First-tier Tribunal Finds Service Charge Estimates Reasonable

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00AP/LSC/2021/0234 HMCTS code

: V:VIDEO Property :

7 [ADDRESS] [POSTCODE] Applicants :

[redacted] [NAME] [NAME] (Flat A) [COUNSEL] (Flat B) Representative : [COMPANY] Respondent : [redacted] : [RESPONDENT] of Application : For the determination of the reasonableness of and the liability to pay a service charge Tribunal Members : Judge Prof R Percival Mr A [NAME] and venue of Hearing : 16 December 2021 Remote Date of Decision : #

DECISION

2

Covid-19 pandemic: description of hearing This has been a remote video hearing which has been consented to by the parties. The form of remote hearing was VHS. A face-to-face hearing was not held because it was not practicable and all issues could be determined in a remote hearing. The documents are in a bundle of 90 pages, the contents of which have been noted.

The application 1. The Applicant seeks a determination pursuant to section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) as to the amount of service charges payable by the Applicant in respect of the estimated service charge year 2021/22.

2. The relevant legal provisions are set out in the Appendix to this decision. The property 3. [ADDRESS] is a semi-detached house with three floors, built, according to the Applicants, around 1900. It has been converted into three flats. The lease 4. We were told that the leases were originally granted in 2004 to 2005, for terms of 125 years, and that Ms [NAME] and Ms [NAME] were the first tenants of their respective flats. Mr [NAME] acquiring his leasehold interest in 2015. The only copy of a lease we were provided with was an unsigned copy of Ms [NAME]. That it is an accurate representation of all three leases has not been contested. 5. [COMPANY] acquired the freehold in March 2021.

6. Clause 3.12 requires the lessee to pay “all costs charges and expenses (including solicitors’ costs and surveyors’ fees) reasonably incurred by the [NAME] incidental to or in contemplation of … the preparation and service of a notice under section 146 and 147 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided …” 7. Interest (4% above RBS base lending rate) is payable on sums payable by the lessee from 14 days after the demand, and an “administration

3 fee” of £50 may be charged for “Each additional demand in the event of late payment of rent” (clause 3.18).

8. Provision is made for the service charge in clause 4. The drafting is convoluted. The maintenance charge is defined as costs and outgoings incurred by the [NAME] “during the relevant accounting year [from 1 April, or other period specified in writing, by clause 4.2.9] or any part thereof” in carrying out various obligations on the [NAME], and in paying the fees of a managing agent “for the collection of the service charge but not ground rent” (clause 4.2.2). By clause 4.2.4.2, however, provides for the “reasonable and proper fees charges and expenses of their managing agents … for managing the Building and collecting the maintenance charges but not ground rent … and carrying out such other duties as the [NAME] reasonably requires or are imposed by the provision of this lease and of any solicitor accountant surveyor agent or architect employed or instructed in connection with any question arising on the maintenance of the building and the ascertaining of the maintenance charge and the auditing of accounts in connection therewith.” 9. Also ascribable to the service charge are the costs of insurance (clause 4.2.2.3) and of valuation for insurance purposes (clause 4.2.4.4), and “all reasonable legal and other proper costs incurred by the [NAME]” (clause 4.2.4.6).

10. There is provision for payment via the management charge into a [NAME] (clause 4.2.4.9). In a separate clause (clause 4.2.7), the [NAME] may include as deemed expenditure in an accounting year sums allocated to that year for “anticipated expenditure of a periodic or recurring nature”; and (expressed as “also”) expenditure for the accumulation of a reserve fund “as a reasonable provision against anticipated expenditure”.

11. Advance interim payments are payable quarterly (clause 4.2.5).

12. The mechanism involves an obligation “as soon as practicable after the end of each accounting year” on “the [NAME] or its managing agents or surveyors” to certify the amount of the maintenance charge, and to serve the certificate on the lessee. Provision is then made for reconciliation of over and under-payment in the interim payments, over-payment being retained and applied to future years (clause 4.2.6). The certificate must contain an “accurate summary” of expenditure and outgoings (clause 4.2.8).

13. The costs of the [NAME]’s obligations under clause 5 are referable to the service charge. They include an obligation to “maintain and keep in good and substantial repair and condition … the main structure of the Building including the principal internal timbers and the exterior walls and the exterior of window frames and the foundations …” (clause

4 5.2.1), and drains and pipes etc and outside areas. Other obligations are to undertake external decoration and decoration of the communal areas, and cleaning and lighting of the latter.

14. They also include the insurance obligation (including an obligation to provide the lessee with a copy of the policy) (clause 5.1), enforcement of covenants, provision of aerials and entry phones, and a sweeping up clause “without prejudice to the foregoing do or cause to be done all such works installations acts matters and things as may … be necessary or advisable for the proper maintenance safety and administration of the Building.” 15. The demised property is briefly described in clause 1 by reference to a plan not provided to the Tribunal and is expressed to exclude “structural parts”. Clause 10.1 declares walls separating the demised premises from other parts of the building to be party walls severed medially, and that the demise extends only as far as the medial plane.

16. The lessee’s repairing obligation apply to “… all windows glass doors (including the entrance door to the Demised Premises) … ” and various other matters (clause 3.5).

17. We were told that 30% of the charge was payable by flats A and B and 40% by flat C. The issues and the hearing 18. The Applicants’ represented themselves. Ms [NAME] chiefly spoke for them collectively. Mr [RESPONDENT] of [RESPONDENT] represented the Respondent.

19. With the agreement of the parties, the hearing progressed by means of submissions by both parties on the Scott schedule provided in the bundle. We follow that structure in this decision. The challenges were for the estimated service charge for 2021. Background 20. [NAME] said that for a period of about ten years before the Respondent acquired the freehold, the freeholder had, in practice, been largely absent, apart from arranging the insurance. As a result, routine maintenance and cleaning etc had been undertaken by the Applicants. Insurance 21. The estimated cost for insurance was £1,350. For the Applicants, Ms [NAME] said that during the previous 10 years, the building insurance had always been in the range of £500 to £700. Ms [NAME] produced a quotation from AXA insurance cover dated October 2021 for £728,

5 which she said was on the basis of a re-instatement cost of £800,000, and a quotation from Maltings Insurance for £789 for £1,000,000.

22. Mr [NAME] noted that the figure was an estimate, and the actual figure, which was now available, was £1,289, from Arch Insurance. Since the estimated demand was made, a revaluation of the re-instatement cost had been undertaken (in August 2021), which provided a figure of £780,000 for rebuilding. Mr [NAME] did not rely on the revaluation to explain the increase in the premium.

23. Mr [NAME] explained that [NAME] operated a block policy across its portfolio, which was secured through an independent broker. They had quite frequently changed insurer as a result of market testing. The current policy did not include terrorism.

24. Mr [NAME] primary point was that the Applicants had not provided details of the policy, so it was simply not possible to be sure that the insurance policy covered the same risks. He went further, and suggested that on their face, the documents provided suggested that the polices were ordinary landlords’ policies, not policies applicable to a freeholder. It was not clear what had been said to the [COMPANY].

25. No commission was taken by the landlord or managing agent on the insurance, Mr [RESPONDENT] said. He did not know what commission the broker took, but assumed it was in line with the normal market rate.

26. Mr [NAME] said he was prepared to provide a copy of the certificate to the Applicants, but had not done so to date.

27. As Mr [RESPONDENT] reminded us, a landlord is not required to take the cheapest option for any expenditure referable to a service charge, but the option chosen must be within the reasonable range. We accept Mr [NAME] point that it is difficult to properly compare insurance quotations when the details of a policy are not available. A number of variables can significantly affect the cost of insurance, not just the overall sum for re-instatement. We understand Mr [RESPONDENT] point as to the nature of the insurance (landlord as opposed to freeholder) to be a particular example of that more general difficulty.

28. We do not, therefore, consider that the Applicants’ quotations can be assumed to be an appropriate benchmark for reasonableness. We nonetheless gave anxious consideration to the Applicants’ broader point, which is that the estimate for 2021 (even considered in the light of what we now know to be the actual expenditure) is a substantial increase over the sums charged previously. Our conclusion, however, is that this is not sufficient to persuade us that the estimate was unreasonable.

6 29. First, the process undertaken by the Respondent is an appropriate and reasonable one. Secondly, we do not consider we can conclude that the outcome was unreasonable ([NAME] v Hounslow LBC [2017] EWCA Civ 45, [2017] 1 WLR 2817). In addition to Mr [NAME] point that we do not know what was covered by either the previous policies, or those the subject of the Applicants’ quotations, the Tribunal is aware that there has been significantly higher than average inflation in freeholders’ building insurance over recent years. On this basis, we conclude that the estimate for insurance was not unreasonable.

30. Decision: The estimated cost of insurance was reasonable. Common parts: electricity 31. The estimated cost was £150.

32. The Applicants’ objected that there was no cost of electricity, as it was paid by one of the Applicants’ as part of their own electricity bill, the amount concerned being minimal in any event.

33. Mr [NAME] accepted the Applicants’ argument and agreed the estimated charge should be removed.

34. Decision: The estimated charge should be withdrawn (agreed). Common parts: cleaning 35. The estimated cost was £1,000.

36. Ms [NAME] told us there was a small hallway of about one metre by two metres from which leads a staircase to a small landing with a window, and then another staircase to the upper hall. The doors to flats B and C are off this hall, the stairs to the main body of flat C being internal to the flat, behind this door. Externally, there is a small front garden. The rear garden is demised to flat A. Ms [NAME] added that, since 2005, she had been sweeping the internal areas, and Ms [APPELLANT] tenant had usually looked after the front garden.

37. Given the size of the communal area, Ms [NAME] argued that the estimate was excessive.

38. Ms [NAME] noted that it was not based on a physical inspection of the communal areas at the property. She said the Applicants had sought a meeting with the Respondent to discuss the cleaning, among other matters, but the Respondent refused.

39. Mr [RESPONDENT] argued, first, that no alternative quotation had been presented by the Applicants. He said that the estimate amounted to about £32 a fortnight, which was not excessive. He emphasised again

7 that it was a budgeted figure that he had come to with his years of experience based on lease plans. There were, he said, cleaning firms whose call out charge was higher than that (although this was not directly relevant, as [NAME] employed the relevant cleaner for multiple properties). He clarified that [NAME] engaged a number of firms across their portfolio, but gave each of them a substantial amount of business. Mr [NAME] said that he believed that the cleaner swept outside, but did not provide a full gardening service.

40. In answer to a question from Mr [NAME], Mr [NAME] confirmed that fortnightly cleaning was taking place, and that it was costing exactly £32 per visit, which included materials and equipment.

41. The Applicants argued, in addition, that the cleaning was not being performed, or at least was not being adequately performed. We took the view – which we expressed to the Applicants – that it was inappropriate to consider performance when the challenge was to an estimated cost.

42. Our initial conclusion was that £32 a visit was within the reasonable range, if somewhat on the high side, given the size of the communal area and the fact that there was no fixed call out fee involved. However, we subsequently noted that a fee of £32 per fortnight in fact amounts to £832 a year. Since this was what Mr [NAME] had indicated was the basis for his estimate, we substitute that sum, which in any event Mr [NAME] confirms will represent the actual relevant charge in due course.

43. Decision: The sum of £1,000 for estimated service charge in respect of communal cleaning is unreasonable. A sum of £832 should be substituted. Window cleaning 44. The estimated charge was £300.

45. The Applicants principal objection was that these costs were too high. The Tribunal asked Mr [NAME] if the cleaning of the flats’ windows was in any event the Respondent’s responsibility, in the light of clause 5.2.1, read with clause 3.5 (see above, paragraphs 13 and 16#).

46. Mr [NAME] argued that, in the light of the drafting convention adhered to in this lease of not inserting commas, we could and should read the obligation in clause 5.2.1 as having a comma after the word “window”, such that the cleaning of the external surface of the glass of the windows in the flats was a separate item.

47. The natural reading of “exterior of window frames” is that it refers to the window frames, specifically the exterior of window frames. Mr [NAME] reading requires not just the insertion of a comma, but also the

8 addition of a plural – “the exterior of windows, frames”. On its own, we consider this implausible. In addition to the necessity of the further addition, it leaves the word “frames” implausibly unqualified. Read with the obligation of the tenant to maintain etc “all windows glass …”, the reading is unsustainable.

48. In the light of this conclusion, we do not further consider whether, had the Respondent had this responsibility, the charge would have reasonable in amount. We note again, however, that the Applicants’ complaint in this respect was at least in part based on what they considered inadequate communication by the Respondent as to the basis of the charges.

49. Decision: The estimate for window cleaning is not payable under the lease. Drains servicing 50. The estimated charge was £250.

51. The Applicants explained that they had had no information as to what was covered by this item. They effectively challenged the Respondent as to the process that had been undertaken to arrive at this estimate.

52. Mr [RESPONDENT] said that the Respondent was responsible for the maintenance of the drains (clause 5.2.1), and the assessment of the cost was on the basis of [NAME] (effectively, Mr [NAME]) experience and knowledge of this type of property. He said that the services intended to be carried out were a CCTV survey, a flush and clearance of blockages if necessary, plus clearance of gutters. He considered, further, that a “simple” CCTV survey of the drains was necessary twice a year.

53. Following Mr [NAME] explanation, Ms [NAME] noted that this was the first time the Applicants had had such an explanation given to them.

54. We concluded, based on the evidence and the experience of the Tribunal, that it was reasonable for the Respondent to undertake an initial CCTV survey of the drains, when a new Respondent took over the freehold. Further, a regular charge for the clearance of the gutters was reasonable. The cost charged in the estimate is a reasonable one to secure these services. However, the Tribunal would not consider it reasonable for regular CCTV surveys to be conducted. Rather, after an initial survey and any consequent remedial work, a CCTV survey would only be necessary as a reactive measure following complaints, or some event that gave rise to a reasonable concern that the drains may be damaged.

9 55. Decision: the estimated charge was reasonable to cover the appropriate services described. It would not be reasonable to routinely undertake two CCTV surveys a year. Fire health and safety survey and services 56. The estimated charge was £400 for the survey, and £400 for the service. The two matters appear as separate items in the Scott schedule, and Mr [NAME] view was that they were quite separate. We deal with them together here simply because the submissions made during the hearing effectively amalgamated the two. Mr [NAME], in his comments on the Scott schedule, said he would agree to a reduction to £300 for the survey, although he still considered the original estimate to have been broadly reasonable.

57. Ms [NAME] initial concern was again with the lack of any explanation as to why the survey was necessary, and what it covered. The [NAME] considered that the property presented no more of a fire risk than if the house as a whole was a single private home. She said that the Applicants had received quotations (exhibited) for a “type 1 fire risk assessment” at £150 (including VAT) and £180 (excluding VAT), with an estimate of £100 for consequent remedial work (from the first company). They therefore considered that £250 for both items would be reasonable. Apart from direct remedial work flowing from a survey, no further fire services were necessary or reasonable.

58. Mr [NAME] argued that having a survey was a requirement under the Regulatory Reform (Fire Safety) Order 2005. No previous surveys had been provided. He said that the quotations the Applicants had secured were just for fire risk assessments, not for a full fire health and safety survey. The former were narrower than the latter, as they did not deal with aspects such as health and safety aspects of means of escape and so on.

59. Mr [NAME] said that the report had now been received (we assume, after the concession made on the Scott schedule was indicated), at a cost of £400.20 (including VAT). Further work would be necessary as a result of the survey, Mr [NAME] noted, and would be dealt with in the next service charge year.

60. Mr [NAME] said that the service comprised checking a fire alarm in the communal area once month. A cost of £36 per month was not excessive for such a service. Mr [NAME] confirmed that the service consisted of someone attending at the property and pressing the “test” button on the two fire alarms to check that they were working.

61. We consider that it is reasonable to undertake an initial full fire health and safety report, and we consider the original estimate of £400 for such a survey to be a reasonable one. The obligation to secure such

10 surveys is to do so periodically. It will not, accordingly, be necessary for such a survey to be completed every year.

62. Given the size and nature of the property, it is not reasonable to test the fire alarm every month. Every other month, at most, would be a reasonable frequency. We do not quite understand Mr [NAME] assertion that the cost was £36 per month. However, the important point is that Mr [NAME] stated that the frequency of testing to which the estimate related was every month.

63. Decisions: (1) the estimate for the fire health and safety survey was reasonable; (2) the estimate for “fire health and safety service” – testing the fire alarm – was not reasonable. A sum of £200 should be substituted. Accountancy fees 64. The estimated charge was £300.

65. Ms [NAME] argued that it was the managing agents that were required to certify the service charge accounts in the lease. There was nothing to suggest that an independent accountant was necessary. There was a lack of clarity as to what an accountant was required to do. Ms [NAME] queried whether there was, indeed, an independent accountancy firm involved.

66. Mr [NAME] emphasised again that the charge was only an estimate, and said that all relevant documents would be provided when the final accounts were made up. He said that while it was [NAME] which was required to formally certify the service charge account, it was both permitted under the lease and reasonable for the managing agent to engage an accountant to draw up the accounts.

67. We concluded that it was in principle reasonable to engage an accountant, and – again in principle – the fee was not outside the reasonable range. As Mr [NAME] observed, these were estimated charges, and if the fee appeared unreasonable in the light of the work actually undertaken, when that became apparent with the final accounts, it would be open to challenge.

68. Decision: The estimated charge was reasonable. Management fees 69. The estimated charge was £850.

70. Ms [NAME] relied on her criticisms of the quality of the management of the property by [NAME] to argue that the management fee was excessive. She also said that the managing agent and the freeholder

11 were closely connected, and that the management function was therefore not being undertaken by an agency truly independent of the freeholder. She again referred to a lack of information and transparency, and in particular said that the Applicants had not been supplied with a copy of the agreement between [NAME] and the freeholder.

71. Mr [NAME] argued that the lease allowed for a fee for a managing agent, and at £236 plus VAT, the per unit fee was well within the reasonable range. In answer to a question from the Tribunal, he said that management fees were, he believed, a fixed fee of £235 per unit. As to the relationship between [NAME] and [COMPANY], he said that the two were separate companies, and it would only be appropriate to look behind that separation if it amounted to a clear sham, relying on Skilleter and Others v Charles [1992] 1 EGLR 73. He again said that this was an estimated charge, and the final accounts would include invoices for management fees.

72. We told the parties that it was the experience of the Tribunal that the general range of management charges in London for this type of property was between approximately £250 and £375 per unit. This was a matter of general knowledge based on the expertise and experience of the Tribunal, not amenable to support by the disclosure of specific information. The parties agreed that the Tribunal could proceed on this basis.

73. We note that Mr [NAME] per-unit calculation is based on an equal division of the estimated total between the three flats (a point that became apparent to the Tribunal after the hearing, and so was not put to the parties). The per unit costs, including VAT, implied by the estimate were therefore £255 for flats A and B and £340 for flat C.

74. In the abstract, these charges are within what we consider to be the normal parameters of the market for management agency services in London, as indicated above. We consider that there was some force in Ms [NAME] criticisms of the quality of management, particularly in respect of communication with the Applicants by [NAME]. However, we consider these criticisms are best expressed by the more focussed approach of taking them into account when considering the applications under section 20C of the 1985 Act and paragraph 5A of schedule 11 to the 2002 Act below, rather than attempting to assess a general reduction in the management fees.

75. Decision: The estimated cost for management agent’s fees is reasonable. Repair fund

12 76. An estimated charge of £1,000 was made for a [NAME] for future works.

77. Ms [NAME] accepted that the lease allowed for the building up of a [NAME]. Her principal argument was again that there had been no real disclosure about the Respondent’s plans in terms of work or any meaningful engagement with them. In those circumstances, the Applicants were not confident that the sums would be properly accounted for.

78. When asked what a reasonable sum would be, given that the Applicants did not argue that no fund should be accumulated, Ms [NAME] said that £500 in the first year would be appropriate.

79. Mr [NAME] noted that the lease allowed for a [NAME], and argued that works would be necessary in the future. Consultations under section 20 of the 1985 Act would be carried out (some notices of intention were exhibited in the bundle).

80. Given the history of the property, it was inevitable that significant works would be necessary in the future; and it appeared that at the time of the hearing some section 20 notices had been served. In this context, we consider that to start a [NAME] with £1,000 was, if anything, conservative.

81. Decision: The estimate relating to a repair fund was reasonable. Arrears 82. Each of the service charge demands included, in addition to the estimated charges, sums described as arrears. The sums involved were £978.05 for flat A, £388.19 for flat B and £1,893.34 for flat C.

83. Ms [NAME] said that the demands issued in May 2021 included differing amounts for each freeholder expressed as arrears. This was, she said, the first notification they had had of arrears. The previous leaseholder’s last communication had been a service charge demand May 2020, and had comprised only insurance (plus a demand for ground rent). The only such demand provided was that addressed to Ms [NAME]. The other Applicants’ evidence was that they had not received equivalent demands.

84. Mr [NAME] stated that he had previously applied for the previous freeholder, [NAME], to be added to this application, but that had been rejected. He told us that there had been very limited handover material from [NAME], and no direct contact with them. There were some arrears statements (which had been disclosed, and were produced in the bundle), but that was all. He said at this point that only [NAME]

13 could answer as to these arrears. He had, he said, been directed by his client, [NAME], to charge the arrears to the Applicants.

85. Mr [NAME] added, by way of a general observation, that the failure to add arrears to a service charge (referring to that from [NAME] to Ms [NAME] in May 2020) should not be taken as an indication that no arrears existed.

86. We took some time with Ms [NAME] in an attempt to analyse the origins of the sums appearing in the disclosed arrears schedules, but, for the reasons set out below, this was ultimately an unnecessary endeavour.

87. The overall effect of the Ms [NAME] evidence was that the arrears referred to in the disclosed schedules from [NAME] had not been demanded by [NAME], save for the demand, on her, for insurance in respect of 2020/21. While the evidence in general suggested that there had been service charge demands for insurance (only) in the previous period, there was positive evidence from Mr [NAME] and Ms [NAME] that they had not received those for 2020/21. The effect of Mr [NAME] evidence was that he could not gainsay the Applicants’ evidence that they had not received these demands. We add that the evidence of the Applicants is broadly consistent with their account of their previous relationships with [NAME].

88. As things stand before the Tribunal, there is no evidence that any of the charges constituting arrears attached to [NAME]’ estimated service charge were ever demanded, save for those demanded from Ms [NAME] in May 2020; and positive evidence from the Applicants that they were not. If a demand were to be made now by [NAME]’, it would be incumbent on the Respondent to show that the costs referable to such a demand were incurred within 18 months of such a demand (section 20B of the 1985 Act).

89. Administration charges relating to late payment or to debt collection are not before the Tribunal, and we are not in a position to strictly determine their payability. However, in principle, such charges are not payable on sums that are not owed.

90. Decision: The sums demanded as arrears in the estimated service charge are not payable, save for that demanded in May 2020 from Ms [NAME] in respect of flat A. Issue 5: Application for orders under Section 20C of the 1985 Act/Commonhold and Leasehold Reform Act 2002, schedule 11, paragraph 5A 91. The Applicant applied for orders under section 20C of the 1985 Act that the costs of these proceedings may not be considered relevant costs for

14 the purposes of determining a service charge; and an order under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 extinguishing any liability to pay an administration charge in respect of litigation cost in relation to the proceedings.

92. We would consider these applications on the basis that the leases does provide for such costs to be passed on either in the service charge or as administration charges, without having heard any argument on the question, and so without deciding whether that was the case or not. Whether the lease does, in fact, make such provision is, accordingly, an open question should the matter be litigated in the future.

93. An application under section 20C is to be determined on the basis of what is just and equitable in all the circumstances (Tenants of [ADDRESS] v [COMPANY] (LRX/37/2000). The approach must be the same under paragraph 5A, which was enacted to ensure that a parallel jurisdiction existed in relation to administration charges to that conferred by section 20C.

94. Such orders are an interference with the landlord’s contractual rights, and must never be made as a matter of course.

95. We should take into account the effect of the order on others affected, including the landlord: Re SCMLLA ([RESPONDENT] [2014] UKUT 58 (LC); [NAME] v [NAME] [2013] UKUT 592 (LC); [2014] 1 EGLR 111.

96. The success or failure of a party to the proceedings is not determinative. Comparative success is, however, a significant matter in weighing up what is just and equitable in the circumstances.

97. Each party has succeeded on some issues before us, but it could be said that the Respondent had been broadly more successful, although it is a somewhat artificial exercise. In assessing what it just and reasonable in all the circumstances, we also consider it appropriate to have regard to Ms [NAME] criticism, particularly, of the lack of transparency and communication of [NAME], the Respondent’s managing agent, with the Applicants. It was clear to us that there had been a stark absence of engagement by [NAME], including, but not limited to, a refusal to meet the Applicants, to visit the property, and to enter into meaningful correspondence in relation to the issues. This conduct at least contributed to the decision of the Applicants to make the application.

98.

In all the circumstances we consider it just and reasonable to make the orders.

99. Decision: the Tribunal orders

15 (1) under section 20C of the 1985 Act that the costs incurred by the Respondent in proceedings before the Tribunal are not to be taken into account in determining the amount of any service charge payable by the Applicant; (2) under Commonhold and Leasehold Reform Act 2002, schedule 11, paragraph 5A that any liability of the Applicant to pay litigation costs as defined in that paragraph be extinguished; Rights of appeal 100. 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 London regional office. 101. The application for permission to appeal must arrive at the office within 28 days after the Tribunal sends written reasons for the decision to the person making the application. 102. If the application is not made within the 28 day time limit, the application 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 these reason(s) and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit. 103. The application for permission to appeal must identify the decision of the Tribunal to which it relates, 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.

Name: Tribunal Judge Professor Richard Percival Date: ##

16 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 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. Section 27A (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—

17 (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, (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,

18 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. 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— (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

19 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 20ZA (1) Where an application is made to the appropriate tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements. (2) In section 20 and this section— “qualifying works” means works on a building or any other premises, and “qualifying long term agreement” means (subject to subsection (3)) an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months. (3) The Secretary of State may by regulations provide that an agreement is not a qualifying long term agreement— (a) if it is an agreement of a description prescribed by the regulations, or (b) in any circumstances so prescribed. (4) In section 20 and this section “the consultation requirements” means requirements prescribed by regulations made by the Secretary of State. (5) Regulations under subsection (4) may in particular include provision requiring the landlord— (a) to provide details of proposed works or agreements to tenants or the [COMPANY] representing them, (b) to obtain estimates for proposed works or agreements, (c) to invite tenants or the [COMPANY] to propose the names of persons from whom the landlord should try to obtain other estimates,

20 (d) to have regard to observations made by tenants or the [COMPANY] in relation to proposed works or agreements and estimates, and (e) to give reasons in prescribed circumstances for carrying out works or entering into agreements. (6) Regulations under section 20 or this section— (a) may make provision generally or only in relation to specific cases, and (b) may make different provision for different purposes. (7) Regulations under section 20 or this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. 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 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 tribunal2 or leasehold valuation tribunal or the First-tier Tribunal3 , or the Upper Tribunal4 , 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— (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;

21 (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; (c) in the case of proceedings before the Upper Tribunal4 , to the tribunal; (d) in the case of arbitration proceedings, to the arbitral tribunal or, if the application is made after the proceedings are concluded, to the county court. (3) The court or tribunal to which the application is made may make such order on the application 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. (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

22 (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 application 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]1 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 application 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.

23 (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 matter of an application under sub-paragraph (1).