First-tier Tribunal Grants Refunds and Protects Tenants from Unreasonable Service Charges

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AL/LSC/2020/0111 LON/00AL/LAM/2018/0012 HMCTS : V: CVPREMOTE Property : 112 [ADDRESS], [POSTCODE] Applicants : [redacted] [COUNSEL] (Flat C) Representative : In person [NAME]

[COUNSEL] [NAME] (landlord) [COUNSEL] Respondent : [redacted] (Tribunal Appointed Manager) Representative : In person Type of 1st [NAME] : Liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Type of 2nd [NAME] to the Manager under Part II of the Landlord and Tenant Act 1987

Tribunal : Judge Robert Latham Judge Amran Vance Ian Holdsworth FRICS Date and Venue of Hearing : 10 [ADDRESS] [POSTCODE] on 5 and 7 July 2021 Date of Decision : 12 August 2021

2 Covid-19 pandemic: description of hearing This has been a remote video hearing which has not been objected to by the parties. The form of remote hearing was V: CPVEREMOTE. A face-to-face hearing was not held because it was not practicable and all issues could be determined in a remote hearing. The Applicants have provided the [NAME] which totals 957 pages, references to which will be prefixed by “[RESPONDENT]._”). The Respondent also referred the tribunal to his Statement of Case and three bundles of documents, references to which will be prefixed by “R1._” (294 pages); “R2._” (140 pages) and “R3._” (149 pages). Many of these documents are included in the Applicant’s Bundle. During the course of the hearing, the Manager produced a number of additional documents which are summarised at [25] below, including a Bundle of Supporting Documents (“R4._”).

Decision Section 27A [NAME] (LON/00AL/LSC/2020/0111)

1. The Tribunal makes the determinations as set out under paragraphs 89 to 107 in respect of the service charges in dispute.

2. The tribunal determines that the Respondent shall pay the Applicants £300 within 28 days of this decision, in respect of the reimbursement of the tribunal fees paid by the Applicants.

3. The Tribunal makes an order under section 20C of the Landlord and Tenant Act 1985 so that none of the landlord’s costs of the tribunal proceedings may be passed to the lessees through any service charge. Directions to the Manager (LON/00AL/LAM/2018/0012) Directions sought by the Applicants 4. The Tribunal directs the Respondent to forthwith repay the following sums to the Applicants in respect of the excess service charges which they have paid, namely (i) £11,844.32 to the First Applicant; and (ii) £12,196.92 to the Second Applicant. Directions sought by the Respondent 5. The Tribunal authorises the Manager to issue proceedings against the [NAME] for the arrears arising under the [NAME]. The Manager is personally responsible for any costs relating to such an action.

3 1. Introduction 1. There is a mistaken belief that if tenants have a rogue landlord who has neglected their flats for many years, all they need to do is to apply for a tribunal appointed manager pursuant to Part II of the Landlord and Tenant Act 1987 (“the 1987 Act”) and their problems will be resolved. This [NAME] highlights the limitations of what can be achieved by such an appointment. The difficulties are the greater where, as here, the landlord/freeholder is liable to pay the majority of the service charges, namely 60% of external and 50% of internal charges.

2. The tribunal only appoints a manager as a last resort when it is apparent that this is just and convenient to ensure that a property is properly managed. The manager is appointed to oversee a scheme of management and acts independently of the parties and as an officer of the tribunal.

3. This case highlights the need for there to be clarity between the tribunal and the parties as to the outcomes which can realistically be achieved through the appointment of a manager. Where it becomes apparent that these outcomes are unobtainable, it is open to the manager to apply to the Tribunal for directions or for the [NAME] to be varied or discharged. A [NAME] requires the manager to make an annual report to the tribunal. This should alert the tribunal to any problems that have arisen and to any further directions that may be required.

4. Service charges paid by a tenant to the manager are subject to the provisions of sections 18-30 of the Landlord and Tenant Act 1985 (“the 1985 Act”). Any criticism of the conduct of the manager will be examined with care, because they are made against the manager in his capacity as an officer of the tribunal. A tribunal will be astute to the practical problems faced by a manager in carrying out such functions. However, a manager, as an officer of the tribunal, will be expected to observe high standards of conduct.

5. For a [NAME] to succeed, there must be a relationship of trust and confidence between the manager and the tenants. This requires transparency by the manager. Where there is no adequate engagement or communication, there is a danger that this will sow the seeds of suspicion and mistrust.

6. On 3 January 2019, the Manager was appointed for a term of two years. The appointment started on 1 February 2019 and expired on 31 January 2021. The object of the order was for the Manager to execute a package of internal and external works which had been identified by Mr [NAME]. The Manager had produced a draft budget for the first year of £26,000, with major works estimated at £10,000.

7. On 11 June 2019, the tenants received their first service charge demands. These totalled more than £106,000, including £93,000 towards a [NAME] for future major works. The tenants, under

4 protest, paid some, but not all of these sums. The freeholder who was required to pay £59,614, has not paid one penny. She took the view that the sums demanded were “outright extortion”; she would not be “held to ransom” on her own property.

8. The relationship between the tenants and the Manager broke down irretrievably when they discovered that the company who had provided the lowest quote was owned by the wife of the person who had served the statutory Notice of Estimates.

9. On 31 January 2021, the [NAME] expired. No one has applied to extend it. It is not open to a tribunal to vary an order once it has expired. Over the period of the [NAME], not one penny has been spent on any internal and external works of repair or maintenance. The Property has been insured. The fire alarm system has been checked.

10. During this period, Mrs [NAME] and Mrs [NAME] have paid respectively service charge contributions of £13,768 and £14,190. The Manager contends that Mrs [NAME] is liable for £3,498 and Mrs [NAME] £3,649. The tenants contend that these sums have not been reasonably incurred and challenge these through their Section 27A [NAME]. However, even on the Manager’s case, they should be entitled to refunds of £10,270 and £10,541, a total of £20,811.

11. The tenants paid £23,284 into a [NAME] for the major works. Only £10,863 remains in that fund which the manager has held on trust for them. The Manager has drawn on this account to settle sums that should have been paid by the landlord. The tenants seek a direction under the [NAME] that the sums held on trust for them should be repaid to them.

12. There is only one consolation from this sorry saga. The tenants and the landlord are now united in common cause against the tribunal appointed manager. The landlord is willing to place £10,000 in an escrow account towards the repairs which are necessary. The tenants seem confident that the landlord will now execute the repairs that are required within a period of six months. Whether their confidence is well-placed, only time will tell.

2. The [NAME]

13. On 4 March 2020, Mrs [APPELLANT], the First Applicant, issued an [NAME] seeking a determination under section 27A of the 1985 Act as to whether service charges are payable under the [NAME]. The Respondent to this [NAME] is Mr [RESPONDENT] whom the tribunal appointed as Manager of 112 [ADDRESS], [POSTCODE] (“the Property”) pursuant to section 24 of the 1987 Act.

5 14. The [NAME] was stayed as a result of Covid-19. On 31 January 2021, the [NAME] expired. On 18 March 2021, the First Applicant issued an amended [NAME].

15. On 6 April 2021, Judge Latham held an oral case management hearing (by video). The following attended the hearing: Mrs [NAME], Mrs [NAME], Mr [NAME], Mr [NAME] and Mrs [NAME], a property manager at [NAME]. The Tribunal directed that Mrs [NAME] amended [NAME] should stand as her statement of case. Mrs [APPELLANT] applied to be joined as an applicant. The tribunal has acceded to this request.

16. Mr [COUNSEL] appeared for his aunt, Mrs [COUNSEL]. Mrs [COUNSEL] first language is Arabic and she has a limited understanding of English. She is the freehold owner of the Property. She granted the leases in respect of Flats B and C, but retains Flats A and D (“the other flats”) which are occupied under short term lets. There are commercial premises on the ground floor. Mr [NAME] works for IDM, a company set up to manage the family’s property portfolio. Mrs [NAME] has filed a statement confirming that Mr [NAME] has authority to act for her. Mr [NAME] applied for his aunt to be made an [NAME] to this [NAME]. The Tribunal acceded to this request.

17. The Judge noted that whilst [NAME]/00AL/LSC/2020/0111 had been issued pursuant to Section 27A of the Act, the tribunal retained jurisdiction to give directions to the Manager in relation to the discharge of his duties under the [NAME] which had been made in LON/00AL/LAM/2018/0012. However, the tribunal had no jurisdiction to vary the [NAME]. The Judge directed the parties to specify any directions which they sought from the tribunal.

18. The Tribunal made Directions, pursuant to which: (i) On 4 May, Mr [NAME] served his Statement of Case and three bundles of documents. He did not serve any witness statements. Neither did he specify any directions which he sought from the tribunal. He disclosed an Expenditure Report from 2019 to date (the “Expenditure Report”) (at A.937). He also provided copies of his annual reports to the tribunal, namely for 2019 and 2020 (at A.899 and A.901). He had been directed to include all documents in support of the sums demanded. The [NAME] had expired on 31 January 2021. Judge Latham had directed that the bundle should include the final accounts in respect of the [NAME]. These were not provided. (ii) On 25 May, the Applicants filed the material on which they sought to rely. This includes: (a) an amended [NAME] form (at A.3); (b) a Scott Schedule which identifies the sums in the Expenditure Report which they challenge (at A.134); (c) their Statement of Case (A.117); and (d) a witness statement from Mrs [NAME] (at A.125). The Applicants seek a direction that the Manager repays the sums due to the them.

6 (iii) On 25 May, Mrs [NAME], the [NAME], filed the material on which she seeks to rely (at A.410-465. This includes a witness statement from Mr [NAME] (at A.413). Mrs [NAME] does not seek any directions from the tribunal. (iv) On 8 June, Mr [NAME] filed Replies to the Statements of Case filed by the Applicants (at A.466) and by the [NAME] (at A.474). (v) On 18 June, the Applicants filed the Bundle of Documents (at A.1- A.957).

3. The Hearing 19. The following attended the hearing on 5 and 7 July 2021: Mrs [NAME], Mrs [NAME], Mr [NAME], Mr [NAME] and Mrs [NAME]. All the parties represented themselves. Mrs [NAME] took the lead on behalf of the Applicants. 3.1 Issues to be Determined 20. At the beginning of the hearing, the Tribunal clarified the issues which we are required to determine in LON/00AL/LSC/2020/0111. It was agreed that the Applicants should be granted permission to rely on their re-amended [NAME] form (at A.3) and the Scott Schedule (at p.134). This Schedule includes service charge items for which the tenants have not yet been charged. It is based on the Expenditure Report (at A.937). Mr [NAME] stated that this includes all the sums that he would seek to recover under the [NAME], save for a final bill of £720 which the accountants will charge for the final accounts which are not yet available. The Tribunal is willing to give Mr [NAME] permission to add this item so that there can be finality to his [NAME].

21. In their Statement of Case, the Applicants seek a direction in LON/00AL/LSC/2020/0111, that the Manager repays the sums they say are due to them. At the hearing, Mr [NAME] made a written [NAME] for the following directions: (i) Authority to charge a handover fee of £600. This sum has already been included in the Expenditure Report and Mr [NAME] has paid himself for this from the [NAME]. (ii) Recovery of the Manager’s costs in respect of this [NAME] against Mrs [NAME]. By a letter dated 7 July 2021, the Manager quantifies his costs at £9,360. He states that as a “gesture of goodwill” he has only billed for 50% of the time spent on the preparation work. (iii) Authority for the Manager to be able to sue Mrs [NAME] in respect of the arrears of service charges payable pursuant to the [NAME]. The sums sought are based the Expenditure Report.

7 All the parties were anxious that the [NAME], which expired on 31 January 2021, should be brought to an end to facilitate the effective management of the property which has now reverted to Mrs [NAME]. The Tribunal therefore acceded to the request to deal with all these issues. 3.2 Evidence 22. The Tribunal heard evidence form the following: (i) Mrs [APPELLANT], the First Applicant. She is a trainee cognitive behaviour therapist who works with children. She is the lessee of Flat B pursuant to lease dated 21 January 2001. The lease was granted for a term of 99 years, but she has secured a 90 year statutory lease extension. This is a one bedroom flat on the first floor. Mrs [NAME] acquired her leasehold interest in 2016 for £225k. She is concerned that so little was achieved during the period of the [NAME]. When the Tribunal made the [NAME], it was concerned that Mr [NAME] costs were higher than the usual charges for this type of work. The costs now demanded are outside the range of what was contemplated when the [NAME] was made. Mr [NAME] was directed to implement the package of works proposed by Mr [NAME]. He rather sought to implement a schedule of works of an entirely different order. She stated that Mr [NAME] had mismanaged the property. She had paid money into the [NAME] in good faith. She had no contemplation that this would be used to discharge sums owed by the landlord. She is also concerned about the conflicts of interest that the Applicants believe have arisen in this case between Mr [NAME] and (a) [NAME] Management; (b) [COMPANY]; and (c) other companies with which Mr [NAME] has financial interests. (ii) Mrs [APPELLANT], the Second Applicant. She is employed as a revenue manager for a hotel. She is the lessee of Flat C. This is a two bedroom flat on the second floor. Mrs [NAME] acquired her leasehold interest in 2008 for £194k. She adopted the position taken by Mrs [NAME]. She had taken the initiative in applying for the original [NAME]. She has assisted Mrs [NAME] with the current [NAME] and has prepared the Bundle of Documents. (iii) Mr [RESPONDENT], the Respondent. The [NAME] (at A.103) appointed Mr [RESPONDENT] “of [COMPANY] (“[NAME]”) as Manager”. In his Management Plan presented to the tribunal on 3 December 2018, Mr [NAME] had described himself as “Director, [COMPANY]”. He described how the firm manages just over 150 buildings and estates and has 16 members of staff in the Block Management Department. In his evidence, he stated that he is rather the “managing director” and not a director. The Applicants had discovered that the sole director is [NAME], his daughter. The majority shareholder is [NAME] [NAME], which the Applicants say is an alias for [NAME]. Mr [NAME] stated that he uses some 20 to 30 companies, some of which are not active. The

8 Tribunal did not find Mr [NAME] to be a satisfactory witness. He seemed to have limited knowledge of the detail of the case, and constantly referred to Mrs [NAME] to answer questions about the management of the property. Few of his reports are dated, which made it difficult to analyse the sequence of events. His position was that the [NAME] gave him complete discretion as to how he managed the property. His duty to engage with the tenants was limited to that required by the 1985 Act. In his closing submissions, he stated that he had concluded that the tenants had never wanted to spend any money on the property from the outset. We reject this suggestion for which there is no foundation. However, this is indicative of the dismissive attitude which he has adopted towards the tenants. (iv) Mr [NAME]. He works as a Lettings Negotiator for the family business, [COMPANY] (“IDM”), with his uncle, Mr [RESPONDENT] who is the landlord’s brother. He suggested that the business practices of both Mr [NAME] and [NAME] were extremely questionable and that they had sought to inflate costs for their own financial gain. Mr [RESPONDENT] was unable to explain why the landlord had not paid anything towards the service charges which had been demanded, not even for insurance. He suggested that only £2,889.50 was due. We were told that Mr [NAME] had contracted [NAME] and had been in intensive care for some 6 weeks in the middle of 2020. However, this cannot justify the failure of the landlord to pay anything towards the costs of maintaining her property. The [NAME] has played a limited part in these proceedings. She has not filed any case disputing the sums demanded. These have not been demanded as “service charges”, but rather pursuant to her liability under the [NAME] as landlord/freeholder, in respect of the commercial premises and the two flats which she has retained.

23. At the end of his evidence, Mr [NAME] applied to call Mrs [NAME] to give evidence. She had not supplied a witness statement. When asked why he wished to call her, Mr [NAME] responded that he wanted to ask her if there was anything that she would wish to add. The Tribunal declined to allow Mr [NAME] to do so. The other parties were entitled to know the substance of the evidence that she would give prior to the hearing. This should have been in a witness statement. They would have been unduly prejudiced had they been confronted by evidence to which they had had no opportunity to respond.

24. The Applicants asked the Tribunal to have regard to the witness statement of [NAME] who has had contact with Mr [NAME] and [NAME] at the property where he lives. His evidence was disputed and he was not available to be cross-examined. The Tribunal indicated that we were not minded to have regard to this evidence. The Applicants have included a number of First-tier Tribunal decisions involving Mr [NAME] in the Bundle. They did not cross examine Mr [NAME] about these. The Tribunal is satisfied that we should determine this case on the evidence adduced before us. A number of serious allegations have

9 been raised. We only address these in so far as they are relevant to the issues which we are required to determine.

25. During the course of the hearing, Mr [NAME] adduced a number of additional documents. He referred us to his Statement of Case and three bundles which he has served on 4 May 2021. He stated that a number of these documents had not been included in the Applicant’s Bundle. During the hearing, the Tribunal asked him to identify which documents had not been included. He failed to do so. The additional documents produced included: (i) a Bundle of Supporting Documents; (ii) the [NAME]; (iii) the Service Charge Bank Statement; (iv) The Brief Condition & Management Plan which Mr [NAME] had submitted to the tribunal in 2019; and (v) a letter, dated 7 July 2021, in which Mr [NAME] seeks costs against [NAME] in sum of £9,360.

4. The Leases 26. The Tribunal has been provided with the leases for Flat B (at A.48) and Flat C (at A.29). Flat B is a one bedroom flat on the first floor. Flat B is a two bedroom flat on the second floor.

27. The landlord covenants to: (i) insure the Property; (ii) repair and maintain the structure and exterior (excluding windows); (ii) decorate the exterior; and (iv) light the common parts. The tenants covenant to contribute to the landlord’s expenses of maintaining, and decorating the common parts.

28. There is some ambiguity as to f the service charge contributions. However, the parties were agreed that each flat contributes 20% of the external costs, whilst Flat B contribute 30% and Flat C 20% towards the cost of the internal costs. The leases require the tenants to pay advance service charge in two six monthly instalments, with a reconciliation at the end of the financial year. There is no provision for a [NAME].

5. The Law 29. Provision is made for the appointment of a manager by Part II of the Landlord and Tenant Act 1987 (“the 1987 Act”). [NAME] to extend the period of the appointment under section 24(9) must be made before the end of the fixed period (see [COMPANY] v Jeffrey [2012] UKUT 157 (LC). If the period ends without such an [NAME] having been made, the management reverts to the landlord. However, a tribunal may give directions to a manager under section 24(4) after the expiry of his appointment.

30. The status of a tribunal appointed manager was recently considered by [NAME], the [NAME], in [NAME] [2021] UKUT 166 (LC):

10 “5. In [NAME] v Blaquiere [2002] EWCA Civ 1633, the Court of Appeal explained that a manager appointed by a court or tribunal under section 24, 1987 Act is not the manager of the landlord’s business, or the manager of the landlord’s obligations under the lease. The manager is a court or tribunal-appointed official, whose responsibility is to carry out the duties required by the order appointing them. The manager answers to the court or tribunal which appointed them.

6. Sums payable by leaseholders to a tribunal-appointed manager as contributions towards the cost of services, are service charges within the meaning of section 18(1), Landlord and Tenant Act 1985. As the Court of Appeal has recently confirmed in Chuan- Hui v K Group Holdings Inc [2021] EWCA Civ 403, it follows that the statutory protections afforded to leaseholders by the Landlord and Tenant Act 1985 apply to such payments.

7. It also follows that the additional statutory protections provided by section 42, 1987 Act apply to service charges paid by leaseholders to a tribunal-appointed manager. Section 42 requires the landlord or other person to whom service charges are paid to hold any money they receive on trust to defray the costs incurred in connection with the matters for which the relevant service charges were paid, and otherwise on trust for the contributing leaseholders for the time being.

8. In [NAME] v Bowring [2015] UKUT 530 (LC) the Tribunal (HHJ Gerald) confirmed that the tribunal which appointed a manager has power to require the manager to provide a final account of their receipts and expenditure at the termination of their appointment, and to direct that any surplus be paid to the leaseholders.” 31. In [NAME] v [NAME], HHJ Gerald made the following observations: “37. The F-tT has power to determine all matters relating to the discharge by the tribunal appointed receiver-manager of his or her functions including, but not limited, to the provision of all, including final, accounts and the payment of any surplus. More generally the F-tT when [NAME] a [NAME] under section 24 of the 1987 Act should consider and approach the matter in a simple, straightforward and practical way especially where relatively modest sums are involved so that it is clear precisely that which the receiver-manager must do and by when and also the ability for any elements to be challenged within a specific framework and timetable.” “25. Once all matters relating to the service charge and monies raised during the period of the tribunal-appointed manager have been determined, the matter will need to be wound up or

11 concluded by an order stating to whom the monies should be paid. In the ordinary course of things those monies will be reimbursed to the paying parties, usually the tenant, and not transferred to whoever takes over from the manager or receiver. This is because, as [NAME] [NAME] makes clear, monies paid to the manager are by dint of statutory and tribunal authority and are not paid as service charge under the terms of the lease in the strict and very narrow sense of how that is understood.” 32. Whilst, the service charge payments made by a tenant to a manager are subject to the provisions of sections 18-30 of the 1985 Act, different principles apply where a landlord is required to pay sums under a [NAME] in respect of residential flats or commercial premises retained by the landlord. These cannot qualify as service charges, as they are not payable be a tenant (see [APPELLANT] v [APPELLANT], per Henderson LJ at [57]).

33. Section 42 of the 1987 Act imposes a statutory trust in respect of all payments made by tenants of dwellings towards service charges. The operative provision establishing the trust is section 42(3), which states [with emphasis added]: “The payee shall hold any trust fund: (a) on trust to defray costs incurred in connection with the matters for which the relevant service charges were payable (whether incurred by himself or by any other person), and (b) subject to that, on trust for the persons who are the contributing tenants for the time being, or the person who is the sole contributing tenant for the time being.” 34. Mr [APPELLANT] referred the tribunal to Solitaire Property Management Co [COMPANY] v Holden [2012] UKUT 86 (LC) in support of his suggestion that the tribunal had no jurisdiction to embark on an inquiry as to how such trust funds have been handled. This decision has now been revisited by the [NAME] in [NAME] v 7/[ADDRESS] (London House) [COMPANY] [2020] UKUT 208 (LC) and in [NAME] (above).

6. The Background 35. The Property at [ADDRESS] is a Victorian terraced property on three floors. On 31 October 1991, [NAME] granted a lease (at A.68) of the commercial premises on the ground floor of Nos. 112 and [ADDRESS]. On 13 October 2000, Mrs [NAME] granted the lease of Flat 112B (at A.48) which is one bedroom flat on the first floor. On 24 January 2001, Mrs [NAME] granted a lease of Flat 112C (at A.29) which is a two bedroom flat on the second floor. Mrs [NAME] has retained flats A and D which are let under short tenancies. In 2008, Mrs [NAME] acquired the leasehold interest in Flat C. In 2016, Mrs [NAME] acquired the leasehold interest in Flat B. The Tenants complain of a history of neglect by their landlord.

12 7. The [NAME] for the Appointment of a Manager 36. On 28 July 2018, Mrs [NAME] served a preliminary notice pursuant to section 22 of the Act. Mrs [NAME] was given 6 weeks to remedy the defects specified in the notice. She failed to do so. On 12 September 2018, Mrs [NAME] applied to this tribunal to appoint Mr [NAME] as Manager for a period of five years. On 27 September, Mrs [APPELLANT] was joined as an applicant.

37. On 3 December 2018, a Tribunal (Judge Dutton, [NAME] and [NAME]) heard the [NAME]. The Applicants appeared in person, accompanied by Mr [COUNSEL]. [NAME] [COUNSEL] as represented by [NAME] [COUNSEL] [NAME] (Counsel) who adduced evidence from Mr [COUNSEL].

38. Mr [NAME] produced a “Brief Condition Report and Management Plan”. This included a proposed service charge budget for year 1 which totalled £25,805. Major works were estimated at £10,000 with general repairs and maintenance estimated at £2,000 and a [NAME] contribution of £1,000. Mr [NAME] had only had the opportunity to inspect the front elevation, the common parts and Flat C.

39. By this date, Mrs [NAME] had addressed a number of the defects specified in the Section 22 notice. Mrs [NAME] had also obtained a number of reports including and asbestos report. a fire risk assessment, an electrical report and the report from Mr [NAME], dated 6 November 2018, (at A.418-449). On 30 November, [NAME] had provided an estimate in the sum of £6,610 for a basic package of internal and external repairs and decorations (at p.450-2). IDM was now a member of the Property Redress Scheme. [NAME]’s case was that no [NAME] was now required and that she intended to proceed with the works proposed by Mr [NAME]. Mr [NAME] considered that Mr [NAME] budget was excessive. He concluded (at [6.11]) that a budget of £15,000 + VAT for 2018/9 would be “far more reasonable and equitable” and that consultation with the lessees should be undertaken once quotations have been obtained and the various options considered.

40. In their decision, dated 3 January 2019 (at R1.1), the Tribunal concluded that it was just and convenient to appoint Mr [NAME] as Manager, but only for a period of two years, rather than the five years proposed by Mr [NAME]. The Tribunal considered that some of the works proposed by Mr [NAME] were unnecessary, for example a CCTV survey of the drains. The Tribunal noted that Mr [NAME] evidence had been delivered “in a somewhat arrogant manner”. He would need to reflect on this as “some harmony and good working relationship” with Mrs [NAME] was essential to his appointment. Mr [NAME] confirmed that he would follow the recommendations of Mr [NAME] with whom he hoped that he could work. A period of two years would enable the Property to be put into proper order and to give both IDM and Mrs [NAME] time to come to grips with their management

13 responsibilities. The Tribunal noted that [NAME] (referred to as [NAME]) had a law degree and had recently enrolled on a leasehold management course.

8. The [NAME]

41. Mr [NAME], as Manager appointed by the Tribunal, was required to carry out the duties specified in the [NAME] (at A.103-114). The Tribunal appointed Mr [NAME] in his capacity as director of [COMPANY] (“[NAME]”). However, the Order permitted Mr [NAME] to delegate to other employees of [NAME]. The Order commenced on 1 February 2019 and expired on 31 January 2021.

42. By Paragraph 1, the Manager was “given for the duration of his appointment all such powers and rights as may be necessary and convenient and in accordance with the Leases to carry out the management functions of the Respondent (Mrs [RESPONDENT])”. Fourteen particular functions are specified at (a) to (n) which include (emphasis added): (i) “to receive all future service charges, interest and any other monies payable under the Leases and by the other flats and any arrears due” (Paragraph 1(a)). The decision had confirmed that Flat B (Mrs [NAME]) would contribute 20% to both the internal and external works, whilst Flat C (Mrs [NAME]) would contribute 30% to internal and 20% to the external works. Mrs [NAME] would contribute 50% to the internal works and 60% of the external works in respect of the contribution due from Flats A and D and the commercial premises. (ii) The financial year should run from 1 January to 31 December ([1(b)]). (iii) “It is intended that the report of Mr [NAME] dated 6th November 2018 should form the basis of future works of repair” (Paragraph 1(d)). (iv) The power for the manager to bring proceedings against both the lessees and against Mrs [NAME] in respect of her liabilities in respect of Flats B and C and the commercial premises. The Order made specific provision that “the Manager shall be entitled to an indemnity for both his own costs reasonably incurred and for any adverse costs order out of the service charge account” (Paragraph 1(f) and (g)). (v) The power to raise a [NAME] (Paragraph 1(m)). The Order made specific reference to section 42 of the 1987 and provided: “the Manager shall deal separately with and shall distinguish between monies received pursuant to any [NAME] (whether under the provisions of the lease (if any) or to power given to him by this Order) and all other monies received pursuant to his appointment and shall keep in a separate bank account or accounts established for that purpose monies received on account of the [NAME] (Paragraph 1(i)).

14 (vi) “The power to borrow all sums reasonably required by the Manager for the performance of his functions and duties, and the exercise of his powers under this Order in the event of there being any arrears, or other shortfalls, of service charge contributions due from the Lessees or any sums due from the Respondent, such borrowing to be secured (if necessary) on the interests of the defaulting party (i.e., on the leasehold interest of any Lessee, and the freehold of the Building in respect of the Respondent ([NAME]))” (Paragraph 1(k)).

43. Paragraph 2, specified that “the Manager shall manage the Premises in accordance with: (a) the Directions of the Tribunal and the Schedule of Functions and Services attached to this Order; (b) the respective obligations of all parties - landlord and tenant - under the Leases and in particular with regard to repair, decoration, provision of services and insurance of the Premises/Building; and (c) the duties of managers set out in the Service Charge Residential Management Code (the "Code") or such other replacement code published by the Royal Institution of Chartered Surveyors and approved by the Secretary of State pursuant to S.87 of the Leasehold Reform, Housing and Urban Development.” 44. The remuneration to which the Manager is entitled is set out in the Schedule “Functions and Services”: “16. Fees for the above-mentioned management services (with the exception of supervision of major works) shall be a fixed management fee of £1,875 per annum plus VAT at the pertaining rate payable quarterly (payable as to £375 + VAT per flat and including the shop) for the Premises for the period of the Order. In addition, there shall be a one-off set up charge of £5oo, to be met from the interim payment referred to in the Order at paragraph 1(n) above.

19. In addition to the above there shall be a charge in respect of major Works of 5% plus VAT on the estimated costs of any such works plus any reasonable disbursements, (including the preparation of all consultation notices under S20 of the landlord and Tenant Act 1985).” 45. Paragraphs 16 and 17 relate to charges which fall outside these normal management duties and relate to solicitor’s enquiries on transfer and fees for various licences. These are not relevant to the current [NAME].

46. Paragraph 1(n) permitted the Manager “to forthwith demand from each lessee and the Respondent as owner of the other flats the sum of £500 for each flat on account of service charges for the year commencing January 2019 and such payments to be in addition to any demands made in respect of qualifying works or long-term agreements as provided for under the provisions of S20 of the Landlord and Tenant Act.”

15 47. The following provisions are relevant to the Tribunal’s determination: (i) “The Manager shall act fairly and impartially in his dealings in respect of the Premises and the Building” (Paragraph 8]). (ii) “Provide a written report to the Tribunal at the end of each financial year, the first being at the end of the period 31st December 2019 to confirm what progress has been made, including an update on the financial status of the management company any further powers that the Manager may require” (Paragraph 5 of the Schedule). Mr [NAME] has provided two undated written reports for the tribunal, apparently on 27 December 2019 for the years 2019 (at A.899) and on 30 December 2020 for 2020 (at A.901). (iii) “Henceforth during the continuance of the Order the production of a certificate (the Certificate) from a qualified accountant shall be sufficient to meet any requirements contained in the Leases. Upon the Certificate being obtained which shows any over or underpayment of service charge contributions made under the provisions of clause i(n) of the Order above, then such underpayment shall be recoverable as a debt and any surplus will be credited to the service charge account of the lessee for the next financial year or at the reasonable discretion of the Manager credited to that lessees contribution to any [NAME] that the Manager has created, to be held in accordance with the Law” (Paragraph 21 of the Schedule). The Order requires the Manager to account for the sums due from and the sums paid by each lessee and the landlord. The Order does not contemplate that the Manager can use any surplus paid by one party to offset any debt owed by another. (iv) “At the end of the Order it shall be the Manager's responsibility to provide final accounts and to account for monies that may be held. For the avoidance of doubt such responsibility continues beyond the period of the Order and continues until it has been fully discharged” (Paragraph 22 of the Schedule). Mr [NAME] has not yet provided the final accounts.

48. Paragraph 11 of the Order provided: “The Manager may apply to the First-Tier Tribunal (Property Chamber) for further directions in accordance with 3.24(4), Landlord and Tenant Act 1987. Such directions may include, but are not limited to: a. Any failure by any party to comply with an obligation imposed by this Order; b. For directions generally; c. Directions in the event that there are insufficient sums held by them to discharge their obligations under this Order and/or to pay their remuneration.” Mr [NAME] has not applied for any Directions even though Mrs [NAME] has not made any contribution towards the sums payable by her under the

16 Order. In the absence of such payments, there has been no prospect that Mr [NAME] would be able to execute the schedule of works contemplated by Mr [NAME]. 9. The RICS Management Code

49. The Tribunal directed the Manager to have regard to the relevant provisions in the Service Charge Residential Management Code. A copy of the 3rd Edition of the RICS Code is at p.515 of the Bundle. The Tribunal referred to three sections of the Code: (i) Section 7.5 “Reserve Funds”: Mr [NAME] suggested that there was a difference between a “[NAME]” and a “sinking fund”, the former giving a manager much greater discretion as to how the funds are utilised. The guidance rather suggests that the two terms are interchangeable. (ii) Section 7.6: “Holding Reserve Funds in Trust”: The following guidance is given: “You must hold service charge monies, and any interest accruing, by way of statutory trusts in accounts established in accordance with section 42 of the Landlord and Tenant Act 1987. Service charge payments must be kept separate from the landlord and managing agent’s own money and must only be used to meet the expenses for which they have been collected.” (iii) Section 10.1 “Contractors and Suppliers”: The following guidance is given: “Where you have a connection with any proposed company, individual, contractor or supplier, whether financial or otherwise, this should be declared to your client and the leaseholders as a note with the year end service charge accounts. The statutory consultation requirements (s.20 Landlord and Tenant Act 1985) also require any connections to be identified).” This is particularly important for a tribunal appointed manager who is an officer of the Tribunal.

10. Events since the [NAME] was made 50. The Tribunal’s decision is dated 3 January 2019. The [NAME] commenced on 1 February for a period of two years. On 15 January, [NAME] [NAME], on behalf of the Manager, emailed Mr [NAME] (at A.508) asking him to prepare two specifications of work, one for the internal and a second for the external works. She asked him how much each specification would cost. On 16 January (at A.509), Mr [NAME] responded stating that he had reviewed the Company’s current commitments and had decided that they were unable to take on this project.

51. On 28 January 2019 (at A.896), Mr [NAME] sent a welcome letter to the tenants. He stated that [NAME] had been instructed to commence the

17 management of the building. The Tribunal had rather appointed Mr [NAME] to manage the Property. The letter referred to four staff members with whom they would have contact: [NAME] (Head of Block Management); [NAME] (Senior Property Manager); [NAME] (Accounts Manager) and [NAME] [NAME] (Assistant Property Manager). The letter gave details of the relevant “service charge” and “reserve” accounts. Mr [NAME] did not alert them to the fact that Mr [NAME] had withdrawn from the project.

52. Paragraph 1(n) of the [NAME] permitted the Manager to forthwith demand £500 from each of the Applicants and £1,000 from Mrs [NAME] on account for the service charge year commencing January 2019. Mr [NAME] did not exercise this power which would have raised £2,000 for the service charge account. It is unfortunate that he did not do so, as this with have been a litmus test as to how the parties would respond to the [NAME]. We have no doubt that the two Applicants would have paid their contributions. We are less certain about Mrs [NAME]. Had she failed to do pay, it would have been an early warning of the difficulties that the Manager would face.

53. On 1 February 2019 (at A.488-507), Mr [NAME] (as the “Client”) signed an agreement with [NAME] (the “Manager”) appointing [NAME] as managing agent of the Property at a management fee set out in Appendix 1. A second similar agreement, dated 31 January 2020, is at A.938-57.

54. In his Statement of Case, Mr [NAME] asserts that Paragraph 1(h) of the [NAME] permitted him to enter any contract at his discretion, even if this was with his own management company. He uses this agreement to justify the following: (i) A charge of £300 pa for an Out of Hours Helpline (at Appendix 3). No such fee was specified in the [NAME]. The tenants did not require such a service and made no use of it. (ii) A 10% supervision fee in respect of major works. A reduced fee of 7.5% may be charged if a project is aborted after tenders have been obtained (Appendix 5). The [NAME] had specified a fee of 5% for the supervision of major works. There is no provision for an abortive fee. (iii) A handover fee of £500 + VAT at the end of the management arrangement (Clause 12). No such fee was specified in the [NAME].

55. In his Statement of Case, Mr [NAME] expressly relies on the following clause in the agreement with [NAME] to justify his conduct in drawing on funds held on trust for the Applicants in a [NAME] in order to discharge arrears owed by the landlord: “The Client authorises the Manager to deduct the Management Fee from the Client account and any additional charges when billed. Where the Client does not have sufficient funds in their client account for

18 payment to be made to the Manager on the charging date then the Manager may, at its discretion, transfer funds from any [NAME] accounts held or if there are still insufficient funds grant a loan to the client for a similar amount to be repaid as and when the Client account has sufficient funds.” 56. The Tribunal had appointed Mr [NAME] as Manager and the [NAME] had specified the fees to which he is entitled and the manner in which he was to account for the service charge funds. The Tribunal is satisfied that it is not open to a tribunal appointed manager to subvert the express terms of a [NAME] in the manner that these agreements purport to do. The Manager is limited to those fees payable under the [NAME].

57. On 14 February 2019 (at p.510), Mr [NAME] wrote to the Tribunal to inform it that Mr [NAME] had declined to accept instructions and seeking permission to instruct either [NAME] of [NAME] or [NAME] of [NAME] in his place. Both were described as “independent arm’s length [NAME]”. This letter was not copied to the Applicants. On 25 February, the tribunal notified [NAME] that Judge Dutton had agreed to the request to instruct either of the surveyors. The tribunal did not copy the response to the Applicants. At this stage, the significance of this variation would not have been apparent.

58. On 4 March 2019, [NAME] [NAME] sent a copy of Mr [NAME] report to both Mr [NAME] and Mr [NAME] requesting separate specifications in respect of the internal and external works. Mr [NAME] did not explain to the Tribunal why he had sought separate specifications. The [NAME] had contemplated a modest package of internal and external repairs and decorations which were to be completed within the two years of the [NAME].

59. On 5 March 2019, Mr [NAME] (at R1.106) quoted a figure of £2,000 + VAT for both specifications. On 4 March, Mr [NAME] quoted £900 + VAT for each specification. The Manager instructed Mr [NAME]. In March 2019, Mr [NAME] produced two specifications of works. The Tribunal has received no evidence from Mr [NAME]. However, it is apparent that the works specified were much more extensive than those contemplated by Mr [NAME]. The Tribunal would have expected Mr [NAME] to have made some inquiries as to the likely cost of the works to enable him to assess whether these fell within the scope contemplated in the [NAME]. There is no evidence that he did so.

60. On 10 April 2019, Mr [NAME], on behalf of [NAME], served two Stage 1 Notices of Intent on the tenants in respect of (i) internal repairs and decorations (at A.724-5) and (ii) external repairs and decorations (at p.616-70). Mr [NAME] gave no explanation as to why two separate notices had been served. The works were described in these terms:

19 “It is proposed to redecorate and re-carpet and carry out any necessary ancillary repairs to the internal parts of the buildings as per the surveyor’s specifications of works.” “It is proposed to redecorate and carry out any necessary ancillary repairs to the external elevations of the building. These works will include works to the roofs, drains, gutters, downpipes, window repairs, joinery repairs, pointing, flashing and render repairs and other works as per the surveyor’s specification of works. These works may necessitate full scaffolding to the property.” 61. Mr [NAME] did not inform the tenants that Mr [NAME] was no longer engaged and that a much more extensive schedule of works had now been prepared by Mr [NAME]. There was a reference to “the surveyor’s specification of works”. The tenants assumed that this was the schedule contemplated by Mr [NAME]. The tenants were invited to nominate a contractor from whom a tender might be sought. At the hearing before us, [NAME] and [NAME] stated that they did not consider that there was any need to do so. They contemplated that a modest package of works would be executed as contemplated in the [NAME]. This had been premised on a Year 1 budget from Mr [NAME] of £25,805. We accept their evidence.

62. Any complacency on the party of the tenants was shattered by a series of communications which they received, dated 11 and 12 June 2019: (i) On 11 June, [NAME] issued a total of eleven service charge demands totalling £106,573.90; Mrs [NAME] was required to pay a total of £21,314.80, Mrs [NAME] £25,645.40 and [NAME] £59,613.70. (ii) On 12 June, Mr [NAME], on behalf of [NAME], served two Stage 2 Notices of Estimates: (i) Two estimates had been obtained for the external works (at A.621-3): [COMPANY] had quoted £49,752 (inc VAT) and [COMPANY] £53,460. (ii) Two estimates had been obtained for the internal works (at A.729-31): [COMPANY] had quoted £34,260 and [COMPANY] £35,800. [NAME] were minded to accept the tenders from [COMPANY]. [NAME] would charge a supervision fee of 10%. No explanation was provided as to why these estimates were so much higher than had been specified in the [NAME] or as to why separate tenders had been sought for the internal or external works. There was no suggestion that the Manager might need to discuss with the tenants whether they could afford works of this magnitude or whether the extent of these works now fell outside the scope of the [NAME].

63. The manner in which these service charge demands was issued was far from satisfactory. No covering letter accompanied these demands. No service charge budget was included. No explanation was provided to justify the sums demanded. In Mr [NAME] (R3), the service charge demands are spread over 81 pages. They are not in chronological order and the presentation seems intended to confuse, rather than enlighten:

20 (i) Mrs [NAME] received three demands: (a) an annual service charge in advance of for 2019 of £2,632.00 (at R3.30); (b) [NAME] contributions in advance of £7,637.20 for internal works and £11,045.60 for external works (at R3.18); and (c) a second demand for a [NAME] contribution of £11,045.60 for external works (at R3.21). (ii) Mrs [NAME] received two demands: (a) an annual service charge in advance of for 2019 of £3,144.00 (at R3.49); and (b) [NAME] contributions in advance of £11,455.80 for internal works and £11,045.60 for external works (at R3.40). (iii) Mrs [NAME] received a total of 6 demands issued separately in respect of Flat A (at R3.8 and R3.2); Flat D (at R3.62 and R3.56); and the Ground Floor Shop (at R3.75 and R3.72). These totalled £59,613. There are no separate leases in respect of Flat A and Flat D. The [NAME] rather recognised that Mrs [NAME] would be liable for 50% of the cost of internal works and 60% of the cost of internal works.

64. The Tribunal has prepared the following Table which summarises the sums which were demanded:

Service Charge 2019 [NAME] (Internal) [NAME] (External) Total Flat B Mrs [NAME] £2,632.00 £7,637.20 £11,045.60 £21,314.80 Flat C Mrs [NAME] £3,144.00 £11,455.80 £11,045.60 £25,645.40 Flat A [NAME] £2,888.00 £9,546.45 £11,045.60 £23,480.05 Flat D Mrs [NAME] £2,888.00 £9,546.45 £11,045.60 £23,480.05 [NAME] £1,608.00 - £11,045.60 £12,653.60

Total: £13,160.00 £38,185.90 £55,228.00 £106,573.90

65. At the hearing, Dr [NAME] produced a Service Charge Budget (at A.889- 891). When asked by the Tribunal, he was unable to state when this budget had been prepared. The budget totals £106,574 and included a [NAME] of £93,414, namely £37,686 for internal works and £54,727 for external works. The budget is split between internal works (in respect of which [NAME] is liable for 20%; Mrs Lo [NAME] for 30% and [NAME] 50%) and external works (for which the respective contributions are 20%, 20% and 60%).

66. The immediate reaction of the Applicants was to complain that the sums demanded were unreasonable and unaffordable. On 14 June, Mr [NAME], on behalf of [NAME], served two further Stage 2 Notices of Estimates. “[COMPANY]” who had previously been invited to tender, but had declined to do so, now provided estimates of £22,125.60 for the internal works (At A.752- 754) and £41,580 for the external works (at A.648-650). No explanation was provided as to why [COMPANY] had initially been unwilling to tender, but had now provided a tender within such a short period. The Applicants were later to discover that the estimate had rather been provided by “[COMPANY]”, a company which is registered in the name of Mr [NAME] wife, [NAME].

21 67. [NAME] agreed to split the works, executing the external works in 2019 and the internal works in 2020. However, [NAME] insisted of doing all the work over the two year period, using their own choice of contractor. Their approach is reflected in two emails: (i) On 18 June, [NAME] [NAME] wrote to Mrs [NAME] (at A.771): “Further to your request to obtain your own quotes, please note that you are no longer allowed to nominate your own contractor or obtain a quote for the works as the Part 1 S.20 Notice expired on 15th May 2019. There is a 35 day window in which you are able to obtain your own quotes so that they can be included in the tender process, but this is now closed, so unfortunately, the quotes recently sent to you in the Part 2 S20 Notice dated 14th June 2019 are the final quotes.”

(ii) On 19 June, [NAME] [NAME] wrote to Mrs [NAME] (at A.194): “We are not prepared to get involved in further fruitless and endless discussions emails/phone calls regarding the above topics. However, if any lessee has a fresh or different query to be answered, we will of course do our utmost to respond swiftly to any fresh issue or problem at the property.”

68. On 29 June 2019 (at A.454), Mr [RESPONDENT], on behalf of the landlord, wrote to [NAME] [RESPONDENT] in these terms (emphasis added): “We are utterly disgusted and shocked at the costs you are trying to charge us for. Considering that the [NAME] requested you follow the [NAME] report which he specifically highlighted that the costs involved for major works should be in the region of £15,000, as such how have you come to the cost of £92,413? We have been property developers and have worked with contractors for many years and understand the costs involved for the works and these figures are completely fabricated and plucked from thin air. In addition, you are charging more than double the figure we have paid for numerous years for the building’s insurance. We made it clear via email that we were happy for you to use our broker and ensure that the price of the insurance is kept at a similar rate to the previous years. Just because you have been awarded the management for the building, this does not in any way change the fact that you can charge the Landlord and the Leaseholders inflated costs. On top of the increased premium for the building insurance you are also attempting to collect a fee for Insurance valuation, which you are not entitled to charge, of which we already have the rebuilding cost to hand if you require this. Secondly, we are also not responsible for the service charge of the shop, this has been sold on a Long Lease and would need to be collected from the Leaseholder. In conclusion, we contest all the costs you are attempting to collect through your budget as this is outright extortion and we will not be held to ransom on our own property and as such there will be no

22 payments made. Should we receive demands for reasonable costs we are prepared to meet them, but we will not be hoodwinked into paying for inflated costs.” 69. In his closing submissions, Mr [NAME] stated that Mr [NAME] had fabricated this letter in order to make [NAME] “look bad”. On a balance of probabilities, the Tribunal is satisfied that Mr [NAME] sent this letter. Having heard evidence from Mr [NAME] [NAME], the letter reflected how we would have expected his uncle to have responded. Mrs [NAME] had just received six demands totalling £59,613.70, with no explanation justifying these charges. It is less clear to the Tribunal how Mr [NAME] would have responded had a more reasonable sum been demanded, for example the sum of £15,000 which had been contemplated in Mr [NAME] “Brief Condition Report and Management Plan”.

70. It should have been apparent at this stage that the [NAME] was doomed. The Manager was proposing a Schedule of Works completely outside the scope of what was proposed when the [NAME] was made. The tenants were unable to afford the sums demanded. The landlord was refusing to pay. Mr [RESPONDENT] should have brought the matter back to the tribunal for further Directions. He gave no explanation for his failure to do so.

71. In his reports to the tribunal for the year 2019 and 2020 (submitted at the end of December of each year), Mr [NAME] stated that he had instructed solicitors to proceed with debt recovery on 13 November 2019. Whilst PDC wrote a number of letters (not only to Mrs [NAME], but also to the Applicants) no proceedings were issued. Mr [NAME] stated that Covid-19 had intervened. However, the first lockdown was not imposed until 23 March 2020. By this date, the [NAME] had only ten months to run and there was no prospect of securing the funds necessary to carry out any package of internal or external repairs.

72. The Applicants took a conciliatory approach, albeit that they had agreed with Mr [NAME] that the sums demanded were exorbitant and they were unable to afford to pay the sums demanded: (i) On 13 August 2019, Mrs [NAME] pad £1,529.73 and on 13 January 2020, she paid a further sum of £12,237.97, a total of £13,768 (see A.678). She informed the Tribunal that she had had to take out an additional charge on her flat in order to pay this. She informed the Manager that these sums were being paid under protest. On 1 October 2019 (at A.691), [NAME], Solicitors, wrote to [NAME] complaining of the sums demanded and threatening an [NAME] to this tribunal. (ii) On 22 August 2019, Mrs [NAME] paid £3,144.00 and on 2 October 2019, she paid a further sum of £11,045.60, a total of £14,189.60 (see A.679).

73. On 27 November 2019, [NAME] issued a further set of service charge demands for 2020:

23 (i) Mrs [NAME] received two demands: (a) an annual service charge in advance of for 2020 of £1,714 (at R3.33; R3.36) and (b) an internal [NAME] contribution of £7,637.20 (at R3.24). A covering letter (at R3.17) stated that a budget of £46.756 had been agreed “after consultation with your freeholder”. Mr [NAME] explained that [NAME] [NAME] had used the wrong template. There had been no consultation with either Mrs [NAME] or the Applicants over the budget. Mr [NAME] did not consider any consultation to be necessary. (ii) Mrs [NAME] received two demands: (a) an annual service charge in advance for 2020 of £2,024 (at R3.52) and (b) a [NAME] contribution of £11,455.80 (at R3.43). The accompanying letter is at R3.39. (iii) Mrs [NAME] received a total of five demands issued separately in respect of Flat A, Flat D and the Ground Floor Shop. These total £23,925. The accompanying letters are at R3.1, R3.55 and R3.71.

74. Mrs [NAME] sent three emails to the Tribunal: (i) On 20 December 2019, she sought clarification of the scope of the order. She attached the two specifications of work which had been prepared by Mr [NAME]. She complained that as a result of these schedules, her service charges had escalated to an unmanageable amount. She asked how the [NAME] should be interpreted.

(ii) On 24 December 2019, she enclosed a copy of the [NAME]. She stated that believed that the Manager was not upholding the decision, but was vastly overcharging for the works needed. The Manager was requesting over £22,000 (per property) over two years which was clearly above and beyond what the tribunal order had stated. [NAME] were now going through court proceedings via the PDC to claim the money from her. She asked “What should I do?” Was there was any way that the tribunal could reconsider the [NAME] and provide clarification on the terms and payments?

(iii) On 2 January 2020, she complained about the conduct of the Manager and his proposed contract with [COMPANY].

75. The tribunal did not take any actions on these emails. It should have done so. We apologise for this.

76. Mrs [NAME] did not copy her emails to Mr [NAME]. However, they are an important part of the record. They confirm our assessment that both Mrs [NAME] and Mrs [NAME] were anxious for the [NAME] to succeed, provided that the Manager sought to implement it as had originally been envisaged.

77. In January 2020, the Applicants learnt that the Manager was seeking to obtain quotes for a more limited package of works. They obtained two estimates: (i) On 3 January 2020, [NAME] quoted £16,180 + an additional £1,600 for scaffolding (at A.150-2); (ii) On 6 January 2020, [NAME] quoted £23,500 + VAT (at A.145-9).

78. On 8 January 2020 (at A.180), Mrs [NAME] again asked to be able to nominate her own contractor from whom a quote could be sought. She was concerned that Mr [NAME] had grossly over specified both the internal and external works. She also pointed out that the [NAME] limited [NAME] to a supervision fee of 5%, rather that 10% which had been included in the budget. On 10 January (at A.179) [NAME] [NAME] responded repeating that it was now too late for the tenants to nominate a contractor. She did not address the complaint about the supervision fee being twice the level that had been specified in the [NAME].

79. On 6 February 2020 (at A.700-2), Mr [NAME], on behalf of [NAME], served a further Stage 2 Notices of Estimates in respect of “external redecorations and necessary ancillary repairs works”. This refers to the previous estimates provided by [COMPANY] (£49,752) and [COMPANY] (£53,460). However, “[COMPANY]” had now reduced their quote to £29,292. Mr [NAME] has not provided the Tribunal with any of the tenders which have been submitted in this case. We merely have the Specification provided by Mr [NAME]. Someone, presumably Mr [NAME], has added the prices quoted by each contactor. The priced specification is at A.703-720. It is impossible to identify the scope of the works for which [COMPANY] have quoted. Their quote (net of VAT) totals £24,410 which is broken down between (i) Contract Preliminaries: £1,000; (ii) Access and Scaffolding: £9,900; (iii) External Areas: £11,010; and (iv) Contingencies: £2,500. The critical item is the “external works” of £11,010. However, there is no indication as to which items in Section 4 of the Schedule are covered by the estimate (see A.715-718). Although the tender return includes a total works price, no specific prices were entered against the required works within Section 4. Without this detail the Tribunal were unable to discern what works “[COMPANY]” had contracted to execute in their returned tender.

80. The Applicants had become increasingly concerned about the lack of transparency and potential conflicts of interests. This related to a number of companies with whom the Mr [NAME]/[NAME] were contracting. The Tribunal gives one example: (i) On 6 February 2020 (at A.177), Mrs [NAME] emailed [NAME] having discovered that “[COMPANY]” had been dissolved in 2018. On 13 February 2020 (at A.177), Mr [NAME] responded that the company had rather been “[COMPANY]”. [NAME] [NAME] asked: “can you confirm whether any staff members of [COMPANY] have any connection to any of the companies that were asked to tender for the work?” Mr [NAME] replied: “Not that I am aware of”. (ii) On 2 March 2020 (at A.175), Mrs [NAME] sent a further email, having discovered that [NAME], Mr [NAME] wife, was the sole director and secretary of [COMPANY]. On 2 March, Mr [NAME] responded: “It should be noted that I am not a Director, shareholder, nor do I receive any financial remuneration from [COMPANY]”.

25 (iii) When Mr [NAME] was asked about this by the Tribunal, he came up with two explanations. First, there is nothing to preclude a managing agent from using a related company provided that a quote is sought from at least one non related company. Secondly, Mr [NAME] was not an employee of [NAME]. He was rather a self-employed contractor. (iv) The Tribunal notes that at all times, Mr [NAME] has held himself out as being “Head of Block Management, [NAME]” which is the trading name for [COMPANY].

81. On 4 March 2020, [NAME] [NAME] issued her [NAME] to this tribunal challenging the service charges which the Manager had demanded for 2019 and 2020. On 23 March 2020, the first Covid-19 lockdown was imposed. A CMH which had been fixed for 7 April 2020 was vacated. During this period, Mrs [NAME] sought redress through the Property Redress Scheme. On 7 January 2021, the tribunal asked the parties to provide an update. On 31 January, the [NAME] expired. On 17 March, the tribunal set the matter down for a CMH. On 6 April, Judge Latham gave Directions (at A.19). These included a Direction that Mr [NAME] should email the Applicants a copy of the final accounts by 4 May. Mr [NAME] has not complied with this Direction. The final accounts have still not been audited and were not available at the hearing.

82. On 4 May 2021, Mr [NAME] produced the Expenditure Report (at A.937) which sets out the sum expended and claimed by the [NAME] over the two year period of the [NAME]. The Applicants have used this as the basis of their Scott Schedule. Mr [NAME] has asked the Tribunal to include one additional item, namely £720 in respect of the cost of [NAME] preparing the final Service Charge Accounts, in respect of which each Applicant would be liable for 20% (£144). The Tribunal is willing to add this to the Scott Schedule.

83. The Expenditure is broken down between: (i) External Costs which total £13,999.91 in respect of which Mrs [NAME] is liable for 20% (£2,871.98, including a £90 late payment charge which is deducted from the total charge prior to the calculation of the apportioned payable sums); Mrs [NAME] for 20% (£2,781.98) and Mrs [NAME] for 60% (£8,345.94). (ii) Internal Costs which total £2,409.00 in respect of which Mrs [NAME] is liable for 20% (£481.80); Mrs [NAME] for 30% (£722.70) and Mrs [NAME] for 50% (£1,204.50).

84. The position is as follows: (i) Mrs [NAME] is liable for £3,353.78. She has paid £13,768. She claims a refund of £10,414.22. She contends that this should have been refunded to her on the expiry of the [NAME] on 31 January 2021.

26 (ii) Mrs [NAME] is liable for £3,504.68. She has paid £14,189.60. She claims a refund of £10,684.92. She contends that this should have been refunded to her on the expiry of the [NAME]. (iii) Mrs [NAME] is liable for £13,055.12. She has paid nothing. She owes £13,055.12. It is to be noted that these are not sums paid as service charges under any lease, but pursuant to her liability under the [NAME] in respect of her ownership of Flats A and D and the ground floor shop, 85. On the second day of the hearing, Mr [NAME] provided copies of the bank statements for the “service charge” and the “reserve” accounts. There was a balance of £1.20 in the service charge account and £10,863.07 in the reserve account. Two sums had been paid into the reserve account: (i) On 3 October 2019, Mrs [NAME] had paid £11,045.60; (ii) On 13 January 2020, [NAME] had paid £12,237.97. These sums should have been held on trust on behalf of these two tenants on account for the major works which were to be executed, but which were never commenced. These have rather been used to fund the contributions which should have been made by their landlord.

86. The Tribunal highlights the following withdrawals from the reserve account: (i) On 17 June 2021, £720 was transferred to [NAME], apparently in respect of the £720 payable to [NAME] for the final accounts which they have yet to prepare. (ii) On 20 January 2021 sums of £2,011,50 and £819.50 were transferred to [COMPANY], a company in which [NAME] [NAME] is the sole director. Mr [NAME] was unable to provide an explanation for these transfers. (iii) On 12 January 2021, £600 was transferred to [NAME]. This seems to be in respect of the handover fee on the expiry of the [NAME], albeit that no provision was made for this in the [NAME] and no handover has yet occurred.

11. LON/00AL/LSC/2020/0111: Determinations under section 27A of the 1985 Act

87. Before turning to the issues which we are required to determine, we first summarise some of our findings which inform our decision: (i) The [NAME] has failed. None of the works identified by Mr [NAME] have been executed. Our enquiries revealed that no money had been spent on improving the physical fabric of the Property. (ii) Mr [NAME] must accept the primary responsibility for this failure. We were surprised by Mr [NAME] limited knowledge of the details of this case. Whilst it is open to a Manager to delegate, he retains ultimate

27 responsibility to ensure that the outcomes sought through the [NAME] are delivered. (iii) Mr [NAME] failed to have sufficient regard to the terms of the [NAME]. The outcome to be secured was the execution of the relatively modest package of internal and external repairs and decorations which had been identified by Mr [NAME]. A period of two years was considered sufficient for the Property to be put into proper order and to give both IDM and [NAME] time to come to grips with their management responsibilities. (iv) The Applicants’ primary case is that the Respondent has sought to inflate the fees that he can claim through the [NAME]. Regardless of whether he sought to do so, the Tribunal is satisfied that his actions have led to inflated and wholly unreasonable sums being demanded from the Applicants and the landlord/freeholder. Mr [RESPONDENT] failed to fulfil his duties as the tribunal would expect from a tribunal appointed manager who acts as an officer of the tribunal. (v) We can see no justification for the agreement which Mr [NAME] signed with [NAME]. This seems to have been no more than a device to enable Mr [NAME] to levy charges and to deal with service charge funds outside the scope of the [NAME] (see [53] – [56] above). (vi) We accept that this [NAME] presented a challenge, with the landlord in default obliged to contribute the majority of the sums payable under the [NAME]. The [NAME] empowered Mr [NAME] to forthwith demand a payment of £500 from each of the Applicants and £1,000 from the Landlord. He did not available himself of this opportunity which would have proved a litmus test as to whether the landlord was willing to cooperate with the Manager. (vii) It is regrettable that Mr [RESPONDENT] did not communicate with the tenants and landlord to inform them that Mr [RESPONDENT] had withdrawn from the project. It is not clear to the Tribunal whether Mr [NAME] had made a completely different assessment to Mr [NAME] as to the scope of the works that were required or whether he had over specified the works. What is clear is that the Manager was now proposing a package of works which was quite different from that contemplated in the [NAME]. Had he engaged with the tenants and the landlord, it may be that a road plan could have been agreed. In the absence of such agreement, Mr [NAME] should have brought the matter back to the tribunal. (viii) We are satisfied that by June 2019, the [NAME] was doomed: (a) The Manager was proposing a package of works of works which was outside the scope of what the Tribunal had contemplated when the [NAME] was made. Mr [NAME] had submitted a budget to the Tribunal for Year 1 which totalled £25,805, with major work estimated at £10,000 and a [NAME] contribution of £1,00o. Mr [NAME] had rather constructed a Year 1 budget of £106,574.

28 (b) As soon as it was apparent that the landlord would not pay the sums demanded, Mr [RESPONDENT] should have taken stock of the situation. The Management Oder did not permit him to require the tenants to cross- subsidise their defaulting landlord. (c) Mr [RESPONDENT] had no regard to whether the tenants could afford this inflated budget. Mr [NAME] seems to have acted on the basis that, as tribunal appointed Manager, he had authority to execute such works as he considered necessary over the two year period of the [NAME]. A Manager is obliged to have regard to the means of the parties who are paying for such works. (ix) Given that by June 2019, the [NAME] was doomed, Mr [NAME] should have brought the matter back to the tribunal at the earliest opportunity. There was no practical purpose in incurring the ongoing costs of the [NAME] when the desired outcome was not achievable. The only people to benefit were the Manager and his nominated contractors. (x) The Report which Mr [NAME] provided to the tribunal in December 2019 (at p.899) did not give any adequate indication of the extent of the problems that had arisen. There was no reference to the fact that the cost of the proposed works now exceeded £93,000 or that the tenants were arguing for a more modest package of works. (xi) It is not necessary for this tribunal on this [NAME] to offer any guidance on the extent to which it is appropriate for [NAME] who is an officer of the tribunal, to enter into contracts in which he has a direct or an indirect interest. However, a manager must be transparent about such dealings and be prepared to justify why such contracts secure best value for the paying parties. The dissembling which is apparent in [22(iii)] and [80] above is not acceptable. (xii) Any service charge funds are held by a Manager under a statutory trust imposed by Section 42 of the 1987 Act. We are satisfied that Mr [NAME] has acted in breach of his fiduciary duties as trustee with regard to the sums in issue in the Applicants’ Section 27A challenge. 11.1 The Scott Schedule

88. The Scott Schedule is at A.134-6. The Applicants confirmed that the only items in dispute are those highlighted in red. 1.1 Management Fee: £2,250 (2019); £2,250 (2020)

89. The [NAME] specifies an annual management fee of £1,875 + VAT, a total of £2,250. The Applicant’s complain of the quality of the service that was provided. We agree that the service fell far short of what the tenants might reasonably expect. No works have been executed to the physical fabric of the Building. The Applicants argue that the fee should be reduced to £900 per annum. We agree.

29 1.2 Building Insurance: £927.36 (2019); £1,052.05 (2020)

90. The leases required the landlord to insure the Property. Mr [RESPONDENT], as Manager, had the responsibility to ensure that a proper insurance policy was in place. This power was specifically granted by the [NAME]. On 10 May 2019, Mr [NAME] arranged insurance through [COMPANY] at a cost of £927.37. The paperwork is at A.480-484. The Tribunal notes that the Building was insured for £500k, with the sum insured specified at £650k. On 7 July, Mr [NAME] disclosed an alternative quote that he had obtained from AXA on 9 May 2019 in the sum of £1,143.98. In 2020, Mr [NAME] renewed the policy at a cost of £1,052.05, the increased premium reflecting the higher rebuilding costs which was found to be necessary after the Building Reinstatement Cost Assessment (“BRCA”) had been obtained.

91. The Applicants contended that the insurance was excessive and unreasonable. They had obtained two quotes from [NAME] (1.3.21) in the sum of £478.88 (at A.156) and [COMPANY] (19.5.21) in the sum of £675.75 (at A.157). Mrs [NAME] disclosed her email, dated 25 March 2021, in which she had requested the quotes. These were based on insuring the building for £650k. We are satisfied that this was much too low and should have been in excess of £1m.

92. The Tribunal is therefore satisfied that the sums claimed in respect of insurance are both payable and reasonable. 1.3 Out of Hours Helpline: £360 (2019); £360 (2020)

93. This is not a service for which a fee was sought in the [NAME]. The welcome letter (at A.896) made no reference to this service. The Applicants state that they were not informed of this service, did not need it and never made use of it. No repairs were executed during the two years of the [NAME].

94. Mr [NAME] referred the Tribunal to the contract which he had signed with [NAME] (see [54(i)] above). It is not open to a [NAME] to subvert the express terms of a [NAME] in this manner. We disallow this sum. 1.4 Specification of external works and common parts: £2,160 (2019)

95. Mr [NAME] did not provide a specification of works in his report. When [NAME] withdrew from the project, Judge Dutton granted the Manager permission to appoint either Mr [NAME] or Mr [NAME]. The Manager sought quotations from both surveys and selected the lowest tender. We are surprised that the Manager required Mr [NAME] to produce two schedules. However, we do not consider that any significant extra costs were incurred through this. Mr [NAME] quoted £900 per schedule + VAT. This totals £2,160. We allow this sum. 1.5 Preparing BRCA: £600 (2019)

30 96. The Tribunal is satisfied that the Manager was required to ensure that the property was fully insured. Mr [NAME] has referred the Tribunal to the RICS Guidance “Reinstatement Cost Assessment of Buildings” (at R1.208). On 26 November 2019, Mr [NAME] obtained a Building Reinstatement Cost Assessment from the [NAME] at a cost of £500 + VAT. The BRCA Assessment is at R2.230-233. This advised that the rebuilding costs should be insured in the sum of £1.022m.

97. The Applicants contend that this sum was not reasonably incurred as Mrs [NAME] already had an assessment in hand. No such assessment has been provided. The tribunal is satisfied that this sum was properly incurred. 1.6 Preparation of Service Charge Accounts: £720 (2019)

98. The Manager claims £720 for the preparation of the 2019 accounts which are at A.608. They were prepared by [NAME]. The sum claimed is £600 + VAT. The [NAME] contemplated that service charge accounts would be prepared.

99. The Applicants complain that the cost is excessive. They have obtained three quotes. The letter of instruction is at A.142. The quotes obtained are for (i) £400 + VAT from [NAME] (at A.138); (ii) £350 + VAT from [NAME] (at A.142); and (iii) £350 + VAT from [NAME] Accountants (at A143). The Applicants contend that the fee should be no greater than £420. 100. We reduce the fee to £420 (inc VAT). The accounts should have been extremely straight forward for a house with four flats and very little expenditure. Further, the accounts have not been prepared in accordance with the [NAME]. They do not distinguish between the service charge account and the [NAME]. They do not record the contributions of the individual lessees and the freeholder. They do not compare the budget with the actual expenditure. They do not identify the surplus paid for the year by the two tenants. 1.7 Preparation of Service Charge Accounts: £720 (2020/21) 101. Mr [NAME] asked the Tribunal to consider this proposed charge in respect of the final accounts which have not yet been prepared. Such accounts were required by the [NAME]. However, the accounts are not yet available, albeit that the [NAME] expired on 31 January 2021. On 6 April, Judge Latham directed the [NAME] to email the Applicants a copy of the final accounts by 4 May. Mr [NAME] did not comply with this Direction. Despite this, Mr [NAME] took the sum of £720 out of the [NAME] on 17 June 2021 and transferred it to an [NAME] account, presumably so that he has resources to pay the accountants in due course. We consider this to be a breach of the fiduciary duty owed by Mr [NAME] to the tenants. 102. Mr [NAME] stated that he had not finalised the accounts as he was waiting for the decision of this Tribunal. The Tribunal had directed that the accounts should be made available so that we could see how the Manager

31 had accounted for the service charge funds. A [NAME] who flouts a Direction to produce the accounts cannot expect to be paid for them. We disallow this charge. 1.8 Handover Fee: £600 (2020)

103. The Applicants contend that this sum is not payable. No provision is made for this in either the lease of the [NAME]. We agree. The Tribunal had only made an Order for a period of two years. The Tribunal would have contemplated that any handover would have been covered by the Manager’s management fee. 104. Mr [NAME] referred the Tribunal to the contract which he had signed with [NAME] (see [54(iii)] above). We do not accept that it is open to Mr [NAME] to subvert the express terms of the [NAME] by signing this agreement. Again, we note that on 12 January 2021, Mr [NAME] paid this sum to [NAME] from the [NAME]. This is a further beach of his fiduciary duty owed to the tenants. 1.8 Abortive Supervision Fees: (i) External Works: £2,011.50; (ii) Internal Works: £819

105. Mr [NAME] relies on the contract which he had signed with [NAME] to justify these charges (see [54(ii)] above). The Applicants contend that that they are not liable to pay these sums. No provision is made for this in either the lease or the [NAME]. The works were not commissioned. Alternatively, they argue that the project cost was premised on an overly expansive specification which was in breach of the [NAME]. They highlight that the [NAME] specified a supervision fee for a successful project of 5%, rather than 10%. 106. We agree with the Applicants. It is unacceptable for a [NAME] to seek to subvert the express terms of a [NAME] in this way. No works have been commissioned. The Manager has incurred these costs in connection with a specification of works which was outside the scope of what was contemplated in the [NAME]. These sums are not payable by the Applicants. 1.9 Summary of our Findings in Respect of the Service Charge Items 107. The Tribunal has made the following reductions to the service charge items included in the Manager’s Expenditure Report: (i) Management Fees reduced from £4,500 to £1,800, a reduction of £2,700; (ii) Out of Hours Helpline: £720; (iii) Service Charge Accounts (2019): £300; (iv) Service Charge Accounts (2020/21): Although we have made a reduction of £720, this has not been included in the Expenditure Report;

32 (v) Handover Fee: £600 (vi) Abortive Supervision Fees: £2,011.50 (external) and £819 (internal). 108. The Tribunal has reduced the external service charge items by £6,331.50 and the internal items by £819. Both Mrs [NAME] and Mrs [NAME] pay 20% of the external service charges, so each are entitled to a reduction of £1,266.30. Mrs [NAME] pays 20% of the internal charges and Mrs [NAME] 30%, so they are entitled to a further reduction of £163.80 and £245.70 respectively. The total deductions are therefore £1,430.10 for Mrs [NAME] and £1,512.00 for Mrs [NAME]. 109. The position of the respective parties is now as follows: (i) Mrs [NAME] is liable for £1,923.68 (reduced from the figure of £3,353.78 specified in [84] above). She has paid £13,768. She is entitled to a refund of £11,844.32. (ii) Mrs [NAME] is liable for £1,992.68 (reduced from £3,504.68). She has paid £14,189.60. She is entitled to a refund of £12,196.92. We do not make any adjustments for the modest interest which has been earned on the two service charge accounts. 11.2 Demands for Payments of [NAME]

110. The Applicants seek a determination as to their liability to pay [NAME] contributions of £29,292 for external works and £10,920 for internal works. We suggest that their sums are wrong and that the [NAME] contributions on 11 June 2019 totalled £55,228 for external and £38,185.90 for internal works (see [62] to [64] above). This aspect of their claim is largely academic as the [NAME] has expired, no works have been executed, and they claim a full refund of their contributions. 111. The Applicants contend that these sums should not have been demanded and it is appropriate for us to consider this. Their case is set out concisely in their Scott Schedule. The sums claimed were excessive and unreasonable. The Specification of Works was overly expansive. The works contemplated in the [NAME], based on Mr [NAME], could have been executed for much less. This is confirmed by the estimates which they had obtained. Both the external and internal works could have been executed for no more than £30,000. 112. We agree with the Applicants. In December 2018, Mr [NAME] had submitted a budget to the tribunal for Year 1 which totalled £25,805. Major works were estimated at £10,000 with an additional [NAME] contribution of £1,00o. Mr [NAME] however, demanded a total of £106,574.

12. LON/00AL/LAM/2018/0012: Directions sought under the [NAME]

33 12.1 Directions sought by the Tenants

113. The Applicant Tenants seek a Direction that the Manager repays the sums that are due to them. We are satisfied that Mr [NAME] was not entitled to draw on the contributions made by the tenants to the [NAME] to meet the shortfall of the sums due from the landlord. Mr [RESPONDENT] cannot rely on his agreement with [NAME] to subvert the express terms of the [NAME]. 114. The Tribunal rather turns to the terms of the [NAME] which are discussed in Section 8. The Order grants the Manager the power to establish a [NAME] (see [42(v)] above). However, the Manager is required to deal with those funds separately. Specific reference is made to Section 42 of the 1987 Act. Paragraph 21 of the Schedule to the Order (at [47(iii)] above), requires the accountant to certify any over or under payment. Any overpayment is to be credited to the payee; any underpayment is to be recovered as a debt. 115. We reject Mr [NAME] contention that this Tribunal has no jurisdiction to consider how the two service charge accounts have been handled. We follow the guidance provided by the Upper Tribunal is [NAME]. The Manager has held these on trust for the tenants pursuant to section 42 of the 1987 Act. We are satisfied that he has been in breach of his fiduciary duties towards the Applicants. 116. The Tribunal has computed that Mrs [NAME] is entitled to a refund of £11,844.32; whilst Mrs [NAME] is entitled to one of £12,196.92. We direct that the Manager refunds these sums to the Applicants. They should have been refunded on the expiry of the [NAME] on 31 January 2021. If these repayments are not made, the Applicants will be able to recover them as a debt in the County Court. 12.2 Directions sought by the Manager

12.2.1 Authority to charge a handover fee of £600

117. We are not willing to give Mr [NAME] the power to levy a handover fee of £600. In breach of his fiduciary duties as trustee of the [NAME], he has paid this fee to [NAME] without any authority from the tribunal and before any such handover has occurred. 118. No provision was made for a handover fee in the [NAME]. The Tribunal had not considered it necessary to make such provision, because it would have considered the costs of the handover to be covered by the Manager’s management fees. The Tribunal had made express provision of £500 for a set up charge. 12.2.2 Recovery of the Manager’s costs in respect of this [NAME] against the [NAME]

34 119. Mr [NAME] accepted that this is a “no costs jurisdiction”. He would therefore not be able to seek his costs under Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“the Tribunal Rules”). He further recognises that he has no prospect of recovering his costs against the Applicants, as the successful parties. He therefore seeks a direction that he should be entitled to recover his costs against Mrs [NAME], the [NAME]. By a letter dated 7 July 2021, the Manager quantifies his costs at £9,360. He states that as a “gesture of goodwill” he has only billed for 50% of the time spent on the preparation work, 120. We refuse to make this Direction for two reasons. First, the [NAME] has played a limited role in this [NAME]. Mrs [NAME] has not sought any specific relief from the Tribunal. Her involvement has not led to any significant costs. Secondly, the basis of the [NAME] is that the [NAME] failed because Mrs [NAME] refused to pay the contributions that were due from her under the [NAME]. Mrs [NAME] refused to pay the sums of £59,613.17 which were demanded on 11 June 2019 because she considered them to be excessive. She described them as “outright extortion”; she would not be “held to ransom” on her own property. The total sums demanded exceeded £106,500. The [NAME] had been premised on a Year 1 Budget of £25,805. The sums demanded were outside the scope of what was contemplated by the [NAME]. Had a sum been demanded in line with that contemplated in the [NAME], it may be that the landlord would have paid. It is not necessary for the Tribunal to make any finding on this point. 12.2.3 Authority for the Manager to sue the landlord in respect of the arrears payable under the [NAME]

121. Mr [NAME] seeks a Direction from the Tribunal giving him authority to sue Mrs [NAME] for the arrears arising under the [NAME]. We are willing to make such a Direction. However, the Manager must be personally responsible for any costs relating to such an action. It would be inappropriate to require the tenants to indemnify the Manager for any costs incidental to such an [NAME]. The position might have been different had the Manager sought authority for such action whilst the [NAME] was current. 122. The Tribunal has not been required to determine what sums were payable by Mrs [NAME] pursuant to the terms of the [NAME]. From the Expenditure Statement (at A.937), it seems that the Manager contends that some £17,896 is due. This sum is not sought as a service charge pursuant to any lease, but rather as the landlord’s contribution under the [NAME]. Refund of Fees 123. The Applicants have made an [NAME] for the refund of the tribunal fees of £300 which they have paid pursuant to Rule 13(2) of the Tribunal

35 Rules. Their [NAME] has been successful. We therefore order the Respondent to refund these fees within 28 days. 124. We do not consider that it is open to either the Manager or the landlord to pass on the costs of this [NAME] through the service charge. However, for the avoidance of doubt, we make an order under Section 20C of the 1985 Act preventing either of them from doing so. We are satisfied that it is just and equitable to do so.

Judge Robert Latham 12 August 2021

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. 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).