The recent case of H Stain Ltd v Richmond  shows just how vital it is to understanding – and comply with – the lease terms when managing a development, with just a small error affecting the ability to recover service charge payments.
Brady Solicitors’ Emma Voce explains what happened and reminds freeholders, managing agents and RMCs of the need for precision when issuing service charge demands.
What happened in the Stain v Richmond case?
In this case, the lease required that leaseholders are given one month’s notice to pay demands for on-account service charges.
The demands were issued by post, with a 30-day period for payment from the date on the demand.
The leaseholder failed to pay and, following proceedings being issued by the freeholder to recover the service charge arrears, the matter ended up before the First-tier Property Tribunal.
The primary question before the Tribunal was the validity of the demand and whether the pre-requisite of giving the leaseholder one month’s notice prior to the requirement for on-account payment arising, had been met.
It was the freeholder’s position that the demand was valid, and complied with the lease on the basis that the demand gave notice – and provided 30 days for payment of the charges.
The clause in the lease however stated that the freeholder was required to ensure that “not less than one month’s notice of such advance payment or contribution is given to the Tenant”.
Time to get out the desktop calendar!
The Tribunal carefully considered the wording of the lease, the demand issued and the requirement of a ‘notice’. It was determined that the demand, sent via post on 18th August 2015 and with a demand for payment on 30 days, would not have been received until at least 19th August 2015. This means the notice period given to the leaseholder fell short of the ‘one-month requirement’.
Further, the Tribunal considered that the wording of the clause went so far as to also require the notice to specify the date by which payment should be received and that it was insufficient to merely state ‘Payment due 30 days after the date of demand’.
It was determined that the demand was invalid in that it had not strictly complied with the lease and given ‘not less than one month’s notice’. As a result, payment was not due from the leaseholder.
The freeholder appealed this decision to the Upper Tribunal which, on literal interpretation of the wording of the lease, upheld the determination in the First-tier Property Tribunal. The UT agreed that they had failed to give ‘not less than one month’s notice’ and that a specific date for payment should also have been specified in the notice.
An avoidable situation?
Situations such as these can cause significant cash flow issues for freeholders and resident management companies, yet they are fundamentally avoidable.
It was a frustrating case for the building owner, who clearly felt they were issuing their on-account demands correctly. However, lease terms are very precise, and it is important to fully understand and comply with the terms of the lease for a development, when dealing with its management.
Given the importance of lease compliance, we also recommend that managing agents should be wary of merely adopting the processes put in place by a previous agent when taking over a development.