First-tier Tribunal Limits Recovery of Certain Costs Through Service Charges

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY) Case reference : LON/00BG/LSC/2020/0170 HMCTS code (paper, video, audio) : P: PAPERREMOTE Property : 4 [NAME], 3 St Anne’s [ADDRESS] [POSTCODE] Applicant : [redacted] : In person Respondent : [redacted] (2) [RESPONDENT] : (1) Mr [COUNSEL], counsel (2) Ms [COUNSEL], solicitor Type of application : Liability to pay service charges – costs issues Tribunal members : Judge Nicola Rushton QC [NAME] [NAME], lay member Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 21 May 2021

DECISION ON COSTS ISSUES

2 Covid-19 pandemic: description of hearing This has been a hearing on the papers which has been consented to by the parties. The form of remote hearing was P: PAPERREMOTE. In addition to retaining the hearing bundles, the tribunal received written submissions on costs from the parties as set out below. Decisions of the tribunal (1) The Tribunal makes an order under section 20C of the Landlord and Tenant Act 1985 (“the 1985 Act”) that 75% of the costs incurred by the [NAME] Respondent in connection with these proceedings are not to be regarded as relevant costs in determining the amount of any service charges to be paid by the First Respondent. (2) The Tribunal makes an order under section 20C of the 1985 Act that 60% of the costs incurred by the First Respondent in connection with these proceedings are not to be regarded as relevant costs in determining the amount of any service charges to be paid by the Applicant and/or the tenants of the other 15 flats listed in section 9 of the application. (3) The Tribunal makes an order under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) extinguishing any liability of the First Respondent to pay any administration charges in respect of the [NAME] Respondent’s costs of this application insofar as these might otherwise have been payable under the Head Lease. (4) The Tribunal makes an order under paragraph 5A of the 2002 Act extinguishing any liability of the Applicant to pay any administration charges in respect of the First Respondent’s costs of this application insofar as these might otherwise have been payable under his Sub- Lease with the First Respondent. (5) The Tribunal makes an order pursuant to rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) ([NAME]) Rules 2013 (“the 2013 Rules”) that the [NAME] Respondent shall reimburse the Applicant the £100 application fee and £200 hearing fee that he has paid, within 28 days of the date of this Decision. The parties’ submissions on costs 1. The tribunal’s substantive decision on the Applicant, Mr [APPELLANT] application under s.27A of the 1985 Act was sent to the parties on 31 March 2021. In that decision the parties were invited to submit written

3 submissions on all costs issues within 21 days of receipt, including any applications under s.20C of the 1985 Act, paragraph 5A of Schedule 11 to the 2002 Act and for reimbursement of tribunal fees paid.

2. Relevant extracts from the legislation are set out in an appendix to this decision. Abbreviations are as in the substantive decision.

3. Written submissions have been received from Mr [COUNSEL]; from counsel Mr [COUNSEL], on behalf of the First Respondent [NAME]; and from the [NAME] Respondent [NAME]’s solicitor, Ms [COUNSEL].

4. In summary, the parties submissions were as follows:

5. Mr [NAME] applies for an order under s.20C on behalf of all of the tenants of [NAME] that neither of the Respondents’ legal costs of his application should be regarded as relevant costs in determining the amount of any service charges. He also submits that the application fee of £100 and hearing fee of £200 incurred by him should be reimbursed by one or both of the Respondents.

6. In his original application, Mr [NAME] also included an application under para. 5A of Schedule 11 to the 2002 Act to reduce or extinguish any liability which he might have, to pay any administration charge in respect of litigation costs.

7. On behalf of [NAME], Mr [NAME] submitted that: (i) [NAME] has no entitlement under the Head Lease to claim its costs of this application from [NAME] either through the service charge or as an administration charge. (ii) In any event, the tribunal should make an order under s.20C preventing [NAME] from passing on any of its costs to [NAME] through the service charge. To the extent that a full order is not made, any such costs of [NAME] will be passed on to the [NAME] through the service charge. (iii) The tribunal should also make an order under para. 5A preventing [NAME] from charging its litigation costs to [NAME] as an administration charge. (iv) [NAME] has a contractual entitlement to recover its costs of the application by way of service charge from the [NAME] under clause 7.4(c) of the Sub-Lease (it is assumed that all the sub-leases are in the same terms).

4 (v) Overall Mr [NAME] succeeded in obtaining a reduction of 42% in the service charges payable.

(vi) [NAME] should be permitted to pass on 60% of its costs of these proceedings to the [NAME] through the service charge, i.e. 40% should not be regarded as relevant costs.

(vii) Insofar as any party should reimburse Mr [NAME] tribunal fees, it should be [NAME].

8. Mr [NAME] confirmed that [NAME] did not intend to pass on any of its costs to Mr [NAME] by way of an administration charge, but invited the tribunal to make an order under para. 5A as a matter of completeness. The tribunal accedes to that invitation.

9. On behalf of [NAME], Ms [NAME] submitted that: (i) No order should be made in favour of [NAME] under s.20C (with the knock on effect that all of [NAME]’s costs of the application should be passed on to the [NAME] through the service charge) nor under para. 5A. (ii) No order should be made in favour of Mr [NAME] for reimbursement of his tribunal fees. (iii) [NAME]’s costs of the application are recoverable from [NAME] through the service charge under clauses 10(a) and (b) and 11 of the Fourth Schedule and clause 11 of the Seventh Schedule. (iv) Mr [NAME] has not been successful on the great majority of the issues listed by the tribunal at paragraph 27 of its decision. (v) The tribunal should take into account the unreasonable conduct of Mr [NAME], in particular in failing to provide a statement of case or witness statement in accordance with the tribunal’s directions; challenging various heads of expenditure without advancing any positive case; seeking unsuccessfully to put in late evidence; and making wide-ranging and opportunistic challenges. (vi) Some of Mr [NAME] complaints as to lack of clarity and unpredictability of services charges were justified because of [NAME]’s failings, not [NAME]’s.

10. Ms [NAME] did not contend that [NAME]’s costs of the application were recoverable from [NAME] by way of an administration charge and the tribunal was not directed to any provision in the Head-Lease under which it was suggested they were. The tribunal has therefore proceeded

5 on the basis that Mr [NAME] is correct and there is no such entitlement under the lease. As a matter of clarity and completeness, it makes an order under para. 5A as between [NAME] and [NAME] as well.

11. Mr [NAME] and Ms [NAME] both referred the tribunal extensively to the decision of HHJ Gerald in the Upper Tribunal in The Church Commissioners v. Derdabi [2011] UKUT 380 (LC), guidance which the tribunal has considered in full. It has also considered the other authorities referred to by Ms [NAME] when reaching its conclusions, in particular The Tenants of [ADDRESS] ([NAME]) v [COMPANY]/37/2000 (HHJ Rich QC); Schilling v. [COMPANY]/26/2005 (HHJ Rich QC) and Scmlla ([COMPANY] [2014] UKUT 0058 (LC).

12. Taking into account all of the written submissions of the parties, which have been very helpful, and the decisions reached in its substantive determination, the tribunal has reached the following conclusions on these costs issues. Entitlement to claim costs through the service charge 13. The tribunal accepts the submissions of Ms [NAME] that [NAME] is contractually entitled under the lease to recover its costs of this application from [NAME] through the service charge.

14. Clause 11 of the Seventh Schedule to the Head-Lease permits [NAME] to recover by way of service charge the costs of engaging “persons in connection with the provision of the Services or the Landlord's other obligations under this Lease on such terms as the Landlord reasonably considers necessary or desirable from time to time and all incidental expenditure and benefits including (but not limited to):…(c) the proper and reasonable fees charges and disbursements of professionals… engaged by the Landlord… to provide or carry out legal services… in respect of the Block or the Estate…” 15. The tribunal considers that [NAME]’s costs of this application are clearly fees or disbursements of professionals to carry out legal services in respect of the Block and the Estate, and that this would encompass a service charge dispute.

16. So far as the Sub-Lease is concerned, the tribunal considers that [NAME]’s costs of this application are covered by clause 7.4(c) of the service charge provisions which cover “all reasonable fees, charges and expenses payable to… any solicitor… whom [[NAME]] may from time to time reasonably employ in connection with the management or maintenance of the Building and/or the Estate...”

6 17. While service charge provisions must always be considered by reference to their specific terms, the tribunal considers that both clauses are similar in their references to the costs of legal advisers to the clauses in Staghold v. Takeda [2005] 3 EGLR 45, which were held to extend to the costs of LVT service charge proceedings.

18. Insofar as any service charge is payable by [NAME] in respect of [NAME]’s costs of the application, [NAME] will be entitled to recharge this to the [NAME] including Mr [NAME] through their service charges. This is for the reasons set out at paragraphs 41 and 42 of the substantive decision. Applications under s.20C 19. So far as [NAME]’s costs of the application are concerned, taking into account the parties’ submissions, the substantive decision reached and all the circumstances, the tribunal has concluded that 75% of [NAME]’s costs are not to be regarded as relevant costs in determining the amount of any service charges to be paid by [NAME], i.e. only 25% may be recovered through the service charge. It considers it is just and equitable to limit [NAME]’s contractual rights to this extent.

20. In reaching that conclusion the tribunal considers the following factors of particular significance: (i) The biggest issue, in terms of both value and the amount of time devoted to it in the evidence and at the hearing, was the proper apportionment and reasonable amount payable for the porterage/concierge services. Mr [NAME] was successful on that issue. (ii) However Mr [NAME] took an indiscriminate approach to challenging items of service charge, even where he was unable to identify any evidence to support his challenge, which increased the length and complexity of the hearing. There was a large number of such items which were allowed by the tribunal as charged, even though individually each did not take up much time. Similarly, there were various legal issues raised by Mr [NAME] unsuccessfully, even though none individually took up a lot of time and effort. (iii) Mr [NAME] approach, in failing to provide a statement of case or witness statement, did not properly comply with the directions, which as a legal professional he should have realised. (iv) Mr [NAME] did however give [NAME] and [NAME] ample opportunity to resolve the issues prior to issuing his application and it appears

7 unlikely that the main issue of porterage/concierge costs would have been resolved without that application.

21. So far as [NAME]’s costs of the application are concerned, taking into account the parties’ submissions and all of the circumstances, the tribunal has concluded that 60% of [NAME]’s costs are not to be regarded as relevant costs in determining the amount of any service charges to be paid by the [NAME] including Mr [NAME], i.e. only 40% may be recovered through the service charge. It considers it is just and equitable to limit [NAME]’s contractual rights to this extent.

22. In reaching that conclusion the tribunal considers the following factors of particular significance: (i) While it was not unreasonable of Mr [NAME] to have joined [NAME] to the application, neither was it strictly necessary1 (because [NAME] was responsible for all of the services whose costs were being challenged), and costs have been increased as a result of that decision. Mr [NAME] specifically drew the tenants’ attention to the fact that any application should be made against [NAME] and not [NAME], before the application was issued. (ii) The tribunal found that [NAME] did genuinely seek to investigate the tenants’ concerns as to the service charges. (iii) However the tribunal has also found there was a lack of clarity and were delays by [NAME] when recharging [NAME]’s service charges, which justified some of Mr [NAME] complaints about [NAME]’s management and made the hearing more complex. Refund of tribunal fees 23. Given its conclusion that the Applicant has been successful on the most important issue in dispute, and that it is unlikely that this would have been resolved without the need for this application, the tribunal has concluded that [NAME] should reimburse the application and hearing fee paid by Mr [NAME], pursuant to rule 13(1)(b) of 2013 Rules. It orders that it should do so within 28 days of the date this decision is received. Name: Judge Nicola Rushton QC Date: 21 May 2021

Rights of appeal

1 [COMPANY] v Ruddy [2006] EWCA Civ 1389

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

9 Appendix of relevant legislation Landlord and Tenant Act 1985 (as amended) 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 tribunal or the Upper Tribunal, or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application. (2) The application shall be made— (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 a county court; (aa) in the case of proceedings before a residential property tribunal, to that tribunal; (b) in the case of proceedings before a residential property tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any residential property tribunal; (c) in the case of proceedings before the Upper Tribunal, to the tribunal; (d) in the case of arbitration proceedings, to the arbitral tribunal or, if the application is made after the proceedings are concluded, to a 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 5A (1) A tenant of a dwelling in England may apply to the relevant court or tribunal for an order reducing or extinguishing the tenant's liability to pay a particular administration charge in respect of litigation costs. (2) The relevant court or tribunal may make whatever order on the application it considers to be just and equitable. (3) In this paragraph— (a) “litigation costs” means costs incurred, or to be incurred, by the landlord in connection with proceedings of a kind mentioned in the table, and

10 (b) “the relevant court or tribunal” means the court or tribunal mentioned in the table in relation to those proceedings. Proceedings to which costs relate “The relevant court or tribunal” Court proceedings The court before which the proceedings are taking place or, if the application is made after the proceedings are concluded, the county court First-tier Tribunal proceedings The First-tier Tribunal Upper Tribunal proceedings The Upper Tribunal Arbitration proceedings The arbitral tribunal or, if the application is made after the proceedings are concluded, the county court.