First-tier Tribunal Rejects Payment of Fraudulent Service Charge Invoices

OUTCOME: Allowed

© CROWN COPYRIGHT 2021

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00AP/LSC/2021/0179 CPV:REMOTE Property : [ADDRESS] [POSTCODE] Applicants : [redacted] [NAME] [COUNSEL] : In person Respondent : [redacted] : In person

Type of Application : s27A and s20C Landlord and Tenant Act 1985

Tribunal : Judge F J Silverman MA LLM Ms J Mann MCIEH

Date of hearing : 10 December 2021. Date of Decision : 17 December 2021

2

DECISION AND ORDER

1 The Tribunal determines that no sums are payable by the Applicants under invoices numbered 00875 and 00888 because the invoices do not appear to be genuine and no evidence of payment of them by the Respondents nor proof of receipt by the payee has been produced. In so far as the Applicants have paid any sums under these invoices those sums should be repaid in full to the Applicants or credited towards their future liability for service charge and in either case a balancing account issued. 2 The Tribunal determines the amount of the insurance premium for the current year 2020-21 to be reasonable. However, no contribution is payable by the Applicants unless and until the Respondents supply the Applicants with a copy of the policy or cover note showing that the [NAME] has noted the Applicants’ interest in the property on the policy. Any sums already paid by the Applicants in respect of the current year should either be reimbursed to them or credited against their future service charge and insurance liability until the above condition is satisfied. 3 The Tribunal makes unlimited orders under s20 C Landlord and Tenant Act 1985 and Schedule 11 para 5 Commonhold and Leasehold Reform Act 2002 in favour of the Applicants [NAME] [NAME] [NAME] and Mrs [NAME]. 4 The Respondents are jointly and severally ordered forthwith to repay £300 to the Applicants representing their application and hearing fees.

This has been a remote video hearing which has been consented to by the parties. The form of remote hearing was CVP:REMOTE. A face to face hearing was not held because it was not practicable and all issues could be determined in a remote hearing. The documents to which the Tribunal was referred are contained in electronic bundles the contents of which are referred to below. The orders made in these proceedings are described above.

REASONS 1 The Applicants are the joint leaseholders of Flat B at 42A [ADDRESS] [POSTCODE] (the property) which forms part of a converted Victorian villa comprising three self-contained residential flats (the building). The Respondents jointly are the current freeholders of the property and the building and separately are leaseholders of the other two flats in the building. 2 The property is held under a lease dated 12 March 1987 and made between [COMPANY] and Mrs [NAME] (page 86) under which the tenants/Applicants covenant in Clause 1(ii) to pay a

3 proportion of the costs of repair and maintenance of the building and similarly in Clause 3 in relation to the insurance of the building. 3 The only issues for determination by the Tribunal are whether the Respondents are entitled to charge the Applicants a proportionate part of the costs of repair works said to have been carried out under invoices numbered 0875 and oo888 (page 58 et seq) in service charge year 2020 and whether the current (2021) demand for a contribution to the insurance of the building is reasonable and payable. 4 This matter falls to be determined under s27 Landlord and Tenant Act 1985 because it concerns the liability of a person to pay for an item which falls due under the service charge provisions of the lease. 5 The Application was filed on 21 April 2021, as amended on 18 May 2021 and Directions were issued by the Tribunal on 03 June 2021, 5 July 2021, 9 July 2021 and 19 July 2021. 6 The Tribunal received and read the electronic bundle of documents, including the Applicants’ statement of case referred to below. 7 The hearing took place via a CVP video link to which the parties had previously consented. 8 In accordance with current Practice Directions relating to Covid 19 the Tribunal did not make a physical inspection of the property but was able to obtain an overview of its exterior and location via GPS software and the photograph supplied by the Applicants (page 1). 9 The Respondents have not communicated with either the Tribunal or the Applicants and following their failure to comply with the Directions issued by the Tribunal on 03 June 2021 a striking out order was made against them on 09 July 2021 which debarred them from taking any further part in the proceedings if they failed to comply with the Tribunal’s order by 15 July. No response having been made to the 09 July 2021 order or indeed since then, the Tribunal treats the Respondents as having been barred from taking part in these proceedings. As at the date of the hearing the Tribunal had received no communication from them and they did not appear and were not represented at the hearing. 10 There is no issue between the parties as to the necessity for the works, or the standard of work carried out. The Applicants concede that the work carried out falls within the service charge provisions in the lease and is chargeable to the tenants whose individual liability is apportioned in their respective leases. 11 The issue to be determined relates to the validity of the invoices numbered 00785 (for £1,450) and 00888 (for £2,200). The Applicants argue that both invoices are fraudulent and consequently that no sums are due and payable under either of them. 12 The Applicants state that the disputed invoices (pages 58 and 63) not only look different to previous invoices issued by contractor ‘[NAME]’ (see page 62) but also that the Word history of document 00785 (page 59) plainly shows that the document was created by [NAME] [RESPONDENT] (one of the Respondent freeholders) using his own compute/software on 14 March 2021 and did not originate from [NAME] on 18 March 2020 as suggested on the face of the document itself. Further, there is no evidence of payment of the sum of £1,450 to [NAME], the only documents which show this sum are cash withdrawals for £1,400 and an additional sum of £50 on 16 March 2020 (page 60) i.e. three days before

4 the alleged date of the invoice. Similarly, no receipt for this sum by [NAME] has been produced by the Respondent. The Applicants were provided with two versions of the cash withdrawal bank statement, the first was for a cash withdrawal of £1,400 on 16th March 2020. This had an ATM search date range from 13/02/20 to 20/03/20 and was last updated on 05/12/20 at 16.42.(page 60) The second version of the cash withdrawal bank statement includes a withdrawal of £1,400 and an additional withdrawal of £50.00 on 16/03/20 (page 61) which did not appear on the first version despite the date of withdrawal being within the search range and the search being made almost 9 months after the transaction date. 13 In these circumstances and in the absence of any explanation to the contrary from the Respondents, the Tribunal concludes that the invoice numbered 00785 is not genuine and therefore that no sum is payable by the Applicants in respect of it. The Applicants’ share of this invoice would be £250 and in so far as that sum has already been paid it should immediately be repaid to the Applicants or credited towards their liability to future service charge with a balancing statement of account issued to them. 14 Invoice 00888 (page 63) has a similar history with its Word history on page 64 demonstrating the creation of the document by [NAME] [NAME] (not by [NAME]) on 14 March 2021 despite the fact that the face of the document suggests it was dated 10 July 2020. The Applicants’ share of this invoice would be £839 of which the Applicants were in any event only prepared to offer £250 because they had not received any s20 documentation in respect of these works. Whether or not the s20 consultation procedure was relevant or had been complied with is not part of the Applicants’ current argument and is not further discussed here. It is however clear to the Tribunal that as with the previous invoice 00785, this invoice 00888 has similarly been fabricated and as such it is not a genuine demand and no sum is payable in respect of it. Evidence of withdrawal of funds from a bank account does not constitute evidence of payment to a third party. In so far as any sum has already been paid by the Applicants to the Respondent under this invoice it should, as before, be repaid forthwith or credited to their contribution to their future service charge and a balancing statement of account issued. 15 The Applicants also contend that the amount of the insurance premium for the current year is excessive. The premium for the year 2020 was £663.84 and for the current year £933.12. They said that the Respondent had been forced to change [NAME] because their previous [NAME] had declined to issue a new policy following an incident last year relating to the non-repayment of an over payment on a claim. The applicants referred to an e mail from [NAME] dated 13 March 2021 which refers, in point 5, to an overpayment by [NAME] to the freeholders with respect to works carried out by [NAME] of £114.12. The e mail offers a credit to the Applicants for their proportion of the overpayment £30.58. (page 72) The Applicants reported their concerns regarding the overpayment to [NAME]. (page 73) 16 They also contended that the Respondent had included legal expenses in the policy and that this was not necessary under the lease. The Tribunal disagrees with the Applicants on this point. The lease requires the policy Formatted: Superscript Formatted: Font: Georgia Formatted: Font: Georgia Formatted: Font: Georgia

5 to insure against usual risks and legal expenses would be one such item. Further, the cost of insurance generally had increased over the past year so that an increase in the premium was unsurprising. The Tribunal accepted that the increase was substantial but the [NAME] would also have needed to take into account the history of previous claims of the property. The Applicants were unable to produce any alternative quotations which were like-to-like with the previous policy which had been in place at the property and in the absence of such evidence the Tribunal is unable to conclude that the new policy and its premium are unreasonable. 17 The Tribunal therefore determines the amount of the insurance premium for the current year 2020-21 to be reasonable. However, no contribution is payable by the Applicants unless and until the Respondents supply the Applicants with a copy of the policy or cover note showing that the [NAME] has noted the Applicants’ interest in the property on the policy. Any sums already paid by the Applicants in respect of the current year should either be reimbursed to them or credited against their future service charge and insurance liability until the above condition is satisfied. 18 The Applicants said that they might have other issues with the service charges for the years under discussion in respect of which they might wish to bring a further application. In this respect the Applicants should take legal advice to ensure that any subsequent application does not infringe the res judicata rule which prevents the same issue from being litigated more than once. 19 The Applicants also asked the Tribunal to make an order in their favour under s20C Landlord and Tenant Act 1985 and or Schedule 11 para 5 of Commonhold and Leasehold Reform Act 2002 which prevent the Respondents from adding the litigation costs of this application to a future service charge bill. 20 In the circumstances where the Respondents have made no attempt to comply with the Tribunal’s Directions nor to appear to defend or explain their position and have made no representations relating to the s20C application, the Tribunal considers that it is reasonable to make an unlimited order under both the above sections in favour of the Applicants named in this application. 21 The Law Landlord and Tenant Act 1985 (as amended) Section 18 (1) In the following provisions of this Act "service charge" means an amount payable by a tenant of a dwelling as part of or in addition to the rent - (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs.

6 (2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. (3) For this purpose - (a) "costs" includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period. Section 19 (1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period - (a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provisions of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise. Section 27A (1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to - (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Subsection (1) applies whether or not any payment has been made. (3) An application may also be made to the appropriate tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to - (a) the person by whom it would be payable, (b) the person to whom it would be payable, (c) the amount which would be payable, (d) the date at or by which it would be payable, and (e) the manner in which it would be payable.

7 (4) No application under subsection (1) or (3) may be made in respect of a matter which - (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post- dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment. Section 20 (1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either— (a) complied with in relation to the works or agreement, or (b) dispensed with in relation to the works or agreement by (or on appeal from) the appropriate tribunal . (2) In this section “relevant contribution”, in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement. (3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount. (4) The Secretary of State may by regulations provide that this section applies to a qualifying long term agreement— (a) if relevant costs incurred under the agreement exceed an appropriate amount, or (b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount. (5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount— (a) an amount prescribed by, or determined in accordance with, the regulations, and (b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations. (6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into

8 account in determining the relevant contributions of tenants is limited to the appropriate amount. (7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined.] Section 20B (1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred. (2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge. Section 20C (1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, residential property 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;

9 (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 1 (1) In this Part of this Schedule “administration charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly— (a) for or in connection with the grant of approvals under his lease, or applications for such approvals, (b) for or in connection with the provision of information or documents by or on behalf of the landlord or a person who is party to his lease otherwise than as landlord or tenant, (c) in respect of a failure by the tenant to make a payment by the due date to the landlord or a person who is party to his lease otherwise than as landlord or tenant, or (d) in connection with a breach (or alleged breach) of a covenant or condition in his lease. (2) But an amount payable by the tenant of a dwelling the rent of which is registered under Part 4 of the Rent Act 1977 (c. 42) is not an administration charge, unless the amount registered is entered as a variable amount in pursuance of section 71(4) of that Act. (3) In this Part of this Schedule “variable administration charge” means an administration charge payable by a tenant which is neither— (a) specified in his lease, nor (b) calculated in accordance with a formula specified in his lease. (4) An order amending sub-paragraph (1) may be made by the appropriate national authority. Schedule 11, paragraph 2 A variable administration charge is payable only to the extent that the amount of the charge is reasonable.

Schedule 11, paragraph 5

10 (1) An application may be made to the appropriate tribunal for a determination whether an administration charge is payable and, if it is, as to— (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Sub-paragraph (1) applies whether or not any payment has been made. (3) The jurisdiction conferred on the appropriate tribunal in respect of any matter by virtue of sub-paragraph (1) is in addition to any jurisdiction of a court in respect of the matter. (4) No application under sub-paragraph (1) may be made in respect of a matter which— (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post- dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment. (6) An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination— (a) in a particular manner, or (b) on particular evidence, of any question which may be the subject matter of an application under sub-paragraph (1).

Section 47 Landlord and Tenant Act 1987

(1)Where any written demand is given to a tenant of premises to which this Part applies, the demand must contain the following information, namely—

(a)the name and address of the landlord, and

(b)if that address is not in England and Wales, an address in England and Wales at which notices (including notices in proceedings) may be served on the landlord by the tenant.

(2)Where—

11 (a)a tenant of any such premises is given such a demand, but

(b)it does not contain any information required to be contained in it by virtue of subsection (1),

then (subject to subsection (3)) any part of the amount demanded which consists of a service charge [F1or an administration charge] (“the relevant amount”) shall be treated for all purposes as not being due from the tenant to the landlord at any time before that information is furnished by the landlord by notice given to the tenant.

(3)The relevant amount shall not be so treated in relation to any time when, by virtue of an order of any court [F2or tribunal], there is in force an appointment of a receiver or manager whose functions include the receiving of service charges [F3or (as the case may be) administration charges] from the tenant.

(4)In this section “demand” means a demand for rent or other sums payable to the landlord under the terms of the tenancy.

Withholding of service charges Landlord and Tenant Act 1985 s21 21 (1)A tenant may withhold payment of a service charge if— (a)the landlord has not provided him with information or a report— (i)at the time at which, or (ii)(as the case may be) by the time by which, he is required to provide it by virtue of section 21, or (b)the form or content of information or a report which the landlord has provided him with by virtue of that section (at any time) does not conform exactly or substantially with the requirements prescribed by regulations under that section. (2)The maximum amount which the tenant may withhold is an amount equal to the aggregate of— (a)the service charges paid by him in the period to which the information or report concerned would or does relate, and (b)amounts standing to the tenant's credit in relation to the service charges at the beginning of that period. (3)An amount may not be withheld under this section— (a)in a case within paragraph (a) of subsection (1), after the information or report concerned has been provided to the tenant by the landlord, or

12 (b)in a case within paragraph (b) of that subsection, after information or a report conforming exactly or substantially with requirements prescribed by regulations under section 21 has been provided to the tenant by the landlord by way of replacement of that previously provided. (4)If, on an application made by the landlord to the appropriate tribunal, the tribunal determines that the landlord has a reasonable excuse for a failure giving rise to the right of a tenant to withhold an amount under this section, the tenant may not withhold the amount after the determination is made. (5)Where a tenant withholds a service charge under this section, any provisions of the tenancy relating to non-payment or late payment of service charges do not have effect in relation to the period for which he so withholds it.

21B Notice to accompany demands for service charges (1)A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges. (2)The Secretary of State may make regulations prescribing requirements as to the form and content of such summaries of rights and obligations. (3)A tenant may withhold payment of a service charge which has been demanded from him if subsection (1) is not complied with in relation to the demand. (4)Where a tenant withholds a service charge under this section, any provisions of the lease relating to non-payment or late payment of service charges do not have effect in relation to the period for which he so withholds it. (5)Regulations under subsection (2) may make different provision for different purposes. (6)Regulations under subsection (2) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

13

S22 Landlord and Tenant Act 1985

22 Request to inspect supporting accounts &c. (1)This section applies where a tenant, or the secretary of a recognised tenants’ association, has obtained such a summary as is referred to in section 21(1) (summary of relevant costs), whether in pursuance of that section or otherwise. (2)The tenant, or the secretary with the consent of the tenant, may within six months of obtaining the summary require the landlord in writing to afford him reasonable facilities— (a)for inspecting the accounts, receipts and other documents supporting the summary, and (b)for taking copies or extracts from them. (3)A request under this section is duly served on the landlord if it is served on— (a)an agent of the landlord named as such in the rent book or similar document, or (b)the person who receives the rent of behalf of the landlord; and a person on whom a request is so served shall forward it as soon as may be to the landlord. (4)The landlord shall make such facilities available to the tenant or secretary for a period of two months beginning not later than one month after the request is made. (5)The landlord shall— (a)where such facilities are for the inspection of any documents, make them so available free of charge; (b)where such facilities are for the taking of copies or extracts, be entitled to make them so available on payment of such reasonable charge as he may determine. (6)The requirement imposed on the landlord by subsection (5)(a) to make any facilities available to a person free of charge shall not be construed as precluding the landlord from treating as part of his costs of management

14 any costs incurred by him in connection with making those facilities so available

Judge F J Silverman as Chairman Date 17 December 2021

Note:

RIGHTS OF APPEAL 1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application by email to [EMAIL].

2. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28 day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.