First-tier Tribunal Decides on Reasonableness of Service Charges

OUTCOME: Allowed in Part

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AH/LSC/2023/0325 Property : [ADDRESS] [POSTCODE]/CRO 2WD Applicants : [redacted] and other leaseholders joined to this application (see Appendix I) Representative : [NAME_1] and [NAME_4] Respondent : [redacted] : [NAME_8], counsel Type of application : For the determination of the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Tribunal members : Judge Tagliavini Miss M [NAME_11] Venue : 10 [ADDRESS] [POSTCODE] Date of hearing Date of decision : 16 February 2024 26 February 2024

DECISION

2 Decisions of the tribunal Preliminary matters: 1. The tribunal accepts the lessees whose names appear in Appendix I to

this decision, were parties to this application as at the date of the

hearing and therefore this decision is binding on/enforceable by

them. 2. The tribunal determines this application is limited to: (i) The reasonableness and payability of the actual service charges for the service charge year 2021 to 2022, only in so far, they appear on their face, to unreasonably exceed the budgeted costs determined as reasonable by the tribunal in ref: LON/00AH/LSC/2021/0167.

(ii) The reasonableness of the managing agent’s fees incurred in the service charge year 2022 to 2023. 3. All of the claims made in this application that sought awards of

compensation, enforcement of the tribunal’s previous decision or had

otherwise previously been determined by the tribunal in ref:

LON/00AH/LSC/2021/0167 are outside of the tribunal’s

jurisdiction or otherwise an abuse of process. 4. Therefore, all claims made by the applicants except for those

identified in paragraph 2(i) and (ii) above are dismissed. 5. The reasonableness of the managing agent’s fees in respect of the service

charge year 2023 to 2024 were without objection from the

respondent, withdrawn by the Applicants in the course of the hearing

and are not therefore, subject to a determination by this tribunal. The

tribunal of its own motion regarded the managing agent’s fees for 2024

to 2026 as also not be the subject of a determination. Decisions of the tribunal Substantive issues 6. Subject to the tribunal’s decision in LON/00AH/LSC/2021/0167 the

tribunal finds the actual service charges incurred by the Respondent in

the service charge year 2021 to 2022 are reasonable and payable by the

Applicants. 7, Although the Respondent accepted it had not received any demand to

pay water charges, the Applicant ([NAME_14]) in

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LON/00AH/LSC/2021/0167 conceded that this cost was payable in full.

Although the tribunal does not now go behind that decision, it is the

tribunal’s view that until such time as it is clear, any water charges pre-

dating any installation of a water meter are likely to be incurred, the

Respondent may wish to re-consider the demands made for this item of

service charge in respect of future years. 8. For the avoidance of doubt, the tribunal considers the 20% deduction

(plus VAT) determined by the tribunal in LON/00AH/LSC/2021/0167

also applied to the managing agent’s fees charged in the estimated

service charge year 2021 to 2022. Therefore, the tribunal declines to

make any further deduction in respect of this item. 9. The tribunal finds the managing agent’s fees for the service charge

year 2022 to 2023 are not reasonable in full and makes a 5% deduction

from these fees plus the corresponding sum due in VAT. 10. The tribunal accepts the Respondent’s written assertion and repeated to

the tribunal, that it has or intends to apply the tribunal’s decisions

reached in ref: LON/00AH/LSC/2021/0167 for the benefit of all

lessees whether or not they were parties to that application.

Similarly, the Respondent has indicated to the tribunal, that if a

decision is reached in this application, that is favourable to the

Applicants, it [NAME_12] be applied for the benefit of all lessees whether or

not they are a party to this application. 11. The tribunal does not make an order under section 20C of the

Landlord and Tenant Act 1985 and therefore, the landlord’s costs of

the tribunal proceedings may be passed to the lessees through any

service charge in accordance with the terms of lease. _____________________________________________________ The application 12. In this application the Applicants asked the tribunal to order:

The immediate payment of the £63,165.24 awarded to the

Leaseholders as part of the Court Decision

LON/00AH/LSC/2021/0167_V:FVHREMOTE dated 01st

November 2021 – which was never complied with by [NAME_13], and

adequate penalties and compensation for failing to comply;

The payment of associated compensation for the failure to pay

in due manner following the FTT decision;

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The repayment of £12,780 of FTT legal costs unduly charged

to Leaseholders and in disregard of the FTT’s decision, and

adequate penalties and compensation for contravening a court

order;

in due manner following the FTT decision; - Up to £181,121.72 in

full or partial repayment of charges applied by [NAME_13] for

unjustified (no evidence to demonstrate that services or goods

had been provided and the costs of those) or unreasonable

costs (extortionate prices for goods or services provided, goods

or services not provided at all, charges applied as a

consequence of [NAME_13]’s lack of management);

A rebate on [NAME_13]’s management fee from 2017/18 to 2023/24 (7

years of management), superior to the 20% awarded by the

FTT in November 2021 as [NAME_13] has made no attempt to

improve their service, and would reflect the poor quality of

the service provided to Leaseholders and Residents of Vita

Apartments, the repetitive delays in providing information to

Leaseholders (such as the summary of service charge

accounts, and the total lack of transparency over the

financial management of the property. Contents Scott

Schedule Page 23 of 526 Given the serious failures of

management and the contempt of Court, we ask the FTT to

order [NAME_13] to repay 35% of their management fees (backdated

to 2017/18). 13. The Applicants also asked the tribunal to order or determine:

[A] cap of [NAME_13]’s management fee for future years to 2023/24

(rebated) level; until [NAME_13] demonstrate a clear

improvement of their management performance.

By not repaying the Leaseholders of Vita Apartments the

equivalent of 20% of the management fees between charged

between 2017/18 and 2021/22, as ordered by the FTT

(Reference LON/00AH/LSC/2021/0167_V:FVHREMOTE,

dated 01st November 2021; [NAME_13] (the property manager)

and the Freeholders breached the Court’s decision?

[NAME_13] and the Freeholders charged unfairly and unlawfully

the Leaseholders of Vita Apartments for “FTT Legal Costs” –

despite the FTT’s decision preventing from doing so?

Are [NAME_13] and the Freeholders liable for the immediate payment

of the rebate on their management fees and the reimbursement

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of legal fees charged to Leaseholders, as well as associated

interest and compensation?

Are [NAME_13] and the Freeholders liable to pay

compensation to all leaseholders for their failure to comply with

the FTT’s decision of November 2021?

Is it reasonable for [NAME_13] to charge Leaseholders for goods and

services without providing any evidence that the goods/services

have been provided?

[NAME_13] signed off service charge accounts that have not been

adequately audited?

Providing the (lack of) quality of the management services

provided by [NAME_13], are their management fees (circa

£365/unit/year) reasonable considering The Leaseholder

Association advises that the “average fees currently range

between £200 and £380 per flat per year” – placing [NAME_13] at the

top of the range?

[A] failure by [NAME_13] to deliver the final accounts within six

months of the year end (repetitively – as this has been an issue

every single year since 2018). Could the FTT gain

clarification as to why this is the case?

The summary of service charge 2021/22 were provided to

Leaseholders in February 2023, nearly 1 year after the end of the

accounting period. The lateness of publication of the summary of

service charge accounts is recurrent – [NAME_13] having failed

every single year to publish the summary within 6 months of

the year end. Could the FTT clarify what are the management

company (and Freeholders) responsibilities in terms of

publication of the summary of service charge and

particularly in regard to the timeframe for publication?

Further to the 1-year timeframe to provide the summary of

service charge accounts, [NAME_13] has recognised that the accounts

contained “errors that would be corrected”. Can the FTT

clarify how it is possible for [NAME_13] to publish audited end of year

accounts (which contain errors) and “correct” them at a

later stage? The background 14. The property which is the subject of this application is a purpose built

block circa 2015/2016 containing 161 apartments. The Applicants are

long leaseholders of various apartments within the block and the

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Respondent is the landlord. The Applicants each hold a long lease of an

apartment in the subject property which requires the landlord to provide

services and the tenant to contribute towards their costs by way of a

variable service charge. No challenge was made by the Applicants to the

clauses in the lease or their interpretation. 15. The Applicants issued an application dated 04/08/2023 and the tribunal

gave Directions to the parties dated 15 September 2023 and 25 October

2023. In these Directions the tribunal stated:

The application states that the issues concern management fees

( 2017-2024) and individual items of service charge (2021-

2022). Reference is made to previous proceedings under

LON/OOAH/LSC/2021/0167.Those proceedings were

apparently brought by a single leaseholder and covered the

period 2017-2022. The Applicants need to note that the Tribunal

[NAME_12] not revisit issues already determined in the previous case.

[NAME_12] the Tribunal deal with issues of enforcement in

relation to those proceedings as those are within the jurisdiction

of the County Court. With this in mind the Applicants need to

consider carefully what issues they include in the schedule

referred to below. Only new issues that have previously not been

dealt with by the Tribunal [NAME_12] be considered. 16. Neither party requested an inspection and the tribunal did not consider

that one was necessary, nor would it have been proportionate to the

issues in dispute. The hearing 17. The Applicants [NAME_14] and [NAME_15] represented themselves as

well as the other Applicants whose names appear in Appendix I

(attached). The Respondent was represented by represented by [NAME_8] of counsel. A single digital hearing bundle of 565 pages

was relied upon by both parties. 18. Despite the tribunal’s clear instruction as to what it could and could not

be determined in this application, the Applicants sought to persist with

the entirety of their application as set out in the paragraphs above and

effectively sought the tribunal’s forensic examination of the invoices

and accounts produced by the Respondent. However, as a

preliminary matter the tribunal significantly reduced to scope of the

application to the issues within the jurisdiction of which the tribunal had

not previously been determined. 19. As well as reliance on the documents, the Respondent relied on the oral

evidence of [NAME_16] and [NAME_19] who spoke to their

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witness statements dated 12 December 2023 and 14 December 2024,

respectively. Reasons for the tribunal’s decision 20. The tribunal finds the Respondent has not incurred water charges since

the property was built, including the service charge year 2021 to

2022. The Respondent told the tribunal that since the subject

property had been let, it had not received any invoices in respect of

water charges, although it expected this situation would change at

some point in the future. Consequently, the Respondent had

made demands from the lessees in respect of water charges that were

estimated by a property manager based on experience of other blocks. 21. When pressed by the tribunal, the Respondent was unable to say when a

water meter would be installed and that it was not clear whether any

demands would be made for earlier years or whether the account would

effectively start from zero. 22. However, as [NAME_14] in Application LON/00AH/LSC/2021/0167

conceded the landlord’s water charges were payable in full, the tribunal

in this application does not go behind that decision. In light of the likely

absence of any demands for payment of the landlord’s water charges in

the foreseeable future, the tribunal invites the Respondent to re-consider

whether demands for a sum that may never be incurred or

demanded is reasonable or payable. 23. The tribunal considered only those items of estimated services charges

for 2021 to 2022 that appeared to be substantially in excess in the actual

account. These included insurance costs; general repairs (broken key in

lock and broken toilet flush); the provision of temporary heaters and the

purchase of a long ladder; the ‘gym;’ water charges; smoke alarm

testing; cleaning (after suicide) and management fees. 24. The tribunal found the Applicants failed to provide any reliable

alternative quotes for any of the items of services they challenged.

Therefore, the tribunal preferred and accepted the evidence of the

Respondent on all of these heads of service, except for the issue of water

charges for the reasons stated above and management fees. The

tribunal accepts the Respondent’s explanation that they achieve value

for money by using local contractors, albeit their registered address is

outside of London. The tribunal finds no charges are made in

respect of the ‘gym’ which is no longer in use and there are no

running costs in respect of it. 25. The tribunal accepts the Respondent’s evidence that where necessary,

claims on insurance are made. The tribunal accepts that as claims are

not often settled until after the cost of the work has been incurred

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these costs appear on the service charge accounts and are later reversed

when payment is received from the insurance company. 26. The tribunal accepts that it is reasonable for the company that installed

the fire safety system to carry out regular checks and testing. The

tribunal dismisses the Applicant’s suggestion as unreasonable, that the

caretaker should go up and down 20 stories carrying out these tests in

addition to his regular activities and appears to be without any apparent

expertise or training should a defect arise on testing. 27. Similarly, the tribunal finds it reasonable for the Respondent to have

engaged a cleaning company to safely clean an area in the subject

property that became bloodstained after an apparent suicide. The

tribunal does not accept the Applicants’ suggestion that the cleaning

should have been carried out by the caretaker, as not only is it likely this

would have been highly distressing to the caretaker but would have

carried a risk of contamination. 28. The tribunal finds the Respondent’s purchase of a long ladder (since

stolen and not replaced) to keep on site for the use of contractors to be

reasonable. Similarly, the tribunal finds the Respondent’s

reimbursement of heaters purchased by or on behalf of tenants when left

without heating, is reasonable. The tribunal also finds it reasonable for

the Respondent not to reclaim or recycle these heaters due to the

inherent dangers of second-hand/used electrical goods. 29. The tribunal finds the Respondent has not sought to recover its legal

costs in respect of the previous application. It finds these sums appear

on the accounts as sums payable by the Freeholder and not the lessees. 30. The tribunal finds there has been some improvement in the provision of

management services since the tribunal’s decision in

LON/00AH/LSC/2021/0167. However, the tribunal finds the service

charge accounts lack clarity and that explanations for charges that

appear to have been wrongly added to the Applicants’ service charge

account e.g. legal fees and costs claimable from insurance claims, have

not been readily forthcoming and has led to a significant degree of

confusion among the Applicants. The tribunal also finds the lack of

clarity about when a water meter is to be installed, is an example of poor

management and an issue that should be resolved as soon as possible. 31. Consequently, the tribunal determines a 5% reduction plus the

corresponding amount of VAT from the managing agents fees for the

charge year 2022 to 20223 is reasonable and appropriate.

9 Section 20C 32. In the application form the Applicants applied for an order under section

20C of the 1985 Act. Having heard the submissions from the

parties and taking into account the determinations above, the tribunal

determines that it is not just and equitable in the circumstances for an

order to be made under section 20C of the 1985 Act. Therefore, the

Respondent may pass any of its costs incurred in connection with the

proceedings before the tribunal through the service charge in so far as

the lease allows. 33. In reaching its decision, the tribunal took into account the unwavering

stance of the Applicants in pursuing claims outside of the tribunal’s

jurisdictions despite its clear Directions.as well as the failure to consider

mediation. 34. Therefore, the application for an order under s.20C is refused.

Name: Judge Tagliavini Date: 26 February 2024

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 application for permission must be made to the First- tier Tribunal at the Regional Office which has been dealing with the case. The application should be made on Form RP PTA available at https://www.gov.uk/government/publications/form-rp-pta-application-for- permission-to-appeal-a-decision-to-the-upper-tribunal-lands-chamber

10 The application for permission to appeal must arrive at the Regional Office within 28 days after the Tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28-day time limit, such application must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal [NAME_12] then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed, despite not being within the time limit. The application 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 making the application is seeking. If the Tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).

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Relevant extracts from the Landlord and Tenant Act 1985 s.19 Limitation of service charges: reasonableness (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 provision 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.

27A Liability to pay service charges: jurisdiction (1)An application 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, (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 application 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,

12 (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 application 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. (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 (b)on particular evidence, of any question which may be the subject of an application under subsection (1) or (3). (7)The jurisdiction conferred on the appropriate tribunal in respect of any matter by virtue of this section is in addition to any jurisdiction of a court in respect of the matter.

s.20 Limitation of service charges: costs of proceedings. (1)A tenant may make an application 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 leasehold valuation tribunal or the First-tier Tribunal], or the Upper Tribunal, or in connection with arbitration proceedings, are 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 application. (2)The application shall be made—

13 (a)in the case of court proceedings, to the court before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to the county court; (aa)in the case of proceedings before a residential property tribunal, to a leasehold valuation tribunal; (b)in the case of proceedings before a leasehold valuation tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any leasehold valuation tribunal; (ba)in the case of proceedings before the First-tier Tribunal, to the tribunal;

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Appendix I: Lessees joined as Applicants

1 [NAME_222] 2 [NAME_1] 4 [NAME_250] 5 [NAME_208] 6 [NAME_4] 7 [NAME_232] 8 [NAME_246] 9 [NAME_253] 10 [NAME_236] 11 [NAME_257] 12 [NAME_191] 13 [NAME_215] 14 [NAME_209] 15 [NAME_226] 16 [NAME_268] 17 [NAME_210] 18 [NAME_245] 19 [NAME_200] 20 [NAME_241] 21 [NAME_205] 22 [NAME_247] 23 [NAME_242] 24 [NAME_260] 25 [NAME_254] 26 [NAME_211] 27 [NAME_216] 28 [NAME_227] 29 [NAME_201] 30 [NAME_193] 31 [NAME_261] 32 [NAME_217] 33 [NAME_262] 34 [NAME_195] 35 [NAME_266] 36 [NAME_212] 37 [NAME_223] 38 [NAME_206] 39 [NAME_228]

15 40 [NAME_249] 41 Christiane Gross Jean

Rodell 43 [NAME_224] 44 [NAME_196] 45 [NAME_256] 46 [NAME_243] 47 [NAME_251] 48 [NAME_213] 49 [NAME_229] 50 SHUK TING IVY HUNG SUM YUE 51 [NAME_197] 52 [NAME_218] 53 [NAME_255] 54 [NAME_202] 55 [NAME_258] 56 Mohd Shaffi Kousar Akhtar Bulla 57 [NAME_53]

travers 58 [NAME_198] 59 [NAME_230] 60 [NAME_240] 61 [NAME_233] 63 [NAME_264] 64 [NAME_234] 67 [NAME_203] 68 [NAME_192] 69 [NAME_199] 70 [NAME_248] 71 [NAME_156] [NAME_231] 72 [NAME_219] 73 [NAME_244] 76 [NAME_207] 77 [NAME_237] 78 [NAME_204] 79 [NAME_252] 80 [NAME_259] 81 [NAME_225] 82 [NAME_220] 83 [NAME_194] 84 [NAME_221] 85 [NAME_267] 86 [NAME_263] 87 [NAME_265] 88 [NAME_214]

16 89 [NAME_190] [NAME_235]