12 year limitation period for service charge challenges

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“Make use of time, let not advantage slip”, a message from the Bard which echoes in the Upper Tribunal’s recent decision of Peter Cain v Islington London Borough Council [2015] UKUT 542 (LC). This decision is an extremely important one for both landlords and tenants regarding scope of section 27A of the Landlord and Tenant Act 1985. On the one hand, the decision offers leaseholders a 12 year limitation period to challenge the reasonableness of their service charges. On the other hand, the advantage is taken away if leaseholders have been paying their service charge without challenge during this period.

The Upper Tribunal on Limitation
There has been much uncertainty surrounding the length of time a leaseholder has to challenge the reasonableness of their service charges under 27A of the Landlord and Tenant Act 1985. The 1985 Act sheds no light on this point and there is no category in the Limitation Act 1980 which such an application easily falls in to.

The First Tier Tribunal in Peter Cain v Islington held that an application under section 27A would be limited by section 19 of the Limitation Act 1980 which imposes a time limit of 6 years in respect of the recovery of rent (the lease in question having reserved the service charges payable as rent). In the alternative, if section 19 did not apply, the application would be one for restitution; the return of monies wrongfully being held by the landlord. As restitution is an equitable remedy, the application under section 27A would be subject to equitable principles, such as the doctrine of “laches” which would prevent a tenant from bringing a claim where he or she had unreasonably delayed in taking action.

The Upper Tribunal rejected as “misconceived” the First Tier Tribunal’s interpretation of the 27A application vis-à-vis the Limitation Act. According to the Upper Tribunal, the application is in fact one under section 8 of the Limitation Act; an “action upon a specialty” (a speciality usually being a deed or statute) giving the leaseholder 12 years to challenge the service charges in the Tribunal.

The Upper Tribunal on Admitting Service Charges
As a result of section 27A(4) of the Landlord and Tenant Act 1985, the Tribunal does not have jurisdiction to hear any application where the service charge “has been agreed or admitted by the tenant”. 27A(5) however qualifies this by stating that “the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.” In the case of Peter Cain v Islington, the leaseholder, Mr Cain, had been paying his service charge, without any real challenge, since he purchased the lease. Whilst Mr Cain had made numerous requests for general information from the Landlord, these were not found to constitute a “challenge” per se by either the First Tier Tribunal or the Upper Tribunal.

The question arose whether Mr Cain could be said to have agreed or admitted the service charges notwithstanding the wording of section 27A(5). The answer given by the Upper Tribunal was a resounding “yes”. Section 27A(5) merely prevented a single payment of service charge from, by itself, constituting acceptance of the service charges. On the other hand, “the making of multiple payments.. over a period of time…may suffice.” The reasoning being that “people generally do not pay money without protest unless they accept that that which it is demanded is properly due and owing, and certainly not regularly over a period of time”. The key for landlords, when faced with a service charge challenge, is to look for any action or inaction on the part of the leaseholder, over and above the making of a single payment, which could constitute an admission. Agreement may be express, implied or inferred from the facts and circumstances. Taking this reasoning one step further, the Upper Tribunal held that it would be open to the Tribunal to make a finding that there had been admission, “even where there had been no payment at all but there were other facts and circumstances clearly indicating that the tenant had agreed or admitted the amounts claimed.”

In conclusion, whilst the Upper Tribunal has provided some much needed clarity by confirming that the limitation period for bringing a section 27A application will usually be 12 years, “the longer the period over which payments have been made the more readily the court or tribunal will be to hold that the tenant has agreed or admitted that which has been demanded and paid”… and therein lies the rub…

For further information please contact Christine Land

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