Kensquare Ltd v Boakye

The Court of Appeal considered (i) whether time is of the essence for a contractual provision (clause 4(2)(x)) permitting the landlord to revise interim Maintenance Contributions; (ii) whether legal costs of earlier litigation required to enable service of a section 146 notice were recoverable under paragraph 5 of the fourth schedule to the lease; and (iii) whether litigation costs generally could be recovered as part of the service charge under paragraph 5 of the seventh schedule. The court held that, objectively construed in context, the requirement in clause 4(2)(x) that notice be given "not less than one month prior to the commencement of that financial year" is time‑of‑the‑essence and a late notice (the letter of 15 August 2019) was ineffective. The court also held that paragraph (5) of the fourth schedule entitled the landlord to recover costs of the 2017 First‑tier Tribunal proceedings incurred for the purpose of enabling service of a section 146 notice. By contrast the court held that paragraph 5 of the seventh schedule, which refers to the cost of employing "professional advisers and agents ... in connection with the management of the Building", did not plainly extend to litigation costs and therefore did not permit recovery of the landlord's litigation costs as service charges.

Background and procedural history.

Kensquare Limited (the freeholder) sought to recover interim service charges and administration charges from Ms Boakye (the long lessee of Flat 10). Kensquare had applied to the First‑tier Tribunal (FTT) for determination of interim service and administration charges. The FTT largely rejected Kensquare's claims (7 February 2020). Kensquare appealed to the Upper Tribunal (Lands Chamber) and the appeal was allowed by Judge Elizabeth Cooke ([2020] UKUT 359 (LC)), who held that the interim charges were payable as demanded, that costs of the 2017 proceedings could be recovered under paragraph (5) of the fourth schedule and that litigation costs of both the 2017 and the later proceedings could be recovered as service charge under paragraph 5 of the seventh schedule. Ms Boakye appealed to the Court of Appeal.

Nature of the claim / relief sought.

• The appellant challenged the Upper Tribunal’s conclusions seeking (i) a finding that clause 4(2)(x) required strict compliance with the one‑month pre‑year commencement notice requirement, (ii) that a late notice could not increase interim instalments due within the year, and (iii) that the landlord could not recover litigation costs either under paragraph (5) of the fourth schedule except to the narrowly claimed extent, or as service charge under paragraph 5 of the seventh schedule.

Issues framed by the Court.

1. Is time of the essence for service of the notice under clause 4(2)(x)?
2. If not strictly of the essence, must notice be served before the financial year or at least before the instalment due date?
3. Are costs of the 2017 proceedings recoverable under paragraph (5) of the fourth schedule?
4. Can litigation costs of 2017 and the present proceedings be recovered as service charge under paragraph 5 of the seventh schedule?

Reasoning and conclusions.

On clause 4(2)(x) the court applied the conventional objective approach to contractual intention and the presumption that time is not of the essence unless the contract or context displaces that presumption. It distinguished rent review authorities but explained why parties to interim service charge provisions are more likely to have intended strict compliance. The lease required payment "by equal half yearly payments in advance" and permitted revision only on notice "not less than one month prior" to the financial year: construed in context the deadline was intended to give tenants advance notice and to permit advance instalments, and the presumption against time being of the essence was displaced. Consequently Kensquare's 15 August 2019 notice was ineffective and the Maintenance Contribution remained at £360 per annum for 2018–2019 and 2019–2020.

On paragraph (5) of the fourth schedule the court held that the provision is wide enough, read naturally, to include costs incurred in the FTT proceedings which were brought for the purpose of enabling service of a section 146 notice, and so Kensquare could recover its 2017 FTT costs under that clause.

On paragraph 5 of the seventh schedule the court concluded that, on a natural reading, the phrase "professional advisers ... in connection with the management of the Building" did not clearly or unambiguously extend to litigation costs. The court followed the approach in Sella House and No. 1 West India Quay and, applying Arnold v Britton, refused to import litigation costs into a general management clause unless that result was clearly intended.

Wider context. The court observed the policy and practical considerations underlying the service charge machinery: tenants are to have reasonable advance notice to budget for interim contributions and the statutory framework restricts forfeiture for unpaid service charges unless determined or admitted. The judgment emphasised that lease wording must be read as a whole and that context can displace the ordinary presumption about time being of the essence.

This was an appeal allowed in part. The Court of Appeal held that (1) clause 4(2)(x) of the lease, read in context, makes time of the essence for the landlord’s one‑month pre‑commencement notice of a revised Maintenance Contribution and therefore the landlord’s 15 August 2019 notice was ineffective; (2) paragraph (5) of the fourth schedule allows recovery of costs of the 2017 FTT proceedings incurred for the purpose of preparing and serving a section 146 notice; and (3) paragraph 5 of the seventh schedule does not, on its natural reading, permit recovery of litigation costs as part of the service charge, so those costs are not recoverable under that paragraph.

Appeal from the Upper Tribunal (Lands Chamber) (Judge Elizabeth Cooke) [2020] UKUT 359 (LC). The dispute arose after earlier First‑tier Tribunal determinations (including decisions dated 10 July 2017 and 7 February 2020) which were the subject of the Upper Tribunal appeal.