The recent ‘Admiralty Park v Ojo’ case clarified that a leaseholder cannot always rely on a breach of lease to avoid paying their service charge. The case concerned a leaseholder on a London estate and a breach of lease that had gone unnoticed by both managing agent and leaseholder for several years.
The leaseholder (Mr Ojo) lived in a flat in a purpose built building which was managed, along with several other similar buildings, by Admiralty Park.
The lease contained a fairly standard service charge clause that payments were to be made in advance each year, with any deficit demanded at the end of the year.
However, between 2009 and 2014, Admiralty Park had been erroneously charging each leaseholder a proportion of the costs in relation to all the blocks that they managed. The managing agent was unaware of this breach and, importantly, no leaseholders had objected to it.
In fact it only came to light when Admiralty brought a claim in the First-tier Tribunal against Mr Ojo for unpaid service charge demands for the period 2010 to 2014.
The FTT looked at the lease and examined the service charge demands and immediately spotted that there had been a breach of lease for several years by the managing agent concerning how the service charge had been apportioned and calculated.
The managing agent’s request for an adjournment to put forward an argument on this issue was declined, and the FTT set the leaseholder’s service charge liability to nil for the 2010 to 2014 period.
The case went to appeal
Unsurprisingly perhaps, the managing agent appealed the decision, claiming that the FTT had acted unfairly by reaching its decision based on a new point (that of the unnoticed breach of lease), without giving the managing agent the right of reply.
The managing agent also asked the UT to consider whether the leaseholder could object to the service charge calculation having previously accepted it without objection.
Firstly, the Upper Tribunal found that yes the First-tier Tribunal HAD acted unfairly by not giving the management company the chance to respond to evidence of the breach of lease.
On the second point, the Upper Tribunal reversed the decision of the FTT and found that Mr Ojo WAS liable to pay the service charge for the period.
The UT decided that it would have been unfair of Mr Ojo to dispute his service charge liability given that he made no prior complaint despite having had several opportunities to read and understand how the service charge was calculated and apportioned.
Clare Brady, MD of Brady Solicitors comments on the decision
This was ultimately a sensible decision from the Upper Tribunal and one that turned very much on the facts of the case.
Allowing the retrospective objection would have affected not only Mr Ojo but also the other leaseholders across all of the blocks – each of whom had had the same opportunity to identify and understand how the service charge had been apportioned.
If leaseholders ignore a breach of lease – whether deliberately or, as in this case, inadvertently – they will not be able to rely on the breach as a reason for non-payment of their service charge.
Whilst it is crucial to make your service charge demands in accordance with the lease, this case does indicate that an error made openly and ‘in good faith’ will not necessarily absolve leaseholders of their liability to pay the service charge.
It will be interesting to see if the decision in the Admiralty v Ojo case will come to be relied upon in the all-too-common scenario where a service charge has been demanded at the start of an accounting period and in advance, despite the lease stating that the arrears should be demanded in arrears, or quarterly. Where a service charge invoicing procedure does not match the lease, yet has been carried out and confirmed by leaseholders’ payments, the principles in the Admiralty case could be relied upon.
Brady Solicitors – specialist property management expertise
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