First-tier Tribunal Rules on Reasonableness of Service Charge Demands

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/23UB/LIS/2019/0040

Property

:

[ADDRESS] GL50 IJU

Applicant: [redacted]

[COMPANY]

:

[COMPANY] [NAME] [COUNSEL] of counsel

Respondents

:

[redacted]

Second Respondent : [redacted] second Respondent: [redacted]

:

Service Charge: section 27A Landlord and Tenant Act 1985

Tribunal Member(s)

:

Judge Martin Davey (Chairman) [NAME] LL.B [NAME] and venue of Hearing

:

17 December 2019, Gloucester Crown Court

Date of Decision

:

28 January 2020

2 Decision

The interim charges demanded by the Applicant from 1 April 2017 and 1 April 2018 in respect of the repairs to the retaining wall and ancillary works at [ADDRESS] are reasonable and payable by the Respondent lessees.

No charge is payable in respect of the same as from 1 April 2019.

The Application

1. [APPELLANT] (“the Applicant”), is the [NAME] Landlord of the property known as [ADDRESS], Cheltenham GL50 1 JU. (“The Premises”). [ADDRESS] comprises three blocks of flats (“the Building”) together with a number of garages and surrounding grounds. The freehold title is subject to 56 long residential leases of the flats, along with telecommunications leases and a number of garage leases (as to which see further below). [ADDRESS] is managed on behalf of the [NAME] by [NAME].

2. On 6 June 2019, the Landlord applied to the First-tier Tribunal Property Chamber (“the Tribunal”) for a determination, under section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”), as to whether interim service charge demands, which it had served on the residential [NAME] of the flats were payable and reasonable. (It is not disputed that the charges in question fall within the definition of a service charge contained in section 18 of the 1985 Act). The demands were served in respect of the years 1 April 2017-31 March 2018, 1 April 2018-31 March 2019 and 1 April 2019-31 March 2020. The Applicant says that the Application relates only to those sums in the interim charge demands attributable to proposed works to a retaining wall at [ADDRESS] along the north-east bank of the [NAME], together with associated ground/building works. The original Respondents to the Application were all the residential [NAME] of the 56 apartments.

Directions

3. The Tribunal issued Directions on 24 June 2019, 24 July 2019, 22 August 2019 and 07 October 2019.

4. The Directions 0f 24 July 2019 added [ADDRESS] [RESPONDENT] (“the Tenants [RESPONDENT]”) as a separate additional Respondent to the Application. Not all [NAME] are members of the [RESPONDENT].

3 5. The Directions of 22 August 2019 stated that the case was not suitable for a hearing on the papers and that a case management hearing (“CMH”) would be held on 23 September 2019.

6. Following the CMH, the Directions of 07 October 2019, which provided a timetable leading to the hearing of the Application, stated that the areas of disagreement between the parties were:

(1) whether payment for the works is properly within the service charge provisions of the relevant leases;

(2) whether the wall forms part of the landlord’s title; (3) the cause of the damage to the wall and why the works are considered necessary; (4) whether the on account estimates were reasonable sums or not; (5) whether the sums demanded are payable; (6) whether section 20 of the Landlord and Tenant Act 1985 (“the 1985 Act”) applies and if so whether there has been compliance by the Applicant; (7) whether there is an equitable set-off.

Inspection

7. The Tribunal inspected the relevant part of the premises on the morning of 17 December 2019. Also present were [NAME] [NAME], an Associate Director [NAME]; [NAME] [COUNSEL] of counsel (a barrister representing the Applicant); [RESPONDENT] (Chair of the Tenants [RESPONDENT]), representing the second Respondent; [NAME] [RESPONDENT] (leaseholder Flat 17); [NAME] [RESPONDENT] (leaseholder Flat 8); and [NAME] [NAME] (leaseholder Flat 42). After the inspection a hearing was held at Gloucester Crown Court.

8. The inspection revealed that on the southwestern boundary of the site of [ADDRESS] adjacent to the [NAME] there is a brick built retaining wall with a concrete top beam along its length. The wall holds up the Applicant’s land. At some point, the [NAME] at the time would appear to have erected a (now dilapidated) wooden fence fixed to concrete posts, which had been erected next to the wall. The Tribunal noted the severe bowing of the retaining wall. The wall on the opposite side of the river appears to be in good condition and not in need of repair. It is topped by railings and retains a car park beyond the wall.

The Applicant’s Case

9. The parties made written and oral submissions and produced an agreed bundle of documents, which was placed before the Tribunal. For the Applicant, [NAME] addressed each of the areas of disagreement identified in paragraph 6 above. Before doing so he stressed that the Application related to anticipated costs and was therefore made under section 27A(3) of the 1985 Act. He said that almost all of the anticipated costs had been charged across three service charge years and that

4 payability of the costs was in issue. The only actual costs listed in the accounts for those years in connection with the wall related to various reports and surveys obtained by the Applicant.

10. [NAME] then turned to the issues before the Tribunal. The first issue was whether the relevant leases permitted the Applicant to levy interim service charges in respect of the proposed works.

The Leases

11. [NAME] [NAME] explained that there were three types of lease at [ADDRESS]. Most were leases of a flat alone (the residential lease). Some were leases of a flat and garage and there were also some separate garage leases. [NAME] [NAME] produced the lease of Flat 56 as a sample residential lease, which he said did not differ in all material respects from the residential leases of all the other flats. ([NAME] [NAME] said that some of those residential leases had been extended and re-granted but he said that this did not alter the relevant terms). With regard to the leases comprising a flat and a garage, [NAME] [NAME] provided the lease of flat 40 and garage 16 by way of sample. This was a re-granted lease but [NAME] [NAME] stated that it did not differ in any material respect from the residential leases, save that it required the Tenant to pay in addition 15.5% of all costs incurred by the Landlord in maintaining the garage block in which the garage is located. The separate garage leases are granted on the same terms as their associated residential lease with the necessary modifications so as to apply to the garage. [NAME] [NAME] stated that any works to the garages in connection with the repair of the retaining wall would be carried out under the terms of the residential lease (or residential component of any mixed leases) and not under the garage leases or the garage component of any mixed leases. [NAME] [NAME] said that the work to the garages would thus be “making good” work ancillary to the repair of the wall and therefore would not be covered by the separate garage service charge in those leases containing such a charge.

12. The residential lease (“the Lease”) of Flat 56 defines “The Building” as being the three blocks known as [ADDRESS].

13. By clause 4(2)(A) of that Lease the [NAME] covenants, inter alia, to pay in advance, by equal half-yearly instalments to be paid on the first day of April and the first day of October in each year, a specified percentage of the estimated costs and expenses and outgoings incurred or provided by the [NAME] in any year in or for the carrying out of their obligations under clause 5 of the Lease. The amount to be paid is to be determined by the Lessor’s surveyor or managing agent. Clause 4(2)(B) makes provision for a balancing exercise to be undertaken after the end of the service charge year. There is a proviso that permits the [NAME] to put any unexpended surplus of sums sought on account towards the annual cost in a future accounting period. There is no provision in the Lease for accumulation of a reserve fund (as confirmed in earlier tribunal proceedings).

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14. Clause 5(2) of the Lease contains in so far as material a covenant by the [NAME] to

“take all reasonable steps to keep in good and substantial repair and condition

(i) the main structure of the Building including the principal internal girders timbers and the exterior walls and the foundations and the roof thereof with its main drains gutters and rain water pipes (other than those demised);… (iii) the main entrances passages landings staircases and access paths roads garden and yards of the Building enjoyed or used by the [NAME] in common as hereinafter provided and the boundary walls and fences of the Building.”

14. Clause 5(9) contains a covenant by the [NAME] to

“Employ such person or persons as shall be reasonably necessary from time to time for the performance of the covenants herein contained on the part of the [NAME] on such terms and conditions as the [NAME] shall in their absolute discretion think fit.”

15. Clause 5(13) contains a covenant by the [NAME] to

“Without prejudice to the foregoing do or cause to be done all such works installations acts matters and things as in the absolute discretion of the [NAME] be necessary or advisable for the proper maintenance safety and administration of the Building and pay a reasonable proportion of the expense incurred for or towards the making supporting repairing cleansing and amending of all party walls party fence walls gutters commons sewers public sewers and drains belonging or which shall or may belong to the Building or any part thereof (but excluding those exclusively comprised in or serving the demised premises) or which shall be used in common with other premises adjoining or near thereto such proportion in case of difference to be settled by the Surveyor for the time being of the [NAME] whose decision shall be final and also pay the reasonable charges of the said survey in respect of any reference to him.”

16. The Applicant argues that the retaining wall forms part of the premises at [ADDRESS] and is a boundary wall of the Building for the purposes of clause 5(2)(iii) of the Lease. The Applicant says that the reference to a boundary wall of the Building in this context must mean a boundary wall of the site (i.e. the premises of [ADDRESS]) rather than a wall of the actual Building.

17. Further, or alternatively, the Applicant argues that by clause 5(13) the proposed works to the retaining wall would be works that are “necessary or advisable for the proper maintenance safety and or administration of the Building” itself.

6 18. The second issue is whether the wall, to which this application relates, forms part of the Landlord’s title. The [NAME] runs along the south- western boundary of the premises close to the rear of the garage blocks. The wall is approximately 1.5 metres high and runs along the length of the river where it passes that boundary of the premises. The top of the wall is at the ground level of the premises. Thus it is a wall that goes down from ground level rather than up, and bounds and holds up the adjacent part of the site.

19. With regard to ownership of the wall, the [COMPANY] confirmed on 20 July 2017 that it did not own any waterways in the Cheltenham area. The [NAME] confirmed on 18 July 2017 that the retaining wall was not in the ownership of the Agency nor does the wall provide any flood risk benefits in the form of a raised flood defence. It considered that the wall belonged to the Applicant with whom responsibility for its maintenance lay.

20. The pre-registration title deeds to the Landlord’s freehold title are no longer available. The retaining wall is situated at the boundary of the land within the registered title. [NAME] [NAME] stated that there is a rebuttable presumption that where property abuts a natural non-tidal river, the boundary of the property extends to the centre line of the water such that the property owner also owns half of the riverbed (“riparian rights”). [NAME] [NAME] said that in the present case there is no evidence to rebut the presumption with the result that the retaining wall must fall within the premises owned by the Applicant. [NAME] [APPELLANT] says that it matters not that the retaining wall bounds and supports the site rather than forming the legal boundary, which in this case is in the centre of the riverbed. He says that it is still a boundary wall.

21. The third issue is the cause of damage to the wall and why the proposed works are considered necessary. The Applicant says that the damage is primarily attributable to the absence of proper foundations to the wall, coupled with movement over time, which has caused such damage to the wall that it is in danger of imminent collapse. The Applicant reached this conclusion over a period of time.

22. The Applicant says that in or about mid-2015, following reports of cracking in the wall and the adjacent concrete hard standing, the Applicant arranged for [NAME], [NAME] and [NAME] to inspect, investigate and provide advice.

23. A report by [COMPANY], (“the [NAME]”) which had been commissioned by the Applicant, is dated 26 June 2015. The [NAME] found that the wall had no concrete foundations and recommended investigation of a number of possible solutions including replacement, underpinning, anchoring the existing wall or sheet piling to the front of the wall. It further recommended that “specialist piling contractors should be consulted to advise further on the most suitable pile type, installation methods and to provide working loads on their chosen systems.”

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24. On or about 12 August 2016 [NAME] (“[NAME]”) – a [NAME] - was instructed by [COMPANY] to inspect, arrange a drainage survey and form opinions regarding the causes of structural damage to the retaining wall.

23. The Applicant provided [NAME] with a copy of the [NAME], together with three investigation reports of water leaks at [ADDRESS], which had been repaired. Having carried out their investigations over a period of 17 weeks, [NAME] concluded, in their Report of 30 November 2016, that the damage to the wall was the result of escape of water from pipelines beneath Block 2, which had led to damage to the storm drains where they discharge through the retaining wall to the [NAME]. The combined effect had been to soften the ground behind the retaining wall and this had caused damage to the garages and concrete slabs on which they stand. The Report recommended that “A permanent repair solution, which is likely to be demolition and rebuilding should be researched, designed and implemented without delay” and that “A temporary shoring support system should be installed in the river between the two opposing retaining walls as soon as practicable.”

25. Based on the [NAME], the Applicant made a claim on its insurers, [NAME], who appointed [NAME] (“[NAME]”) to report on the matter. On 25 July 2017, the Building’s insurer rejected the insurance claim made by the Applicant. This was confirmed in a letter to the Applicant from [NAME], dated 18 October 2017 where it was stated that the policy excluded “Damage caused by or consisting of inherent vice, latent defect, gradual deterioration, fair wear and tear.” The insurers considered that the damage had occurred over time, beginning long before the insurance policy was taken out, and could not be said to be attributable to a single one off accidental event. The [NAME] subsequently refused to budge on their decision despite being pursued for several years by solicitors, [APPELLANT], on behalf of the Applicant, and by [NAME] [APPELLANT] [NAME], most recently in a letter from [NAME] [NAME] to [NAME] dated 13 August 2019.

26. On 10 January 2017, [NAME] invoiced the Applicant for professional services including “research, specification and obtaining quotations for shoring up walls to [NAME].” However, a further invoice dated 27 July 2017 referred to producing and issuing budget tender documents in respect of sheet piling, all as discussed with [NAME] [APPELLANT].

26. Meanwhile, in July 2017, the Applicant sought a second opinion on the cause of the damage to the wall, from another firm of chartered [NAME], [NAME] (“[NAME]”), who reported on 24 July 2017. The [NAME] concluded that the wall was unstable and there was a significant risk that it could collapse at any stage and damage the garage areas. The Report recommended propping of the wall from the opposite wall, which would require the approval of the [NAME] and the owner of the opposite wall. The Report said “It is likely that movement of the wall has been ongoing since the time of

8 construction, probably with periods of relative stability followed by periods of movement.” The Report also stated that a rising water table would put increased pressure on the wall and that water from the leaks referred to above could not be ruled out as a lesser contributory factor in the deterioration of the wall.

27. [NAME] [NAME] [NAME] said that the [NAME] subsequently refused to sanction a scheme that involved propping of the wall from the opposite bank as a temporary solution. He said that since then the Applicant has been regularly monitoring the situation but it now believes that should the wall deteriorate further the cost of repairs may increase and it is of the view that it is appropriate that the work now be undertaken.

28. [NAME] also said that before [NAME] reported, the Applicant had independently engaged [NAME] ([NAME]) to advise on the works and undertake the necessary tender process but [NAME], having reported in September 2017, lost interest and was subsequently replaced in November 2018 by [NAME], who promised to do the same within a shorter timescale. [NAME] [NAME] said that this was agreed orally at a meeting in his office with [NAME].

29. On 22 March 2019, [NAME] sent [NAME] [NAME] a copy of original and updated quotations for sheet piling received from 3 tenderers. Also enclosed was a programme of works that had been prepared together with an updated Budget Cost Spread Sheet Revision C. [NAME] [NAME] confirmed that none of these quotations had been accepted at this stage.

30. The Applicant says that on the basis of the reports received it had concluded that the appropriate method of repair would be to install sheet piling of the retaining wall together with associated ground building works including demolition and rebuilding of the garages. As noted above, [NAME] [NAME] said that this would not be works carried out under the garage leases. It would be works of making good that are ancillary to the wall repairs.

31. The fourth issue is whether the sums demanded are reasonable. The sums have been demanded in three tranches. The first was for £200,000, demanded on 29 March 2017 in respect of the service charge year 2017-2018. The Applicant says that at that time it considered this to be a reasonable estimate for the cheaper scheme then envisaged. The Applicant says that it demanded further sums in subsequent years because it had become clearer that a more expensive scheme would be required. The sum of £80,000 was demanded on 22 March 2018 in respect of the year 2018-19 and the sum of £360,000 was demanded on 20 March 2019 in respect of the service charge year 2019-2020.

32. The Applicant says that the current total budgeted sum of £647,881.39, (including VAT and professional fees) is based upon tendering costs and confirmation of costs as provided by various contractors and forwarded to the Applicant by professional advisers, on whose advice they were

9 entitled to rely (see paragraph 29 above). A schedule of proposed works was drawn up by [NAME] on 1 August 2019. The Applicant also provided further quotes, which it says confirms that the budgeted costs of the works fairly reflect the anticipated actual costs. The Applicant says that it obtained an opinion from a local contractor as a cross-check against the budgeted sums. The Applicant says that the insurance claim having failed, it was reasonable for the Applicant to seek the anticipated costs of the works in advance from the lessees.

33. The fifth issue is whether the sums demanded are payable. The Applicant says that they are payable because they have been demanded in accordance with the terms of the Lease and the 1985 Act and demands have been accompanied by a summary of tenant’s rights and obligations as required by section 21B of the 1985 Act. (See the Service Charges (Summary of Rights and Obligations and Transitional Provision) (England) Regulations 2007).

34. The sixth issue relates to the section 20 (1985 Act) consultation procedure (as to which see the Service Charges (Consultation Requirements) (England) Regulations 2003). The Applicant says that it started a consultation in March 2019 but since engaging with the Tenants [RESPONDENT], which had not been served, it has restarted the process and has completed the first stage. However, [NAME] [NAME] argued that the payability of on account charges is not in law contingent on section 20 consultation having taken place (see [ADDRESS] (1998) [COMPANY] v [NAME] [2016] UKUT 0365).

35. The final issue is whether there is an equitable set off. The Applicant says that there is not, because the damage stems, not from any failure on the part of the Applicant but, from the underlying issues with regard to the absence of foundations to the wall.

The Respondents’ cases

(1) The Tenants’ [RESPONDENT]

36. [NAME] [RESPONDENT], the Chair of the Tenants’ [RESPONDENT], presented the

case for the [RESPONDENT]. With regard to issues one and two, [NAME] [RESPONDENT]

accepted that the [NAME] owned the retaining wall but denied that

it was a boundary wall for the purposes of the Lessor’s repairing

obligations in the Lease. [NAME] [RESPONDENT] said that there was no mention of

riparian rights in the Lease. However, he says that even if the

[NAME]’s ownership extended to the middle of the [NAME], the

retaining wall could not be described as a boundary wall. He said that

the only boundary structure, along the riverside of the premises, that

marked the edge of the common parts thereof, was the fence,

mounted on concrete posts, which was set back from the wall.

37. [NAME] [RESPONDENT] also drew attention to the lease of Flat 19, which is not in

the same form as the lease of flat 56 provided by the Applicant. The

10

lease for Flat 19, granted by the Applicant to [APPELLANT], on 3 November 2018, defines the “Building” as the three

Blocks known as [ADDRESS] and the “[NAME]” as the land including

the Building and all other structures (including boundary walls and

fences) erected on that land and the pedestrian ways, forecourts, car

parks, landscaped areas and other external parts of the Building.” He

says that whilst that lease makes the Applicant liable for the repair of

the Building and the Common Parts (and for the costs thereof to be

payable by way of service charge) it does not make provision for repair

of the [NAME], which must therefore fall on the Applicant and be

outside the service charge.

38. As to issue three, [NAME] [RESPONDENT] accepted that the retaining wall was in

need of repair but queried why a 100-year guarantee was required, save

for purposes of insurance. [NAME] [RESPONDENT] also argued that the principal

cause of the disrepair was water leakage over a period of years, which

had destabilised the ground adjacent to the wall and thence the wall.

He referred to the evidence adduced by the Applicant with regard to

water leaks, especially the [NAME] [of 30 November 2016], and [NAME]

[NAME] letter to [NAME] of 19 August 2019 when he relied on that Report for

the purposes of an insurance claim in respect of damage to the wall.

[NAME] [RESPONDENT] said that this conclusion was also supported by the fact

that there was no evidence of similar damage to the wall on the

opposite side of the river adjacent to the public car park. He also said it

was significant that following repair of the cold and hot water pipes

and drains at [ADDRESS] the wall had not moved (as confirmed in

[NAME] [NAME] letter to [NAME] referred to above). Furthermore, the [NAME]

was produced in only 4 days, as compared with the 17 weeks taken to

compile the [NAME] report which, [NAME] [RESPONDENT] suggested, indicates little

in the way of detailed investigation, and in any event the [NAME]

did not discount the possible impact on the wall of leaks from

around the site.

39. [NAME] [RESPONDENT] produced [NAME], who had made some calculations,

which were presented to the Tribunal and the Applicant [for the first

time] on the day, as to the volume of water that, [NAME] [RESPONDENT] says, must

have escaped as a result of the water leaks. [NAME] [NAME] did so by

reference to meter readings at the relevant times. [NAME] [RESPONDENT] said that

this proved the significant contribution that the leaks must have

made to the deterioration of the wall and damage to the adjacent garage

areas.

40. With regard to issue four, [NAME] [RESPONDENT] said that the Applicant had been

presented, in the reports that it had commissioned, with two possible

repair options. The first and most expensive option was sheet piling.

The second less expensive and less disruptive option was a bored pile

solution, which would appear to offer a reasonable solution. [NAME]

[RESPONDENT] said it was not clear why the Applicant had opted for the

former, save that it offered a 100 year guarantee, the need for

which, as noted above, was questioned by [NAME] [RESPONDENT]. [NAME] [RESPONDENT]

11

queried why removal and rebuilding of the garages, and the incurring

of an inordinate expense relating to the same, would be required.

41. [NAME] [RESPONDENT] also drew attention to the fact that the budget estimates

had increased dramatically from 8 July 2016, when provision of

£70,000 was made for “slippage behind garages and repairs to the

cement hard standing”, to 22 March 2017, when this was replaced by

provision for £200,000 for “River Wall/drainage repairs,” to 22 March

2018, when a further provision of £80,000 was made towards “the

cost of repairs to the river wall”, to a letter of 20 March 2019,

informing [NAME] that the total cost was now estimated at

£647,881 and requiring a further provision of £360,000.

42. With regard to issue five; [NAME] [RESPONDENT] drew attention to two earlier

[leasehold valuation] tribunal determinations, in 2006 and 2012, with

regard to [ADDRESS], in which, he said, the tribunal had held that

the cost of any repairs during a financial year should be collected in

arrears in accordance with the lease. The second tribunal had also

confirmed that the lease did not make provision for a reserve fund

and had urged the parties to consider an application to the tribunal for

variation of the lease.

43. Turning to issue six, [NAME] [RESPONDENT] argued that the section 20-

consultation procedure was applicable, but that the present procedure

should be stayed to enable a consultation to take place using a bored

pile solution. [NAME] [RESPONDENT] also queried why there had been no

consultation on the various professional reports that had been

commissioned by the Applicant at a cost of around £30,000.

44. Finally, with regard to equitable set-off, [NAME] [RESPONDENT] said that the

problems with the retaining wall were longstanding and had been

evident since at least 2003-4. He said that the Applicant had not at any

stage conducted routine maintenance of the wall, including removal of

vegetation, and cracked drains, nor had it investigated or otherwise

dealt with, in a timely fashion, the causes of subsidence under the

garage blocks after it first appeared in 2003. [NAME] [RESPONDENT] asked why

major leaks had gone unrepaired for three years. He also stated

that if maintenance of the wall was the responsibility of the Applicant,

as it claimed, it had singularly failed to comply with its covenant to the

detriment of the [NAME] who were now faced with much larger

costs than would otherwise have been the case. [NAME] [RESPONDENT] said that

since the wall was identified in 2014 as leaning to such an extent that

it was in danger of imminent collapse, no temporary or

permanent measures had been taken to deal with the problem.

(2) [NAME] [NAME] (Flat 42)

45. [NAME] [NAME] argued that the Application was premature. He said that the

evidence relied on by the Applicant was confused and conflicting as to

the cause of the damage to the wall and in any event even if the wall

12

collapsed it would only affect the garages which was of no concern to

[NAME] who did not have a garage. He said that no evidence has

been produced to establish that the Building would be threatened. [NAME]

[NAME] said that responsibility for maintenance of the garages is

dealt with by the specific service charge provisions of the leases that

relate to garages and is therefore of no concern to non-garage

owning [NAME]. He said that when his lease was renewed

and the garage was thereafter omitted his service charge of 1.81%

was unchanged

46. [NAME] [NAME] also questioned whether it was correct to say that there was

no public authority liability for the wall. He referred to works to

alleviate flood risk that he said had been carried out to the [NAME],

including the section adjacent to [ADDRESS], by the local

authority and [NAME], following floods in 2007. He

was far from satisfied that the Applicant had done enough to establish

the liability of those authorities for the condition of the retaining

wall.

47. [NAME] [NAME] considered that the south-western boundary of the

premises, as far as his lease is concerned, is the fence constructed by

the [NAME]. He said that he was never made aware of any potential

liability for the retaining wall, which he says, the Applicant has

failed to maintain or properly insure against risk due to flood or

other perils.

48. [NAME] [NAME] said that the section 20 notice(s) served on him were of no

effect because he had never received notice of change of address [NAME]. Furthermore, he said that they did not cover all the

professional charges raised to date by consultants in respect of this

matter. [The Applicant says in response that the service charge

demands show the Applicant’s new address].

49. [NAME] [APPELLANT] also queried the extent to which the damage is attributable

to water leaks and if it were why the situation was allowed to persist

for three years. He said that the damage was caused by many

contributory factors, including water leaks and lack of maintenance by

the Applicant.

50. [NAME] [APPELLANT] said that the charges made were not for routine

maintenance costs and therefore amounted to sinking fund charges,

which are not permitted by the Lease.

51. [NAME] [NAME] also said that the current insurance policy must have been

unfit for purpose, given that an insurance claim had been paid in 2005

for subsidence.

The Applicant’s Reply

52. [NAME] [APPELLANT] argued for the Applicant, that the retaining wall is part of

the [NAME] in the case of the lease of Flat 19. He says that paragraph

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10(1) of that lease provides that the Landlord’s Expenses (which are

recoverable by way of Service Charge) are “the costs….of or in

connection with the Services and all or any of the following items:”

53. The items include

“(o) any other works, services or facilities which the Landlord

reasonably considers desirable for the purpose of maintaining,

improving or modernising the services or facilities in or for the

Building or which shall be used in common with other premises

adjoining or nearby……. and which are for the general benefit of the

occupiers of the Building and are in accordance with the principles of

good [NAME] management.

54. Services is defined as including a number of matters including

(a) maintaining repairing, furnishing, decorating and lighting the Common Parts (b) maintaining, repairing, rebuilding and replacing the Structural Parts

55. Structural Parts are defined as any part of the Building except (a)

Common Parts (b) the Property, and (c) any other parts which are let

or intended for letting.

56. Common Parts is defined as

“Where applicable, the entrance lobbies, halls, stairways, landings,

corridors, lifts, lavatories, refuse areas, internal and external fire

escapes, other internal areas of the Building (except the Property) and

any other parts of the Building which are let or intended for letting)

and the areas and amenities in the [NAME] available for use in

common by the tenants and occupiers of the Building” (emphasis

supplied).

57. [NAME] [NAME] says that the wall falls within the definition of Common

Parts by virtue of the italicised words above.

58. With regard to the cause of the damage to the wall, [NAME] [NAME] said that

all the expert evidence, including that of the insurer’s loss adjusters,

pointed to the water leaks being at best a contributory factor, the

main factor being the absence of foundations. He said that [NAME] [NAME]

is not an expert and his calculations have to be taken in context. He

suggested for example that it is difficult to distinguish the volume

and effect of leak water from that of rainfall over a year. He also

said that any comparison with the wall on the opposite bank is

bedevilled by the fact that we do not know the history of that wall.

The Applicant further denied that it had neglected the wall and

stated that it is inspected on a monthly basis.

14 59. As to whether the estimates were reasonable, [NAME] [APPELLANT] said that the

Applicant had obtained a lot of estimates from a lot of [NAME]. With

regard to the method of repair, [NAME] [RESPONDENT] said that it is for a landlord

to choose the method and provided the choice is reasonable there is no

obligation to choose the cheapest option. He said that the method of

sheet piling was an informed decision and there was no evidence that

the Landlord’s choice was unreasonable. The Applicant says that in the

opinion of [NAME] it is the only viable option if the garages were to be

retained.

60. [NAME] [NAME] said that with regard to the previous tribunal decisions

referred to by [NAME] [NAME], the 2006 decision was that an ad hoc

interim demand could not be made mid year whilst the 2012 decision

was that the lease did not permit a reserve fund, neither of which

was applicable in the present case. [NAME] [NAME] said that when the initial

demand was made it was not an attempt to build up a reserve fund but

a reasonable estimate of costs likely to be incurred in the coming year

or the subsequent year.

61. [NAME] [NAME] said that there was no room for an argument of equitable set

off. He said that there was no evidence of loss to any Respondent

stemming from a breach of covenant by the landlord. [NAME] [RESPONDENT] also

said that not all residents had been there from the outset. They had

acquired their leases at different stages. He said that this would make it

impossible to calculate any set off even if there had been a breach of

covenant by the Applicant, which was denied.

62. In response [NAME] [RESPONDENT] said that the issue of the wall had first arisen in

2005 and yet investigations did not begin until 2014 and had only

speeded up in the last couple of years. He said that had action been

taken earlier the costs might not have been so extensive.

Discussion

63. The rationale of service charge schemes on long leasehold

developments, such as that at [ADDRESS], is that the Landlord will

perform specified services for the benefit of the building or buildings

and the [NAME] and the tenants will be obliged to pay for the costs of

those services by way of service charges levied on them by the landlord

in a accordance with the terms of the lease. Some leases, as in the case

of [ADDRESS] permit the landlord to collect service charges before

any expenditure has been incurred with necessary adjustments being

made on completion of the works in question. Because the landlord is

thus enabled to spend the tenants’ money the scheme must be

operated in accordance with the terms of the lease and the legal

framework that is designed to protect tenants from unreasonable

charges.

15 64. Section 27A(3) of the Landlord and Tenant Act 1985 provides that “An

application may…be made to [the 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 which it would be payable and (e) the manner in which it would be

payable.

66. The purpose of this provision is to enable an application to be made to

the Tribunal before any costs are actually incurred. As [NAME]

recognised, if the costs that are subsequently incurred turn out to be

more or less than the sum determined there is nothing to prevent

either party from applying to the Tribunal under section 27A(1) of the

1985 Act for a determination of the payability and reasonable of the

new sums.

Section 19(1) of the 1985 Act provides that “Relevant costs shall be taken into account in determining the amount of a service charge payable for a period-

(a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly”.

Section 19(2) provides that “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 are being incurred any necessary adjustments shall be made by repayments, reduction or subsequent charges or otherwise.”

“Relevant costs” are defined for these purposes by section 18(2) of the 1985 Act as “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.

67. At the heart of the section 27A(3) application before this Tribunal, and

dated 6 June 2019, is a single issue. In 2017, 2018 and 2019, the

[NAME] of [ADDRESS], served advance

service charge demands on the long [NAME] of the flats. Those

demands were based on estimated service charge costs for the years

ending respectively on 31 March 2018, 31 March 2019 and 31

March 2020. The matter that the Tribunal is asked to determine is the

payability and reasonableness of one element of the sums

demanded in each of those years. That is to say the estimated costs of

repairing the retaining wall at [ADDRESS] and associated

ground works. The total estimated costs in the three years amounts to

£640,000.

16

68. This single issue raises a number of disputed matters on which the

Applicant and many of the Respondents, either individually or through

the Tenants’ [RESPONDENT], have made the written and oral submissions,

summarised above. The Tribunal’s findings on each of these matters,

with its reasons, are set out below.

Whether the Cost of Repair of the Wall is a Service Charge Cost

69. The first matter is whether the expense of repairing the wall is a

service charge cost. This turns on the construction of the Lease. By

clause 4(2)(A) of the Lease the [NAME] covenants, inter alia, to pay in

advance, by equal half-yearly instalments to be paid on the first day of

April and the first day of October in each year, a specified

percentage of the estimated costs and expenses and outgoings incurred

or provided by the [NAME] in any year in or for the carrying out of their

obligations under clause 5 of the Lease. The Respondents suggested

that the advance payments demanded by the Applicant amounted to

the creation of a sinking fund. The Tribunal does not agree. Although

the Lease does not permit the accumulation of a long term sinking

fund, it does provide that any surplus of advance payment over

expenditure in any one year shall be accumulated by the Landlord

and applied in or towards the annual cost the next succeeding or

future accounting period (clause 4(2)(B) proviso).

70. Clause 5(2) of the sample residential lease produced by the Applicant

(that of Flat 56) contains (in so far as material) a covenant by the

[NAME] to

“take all reasonable steps to keep in good and substantial repair and

condition

(i) the main structure of the Building including the principal

internal girders timbers and the exterior walls and the

foundations and the roof thereof with its main drains gutters

and rain water pipes (other than those demised);

(ii) all such gas and water pipes drains and electric cables and

wires in under and upon the Building as are enjoyed or used by

the [NAME] in common with the owners and lessees of the

other flats; (iii) the main entrances passages landings staircases and access paths roads garden and yards of the Building enjoyed or used by the [NAME] in common as hereinafter provided and the boundary walls and fences of the Building.”

“The Building” is defined in the Lease as being “the three blocks known

as [ADDRESS].”

71. The Applicant argues that the retaining wall is owned by the Applicant

and is properly described as a boundary wall of [ADDRESS] for the

purposes of clause 5(2)(iii). It says that in the context of this sub-

17

clause the reference to boundary walls of the Building must mean the

boundary of the site around the Building.

72. [NAME] [RESPONDENT] accepts that the wall is owned by the Applicant, but says that

it does not bound the grounds of [ADDRESS], which in his

submission is bounded by the fence. [NAME] [NAME] also appeared to argue

that in constructing the fence the Applicant (or its predecessor in title)

had marked the boundary of the grounds of [ADDRESS] for the

purposes of the Lease.

73. The Tribunal finds that however the fence might be described, this in

itself does not prevent the retaining wall being a boundary wall for the

purposes of Clause 5(2)(iii). The Tribunal agrees with the Applicant that

the reference to boundary walls in Clause 5(2)(iii) must be to a

boundary wall of the site surrounding the blocks of flats.

74. This raises the question of whether the retaining wall is such a boundary wall. [NAME] [NAME] said that the wall, which clearly holds up the site, is owned by the Applicant as part of its freehold title to the property known as [ADDRESS] (registered at HM Land Registry under title number GR167574). He argued that the wall is therefore a boundary wall because it bounds the site and is owned by the Applicant. He says that the fact that the riparian ownership presumption would extend the legal boundary of the land owned by the Applicant to the centre of the river does not affect the function of the wall as a boundary wall of the physical site of [ADDRESS].

75. The title plan shows the south-western boundary of the Applicant’s land

to run along the extremity of the land beside which the river flows at a

lower height, although the plan is not sufficiently exact to show whether

this includes the retaining wall. As [NAME] [NAME] stated, we do not know

for certain the circumstances in which the wall was constructed or by

whom. However, the wall undoubtedly supports the land on which

[ADDRESS] and its grounds are built. This suggests that it is part of

that land and is therefore within the Applicant’s ownership, in the

absence of any evidence that somebody else owns it. [NAME] [NAME] says

that [NAME] are liable for maintenance and repair of the wall.

However, there is no evidence that the wall is in the ownership of any

authority or Agency or that they have a contractual or statutory

obligation to repair the wall. Further, the Tribunal agrees with [NAME]

[NAME] that the wall can be a boundary wall without having to sit on the

exact line of the boundary, nor be above ground level. The wall in

question not only bounds the premises, but also marks the edge of the

land on one side. The Tribunal therefore finds that the retaining wall is a

boundary wall of [ADDRESS] and as such the Applicant is obliged to

maintain and repair the wall by virtue of Clause 5(2)(iii) of the Lease and

the [NAME] are obliged to contribute to the cost of the same under

clause 4(2) of the Lease.

76. At the hearing we were shown a copy of the lease of flat 19, being we are told, one of two leases which are in a different form to the lease of flat 56

18 and the leases of other flats in a form identical to that lease. The lease of flat 19, is a modern lease. It defines the “Building” as the three Blocks known as [ADDRESS] and the “[NAME]” as the land including the Building and all other structures (including boundary walls and fences) erected on that land and the pedestrian ways, forecourts, car parks, landscaped areas and other external parts of the Building.”

77. The lease provides that the advance estimated service charge is a

proportion of the landlord’s estimated expenses. These are defined in

clause 10.1 of the lease. The definition encompasses (1) the costs of or

in connection with the provision of the Services (as defined) and (2) of

all or any of a list of items.

78. “Services” is defined as including 14 listed matters. The first two are (a)

maintaining, repairing, furnishing, decorating and lighting the Common

Parts and (b) maintaining, repairing, rebuilding and replacing the

Structural Parts.

79. In turn Structural Parts are defined as any part of the Building except (a) Common Parts (b) the Property [i.e. the flat], and (c) any other parts which are let or intended for letting.

80. Common Parts is defined as

supplied).

81. [NAME] [RESPONDENT] argued that whilst that lease makes the Applicant liable for the repair of the Building (and for the costs thereof to be payable by way of service charge) it does not make provision for repair of the [NAME], which must therefore fall on the Applicant and be without the service charge.

82. [NAME] [APPELLANT] said that the Applicant was liable for repair of the boundary

wall because it was part of the [NAME] as defined and also fell within the

definition of the Common Parts. However, the lease does not provide

expressly for the costs of repairs or works to the [NAME] in general and in

that regard the Tribunal does not agree with [NAME] [NAME]. On the other

hand the Tribunal does consider that the wall falls within the last part of

the definition of Common Parts. The wall is used in common by all the

[NAME] as a means for maintaining the stability of the [NAME], which

is to all their benefit. Similar situations arise where a porter’s flat or

boiler room is used for the benefit of the [NAME] and considered a

common part even though the [NAME] cannot physically access

those spaces. The Tribunal’s construction of this clause and its width is

assisted by the fact that at the time this lease was granted, the majority, if

19

not all, of the other flats were subject to leases which provided for a

contribution to the cost of maintaining the boundary wall and there

appears no reason why this lease would provide otherwise. On that

basis, as the boundary wall falls within the definition of Common Parts,

there is an obligation on this leaseholder to contribute to the cost of

repairing and maintaining the same.

Cause of Damage to the Wall and Remedial Works

83. The next issue was the cause of the damage to the wall and why the

works are considered necessary. The Applicant says that the expert

evidence leads to the conclusion that the wall has been deteriorating over

a long period of time because of movement. It says that the primary

cause is the fact that the wall was built without foundations and

thereafter it was always going to be under sustained pressure from the

land retained.

84. The Applicant says that the works are considered necessary because it

has been advised that the wall is now leaning to such an extent

that it must be considered unstable and there is a significant risk that

the wall could collapse at any stage, which would not only cause damage

to [ADDRESS] and the garages, which are supported by the wall, but

would greatly increase the cost of any remedial works.

85. [NAME] [RESPONDENT] accepted that the wall was in disrepair. However, he said that

expert evidence commissioned by the Applicant confirmed that the cause

of the disrepair was long term escape of water from pipes coupled with

the failure and collapse of the storm water drains serving the grounds

and the hard standing areas. This is a reference to the [NAME] report of 30

November 2016.

86. The Tribunal agrees that the wall is in a state of disrepair. It is clearly

bowing and the contrast with the wall on the opposite bank is stark.

There is ample evidence of disrepair. Although the expert reports and the

parties disagree as to the principal cause of the disrepair it seems likely

that there are multiple causes, principally the lack of foundations to the

wall which has meant that lateral pressure on the wall has weakened the

wall and caused subsidence to the adjoining slab and garage area.

Hydraulic pressure from ground water and leaking pipes and drains

would also appear to be at the least a contributory factor. The Tribunal is

not convinced that the evidence of water leaks is sufficiently strong to

establish that it is the primary cause of the damage to the wall.

87. As to why the proposed works are considered necessary, the Tribunal

agrees that all the professional advice received supports the conclusion

that action is required and has been for some time. The question that is

unresolved as far as the parties are concerned is whether sheet

piling is the appropriate solution. The [NAME] of 26 June 2015

had recommended that specialist piling contractors should be consulted

further to advise on the most suitable pile type, installation method

and to provide working loads on their chosen system. This appears not

20

to have happened. [NAME] has more recently obtained

quotations for a sheet piling solution from 3 contractors, the lowest of

which was from [NAME], and reported on the same to the

Applicant on 22 March 2019.

88. [NAME] [RESPONDENT] suggested that a less expensive bored piling solution had not

been explored. The Applicant says that [NAME] had advised that sheet

piling was the most suitable option to address the issues. It says that this

was due to ground conditions, the requirement for the garages to remain,

the condition of the wall and the method to be used for driving the sheet

piles, which would have to be driven into the ground hydraulically to

minimise the chance of the wall collapsing.

89. The Applicant did not provide details of this advice or supporting

evidence. In these circumstances the Tribunal is not satisfied that

sufficient investigation of less expensive options, such as bored piling,

has taken place. This leads on to the next issue of whether the on account

estimates were reasonable sums or not.

90. The initial estimated costs in respect of the wall repair, as contained in

the budget for 2017-18, were £200,000. The Landlord’s agents

notified the [NAME] of these estimated costs by a letter dated 29

March 2017. That letter was accompanied by the budget and a demand

for the first half yearly advance service charge payment, payable on 1

April 2017. The letter sought to soften this blow by stating “The

major portion of the increase is due to the £200,000 provision for major

repairs to the river wall. This figure is a worst-case scenario budget and

we hope that any repairs will come in significantly below this figure.” The

letter continued, “As you may be aware the wall currently (sic) subject to

an insurance claim and we hope to recover some or all of the money for

the required repairs.”

91. By 29 March 2017, the Applicant had the [NAME] report of 26 June

2015 and the [NAME] report of 30 November 2016. The [NAME] had

recommended investigation of a number of possible solutions including

replacement, underpinning, anchoring the existing wall or sheet piling to

the front of the wall. Both the [NAME] report and the [NAME]

suggested that appropriate solutions should be researched and

implemented without delay. Neither report had made any estimate of the

likely costs of any solution. On receipt of the [NAME] on 30

November 2016 [NAME] [NAME] asked [NAME] to research, specify and obtain

quotes for shoring up the wall. The Tribunal finds therefore that as at

29 March 2017 it was reasonable to make provision in the budget

estimate for action in the coming financial year, and £200,000 was a

reasonable estimate at the time as advised by [NAME] in its discussions

with [NAME]. The Tribunal is satisfied that the sums were properly

demanded.

92. On 22 March 2018, the agents wrote to [NAME] and enclosed a copy of the budget for 2018-2019 and an advance service charge demand for the first half yearly advance service charge payment, payable on 1 April

21 2018. The accompanying letter stated that, “we have had to make further provision of £80,000 towards the cost of repairs to the river wall.” The letter also informed [NAME] that the insurers were denying liability in respect of the wall under the policy. By 22 March 2018, no remedial works had been carried out and the Applicant had received the [NAME] of 24 July 2017 and the [NAME] [NAME] findings of 18 October 2017, together with quotations obtained by [NAME] (which we have not seen) for shoring up the wall.

93. The [NAME] said that “the report from Geotechnical Engineering suggest that bored piles will be required for any remedial solution given the ground conditions and this is likely to be the most effective solution.” The writer of the Report went on to state that he had sent some photographs and outline details of the ground conditions to a [NAME] to see if there was any solution whereby the assisting wall can be retained and strengthened in place. [NAME] [APPELLANT] said that the Applicant had received nothing further.

94. The Tribunal considers that in the circumstances prevailing at the time, it was reasonable to make further provision for the expected cost of repairs and £80,000 was not unreasonable. The Tribunal finds that the sums requested were properly demanded.

95. On 20 March 2019, by which time no remedial works had been done on the wall, the agents wrote to [NAME] and enclosed a copy of the budget for 2019-2020 and an advance service charge demand for the first half yearly advance service charge payment, payable on 1 April 2019. The letter stated that it had proved necessary to make further provision in respect of the river wall repairs. It informed [NAME] that based on advice from [NAME] and the [NAME] the Applicant had come to the conclusion that sheet piling the full length of the wall was the most suitable option.

96. The letter continued, “Following meetings with four sheet piling contractors, [NAME] are now working up a scope of works to enable a full competitive tender process for the sheet piling and associated works. The [NAME] have obtained accurate budget costs from the various contractors for the required works recently obtained a budget cost for the works of £647,881 inc. VAT however we hope to make savings during the tender process (sic).

As we have collected contributions towards the wall in previous years, these have been carried forward as an unexpended surplus in accordance with the terms of the lease. Therefore we currently hold £325,000 in a fund to be allocated against the works.

Although we hope to make savings during the tender process we are significantly short of the £647,881 budgeted by the [NAME] and therefore we have made a provision of a further £360,000 in the 2019/2020 service charge budget.”

22 97. This raises the question of what had happened between 1 April 2018 and 20 March 2019. We know that on 29 March 2017 a [NAME], [NAME], was instructed by the Applicant to give another opinion. It was engaged from 29 March 2017 until 16 November 2018. Clancy’s invoice of 17 September 2018 stated that it had received further instructions on 19 September 2017 “with regards obtaining costs for repair works, commencing enquiries with [COMPANY] and [COMPANY].” Clancy’s invoice of 30 November 2018 stated that [NAME] had been asked to review [NAME]’s sheet piling option.

98. However, as stated above, no evidence had been produced as to why sheet piling had been chosen as the preferred method of solution. The [NAME] of 26 June 2015 recommended investigation of a number of possible solutions including replacement, underpinning, anchoring the existing wall or sheet piling to the front of the wall. It further recommended that specialist piling contractors be consulted to advise further on the most suitable pile type and installation method. There is no evidence that this has happened. Furthermore, the [NAME] of 24 July 2017, which the Applicant says was commissioned on 20 July 2017 in order to obtain a “second opinion”, had recommended a bored pile solution. Nevertheless, on 27 July 2017, [NAME] invoiced the Applicant for their fees in respect inter alia of production of a budget and tender documents for a sheet piling solution all as discussed and agreed with [NAME] [NAME] between 11 November 2017 and 31 July 2017.

99. [NAME] [NAME] told us that [NAME], whose report appears not to have advanced matters any further, dropped out of the picture, but not, the Tribunal notes, before it had charged fees of £13,000. When questioned at the hearing by the Tribunal, [NAME] [APPELLANT] said the Applicant Landlord had appointed [APPELLANT] independently [NAME] (although we note that invoices were sent by [NAME] to [COMPANY]). However, it is clear from the invoices that [NAME] had meetings on site with [NAME] [NAME] throughout their appointment, at the same time as [NAME] were working on the matter of the wall. All this suggests a duplication of services and costs.

100. Since then [NAME], who were reappointed in November 2018, has sought and obtained quotes from sheet piling contractors and checked them with a local (unidentified) contractor in order to produce the latest budget forecast of £647,881 and subsequently drawn up a schedule of works dated 1 August 2019. [NAME] [RESPONDENT] says that it is for the landlord to choose the method of repair but that is still subject to the reasonable test in section 19 of the 1985 Act. In these circumstances the Tribunal sees no justification as at 20 March 2019 for the Applicant to have demanded a further large sum from the [NAME], based on a sheet piling solution, in the absence of evidence as to the viability of a less expensive alternative solution such as a bored piles solution. A reasonable landlord would not tie up his own money in this way in such circumstances. The Tribunal therefore concludes that no further sum was payable by way of advance service charge as of 1 April 2019.

23 Section 20 consultation

101. With regard to the section 20-consultation process, this was begun by the Applicant by a stage one notice dated 29 March 2017. A further stage one notice was issued on 20 March 2019. However, because of delay in starting the works a fresh notice was served on 13 September 2019. That notice (as did the notice of 20 March 2019) described the proposed works as “sheet piling of retaining boundary wall ([NAME]) and associated ground/building works”. The Applicant says that since it had received nominations for contractors from the Respondents and is re- tendering for all of the works in accordance with the consultation process, including obtaining tender prices from at least one contractor nominated by the Respondents. However, [NAME] [NAME] argued that the payability of on account charges is not in law contingent on section 20 consultation having taken place (see [ADDRESS] (1998) [COMPANY] v [NAME] [2016] UKUT 0365). The Tribunal agrees that the statutory limit applied by section 20 does not apply to on account charges. However, as noted above the Tribunal does not consider it reasonable to have demanded a further £360,000 as at 1 April 2019.

102. The Respondents also argued that the Applicant should have consulted on the professional fees charged by the various consultants engaged by the Applicant in recent years in relation to the matter of the wall. These fees, which were considerable, have been charged separately as a separate service charge cost over the years from at least 2015-16. Their payability and reasonableness is not of course the subject of the present Application, which relates only to the advance payments. However, section 20 of the 1985 Act only applies to qualifying works if “relevant costs incurred on carrying out the works exceed an appropriate amount. “Qualifying works” means “works to a building or any other premises” (section 20ZA(2) of the 1985 Act). The section 20 Notice must describe the relevant works.

103. The statutory provisions are not well drafted. The consulting fees are certainly relevant costs for the purposes of section 18(2) of the 1985 Act, being costs incurred by or on behalf of the landlord, “in connection with” the matters for which the service charge is payable.” It is however, less obvious, that those costs were incurred on carrying out “the works” for the purposes of section 20 of the 1985 Act. Furthermore, by regulation 8 of schedule 4 of the Regulations the Notice must describe “the works” for which tenders are to be invited. This would appear to exclude the services provided by the professional consultants in the present case.

104. In [COMPANY] v [COMPANY] [2002 EWHC 2546 (Ch), (a decision on section 20 as enacted before the changes introduced by the Commonhold and Leasehold Reform Act 2002), [NAME] stated (at paragraph 95) that “ ‘works’ are, in my judgment, restricted to the physical works involved in repair or maintenance and the cost of those works is the charge made by the contractor carrying out those works for doing so. This is also very much

24 the flavour given by subsection (4)(c) requiring a description of the works to be carried out to be given in the notice which has to be served on the tenants: that provision seems to me to be inapposite to cover professional services provided by an independent person as part of the works which need to be described.” (The reference to ‘subsection 4(c)’ is now to regulation 8 since the changes made by the 2002 Act).

105. The Tribunal finds therefore, that the professional services provided in this case were not ‘works’ that were subject to the statutory consultation process. It follows that section 20 would not limit the recoverable fees in respect of those services, which are undoubtedly relevant costs for the purposes of a service charge demand. The [NAME] do however have the protection of section 19 of the Act whereby the fees have to be properly incurred and be reasonable in amount. The present case is brought by the Applicant and relates only to the anticipated costs of repairing the wall and associated works. It is not an application by the [NAME] challenging the reasonableness of the consultancy fees, which is a separate issue.

Equitable set off

106. Finally, the Respondents argue that it is only because of the Applicant’s breach of covenant in failing to maintain the wall and the non-repair of water leaks that costs will now have to be incurred in repairing the wall and that there should be a set off in respect of these matters. [NAME] [NAME] says that not all of the [NAME] owned their flats at the time of the leaks even if it could be established that the leaks were the principal cause of the damage to the wall.

107. In the Upper tribunal case of [NAME] v [NAME] CC [2015] UKUT 0229 (LC) it was stated that

“In [COMPANY] v Griffin [2014] UKUT 0206 (LC) the Tribunal considered the circumstances in which a history of neglect of a landlord’s repairing obligations might have the effect of limiting the cost of remedial work which could be recovered through a service charge. At paragraph 88 we agreed with the decision of the Lands Tribunal (HH Judge Rich QC) in [NAME] v White [2006] 1 EGLR 85 that a history of neglect is not of direct relevance to the question posed by s. 19(1)(a) of the 1985 Act, namely, whether the costs of remedial work have been reasonably incurred and so are capable of forming part of the relevant costs to be included in a service charge. The need to incur the cost of repairs and the reasonableness of that cost does not depend on whether the repairs ought to have been carried out earlier” (per Martin Rodger QC Deputy President).

Thus if the repair works in question were only necessary because of a previous breach of the landlord’s repairing covenant, which was not dealt with, or not dealt with properly at the time, it does not follow that the cost of the later repair works were unreasonably incurred.

25

But if the earlier breach would give rise to a claim for damages, and where the breach means that further disrepair has occurred which is now being rectified, the damages in respect of that earlier breach can be set off against the service charge payable.

“The only route by which an allegation of historic neglect may provide a

defence to a claim for service charges is if it can be shown that, but for a

failure by the landlord to make good a defect at the time required by its

covenant, part of the cost eventually incurred in remedying that defect,

or the whole of the cost of remedying consequential defects, would have

been avoided. In those circumstances the tenant to whom the repairing

obligation was owed has a claim in damages for breach of covenant,

and that claim may be set off against the same tenant’s liability to

contribute through the service charge to the cost of the remedial work.

The damages which the tenant could claim, and the corresponding set

off available in such a case, is comprised of two elements: first, the

amount by which the cost of remedial work has increased as a result of

the landlord’s failure to carry out the work at the earliest time it was

obliged to do so; and, secondly, any sum which the tenant is entitled to

receive in general damages for inconvenience or discomfort if the

demised premises themselves were affected by the landlord’s breach of

covenant” ([COMPANY] v Griffin [2014] UKUT 0206 per Martin

Rodger QC, Deputy President).

108. Even if the Respondents were able to make out a case of breach of repairing covenant on the part of the Applicant, they have not provided any evidence of the extent to which the costs of repairing the wall have increased, if at all, as a result of any such breach of covenant. It is therefore not possible for the Tribunal to take this claim into account when assessing the payability of the on account sums demanded.

Martin Davey Chairman of the Tribunal

RIGHTS OF APPEAL

1. A person wishing to appeal this decision to the Upper Tribunal ([NAME]) must seek permission to do so by making written application to the First-tier Tribunal at the [NAME], which has been dealing with the case.

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, that person shall include with the application for permission to appeal a request for an extension of time and the

26 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.

27