First-tier Tribunal Rejects Service Charge for Lift Replacement

OUTCOME: Dismissed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00BC/LSC/2019/0262 Property : 51 [ADDRESS] [POSTCODE] Applicant : [redacted] : [RESPONDENT] (managing agents) Respondent : [redacted] [NAME] as listed in the schedule accompanying the [NAME] : Unrepresented Type of [NAME] : For the determination of the reasonableness of and liability to pay service charges (section 27A Landlord and Tenant Act 1985) Tribunal Member : Mr [NAME] (Tribunal Judge) Date and venue of Paper Determination : 09 [ADDRESS] [POSTCODE] Date of Decision : 09 January 2020

DECISION

2 Decisions of the tribunal

The tribunal makes the determination set out at paragraph 20 of this decision. The [NAME]

1. The applicant seeks a determination pursuant to section 27A of the Landlord and Tenant Act 1985 (‘the 1985 Act’) as to the amount of service charges payable by the respondents. The [NAME] relates to the proposed replacement of two lifts at 51 [ADDRESS] [POSTCODE] (‘[NAME]’).

2. Directions were issued at a case management hearing on 08 August 2019. Direction 1 provided that the [NAME] be determined without a hearing unless either party requested a hearing within 28 days. No such request has been made.

3. Direction 2 required the applicant to serve a detailed statement of case by 05 September 2019, to include “a clear statement as to what lift works it wishes to carry out and to charge for through the service charge in as much detail as possible, so as to enable the [NAME] and the tribunal to categorise those proposed works by reference to the current condition of the lift and the wording of the lease and of the supplemental agreement”.

4. Direction 3 provided: “By 17th October 2019 any Respondent [NAME] wishing to do so shall send to the Applicant landlord a statement in response, including:- • a statement as to whether any support or oppose the [NAME]; and • if they oppose the [NAME], on what grounds they oppose it, including any technical, legal or other grounds and any legal authority on which they wish to rely. If more than one Respondent wishes to make a written statement opposing the [NAME] it would be helpful (but not essential) for those Respondents to co-ordinate their responses.” 5. The [NAME] was determined on paper on 09 January 2020. The applicant’s managing agents, [APPELLANT] (‘Strettons’), filed a bundle of relevant documents on 18 November 2019. At the tribunal’s request, Strettons provided additional documents under cover of letters

3 dated 17 December 2019 and 08 January 2020. The tribunal considered all of the documents and the contents of Strettons’ letters when deciding the [NAME].

6. The relevant legal provisions are set out in the appendix to this decision. The background 7. [NAME] comprises two blocks housing a total of 24 flats, garages, parking spaces and grounds. Each block has its own lift. The freeholder is [APPELLANT]. The applicant holds a head-lease of [NAME] and is the “[COMPANY]” named in the flat under-leases. The respondents are the under-[NAME] of the 24 flats.

8. The contractual relationship between the applicant and each respondent is detailed in two documents; the under-lease and a supplemental agreement (the ‘Agreement/s’). The bundle contained samples of both (for Flat 8). In their letter of 20 January, Strettons confirmed that all current under=[NAME] have entered into signed Agreements in the same form.

9. The applicant intends to replace the lifts and seeks a prospective determination that such work comes within the repairing obligations in the Agreements. The anticipated cost is £80,000-90,000 per lift (excluding VAT) so the total cost for both blocks could exceed £200,000 (including VAT). The leases and the Agreement 10. The applicant’s head-lease was granted by [APPELLANT] (“the Lessor”) to the applicant (“[NAME]”) on 26 July 1965, for a term of 999 years from 25 March 1965. [NAME]’s covenants are set out in the third schedule and include: “17. [NAME] shall use its best endeavours to ensure that that the lifts and the machinery relating thereto in the said building are at all times kept in a safe working condition in accordance with the any Bye-Laws applicable to the lifts in force from time to and have the lifts and machinery valid (sic) regularly inspected by a competent lift engineer and shall at all times keep on foot a policy of insurance against breakdown or liability arising out of the use of the lift with a specialist lift Insurance Company”.

11. The sample under-lease for Flat 8 was granted by [COMPANY] (“the Lessor”) to [NAME] [NAME]

4 and [NAME] (“[NAME]”) on 28 September 1966, for a term 999 year from 25 March 1965. Recital (4) provides: “[NAME] is the holder of one share in the [COMPANY] (hereinafter referred to as “the [COMPANY]”)” 12. The under-lease does not appear to include any obligations on the part of [COMPANY] or any requirement for [NAME] to pay a service charge to applicant.

13. The sample Agreement for Flat 8 is dated 23 March 2015 and was made between the applicant (“the Association”) and [APPELLANT] [NAME] and [NAME] [NAME] (“[NAME]”). The Association’s obligations are at clause 1 and include: “(b) to maintain the lifts and internal telephone and door locking system in good repair and working condition and to renew the same from time to as may be necessary as a result of the same becoming work (sic) out, broken or damaged beyond repair otherwise unserviceable”. There appear to be two typographical errors in this sub-clause and “work” should read “worn” and the word “or” should be inserted between “repair” and “otherwise”.

14. Clause 5(a) provides: “[NAME] shall pay to the Association one twenty-sixth part[s] of the annual cost of carrying out the said obligation set forth in Clause 1 hereof and the other matters specified in the schedule hereto plus a sum not exceeding one twenty-sixth part of ten percent of the said annual cost to cover expenses of Management of the Association.” 15. In their letter of 08 January, Strettons explained that all flats contribute 3.846% (1/26th) to the service charge expenses except the two penthouses (Flats 15 and 24), which each contribute 7.692% (1/13th). The applicant’s case 16. The applicant relies on a lift condition survey report from Mr [APPELLANT] of [COMPANY] dated 22 December 2017. At section 1 he suggested that the lifts, which are approximately 50 years old “have now exceeded by some margin, their expected service life.” He stated that a number of components were obsolete and identified certain unusual features but did say “The level of maintenance appears

5 acceptable and the number of breakdowns per lift is low when considering the age and wear of the equipment.” 17. Mr [NAME] set out the current condition of the lift cars, doors, entrances, equipment, machine room, pit and well in some detail. At section 5.1 he concluded that the lifts, while functional “are considered obsolete in their design and operation.” He went on to explain that a number of features and components “would not comply with current design and safety standards.” He recommended that consideration be given for the future modernisation or replacement of the lifts but identified various technical challenges to modernisation. He also recommended certain minimum health and safety works and gave the following budget costs, per lift: • Health and safety works £4,500 (excluding VAT) • Modernisation (single phase) £70,000-80,000 (excluding VAT) • Modernisation (two phases) £85,000-95,000 (excluding VAT) • Replacement

£80,000-90,000 (excluding VAT)

18. The applicant did not produce a detailed statement in accordance with direction 2 (see paragraph 3, above). Rather, it relied on Mr [NAME] report and a short, circular letter from Strettons to the respondents dated 02 September 2019. This enclosed a copy of the report and referred to the tribunal [NAME]. It also stated an intention to replace the lifts “to ensure their reliability and to ensure that parts can be easily obtained should they be required in the future.” 19. It appears that the [NAME] is not formally contested, as there were no statements of case from the respondents. However, the bundle did include email correspondence passing between the leaseholder of [NAME], Mr [NAME] and Strettons. In an email dated 05 September 2019, Mr [NAME] complained of a lack of information and referred to the consultation requirements of section 20 of the 1985 Act. In a follow-up email dated 18 September, he highlighted the substantial cost of replacing the lifts and the absence of this information in the [NAME] form. The tribunal’s decision 20. No service charges are currently payable in respect of the proposed lift replacement at [NAME].

6 Reasons for the tribunal’s decision 21. The tribunal first considered whether contributions to lift works could amount to a service charge within section 18(1) of the 1985 Act and are within its jurisdiction. Such contributions would be payable under the Agreements; rather than the under-leases. Subsection (1) refers to “an amount payable by a tenant of a dwelling as part of or in addition to the rent”. It does not stipulate that the “amount” must be payable under a tenancy. The tribunal finds that contributions would be service charges within section 18(1), as they would be payable for “services, repairs, maintenance, improvements…” and would “vary according to the relevant costs.” Further, the cost (or estimated cost) of the lift works would be a relevant cost within section 18(2), as it will be incurred by the landlord (the applicant) “in connection with the matters for which the service charge is payable.” 22. The tribunal then considered the wording of clause 1(b) of the Agreements. The lifts are currently working so are not “worn out, broken or damaged beyond repair or otherwise unserviceable”. This means there is no obligation to renew. However, their replacement could be necessary “to maintain the lifts…in good repair and working condition”. By way of example, if the lifts were still working but the required frequent and costly repairs then replacing them could be an appropriate way of maintaining them in good repair.

23. Mr [NAME] report dates back to December 2017 and is over two years old. There may have been a deterioration in the condition of the lifts, since then. However, there is no evidence of this and the tribunal has decided the case on the contents of the report and the other documents produced by the applicant.

24. Based on the report the lifts, whilst old, are functional. Further, the number of breakdowns is low for their age and wear. There was no evidence to suggest an imminent risk of failure or an urgent need for replacement. To the contrary, Mr [NAME] identified minimum health and safety works that would address many of his concerns.

25. There were no formal objections to the [NAME] but the substantial cost of replacing the lifts is clearly an issue, as evidenced by Mr [NAME] emails. This is unsurprising, given the sums involved. If the cost is £200,000 then those flats paying 1/26th would each have to contribute approximately £7,700 and those paying 1/13th would pay double this sum.

26. Based on the evidence before it and having assessed the likely costs and benefits, the tribunal is not not satisfied that replacing the lifts is necessary, or even desirable, at present. As things stand, replacing the lifts would be outside the repairing obligation at clause 1(b) of the

7 Agreements and the cost would not be a recoverable service charge expense under clause 5(a). The next steps 27. The [NAME] has been decided on the evidence produced by the applicant. Although it has failed, a future [NAME] (with new and more convincing evidence) might achieve a different outcome. The applicant should seek independent legal advice if it is minded to make such an [NAME].

Name: Tribunal Judge Donegan Date: 09 January 2020

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, [NAME] 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).

8 Appendix of relevant legislation

Landlord and Tenant Act 1985 (as amended) Section 18 (1) In the following provisions of this Act "service charge" means an amount payable by a tenant of a dwelling as part of or in addition to the rent - (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs. (2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. (3) For this purpose - (a) "costs" includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period. Section 19 (1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period - (a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provisions of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise. Section 27A (1) An [NAME] may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to - (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable,

9 (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Subsection (1) applies whether or not any payment has been made. (3) An [NAME] may also be made to the appropriate tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to - (a) the person by whom it would be payable, (b) the person to whom it would be payable, (c) the amount which would be payable, (d) the date at or by which it would be payable, and (e) the manner in which it would be payable. (4) No [NAME] under subsection (1) or (3) may be made in respect of a matter which - (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment. 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—

10 (a) if relevant costs incurred under the agreement exceed an appropriate amount, or (b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount. (5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount— (a) an amount prescribed by, or determined in accordance with, the regulations, and (b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations. (6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into account in 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.