Residents' Association Pays Price for Failing to Take Professional Advice

Many blocks of flats are managed by a residents' association, which has the great advantage of affording tenants democratic rights of self-determination. However, as a decision of the Upper Tribunal (UT) showed, such bodies bear onerous, and often complex, legal responsibilities that can only sensibly be tackled with professional advice.

The case concerned a block of 33 flats that had a history of disrepair. The tenant of 13 of those flats was a property company that had not paid service charges for six years since management of the block was taken over by a residents' association from a professional property management firm. That had contributed to the association's accounts showing a growing annual deficit.

After the association launched proceedings, the First-tier Tribunal found that – in respect of one of the company's flats – interim service charge demands served by the association had not complied with the terms of the lease, principally because they were not accompanied by certificates of annual expenditure. The validity of the demands was nevertheless upheld on the basis that the association's errors were not of the essence. The company was ordered to pay £8,840 in service charge arrears.

In ruling on the company's challenge to that ruling, the UT agreed that the demands were valid, but cut the amount of service charges payable by the company almost in half. The association had failed to show that the demands – four of which were in precisely the same sum – were based on genuine and considered estimates of likely expenditure in the succeeding year. The evidence indicated that actual expenditure was about 50 per cent of the sums demanded. The arrears payable by the company were, in those circumstances, reduced to £4,558.