Wrong Payment Date Invalidated Service Charge Demand (H Stain V Richmond)

• Published date: 12 May 2021
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Bryan Cave Leighton Paisner LLP
• Author: Ms Jessica Parry

Summary

Property analysis: In H Stain Ltd v Richmond, the Upper Tribunal (Lands Chamber) (UT) held that a service charge demand issued to a residential leaseholder was invalid. The lease required at least one month's notice to be given in relation to advance service charge contribution demands. The payment due date in the demand was a few days short and this was fatal to the validity. Accordingly, the tenant was not liable for the sums demanded.

What are the practical implications of this case?

There has been plenty of litigation about the validity of notices. At first blush, the decisions can seem conflicting and confusing.

The case highlights that whether minor errors are fatal to notices often comes down to the lease wording. In particular, have the specific pre-requisites for a valid notice been met? If not, the Mannai (Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749) 'reasonable recipient' test will not help cure minor defects (in Mannai a break notice terminating a lease a day early was saved because a reasonable recipient would have understood the intention to terminate the next day). The decision is of interest to landlords and tenants, and anyone responsible for preparing demands or notices. Clear unambiguous lease drafting, which leaves no doubt as to the requirements to be satisfied before a demand will trigger liability, will help avoid similar disputes.

In H Stain Ltd v Richmond, the one-month notice requirement was held to be an essential pre-requisite for a valid demand. The demand had to specify the payment due date so that both parties knew when the obligation had to performed. Because the notice condition was not satisfied, the tenant had no liability. It did not matter whether a reasonable recipient would have understood the intention of the demand.

If the ordinary meaning is clear, the court will not usually interfere with the contractual bargain when interpreting a contract. The same approach applies to notice provisos. The role of the court (or tribunal) is to determine what the parties agreed, not what they should have agreed.

Martin Rodger QC, Deputy Chamber President, was quite critical of the lease drafting in this case. He noted that the service charge provisions in the lease (that are usually set out over a number of clauses) were 'combined in one rather unwieldy lump'. It's also notable that the service charge demand in issue was from 2015 and the validity only fell to be considered by the UT some six...