what the respondent was doing. The estoppel that it claimed was that the strict terms of the lease applied and were not affected by the exercise of the right to manage by the individual blocks. But the respondent never managed the estate in accordance with the strict terms of the lease; it never reconciled the interim and actual service charges, nor balanced the under- and over-payments.
Even if the assumption was re-characterised as an assumption that the estate was to be managed as a single unit, estoppel by convention could not succeed because of the evidence of the respondent’s director, at the material time, that he did not rely upon any common assumption communicated to him by the appellants.
Amanda Gourlay (instructed by Direct Access) appeared for the appellant; Thomas Walsh (instructed by Realty Law Ltd of Birmingham) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of G&A Gorrara Ltd and others v Kenilworth Court Block E RTM Co Ltd
