UK: No Heating No Pay?

Last Updated: 1 October 2018
Article by Clyde & Co LLP

Most Read Contributor in UK, November 2018

The Upper Tribunal (Land Chamber) was asked to decide if a leaseholder was liable to pay heating-related charges to his landlord after his property was disconnected from an estate heating system.

The case of Saunderson v Cambridge Park Court Residents Association Limited Re: Cambridge Park Court [2018] UKUT 182 (LC) was heard by the Upper Tribunal ("UT") on an appeal from the First-Tier Tribunal ("FTT") which had decided against the leaseholder.

Both tribunals considered the basis on which communal heating and hot water services were provided to and paid by for by leaseholders.

The UT also considered whether the heating supplied to the property in question was of a reasonable standard.

Facts

The leaseholder's flat was one of 36 in a 1930s purposebuilt block. A communal heating and hot water system had been installed many years ago but there were no relevant provisions contained in the service charge clause in his lease, or in the leases of the other tenants. The leaseholders had nevertheless indemnified the landlord for the heating and hot water costs which the latter had included in service charge demands.

From around 2008 the heating service in the leaseholder's flat had been unsatisfactory. By their own admission, the managing agents were unable to cure the problem despite having made numerous efforts to do so and there appeared to be no prospect that the situation would change. As a result, in March 2014, the leaseholder's flat was disconnected from the communal heating and hot water system, with the permission of the landlord. Subsequently the leaseholder installed his own gas boiler.

The leaseholder accepted that he should contribute a small percentage of the heating costs in order to reflect the benefit he received from the heating to the common parts. The landlord, however, served service charge demands relating to the full cost of the heating and hot water provision.

The FTT's Decision

The FTT found that the cost of oil had been included in the service charge for the flat since the assignment of the lease to the tenant in 1994 and that the leaseholder had contributed to it, apparently without complaint. It appeared that none of the other leaseholders had objected to the charge.

Taking into account the conduct of the parties, the FTT's view was that the parties had interpreted the provisions of the lease so as to require the landlord to supply hot water, and for the lessees to reimburse the landlord for that cost. In the alternative, the leaseholder would have been estopped from claiming that the lease had not entitled the landlord to recover the cost of providing the heating and hot water.

The FTT also considered whether the leaseholder remained liable to contribute towards the costs of heating and hot water after his disconnection from the estate system in March 2014. It held that he did remain liable because the service charge percentage specified in his lease had not been varied. There was no mechanism in the lease for the percentage to be varied, or any means by which the shortfall could be recovered from other leaseholders.

The UT's Decision

The UT considered that the FTT had erred because it had failed to consider the potential effect of the landlord's persistent failure to provide heating to a reasonable standard between 2008 and 2014. It was clear that the leaseholder had been given permission to install his own system because the landlord could not rectify the problem.

There was a convention by estoppel which meant that the leaseholder was liable to pay the costs of the communal heating supplied by the landlord, including fuel costs. However, his liability was conditional upon the heating being supplied to his flat via the communal system.

Parties who establish a conventional arrangement by estoppel can terminate it. If one party elects to resile, the other can do likewise and this will terminate the convention and the estoppel it would have supported. Thereafter it is not open to either party unilaterally to reinstate the convention. The consent of both parties is required.

The leaseholder disconnected the flat from the communal heating in response to the landlord's failure to provide adequate heating to the flat and his continuing liability ended at the time of disconnection.

The UT also held that the FTT should have considered the application of s19(1)(b) of the Landlord and Tenant Act 1985 which limits recoverable service charge costs to the costs of services provided to a reasonable standard.

Had it done so, it would have concluded that heating had not been supplied to the flat to a reasonable standard since 2008. As a consequence the leaseholder disconnected the flat from the communal heating, so that there was no service at all, let alone a service of a reasonable standard.

The UT determined that the leaseholder was not liable for heating charges for the three service charge years in question.

Comment

It is not uncommon for service charge provisions arrangements to be operated somewhat differently from the basis specified in a lease, or for services to be provided and paid for which are not allowed for in the lease at all.

This case illustrates that, in some circumstances, a binding arrangement may be created between landlord and tenant as a result of their conduct over a period of years, where there are holes in the lease.

It also shows that the parties who create a conventional estoppel by agreement can terminate it, potentially leaving the landlord with problems, at least in the short term.

The counsel of perfection is to ensure that the service charge provisions in the lease reflect reality and allow for future-proofing and to ensure that service charges are imposed in accordance with the provisions in the lease.

The article first appeared in our Real Estate Bulletin - September 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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