Elysian Fields Management Company Ltd v Nixon & Anor

Factual and Procedural Background

This appeal arises from two decisions of the First-tier Tribunal (Property Chamber) ("FTT") dated 13 August 2014 concerning service charges payable for apartments managed by two Management Companies. The cases were originally referred to the FTT by the County Court following claims for unpaid service charges brought by the Management Companies against the Tenant. The FTT held that no service charge was payable because the Management Companies had failed to comply with clauses 5 and 6 of the Seventh Schedule of the relevant leases, which require preparation and service of audited accounts and certificates. The Management Companies appealed against this decision.

The properties involved are the Elysian Fields Apartments in Liverpool and the Imperial Buildings Apartments in Rotherham. The leases contain provisions obliging the Tenant to pay estimated service charges and the Management Companies to provide audited accounts certifying the costs. The Tenant raised defences including unreasonableness of charges, failure to provide audited accounts, and breaches of repairing covenants. The County Court ordered the transfer of certain claims to the FTT for determination of the reasonableness of service charges.

Legal Issues Presented

1. Whether compliance with clauses 5 and 6 of the Seventh Schedule (preparation and service of audited accounts and certificates) is a condition precedent to liability for estimated service charges.
2. Whether the FTT had jurisdiction to determine the validity of the service charge demands and interpret the leases in light of the referral from the County Court.
3. Whether the FTT had jurisdiction to make recommendations regarding the apportionment of insurance premiums related to a commercial property within the residential development.

Arguments of the Parties

Appellants' Arguments

• The FTT erred in holding that compliance with clauses 5 and 6 was a condition precedent to payment of the service charge.
• The FTT lacked jurisdiction to determine that the service charge demands were invalid as this was not an issue referred by the County Court.
• The FTT exceeded its jurisdiction by recommending that the Landlord take into account the insurance risk of the commercial property when apportioning premiums, as this was not raised by the Tenant and lacked evidential support.

Respondent's Arguments

• The Tenant argued that the charges levied were unreasonable and therefore irrecoverable.
• The Tenant contended that interest was not payable as it related to unrecoverable charges.
• The Tenant claimed the Management Companies failed to provide audited accounts for multiple years as required by the leases.
• The Tenant counterclaimed for breaches of repairing covenants.
• The Tenant requested the matter be transferred to the FTT for determination of the service charge under the Commonhold and Leasehold Reform Act 2002.
• In oral submissions, the Tenant emphasized that failure to supply audited accounts in a reasonable time leads to an abuse of power and that charges were made for work not carried out.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the relevant lease provisions, particularly clauses 5 and 6 of the Seventh Schedule, which require the Management Company to keep proper books, prepare audited accounts certified by a chartered accountant, and serve notices of the amounts payable. The FTT had held that failure to comply with these provisions meant no service charge was payable. The Upper Tribunal disagreed, finding that clause 1 of the Fifth Schedule expressly provides for payment of estimated service charges and does not condition payment on the prior provision of audited accounts.

The court relied on authorities including Redrow Homes and Pendra Loweth, which established that failure to provide audited accounts within a reasonable time does not extinguish the tenant’s obligation to pay estimated charges. Remedies for breaches by the Management Company include damages, specific performance, or applications to the tribunal for determination of service charges, but non-compliance does not negate payment liability.

Regarding jurisdiction, the court rejected the argument that the FTT lacked authority to consider the validity of the demands and interpret the leases, noting that the pleadings and the terms of the County Court’s transfer orders were sufficiently broad. The court emphasized a practical approach to tribunal jurisdiction, allowing necessary subsidiary issues to be considered in order to resolve the main question of service charge reasonableness.

The court also found that the FTT’s comments about insurance apportionment related to a point not raised by the parties and unsupported by evidence, and therefore such recommendations could not stand.

Although the court expressed sympathy with the Tenant’s frustrations at the failure to provide audited accounts, it emphasized that the law does not support withholding payment of estimated service charges as a result. The Tenant retains remedies to challenge the charges and seek enforcement of the Management Companies’ obligations.

Holding and Implications

The appeal is ALLOWED. The Upper Tribunal overturned the FTT’s decision that no service charge was payable due to failure to provide audited accounts. It held that the obligation to pay estimated service charges under clause 1 of the Fifth Schedule is not conditional on the prior provision of audited accounts under clauses 5 and 6 of the Seventh Schedule.

The case is remitted to a differently constituted FTT to determine the amount payable under the service charges. The Management Companies are directed to provide fully audited accounts within 28 days to enable a meaningful hearing. The Tenant must then specify any challenges to the service charge within 28 days, with the Management Companies to reply thereafter.

The decision clarifies that failure to provide audited accounts does not absolve tenants from paying estimated service charges but confirms tenants have remedies to enforce proper accounting and challenge unreasonableness. The ruling does not establish new precedent beyond affirming existing principles regarding payment obligations and tribunal jurisdiction in service charge disputes.