First-tier Tribunal Determines Service Charge Liability

OUTCOME: Allowed in Part

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/OOAG/LSC/2023/0443 Property : Flat 28 [NAME], [ADDRESS] [POSTCODE] Applicant (Claimant) : [COMPANY] :

[COUNSEL] [NAME] of Counsel, instructed by [RESPONDENT]

Respondent (Defendant) : [RESPONDENT] (a company incorporated in the BVI) Representative :

[COUNSEL] [NAME], director of Respondent company Type of [NAME] :

For the determination of the liability to pay a service charge (transferred from County Court)

Tribunal Members :

Judge P [NAME] of hearing : 24 May 2024 Date of Decision : 21 June 2024

DECISION

Description of hearing

This was a face-to-face hearing.

2 Decisions of the tribunal

(1) The charges which are the subject of this transferred County Court claim are payable in full except for the item described as [NAME]. (2) In relation to the [NAME], only £3.96 is payable (representing 2.2% of the total), and it is payable as a service charge rather than as an administration charge. (3) Therefore, the total amount payable is £13,018.82. (4) The tribunal having made its determination on those aspects of the County Court claim which were transferred to it and in respect of which it accepted jurisdiction, the case is now transferred back to the County Court for final disposal. Introduction 1. The Applicant issued proceedings in the County Court on 21 March 2022 (under Claim Number J18YJ656) [NAME] a claim in the total sum of £15,443.29. That sum broke down as follows: • Service Charges: £13,014.86 • Administration Charges: £180.00 • Administration Charges (legal fees): £1,318.80 • Ground Rent: £240.00 • Interest: £601.08 (and then accruing on a daily basis).

2. A defence was filed by the Respondent on 23 June 2022. On 23 October 2023 Deputy District Judge Winter made the following order (inter alia): “The Claim (including the claim for interest and costs) is transferred to the First Tier Tribunal Property Chamber (Residential) at London”. However, it was determined by the tribunal at the directions stage, with the agreement of the parties, that the tribunal would only deal with the reasonableness and payability of the service charges and the administration charge of £180 on the basis that the case would then be returned to the County Court to deal with all other matters.

3. The Applicant seeks to recover (a) unpaid estimated service charges (including separately itemised estimated charges for heating and hot

3 water) due on 24 June 2021, 29 September 2021 and 25 December 2021, (b) unpaid [NAME] contributions due on 24 June 2021, 29 September 2021 and 25 December 2021 and (c) an unpaid administration fee of £180 which was demanded on 24 January 2022. In its County Court Particulars of Claim it deducts from the sums due (i) the amount by which the actual heating and hot water charges for 2020 fell short of the estimated charges and (ii) the amount by which the actual ‘routine’ service charges for 2020 fell short of the estimated charges.

4. The Respondent is the long leasehold owner of the Property under a lease dated 10 July 1996 (“the Lease”) which itself incorporates by reference the terms of an earlier lease dated 30 April 1971 (“the Original Lease”).

5. The Applicant has provided a copy of the Lease and a copy of the Original Lease. Respondent’s written case 6. The Respondent’s initial written objections to the unpaid charges are of a general nature, and it was therefore asked to provide written clarification of those objections. This clarification was later provided.

7. In his clarification as a director of the Respondent company, Mr [RESPONDENT] states the following items to be disputed: (i) Administration fees of £1,735 – he states that only 2.2% of these fees are chargeable to the Respondent. (ii) Professional fees of £702 (entry dated 10/12/21) – he states that these are not payable. (iii) Legal fees of £2,272.33 (entry dated 27/08/21)– he states that these are greatly excessive. (iv) Fees for £2,928 (entry dated 01/04/2020) – he states that he does not know the justification for this charge. (v) [NAME] – he mentions the [NAME] but does not explain what amount he is disputing or why. (vi) [NAME] and [NAME] fees – he makes certain comments about these. (vii) Interest charge of £644.35 (he refers to a date of 16/12/2021) – he considers this to be a double charge.

4 (viii) Sum of £17,673.06 – he states that this was received by the Applicant against a county court judgment which he states was successfully overturned and set aside and therefore this sum should be reimbursed. Applicant’s written response 8. The Applicant’s response to Mr [APPELLANT] clarification of the Respondent’s objections, using the same numbering as above, is as follows: (i) In this claim the Applicant is only claiming administration fees of £180. (ii) The Applicant states that this item does not form part of the claim. (iii) The Applicant states that this sum does not form part of the claim. (iv) The Applicant states that this sum does not form part of the claim. (v) The Applicant notes that the Respondent does not provide any clarification as to what point he is [NAME] in relation to the [NAME]. (vi) The Applicant states that the Respondent has not identified which of these fees he is challenging or on what precise basis. The Applicant then goes on to make some observations by way of general justification of these categories of charges. (vii) The Applicant states that this sum does not form part of the claim. (vii) The Applicant states that it is not within the tribunal’s jurisdiction, nor the scope of these proceedings, to make a repayment order akin to the one requested by the Respondent. The Applicant also advances various arguments as to why this sum is not repayable in any event.

9. The Applicant goes on to submit that the Respondent has failed to make any case or any clear case that the sums demanded are not reasonable and/or not payable. The Applicant’s position is that the unpaid service charges are reasonable and payable by the Respondent. The hearing 10. At the hearing, Judge Korn pointed out that the claim itself related mainly to estimated service charges for the 2021 year. He understood why estimated charges had formed the basis of the claim at the time it was issued as the audited or certified service charge accounts were

5 presumably not available in March 2022 (i.e. when the claim was issued). However, the case then did not reach the final hearing stage until May 2024. Judge Korn therefore asked [NAME] why the Applicant had not applied for permission to amend the claim once the accounts for 2021 had been finalised and once the actual service charges had been calculated, so that a determination could now be made in respect of those actual service charges. Ms [NAME], having taken instructions, was unable to assist the tribunal on this point but she was able to confirm that the Applicant did still want the tribunal to make a determination on the reasonableness of the estimated charges. Judge Korn confirmed that the tribunal did have jurisdiction to do so, but he also pointed out to Mr [NAME] that he had a separate right – if he wished to exercise it – to challenge the actual service charges for 2021 on another occasion, although he would first need to make a proper formal [NAME] to the tribunal on the appropriate form.

11. At the hearing Ms [NAME] took the tribunal through the relevant service charge and administration charge provisions in the Original Lease as incorporated by reference into the Lease. Specifically in relation to the £180.00 [NAME], Ms [APPELLANT] conceded on behalf of the Applicant that only £3.96 of that amount was payable by the Respondent for the reasons given in a tribunal decision dated 18 August 2023 in relation to Flat 26 within the same block of flats. In response Mr [NAME] said that none of the charges was payable although he did not offer any relevant arguments in support of his position. Tribunal’s analysis 12. The claim before the tribunal is narrower than it might at first sight have appeared to be. This is because in the main the claim relates to estimated service charges. Where charges are estimated it follows that they are not based on the cost or value of actual services provided; rather, they represent an assessment as to what it is likely to cost to provide the relevant services during the coming year. Any challenge to an estimated service charge can only be based on whether the estimate was a reasonable one at the time that it was made judged on the information available to the landlord at the time. It cannot be based on arguments as to the quality of the subsequent provision of the relevant services or on any other arguments relating to the subsequent provision of the services. As noted above, we do not consider it ideal that we are being asked to determine estimated service charges for 2021 when the actual charges will already have been established a long time ago, but that is nevertheless the position.

13. As explained to the Respondent at the hearing, the fact that this claim relates primarily to estimated charges does not deprive [NAME] of the right to challenge the cost of services actually provided. It just means that [NAME] can only make that particular type of challenge once the actual cost of those services has been established, usually by

6 the landlord notifying [NAME] that the actual costs have been calculated and that either (a) there is an extra amount to pay on top of the estimated charge or (b) a credit is due to [NAME] if the actual charge is lower than the estimated charge.

14. However, the more fundamental problem for the Respondent in this case is that there is a complete mismatch between the Respondent’s statement of case and the Applicant’s actual claim. It is crystal clear that the great majority of the points made by the Respondent have nothing whatsoever to do with the various items forming part of the Applicant’s claim, and therefore they cannot constitute a proper challenge to the claim. Just by way of example, a challenge to legal fees which clearly form no part of the Applicant’s claim cannot serve as a challenge to (say) the reasonableness of the estimated service charge for 2021. Mr [NAME] other points are either unclear or – in the case of the challenge to the sum of £17,673.06 – not within this tribunal’s jurisdiction to determine.

15. Mr [NAME] has in the course of these proceedings repeatedly expressed concerns about the management of [NAME], but the concerns expressed – even if valid – are not relevant to the issues before this tribunal in respect of this specific claim. At the hearing Judge Korn urged [NAME] to obtain independent legal advice in relation to any possible future legal proceedings that he might wish to issue or defend, and he told Mr [NAME] that the tribunal’s staff could point him in the direction of sources of free or low-cost legal advice. Any future challenge or defence needs to be relevant and coherent, and Mr [NAME] challenges in these proceedings have failed on both counts.

16. In the absence of any proper challenge, the Applicant is only required to make out a basic case to support its position, and in the tribunal’s view it has succeeded in doing so. It has directed the tribunal to the relevant lease provisions and the relevant service charge budget and other service charge items, and the tribunal has considered these together with any other aspects of the hearing bundle which it considers to be relevant. Subject to the point to be made below in relation to the £180 administration charge, the tribunal is satisfied that all of the items forming part of the claim are properly payable in the absence of any credible challenge on the part of the Respondent.

17. In relation to the challenge to the sum of £17,673.06, it is worth adding that there are circumstances in which such a challenge could be treated as a valid counterclaim. However, such a counterclaim would need to be pleaded much more clearly and coherently, and even then it is very unusual for such a counterclaim to be something which the tribunal itself has jurisdiction to deal with itself (see e.g. [COMPANY] v White (2006) 1 EGLR 85) and therefore it would still need to be dealt with by the county court.

7 18. In relation to the £180 administration charge, it is clear from the contents of the hearing bundle and the Applicant’s oral submissions that this is the identical type of charge to the one which was considered by the tribunal in its decision dated 18 August 2023 in relation to Flat 26 within the same block of flats (Ref: LON/00AG/LSC/2023/0075). In that case the Applicant contended that what was a standard fee levied in connection with the [NAME]’s failure to pay service charges was recoverable under the lease as an administration charge. The relevant lease clause was (as here) “To pay all costs charges and expenses incurred by the [NAME] in the preparation and service of any notice under Section 146 and 147 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court”. The tribunal in that case determined that this lease clause was not wide enough to recover a standard fee levied in connection with the [NAME]’s failure to pay service charges, and the Applicant in this case has conceded that the nature of the fee in this case is identical to the one that was considered in the Flat 26 case and that the charge is not recoverable as an administration charge.

19. For the reasons also set out in the determination relating to Flat 26, we do though accept that the relevant service charge proportion of the £180 charge is payable as a service charge. This is because Paragraph (1) of the Fifth Schedule to the Original Lease allows the Applicant “To employ [NAME] to supervise the management of the building its services and common parts and to pay the [NAME] reasonable rates of remuneration for their services”. The evidence before us (as in the earlier case) indicates that the £180 charge is for the [NAME]’ time spent in preparing for a referral to solicitors in connection with the Respondent’s unpaid service charges, and on balance we accept that the lease provision quoted above is wide enough to cover the cost incurred by the [NAME] in dealing with these unpaid service charges. We also have no basis for concluding that the £180 is not reasonable in amount. As the Applicant can only recover from the Respondent its service charge proportion of this sum, namely 2.2% of it, the Applicant can only claim £3.96 (as it concedes is the case).

20. In conclusion, therefore, all of the sums claimed by the Applicant are payable in full except for the £180.00 [NAME] of which only £3.96 is payable. Cost applications 21. No cost applications have been made to the tribunal.

Name:

Judge P Korn

Date:

21 June 2024

8 RIGHTS OF APPEAL

A. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) a written [NAME] for permission must be made to the First-tier Tribunal at the [NAME] dealing with the case.

B. The [NAME] for permission to appeal must arrive at the [NAME] within 28 days after the Tribunal sends written reasons for the decision to the [NAME].

C. If the [NAME] is not made within the 28 day time limit, such [NAME] must include a request for extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at such reason and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit.

D. 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.

9 APPENDIX

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,

10 (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 [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 (6) An agreement by the tenant of a dwelling … is void in so far as it purports to provide for a determination – (a) in a particular manner, or (b) on particular evidence.