First-tier Tribunal Allows Tenant's Service Charge Challenge

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/ooAD/LSC/2022/0001 Property : Flat 33 [NAME] and [NAME], [ADDRESS]2 Applicant : [redacted] : Self Respondent : [redacted] : None Type of [NAME] : [NAME] for the determination as to the payability and reasonableness of service charges Tribunal members : Judge Hargreaves Stephen Mason FRICS Date and venue of hearing : [ADDRESS], 15th June 2023 Date of decision : 16th June 2023

DECISION

2

Decisions of the Tribunal 1. The Respondent was debarred from defending these proceedings pursuant to Tribunal Rule 9(1) by reason of its failure to comply with paragraph 2 of the directions made on 5th December 2022.

2. The Respondent did not appear at the hearing and the Tribunal decided it was appropriate to proceed pursuant to Tribunal Rule 34 in its absence.

3. In respect of the Applicant’s challenge to the reasonableness of certain service charges for the year 2020-2021 for [NAME], the individual findings are set out below.

4. In respect of the Applicant’s challenge to the reasonableness of certain service charges for the year 2020-2021 for Flat 33 [NAME], the individual findings are set out below.

5. In the circumstances, the Tribunal makes a s20C LTA 1985 order in favour of the Applicant (if required) and an order that the Respondent refund any [NAME] and hearing fees incurred by the Applicant in pursuing this litigation.

REASONS 1. These applications have an unusual procedural history. On 4th January 2022 the Applicant issued an [NAME] challenging the service charges for the properties for the year 2020-2021. Directions were made in January 2022 and June 2022. The Respondent did not participate and on 5th December 2022 Judge Rushton KC issued further directions which included (paragraph 2) a disclosure direction that unless ‘the landlord sends the tenant email copies of all relevant service charges accounts and estimates for the years in dispute, together with all demands for payment and details of any payments made and shall confirm in writing to the tribunal that it has done this … then the landlord’s case shall be struck out and the landlord shall be barred from taking further part in these proceedings.’ 2. Although further directions were included, they are irrelevant. The Applicant confirmed to us orally that he had received nothing from the Respondent, and a search of the Tribunal court file and emails reveals no contact from the Respondent whatsoever in respect of this case. We are satisfied that no Tribunal emails ‘bounced back’. That means the Respondent received the notice of hearing emailed on 28th April 2023. The Tribunal seems to have listed the hearing unaware that the Respondent was struck out.

3 3. The Applicant, who is a buy-to-let landlord of the two properties in dispute, has litigated and written to the Tribunal frequently and assiduously about the Respondent’s failure to respond. It is what – understandably by his account – drove him to litigate in the first place. The Applicant is a [NAME], and while lacking litigation experience was a candid and honest and useful witness, who has, we should add, paid all service charge demands to date, but been frustrated by the Respondent’s failure to engage with him in relation to the disputed items. He produced a trial bundle (page numbers are to e- bundle numbers except in relation to the contractor’s spread sheets), including the only documents we had which represented the source of the service charge demands for 2020-2021, namely the contractor’s final accounts/spread sheets for the Osney House and [NAME] blocks, two of four tower blocks on an estate originally part of Thamesmead Town, now a mixture of one and two bedroomed flats, some leasehold, some occupied by social housing tenants.

4. From these documents (version 14), the Applicant had extracted the final figures applicable to the items he disputed for the purposes of challenging their reasonableness under s19 LTA 1985. These figures are generally taken from the contractor’s headings. They are therefore based on the contractor’s figures. Although he did not include any invoices in the bundle, we are prepared to accept in the absence of evidence to the contrary from the Respondent, that these figures are those on which the relevant invoices were made. The Applicant says they are the only documents he has on which to mount an investigation and challenge. We have no evidence to the contrary and neither does the Applicant, as the Respondent has not made any disclosure, provided any evidence, or explained its case in any form, formal or informal. The Applicant stated that his service charge demands added 10% for management fees and 6.79% for contractor’s profit before adding VAT to reach a total. We have followed his practical approach in (i) checking with the Applicant for the source of the figures of which he complains (ii) discussing why he argues they were unreasonable within the meaning of the LTA regime and (iii) reaching our conclusions on the individual items of which he complains. In these respects we have gone beyond the summary disposal we might have adopted to the Applicant’s case and the Respondent has arguably benefited.

5. The result of the brief background set out above is that (i) by virtue of Tribunal Rule 9(1), the debarring sanction automatically applied to the Respondent after 5th January 2023 (ii) the Tribunal has the power ‘to summarily determine all or any issues against’ the Respondent and (iii) having considered the file, we determined – if and insofar as necessary to consider the provisions of Tribunal Rule 24 in the light of the debarred Respondent’s absence, that we were satisfied it had been notified of the hearing and that it would be in the interests of justice to proceed with the hearing. Having been debarred, the Respondent had no right to make any submissions in any event: see Tribunal Rule 9(8).

4 6. The Applicant’s case is usefully summarised in tabular form in respect of each flat on p2 of the bundle, and explained in writing in the pages following (pp3-7). We considered the provisions of the long leases of both flats in coming to our conclusions, and given that neither the Applicant (nor Respondent) relied in any detail on any service charge provisions (though the two leases are different in some respects), we do not intend to deal with the provisions of the respective leases save where necessary. The bottom line is that the Applicant’s flats each attract a 1/48 share of the chargeable service charges. He did not challenge the management fee of 10% or the 6.79% profit element which he stated is evident from the invoices (which we have not seen). What the Applicant did object to – in general terms - was being charged for certain works which were not carried out to his flats, where he had opted out or where works were omitted, or for works which he was required to pay for twice over. The Applicant’s challenges are not wild and unrealistic, but carefully targeted in this respect, and based on a careful analysis of pages of detailed contractor’s cost spread sheets which give the overall net figure for the work to the block. His claims would have been relatively simple to answer, particularly in view of the relatively low financial value of the claim. But we note that for the Applicant this case was more about the Respondent’s accountability than his ability to pay. [NAME]

7. The Applicant says he was charged £16,429.11, was overcharged by £3054.27, and is prepared to pay (has paid more than) £13,357.31. Our findings are as follows. The Applicant does not succeed in all his challenges.

8. Item 1: [NAME]: this heading includes £8492.48 for reinstating fire retardant monoflex scaffolding wrapping when the initial installation (£6536.88) had already been incurred but needed to be replaced when damaged (see under contractor’s sheet one of several items marked CVI No.2 under [NAME] column). We consider that this charge was unreasonable: there is no explanation as to why the tenants should pay twice for something which on the face of the Applicant’s case was badly installed or damaged (insurance?) and the responsibility of the contractor.

9. The other item included under the Applicant’s challenge to [NAME] charges is the sum of £1236 (item last page 3/3 of contractor’s spread sheet, no particular identification) which specifically relates to works carried out to remove asbestos from Flat 20. That is not properly chargeable to the Applicant.

10. It follows that the Applicant’s share of these two items, which he calculates at £202.67 is not reasonably incurred or chargeable to his account.

5 11. Item 2: Window renewals: the Applicant states that he is not liable for his share of the sum of £17,604.79 (calculated at £366.77) because as the description of the various items listed by the Applicant at the top of p6 of the bundle demonstrates, the costs [NAME] up the sum of £17,604.79 do not relate to the Applicant’s flat. These items relate to the installation or replacement of balcony wind/acoustic screens and associated works in various flats which did not include the Applicant’s as he had already fitted his own which was not replaced.

12. It follows that the Applicant’s share at £366.77 is not chargeable to his service charge account.

13. Item 3: Extractor fans: Extractor fans were fitted to flats in which new bathroom and kitchen windows were fitted. Accordingly these items which amount to £23,512.50 (calculated by reference to adding up the items listed as 3.9.3-3.9.5) do not apply to the Applicant because he opted out of having new kitchen and bathroom windows (with fans) installed.

14. It follows that the Applicant’s share at £489.84 is not chargeable to his service charge account.

15. Item 4: the Applicant’s challenge to paying his share of £13.13 of £630 attributable to ‘supplying a socket to all four blocks’ (page 3/3 contractor’s work sheet, no identifying number but in ‘[NAME]’ column), fails because having explored what this item relates to with the Applicant, we have concluded on the evidence before us that it was a reasonable charge.

16. Item 5: Pigeon deterrent works (see under column marked ‘Pigeon’ in contractor’s work sheet): the Applicant identified (i) the sum of £2039.89 CVI No.2 p3/2 relating to the removal of acoustic balcony screens/netting from flat balconies (ii) the sum of £4797.75 (two lines under the above entry) as relating to the installation of bird netting on private balconies. None of these works were referable to the Applicant’s flat because he retained his existing wind/acoustic balcony screen.

17. It follows that the Applicant’s share at £142.45 is not chargeable to his service charge accounts.

18. Item 6: COVID extension costs: the Applicant failed to persuade us that the extra charges attributable to the COVID lockdown were unreasonable. We accept that repair obligations were not affected by the COVID legislation but do not agree that necessarily means that extra charges attributable to the lockdown and delays could not be included in service charges.

6 19. It follows that the sum of £665.31 calculated by the Applicant as attributable to COVID is reasonable and payable by him.

20. Item 7: Concrete: Item 3.6.20 provides for a cost of £23,992.80 for applying a corrosion inhibitor to all concrete surfaces (the blocks have concrete surfaces). The first CVI No.2 item (towards the bottom of p3/2 of the contractor’s work sheet) is for £47,764.75 for further works in respect of the concrete surfaces of the blocks. The total is £71,757.55 and the Applicant’s case is that he should only pay his share of 80% of this figure (ie benefit from a 20% deduction worth £298.99). He states that the specification in the work sheet is simple: it applies to all concrete surfaces. He realised that the insides of the concrete balconies were not treated and decided that a 20% reduction was justified. Asked how he reached the 20% figure, the Applicant stated that he obtained plans and elevations of the blocks (from planning), and scaled the relative areas. See the bottom of p7 of the bundle. Doing the best we can and with no challenge to his methodology, we agree that on the balance of probabilities there is an apparent overcharge on the figures as taken from the work sheet as not all the work was completed.

21. It follows that the sum of £298.99 chargeable to the Applicant in respect of these items is not recoverable.

22. In relation to Flat 29 [NAME], the Applicant is entitled to credit for sums overpaid in respect of unreasonably charged service charges, as follows: £202.67 + £366.77 + £489.84 + £142.45 + £298.99 = £1500.72 x 1.0679 (profit) = £1602.61 x 1.1 (management fee) = £176.88 x 1.2 (VAT) = £2115.46. Flat 33 [NAME]

23. As for [NAME], the Applicant prepared a similar schedule for [NAME] at p2 of the bundle. He calculates that his share of the service charges, charged at £16,781.62 was overcharged by £3072.36, leaving him liable for £13,405.48 (which he has paid). The grounds and findings are similar to those we have made above in respect of [NAME], there being no substantial difference between the leases, and the estate-wide works which were carried out. Again we have been able to work from the contractor’s work sheet for [NAME] which is in the bundle, and the Applicant’s own calculations taken from his service charge demands, which we have not seen.

24. Item 1: [NAME]: The Applicant challenges the same sum in respect of reinstalled monoflex (£8492.48) (item 1 on p3/6 of the work sheet).

7 25. For the reasons which applied to [NAME], the Applicant is not liable to pay his calculated share of £176.92 which was unreasonably charged to his service charge account in respect of this item.

26. Item 2: Window renewals: see middle p6 trial bundle for the Applicant’s calculations of the sum of £15,912.92 based on itemised entries (identified) in respect of which he argues that he is not liable for the same reasons as apply to [NAME]. We accept his evidence (he retained his own balcony wind/acoustic barrier).

27. It follows that the Applicant is not liable for the sum of £331.52 attributable to these unrecoverable service charges.

28. Item 3: Extractor fans: items 3.9.3-3.9.4 on the contractor’s spread sheet which total £24,799.50 relate to extractor fans fitted to kitchen and bathroom windows which were not installed in the Applicant’s flat. The same conclusions apply to this item.

29. It follows that the Applicant is not liable in respect of the sum of £516.66 charged to his service charge account in respect of these charges.

30. Item 4: [NAME]: the Applicant’s claim in respect of the ‘socket’ issue is rejected (see above).

31. Item 5: Pigeon deterrent works: the Applicant has identified at p3/6 of the contractor’s work sheet charges of £2039.89 and £4797.75 (CVI No.2 variations) works for which he is not liable as they were not carried out to his flat (as with [NAME]).

32. It follows that the Applicant is not liable for the sum of £142.45 charged to his service charge account in respect of these works.

33. Item 6: COVID extension costs: claim rejected as above.

34. Item 7: Concrete: the Applicant challenges the figures of £47,764.75 (CVI No.2 p3/6 under ‘concrete’) and £23,992.80 (item 3.6.20) for the reasons already given. The situation applies for [NAME] as for [NAME] and we reach the same conclusion for the same reasons.

35. It follows that the Applicant is not liable for the sum of £298.99 charged to his service charge account in respect of these works.

36. In relation to Flat 33 [NAME], the Applicant is entitled to credit for sums overpaid in respect of unreasonably charged service charges, as follows: £176.92 + £331.52 + £516.66 + £142.45 + £298.99

8 = £1466.54 x 1.0679 (profit) = £1566.11 x 1.1 (management fee) = £1722.72 x 1.2 (VAT) = £2067.27.

37. At the end of the hearing, the Applicant made an [NAME] for a refund of the fees that he had paid in respect of the [NAME] and hearing1. Taking into account the determinations above, the Tribunal orders the Respondent to refund all Tribunal fees paid by the Applicant.

38. In addition, at the hearing, the Applicant applied for an order under section 20C of the 1985 Act. Again, taking into account the determinations above, the Tribunal determines for the avoidance of doubt, that it is just and equitable in the circumstances for an order to be made under section 20C of the 1985 Act, so that the Respondent may not pass any of its costs incurred in connection with the proceedings before the Tribunal through the service charge (though this order is presumably academic on the facts of this case). Judge Hargreaves Stephen Mason FRICS 16th June 2023

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written [NAME] for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The [NAME] for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28 day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28 day time limit; the tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit.

1 The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 SI 2013 No 1169

9 The [NAME] for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).

10 Appendix of relevant legislation

Landlord and Tenant Act 1985 (as amended) Section 18 (1) In the following provisions of this Act "service charge" means an amount payable by a tenant of a dwelling as part of or in addition to the rent - (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs. (2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. (3) For this purpose - (a) "costs" includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period. Section 19 (1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period - (a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provisions of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise. Section 27A (1) An [NAME] may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to - (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable,

11 (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Subsection (1) applies whether or not any payment has been made. (3) An [NAME] may also be made to the appropriate tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to - (a) the person by whom it would be payable, (b) the person to whom it would be payable, (c) the amount which would be payable, (d) the date at or by which it would be payable, and (e) the manner in which it would be payable. (4) No [NAME] under subsection (1) or (3) may be made in respect of a matter which - (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment. Section 20 (1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either— (a) complied with in relation to the works or agreement, or (b) dispensed with in relation to the works or agreement by (or on appeal from) the appropriate tribunal . (2) In this section “relevant contribution”, in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement. (3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount. (4) The Secretary of State may by regulations provide that this section applies to a qualifying long term agreement—

12 (a) if relevant costs incurred under the agreement exceed an appropriate amount, or (b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount. (5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount— (a) an amount prescribed by, or determined in accordance with, the regulations, and (b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations. (6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount. (7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined.] Section 20B (1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred. (2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge. Section 20C (1) A tenant may make an [NAME] for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, residential property tribunal or the Upper Tribunal, or in connection with arbitration proceedings, are

13 not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the [NAME]. (2) The [NAME] shall be made— (a) in the case of court proceedings, to the court before which the proceedings are taking place or, if the [NAME] is made after the proceedings are concluded, to a county court; (aa) in the case of proceedings before a residential property tribunal, to that tribunal; (b) in the case of proceedings before a residential property tribunal, to the tribunal before which the proceedings are taking place or, if the [NAME] is made after the proceedings are concluded, to any residential property tribunal; (c) in the case of proceedings before the Upper Tribunal, to the tribunal; (d) in the case of arbitration proceedings, to the arbitral tribunal or, if the [NAME] is made after the proceedings are concluded, to a county court. (3) The court or tribunal to which the [NAME] is made may make such order on the [NAME] as it considers just and equitable in the circumstances. Commonhold and Leasehold Reform Act 2002 Schedule 11, paragraph 1 (1) In this Part of this Schedule “administration charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly— (a) for or in connection with the grant of approvals under his lease, or applications for such approvals, (b) for or in connection with the provision of information or documents by or on behalf of the landlord or a person who is party to his lease otherwise than as landlord or tenant, (c) in respect of a failure by the tenant to make a payment by the due date to the landlord or a person who is party to his lease otherwise than as landlord or tenant, or (d) in connection with a breach (or alleged breach) of a covenant or condition in his lease. (2) But an amount payable by the tenant of a dwelling the rent of which is registered under Part 4 of the Rent Act 1977 (c. 42) is not an administration charge, unless the amount registered is entered as a variable amount in pursuance of section 71(4) of that Act.

14 (3) In this Part of this Schedule “variable administration charge” means an administration charge payable by a tenant which is neither— (a) specified in his lease, nor (b) calculated in accordance with a formula specified in his lease. (4) An order amending sub-paragraph (1) may be made by the appropriate national authority. Schedule 11, paragraph 2 A variable administration charge is payable only to the extent that the amount of the charge is reasonable. Schedule 11, paragraph 5 (1) An [NAME] may be made to the appropriate tribunal for a determination whether an administration charge is payable and, if it is, as to— (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Sub-paragraph (1) applies whether or not any payment has been made. (3) The jurisdiction conferred on the appropriate tribunal in respect of any matter by virtue of sub-paragraph (1) is in addition to any jurisdiction of a court in respect of the matter. (4) No [NAME] under sub-paragraph (1) may be made in respect of a matter which— (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment. (6) An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination— (a) in a particular manner, or

15 (b) on particular evidence, of any question which may be the subject matter of an [NAME] under sub-paragraph (1).