Leases are, essentially, a bundle of rights and obligations between two or more parties. Some of those rights and obligations require the parties to do things by a given date. The following are typical examples:
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the tenant’s obligation to pay rent (usually on a fixed date or on given dates – e.g. “the Usual Quarter Days”);
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the landlord’s power to instigate a rent review;
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the landlord’s power/ obligation to serve an interim rent demand;
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the tenant’s obligation to pay an interim demand;
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the landlord’s power/ obligation to serve a balancing demand; and
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the tenant’s obligation to pay a balancing demand.
This article considers the position where a landlord has missed a deadline relating to service of an interim demand and wishes to know whether late compliance is sufficient.
Is time of the essence?
An essential consideration in the context of missed contractual deadlines is whether “time is of the essence.” Something is “of the essence” if it is very important or crucial. Whether time is of the essence in relation to a specific provision in a lease depends on whether it can be shown that the context clearly indicates that that was the intention of the parties. If time is/ was of the essence and the date for compliance has passed then the right (e.g. to serve an interim demand) is likely to be lost until the right next arises – which, in the service charge context, is likely to mean in the next service charge year.
Kensquare v Boakye
In Kensquare the lease provided that the Landlord could serve an interim service charge demand in respect of a future financial year as long as it was “served on the Lessee not less than one month prior to the commencement of that financial year” namely the 1st April to the 31st March. On the 15th August 2019 Kensquare sent Ms Boakye three interim service charge demands covering 1 April 2018 to 30 September 2019. Clearly the Landlord had not served the interim demands at least one month before the relevant service charge years and the issue, therefore, was whether its failure to do so rendered the late demands invalid. In legal terms the issue was whether time had been of the essence such that the demands had to be served at least one month before each maintenance year.
The FTT determined that the interim demands were not payable by the tenant but that decision was reversed on appeal to the Upper Tribunal with the Upper Tribunal Judge determining that time had not been of the essence for service of the interim demands. However, the tenant’s appeal to the Court of Appeal was successful with the Court determining that time had been of the essence in respect of service of the interim demands and, accordingly, late service of them had been impossible. In reaching that conclusion the Court determined the following details of the service charge provisions in question to be relevant:
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the interim demand had to be served “not less than one month prior to the commencement of that financial year”
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the interim demand was to reflect the expenditure reasonably anticipated for the year and expenditure could hardly be “reasonably anticipated” once the year was over and the expenditure incurred; and
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the payment dates were the 1st April and the 1st October in each year and the amount of the interim charges had to be known before the year began.
Lessons
Landlords and their agents should consider whether time is of the essence for the service of interim charge demands and be aware that if they miss the dates set out in their leases the only option may be to seek to recover charges by way of a balancing payment after the year end.
Jonathan Wragg, Legal Director at PDC Law
