Kensquare Limited v Mary Adwoa Akyaa Boakye

A lease may make a deadline for revising an interim service-charge contribution essential where its wording, payment structure and commercial purpose objectively require advance notice. A landlord which misses such a deadline cannot retrospectively increase interim contributions, although it may recover the final service charge through the lease’s annual accounting machinery.

An indemnity for costs incurred for the purpose of serving a section 146 notice can include tribunal proceedings which statute makes necessary before that notice may be served. Conversely, a general service-charge provision for professional advisers required in connection with management does not include litigation costs unless the lease clearly brings them within its scope.

The tenant held a long lease of a flat in a building owned by the landlord, a tenant-owned company. The landlord demanded increased interim service charges for periods which had already begun or ended, and administration charges for its costs of earlier First-tier Tribunal proceedings and a subsequent section 146 notice.

The First-tier Tribunal largely rejected the demands. The Upper Tribunal allowed the landlord’s appeal in [2020] UKUT 359 (LC), holding that the late interim-charge demands were effective and that the earlier and current litigation costs were recoverable under the lease.

The tenant appealed on the effectiveness of the late notice, recovery of the earlier tribunal costs as an administration charge, and recovery of litigation costs through the service charge.

1. Appeal allowed. The landlord’s letter of 15 August 2019 did not validly increase the interim Maintenance Contribution for either 2018–2019 or 2019–2020. The contribution therefore remained £360 per annum for each year.

2. The presumption that contractual timetables are not of the essence, identified in [1978] AC 904, is displaced where the lease, construed objectively in its context, clearly indicates an intention that precise compliance is required. Here, clause 4(2)(x) required notice at least one month before the relevant financial year. The requirement for half-yearly payments in advance, the reference to anticipated expenditure, the absence of machinery for late notices, and the tenant’s need for advance budgeting all showed that the deadline was essential. This did not deprive the landlord of final service charges; it only prevented a late interim increase.

3. The tenant’s covenant to pay all costs incurred for the purpose of, or incidental to, preparing and serving a notice under Law of Property Act 1925 section 146 covered the landlord’s 2017 First-tier Tribunal costs. Under Housing Act 1996 section 81, the landlord had to obtain a determination of payability before serving the notice. Those proceedings were therefore incurred for the purpose of serving it. The fact that this statutory requirement post-dated the lease did not alter the natural meaning of the covenant.

4. Paragraph 5 of the seventh schedule did not permit recovery of the landlord’s litigation costs as service charges. Although lawyers are professional advisers, the provision concerned management services and did not expressly address litigation. Following the approach in [2021] EWCA Civ 1119 and [2015] UKSC 36, the court would not bring litigation costs within general service-charge wording when they did not clearly belong there.

• Court of Appeal (Civil Division). Allowed the tenant’s appeal. It restored the First-tier Tribunal’s position on the ineffective late interim-charge notice and on litigation costs as service charges, but upheld the Upper Tribunal’s conclusion that the 2017 tribunal costs were recoverable under the section 146 costs covenant.

• Upper Tribunal (Lands Chamber). Allowed the landlord’s appeal in [2020] UKUT 359 (LC). It held that the increased interim charges were payable, that the 2017 tribunal costs could be recovered under the fourth schedule, and that litigation costs were recoverable through the service charge.

• First-tier Tribunal (Property Chamber). Largely rejected the landlord’s demands. It limited interim charges to £360 and £180 for the relevant years, limited the administration charge to the cost of preparing and serving the section 146 notice, and held that litigation costs could not be included in the service charge.