Leases often set out a requirement that the sum due in service charges should be certified by an accountant as soon as possible after the end of the financial year. Such a clause was in the leases considered in CLACY v SANCHEZ [2015] UKUT 0387 (LC)¸ an appeal to the Upper Tribunal.
Here is the clause in question:
Without prejudice to the covenant contained in clause 2(2)(ii) the following terms and conditions shall apply to the payment of the service charge by the Lessee:
"(a) The amount of the service charge shall be ascertained and certified annually by a Certificate .... signed by a qualified accountant as soon as practicable after the end of each of the Management Company's financial year {as hereinafter defined} and shall relate to such year in manner hereinafter mentioned...."
At the time of the First Tier Tribunal, no certificate had been issued. The FTT held that as a consequence, service charges were not due. The landlord had not fulfilled a necessary condition.
The landlord appealed.
The Upper Tribunal set much store by the case of Warrior Quay Management v Joachim [2008] which held that a landlord's failure to provide a certificate did not relieve the tenant of paying service charges.
In the present case, the UT said that the words above Without prejudice to the covenant showed that the certificate was an element of the machinery for deciding on how much is due.
That is to say, the certification of the service charge is [not] a necessary or essential pre-condition [of ] the ability of the management company to seek payment
The other interesting element in this case is that the landlord and tenants had for many years agreed that no certification was required. The court found that that amounted to a course of conduct by the tenants which gave rise to a form of equitable estoppel, more precisely 'estoppel by convention'. Given that the landlord had relied on the course of conduct, it would be unjust if the tenants were allowed to change their minds.
Comment: This case is a useful reminder that a breach of an obligation on a landlord to provide an accountant's certificate will not necessarily relieve the tenant of an obligation to pay service charges. Of course much will depend on the construction of the lease.
Furthermore, the case could be useful for either landlord or tenant if they want to show that the conduct of the other suggests that they do not intend to rely on a certain clause in the lease. Here is authority to support an argument - estoppel by convention - that the other will not be allowed to go back on a shared assumption.