An assignee was liable for service charge costs incurred before she took an assignment of her lease

The Landlord and Tenant (Covenants) Act 1995 introduced the concept of a “clean break” when leases change hands. The draftsmen achieved this by providing that “where as a result of an assignment a person becomes, by virtue of this Act, bound by or entitled to the benefit of a covenant, he shall not by virtue of this Act have any liability or rights under the covenant in relation to any time falling before the assignment”: section 23(1).  There are, of course, exceptions that prove the rule. The provision does not preclude an express assignment of any such rights (section 23(2)). In addition, the clean break principle does not apply if an assignment is unlawful (section 11). In Southwark London Borough Council v Clark [2015] UKUT 597 (LC); [2015] PLSCS 331, the Upper Tribunal examined the effect of section 23(1) in the context of the payment of a residential service charge. The tenant’s lease required the tenant to make quarterly payments in advance, based on an estimate of the service charge, and to pay any balancing charge within one month of a demand for payment, if it transpired that there had been a shortfall in the amounts collected from the tenant. The landlord submitted an estimated demand for service charges for major works to the tenant in October 2006. The amount was never paid and the tenant assigned the lease to his daughter in 2008.  The landlord submitted a “Final Account Notification and Summary” to the assignee in 2013 in the sum of £8,562.66 (which was subsequently reduced because the work cost less than expected), but the assignee refused to pay. She argued that she was not liable to pay for work that pre-dated the assignment to herself. The tribunal rejected the assignee’s arguments. It ruled that the lease prescribed a two-stage process comprising separate payments of interim and final sums. The landlord had demanded an interim payment from the assignor, which had not been paid, and had then submitted a final account after the lease was transferred to the assignee. The assignee was relying on section 23 of the 1995 Act to limit her liability on the basis that part of the accounting period preceded the assignment. But this was a misinterpretation of the legal principles and of way in which section 23 operates. The landlord’s claim was not for the interim sum demanded from the assignee’s father, but for the final sum, which was properly demanded from the assignee as the proprietor of the lease.  The final account was issued to the assignee as the leaseholder and non-payment of the invoice would constitute a breach of covenant for which the assignee, as the current leaseholder, would be liable, even though the costs were incurred before the assignment took place. Issues like this are not uncommon when leases are assigned. As a result, incoming tenants would be well-advised to make detailed enquiries about service charge liabilities before accepting an assignment of a lease.  Allyson Colby is a property law consultant