Milon Miah & Anor v Anchor Court Management (Ipswich) Limited

A lease requirement for accounts to be audited before a balancing service charge is demanded requires scrutiny by an independent external auditor. The requirement cannot be satisfied by the landlord or management company auditing its own books. Proportionality does not permit a tribunal to dilute that contractual condition, since the original parties agreed that an audit was required. A certificate signed by the auditors stating the amount payable is likewise a precondition to the individual leaseholder’s liability for a balancing charge. The absence of audited accounts does not affect liability for interim service charges where that liability arises under a separate lease provision.

Leaseholders appealed from a decision of the First-tier Tribunal (Property Chamber), reference CAM/42UD/LSC/2024/0016, concerning service charges for a converted block of six flats. Clause 3.11 required accounts to be audited and an auditors’ certificate to be served before any balancing charge was payable. The FTT accepted that an audit and certificate were required, but considered that a full or external audit was unnecessary and disproportionate. The central issue before the Upper Tribunal was the proper construction of “audited” accounts and the effect of that requirement on liability for balancing charges.

1. Appeal allowed in part. The FTT’s construction of clause 3.11 was set aside and replaced with the Upper Tribunal’s construction. The remainder of the FTT’s decision stood.
2. On ordinary language, an “audit” involves external scrutiny. The reference to “auditors” confirms that the auditor must be external to the respondent. The respondent’s own books of account, however accurate, could not satisfy the requirement. Proportionality was irrelevant because the parties had agreed that an audit was required.
3. The auditing of the accounts and production of a certificate signed by the auditors stating what was payable were conditions precedent to an individual leaseholder’s liability to pay a balancing charge at the end of the service charge year. The auditors would usually be accountants and could not be members of the respondent’s staff.
4. The Tribunal’s reasoning was consistent with the analogous approach in Powell and Co Investments Limited v Aleksandrova ([2021] UKUT 10 (LC)), where production of a chartered accountant’s certificate was treated as a condition precedent to liability for a balancing charge.
5. The construction point had no effect on the substantive service-charge determination because the interim payments exceeded the sums actually incurred and no balancing charge was required. Failure to audit therefore could not affect liability for interim charges under clause 3.9, which was independently payable. The case was not remitted.

• First-tier Tribunal (Property Chamber) determined the service-charge application under reference CAM/42UD/LSC/2024/0016. It held that audited accounts and an auditors’ certificate were required, but that a full or externally certified audit was unnecessary and disproportionate.
• Upper Tribunal (Lands Chamber) allowed the appeal on the construction of clause 3.11, substituted its own construction, and left the remainder of the FTT’s decision standing.