Reshma Tachkani v Thornfield Hawley Management Company Limited

This is an appeal against one short point among many determined by the First-tier Tribunal in a decision about service charges made in its jurisdiction under section 27A of the Landlord and Tenant Act 1985. It has been decided under the Tribunal’s written representations procedure. Neither party has been legally represented, but the respondent has been represented by its managing agents, Sennen Property Management.

The appellant Ms Tachkani holds the long lease of flat 10 at Thornfield Green, a development of 24 residential units divided between 4 blocks set in their own gardens and grounds. The freehold is held by the respondent, Thornfield Hawley Management Company Limited (“THMC”), who have employed Sennen Property Management as their agents since November 2017.

Ms Tachkani holds two leases, referred to by the FTT as the “Ground Rent Lease” and the “Service Charge Lease”. Both are dated 5 February 1986; the Ground Rent Lease was granted by the then freeholder Lance Properties (Woking) Limited, and is a lease of the flat together with and subject to minimal easements of access and support. The Service Charge Lease was granted by THMC, said to hold a 999-year lease of the estate other than the flats themselves; the lease grants easements for access, parking, use of bin stores and so on. Both leases contain service charge provisions. I assume that THMC has acquired the freehold since 1986.

In 2025 THMC made an application to the FTT for a determination as to whether service charges were payable in the years 2018 to 2025. It determined a great many issues against Ms Tachkani, many of which she sought permission to appeal. Permission was granted by the Tribunal on one ground only: “It [is] arguable that the respondent was not entitled under the lease to maintain a reserve fund, and therefore permission to appeal is granted on the grounds argued at paragraphs 183 to 210 only.”

It appears that THMC had built up a reserve fund over several years, and demanded contributions to it as part of the service charge demands; Ms Tachkani said that no reserve fund was permitted under the terms of her leases.

The FTT said this:

“214.

It is correct that there is no specific reference to any such fund in either of the relevant leases, but the landlord company is given a wide discretion as to how to manage and administer the development, and although there is provision (in Clause 5(6)) for estimating future expenditure, there is no instruction as to balancing payments or credits. It could therefore be argued that some kind of reserve fund is envisaged or permitted by the lease.

215.

The Tribunal took note of two pieces of evidence in particular; the first being the evidence from Ms. Ricketts and the Sennen representatives that the reserve fund had been operating for many years, with the approval of all parties, and the second being the Applicants’ concession (in answer to a question from the Tribunal) that it was, in principle, good practice to have such a fund in a development like Thornfield Green.

216.

In support of the first piece of evidence, the Tribunal considered the ‘Directors Report and unaudited financial statements for the year ended 31st March 2015’ at Page 206 . This document lists the names of the then 6 Directors (including Ms. Ricketts), states the company’s registered address as at Knoll House, and refers to the company’s accountants, Stewart & Co. The report was said to have been approved by the Board on 3rd of June 2015. [the FTT set out references to the reserve fund n the 2015 accounts] …

219.

As to the long-term existence of - (and the Applicants’ apparent acquiescence to, and approval of) the ‘Reserve fund’ - t. …Tribunal also took account of the AGM Minutes of the THMC Limited on the 3rd October 2017 [Page 302]. Both Mrs. R and Ms E. Tachkani were present at this meeting.

220.

At Page 303, Point 3, there is reference to a discussion about the ‘reserves’ being used to contribute to the budget deficit, and whether it was preferable to have a low reserve fund with lower service charges and occasional one-off levies, or a higher reserve paid for by higher service charges.

221.

The then agent’s representative, Mr. Hignell, expressed his view that it would be prudent to have a reserve equivalent to 60-70% of the annual service charge, and Mrs. Tachkani is recorded as saying that there should be a focus on reducing costs where possible. There is no record of any objection from Mrs. or Ms. Tachkani to the existence of the reserve fund in principle, or of any discussion as to interpretation of the Lease on this point. …

223.

From the records of this meeting, it appeared that all concerned had implicitly agreed, over time, to a variation (if such a variation was, in fact required) of the lease to permit the establishment of a reserve fund. …

225.

Having considered all of the above evidence the Tribunal finds that, although not explicitly provided for, the lease’s broad repairing obligation implies the power to accumulate reserve funds, subject always to reasonableness. The Tribunal finds that it was reasonable and permissible under the lease(s) for the Directors of THMC to establish and maintain a reserve fund, and the Applicants are estopped from disputing its validity.

226.

The annual amount required by way of contribution was also found to be reasonable, in relation to the type of property and the likely expenses to be incurred in maintaining it.

227.

The Tribunal therefore determines that all contributions to the ‘Reserve Fund’, as demanded during the relevant period, are payable in full by the Applicants.”

The appellant says, first, that no reserve fund is permitted by her leases; second, that it is not possible for a lease to be varied by consensus at a meeting; and, third, that she has not agreed to the collection of a reserve fund and is not estopped from objecting to it.

As to the first point, the appellant is right. Neither the FTT nor the respondent suggests that a reserve fund is authorised by the lease. The FTT’s suggestion that a “broad repairing obligation”, or indeed any repairing obligation, amounts to authority to collect a reserve fund, is wrong in law. The respondent argues that the FTT was right, and explains the uses to which the fund was put. I do not doubt that the fund has been out to sensible and reasonable use and that THMC has acted conscientiously and with a view to good estate management. But there is no authority in the leases for them to hold or to demand contributions for a reserve fund.

The FTT did not refer to any authority that might have justified their inference from the repairing obligation; nor could they have done. A term can be implied in a contract only where it is necessary to do so; see Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited [2014] EWCA Civ 603and AG of Belize v Belize Telecom Ltd [2009] UKPC 10 where Lord Hoffmann quoted with approval the words of Lord Pearson Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 609:

“An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves."

However desirable or useful it might be to have a reserve fund, it is not necessary. Both the leases work without it.

A landlord’s obligation to repair premises does not give it power to hold or collect a reserve fund. There is nothing more I can say about that.

A lease made by deed cannot be varied save by deed, or by order of a court or tribunal. It cannot be varied by “implicit agreement over time” as the FTT supposed at its paragraph 223. The appellant’s leases have not been varied.

The outcome of this appeal is that contributions for a reserve fund cannot be demanded in the future. But what was in issue before the FTT was the payments demanded from 2018 to 2025.

Where a payment has been made over many years without objection, an agreement to pay will sometimes be inferred, provided that the paying party knew what they were paying and did not pay expressly under protest. If the appellant had in the past agreed to make payments to the reserve fund then she might be estopped from challenging the relevant past demands, although that would not prevent her from refusing to pay in the future.

But is the appellant estopped, as the FTT found, from challenging past demands on the basis that she has agreed to them, either by paying them or by her conduct at meetings? Her case was that she had made certain service charge payments “under protest”, but had not paid sums demanded for the reserve fund.

The FTT’s findings about this are set out at its paragraphs 215 to 223, quoted above. It referred to the 2015 accounts, which named Ms Tachkani as one of the directors of THMC. It referred to a 2017 AGM at which Ms Tachkani is not recorded as having objected to the reserve fund.

The years in issue before the FTT were 2018 to 2025. If Ms Tachkani had been a director of the respondent during that period then she would have shared responsibility for the collection of the reserve fund. But the only reference to her being a director is in 2015, and I fail to see how that can estop her from complaining about demands made in 2018 and beyond. THMC might reasonably say now that she had been content with the policy in 215 and so should not have objected later; but she was entitled to do so. Contentment, or tolerance, in 2015 does not commit a leaseholder to agreement in 2018.

As to the meeting in 2017, I can see nothing in the FTT’s account of the evidence that could lead it to infer that Ms Tachkani was content with the collection of a reserve fund from 2018 onwards.

The appeal succeeds; THMC does not have power under the leases of Ms Tachkani’s flat to demand contributions for a reserve fund, and she is not liable to make the payments demanded towards the reserve fund for the years in issue before the FTT being 2018 to 2025. The FTT’s decision is set aside, and the Tribunal’s decision substituted, to that extent.

The appellant has asked for orders under section 20C of the Landlord and Tenant Act 1985 and under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 so as to prevent THMC from recovering its costs of the appeal from her by way of service charge or administration charge. I will give THMC the opportunity to respond to that application before making a decision.