A successful appeal at the Upper Tribunal is a reminder that it can be dangerous to rely on past conduct when tackling a service charge dispute. Brady Solicitors’ Jonathan Watts looks at the recent ‘Jetha’ case and explains the important notion of estoppel by convention.
The lease is the key to relationships and obligations in the leasehold dynamic. In certain circumstances however, it is possible to rely on ‘past conduct’ to prove acceptance of a change to a term in a lease.
This is known as ‘estoppel by convention’ and it occurs where two parties approach a situation with a shared or common assumption, i.e. if asked about something, each would be in agreement with the other. Where this is the case, neither party can go back on this agreement.
The Jetha case centred on this very point.
Jetha v Basildon Court Residents Company Ltd
Each lease included a covenant for the leaseholder to pay to the landlord a service charge, including contributions to a sinking fund, “in advance or arrears as the service company shall at its annual general meeting by majority agree”.
The leaseholders involved in the appeal had acquired their leases between 2003 and 2011. The landlord issued demands for on-account payments in advance, which were paid until 2014.
In 2015 and 2016 the leaseholders disputed their obligation to pay, on the basis that no notices or minutes of annual general meetings had been sent to them, and the demands had not been agreed at an AGM.
The First-tier Tribunal decided that the leaseholders were prevented from disputing the method of demands due to their previous conduct: namely that they had made payments over several years, without previously challenging the landlord’s procedure.
This was appealed to the Upper Tribunal.
The Upper Tribunal referred to the case of Blindley Heath Investments Ltd v Bass, which set out five conditions that must be met for estoppel by convention to be established:
- The parties must have expressly agreed a common assumptionupon which any estoppel is based. This can be through express agreement, conduct or silence.
- The party who is now seeking to go back on the agreement must have conveyed to the other party that he expected them to rely on it.
- The person who is alleging estoppel must have relied on the assumption, and
- That reliance must have occurred within dealings between the parties.
- The person who is alleging estoppel must have suffered a detriment so as to make it unjust or unconscionable for the other party to go back on the agreement.
The Upper Tribunal turned the First-tier Tribunal decision on its head and found that the leaseholders’ earlier service charge payments were not sufficient to constitute a common assumption (ie: estoppel by convention).
The Tribunal found that the leaseholder had not assumed any responsibility merely by making payment, as they didn’t know at the time that the demands were not being agreed at an AGM.
Additionally, the landlord had not suffered enough of a detriment to make it unjust for them to be unable to recover the sums; the landlord could still pass resolutions for the demands, at which point the leaseholders would have to pay them.
The leaseholders’ appeal was successful in this case.
Whilst it is possible for an informal lease variation to take place through establishing estoppel by convention, the Jetha case highlights the difficulties of proving that a leaseholder has accepted an informal change in the mechanism of how service charges are demanded.
It is not enough to simply rely on past conduct.
The clearest advice we can give is to always make sure you are making service charge demands in accordance with the terms of the lease.
Additionally, a review of your processes will identify any areas where your service charge procedures have moved away from the obligations stated in the lease. In these situations, it would be wise to test the five conditions set out above to ensure that any changes are by common assumption between landlord and leaseholder.