Wrong payment date invalidated service charge demand (H Stain v Richmond)

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 years later.

Unambiguous lease drafting which clearly identifies essential notice pre-requisites will avoid similar disputes and delays.

Practitioners should adopt an analytical approach when considering notice clauses. The wording and purpose of the notice provision should be used to identify the essential pre-requisites so you can ensure they are satisfied. Otherwise, minor defects will not be cured by the reasonable recipient test.

What was the background?

What did the lease say?

The relevant residential lease clause said the tenant must pay upon demand:

‘a due proportion of repair and maintenance costs...and...if so required a contribution in advance and/or to a sinking fund on account of expense and payment anticipated Provided that[…]not less than one month’s notice of such advance payment or contribution is given to the Tenant.’

The landlord’s managing agent served a demand on the tenant by post in August 2015. This referred to the amount owed £2,255.77 and stated: ‘Payment due 30 days after date of demand, arrears by return’.

What was the issue in dispute?

It was not disputed that less than one month’s notice was given. The question was—did this invalidate the notice?

The First-tier Tribunal (FTT) held that the demand was invalid because less than one month’s notice had been given. That was an essential pre-requisite which had not been met and the failure could not be saved by the application of the Mannai ‘reasonable recipient’ test.

The landlord appealed to the UT.

What did the UT decide?

Counsel for the landlord argued that it was not a requirement that the demand specified the date when payment was due on the basis that ‘the tenant can work that out for herself by reading the lease’.

Alternatively, if the demand was required to give one month’s notice, specifying an earlier date did not invalidate the demand, it just meant the tenant was not liable to pay until one month after the demand was served.

Martin Rodger QC was unconvinced by those submissions. He considered the meaning of the requirement to give not less than one month’s notice was ‘quite clear’—the tenant was entitled to receive not less than one month’s notice before the liability to pay the demand took effect.

The effect of the authorities on the requirements of valid demands was summarised by Morgan J in Brent London Borough Council v Shulem B Association Ltd [2011] 1 WLR 3014:

‘What the authorities show is that the form and content of the demand depends upon the wording of the contractual or statutory provision in question and, critically, on the perceived purpose of that provision.’

Accordingly, Martin Rodger QC considered the language of the clause in the context of the purpose of the notice provision. The identification of a specific payment date was considered to be important for both parties, so that they knew when the tenant’s obligation must be performed and to give the tenant time to make arrangements to pay. It was not difficult for the landlord to give one month’s notice. So there was no reason not to give the language its ordinary meaning.

He considered the FTT were right to find the notice was invalid and dismissed the appeal.

This article was first published by Lexis®PSL on 31/03/2021