Matthew Smith on Service Charges: Section 27A LTA 1985 & Estoppel by Convention

The recent case of Lacy v Homeselect Finance [2023] UKUT 231 (LC) considered a number of historic service charge issues between a long-leaseholder and a freeholder of a flat in Torquay.  A particular point of note is the decision regarding admissions and estoppel.

The leaseholder had been paying more than was actually required under the lease by way of service charges and the freeholder sought to argue this was an admission such as to estop the leaseholder from relying upon the terms of the lease.

Section 27A(4) & (5) of the LTA 1985 provides as follows:

(4)   No application (to the FTT under section 27A) may be made in respect of a matter which:-

         (a) Has been agreed or admitted by the tenant …

(5)   But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made the payment.

As noted in Cain v Islington LBC [2015] UKUT 542, a single payment does not constitute an admission as often tenants will pay this to avoid, for example, forfeiture.

In the present case, the Tribunal found that given the tenant had paid service charges without protest or reservation over a 6 year period, he could not then challenge the reasonableness of those charges.  In effect, the FTT came to its own decision and found there had been an admission of liability pursuant to Cain v Islington LBC (supra.).

On appeal the UTT found that the leaseholder had not admitted service charges up to 2016 and one payment in 2017, in isolation, did not amount to an admission under section 27A.

The UTT then had to decide whether to substitute its own decision on the estoppel argument advanced by the freeholder.  Whilst the FTT had rejected the standard estoppel argument, the UTT found that there was an estoppel by convention.

Estoppel by convention is where 2 parties to a deed proceed on a conventional, but untrue, reading of its provisions.  No detriment is required.

The UTT found an estoppel by convention on the basis that the leaseholder had accepted the payment mechanism (paying more than required under the lease) and so was estopped from protesting that the service charges were not made in accordance with the lease.

However, that did not prevent the leaseholder from then challenging the reasonableness of those service charges under sections 19, 20 & 27A of the LTA 1985.  This entailed a consideration of the Service Charges (Consultation Requirements) (England) Regulations 1987.  In particular, Part 2 of Schedule 4 and paragraphs 1, 4 & 6.  The main argument over the service charges here related to the costs and compliance with the latter concerning a drive and a wall at the property.

The UTT found that there had been a number of breaches therein by the freeholder and so reduced the FTT award from £15 440 to £250 in accordance with section 20 of the LTA 1985.

This decision shows the potential importance and effect of a party accepting the status quo.  Whilst admissions can be difficult to prove evidentially, estoppels (or waivers) can be much easier and, as noted above, an estoppel by convention does not require detriment.

Matthew has over 20 years’ experience in contract and property disputes. This ranges from simple contract disputes to advice and representation under the 1975 Act and trust disputes between co-habitees. Please contact his clerks for more information or if you would like to instruct him.

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