First-tier Tribunal Rules on Reasonableness of Service Charges for Leaseholders

OUTCOME: Allowed in Part © 2020

FIRST - TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case Reference : BIR/00GL/LIS/2019/0042

Property : 2 & [NAME], Stoke on Trent, [POSTCODE]

Applicants : [redacted]

[COUNSEL] (2)

Applicants’ : None Representative

Respondents : [redacted]

(1)

[COMPANY] (2)

Respondents’ : Stephensons Solicitors

(1) Representatives

Legal Department [COMPANY] (2)

Type of Applications : (1) Application for a determination of liability to pay and reasonableness of service charges pursuant to ss 19 & 27A Landlord and Tenant Act 1985 (the 1985 Act)

(2) Application for an order limiting the [NAME] costs in the proceedings under s20C of the 1985 Act and

(3)Application under paragraph 5 Schedule 11 Commonhold and Leasehold Reform Act 2002 (CLRA 2002) reducing or extinguishing the tenant’s liability to pay an administration charge in respect of litigation costs

Inspection & Hearing : 20 January 2020

Tribunal : Tribunal Judge [NAME] P. J. Ellis.

Tribunal Member [NAME]. FRICS

Date of Decision : 27 January 2020

_____________________________________________________ DECISION _____________________________________________________ © 2020

1. The Applicants disputed two items service charges for 2018 namely for ground maintenance and cleaner. The sum of £42.00 for the cleaner is reasonable and payable. The sum of £56.00 for ground maintenance is not payable.

2. Pursuant to s27A(3) of the 1985 Act the Tribunal determines that the amount of estimated service charges payable by the Applicants to the Management Company in advance for service charge year 2019 is £2038.00 for 2 [NAME] and £2038.00 for [NAME]

3. The Respondents’ costs incurred or to be incurred in connection with these proceedings are not relevant costs to be taken into account in determining the amount of any service charge payable by the Applicants.

4. No litigation costs are payable by the Applicants pursuant to paragraph 5A of Schedule 11 CLRA 2002

Year Item Cost Claimed £ Decision Not more than £ 2018 Grounds Maintenance 56.00 Nil 2018 Cleaner 42.00 42.00 2019 Grounds Maintenance 224.00 100.00 2019 Cleaner 445.00 300.00 2019 Carpet Cleaning 25.00 Nil © 2020

2019 Drain & Gully Cleaning 150.00 Nil 2019 Gutter Cleaning 200.00 Nil 2019 Day to Day Maintenance 250.00 150.00 2019 Out of Hours 40.00 Nil 2019 Access Control 25.00 Nil 2019 Emergency Lighting 108.00 108.00 2019 Fire Safety Systems 312.00 312.00 2019 TV/Satellite Maintenance 150.00 150.00 2019 Insurance 498.00 498.00 * 2019 Professional Fees (inc VAT) 220.00 220.00 2019 Contribution to Reserves £400.00 £200.00

*

Introduction

1. This is an application for determination of the reasonableness and payability of service charges and associated applications related to costs by [NAME] [NAME] [NAME] and [NAME] [NAME] of [NAME] on Trent. They were unrepresented. The First Respondent is [RESPONDENT] ([NAME]) who did not attend the hearing but supplied written evidence particularly relating to the insurance premium. The Second Respondent is [RESPONDENT]. © 2020

2. The Second Respondent was represented by Mrs [RESPONDENT]. [NAME] of the legal department of [COMPANY] the [NAME] of [ADDRESS] being the estate of which the subject properties formed part.

3. [COMPANY] were appointed in October 2018 to act as the managing agents by [COMPANY]. [NAME] [NAME], Associate Director and [NAME] Manager employed by [NAME] attended the inspection and hearing.

4. By this application the Applicants who are [NAME] resident leaseholders sought information relating to the appointment of [NAME] as the managing agents in addition to the request for determination of the payability of service charges.

The [COMPANY]. [ADDRESS] is a substantial development of new residential property offered either as terraced or semi-detached houses or apartment blocks. The subject properties are two of three apartments in one such block. 2 [NAME] is on the ground floor. [NAME] is on the first floor. The leaseholder of 6 [NAME] did not take part in these proceedings. [NAME] described themselves as first time buyers.

6. It was not necessary to inspect the apartments themselves. The Tribunal confined its inspection to street level observations of the apartment block and an inspection of the ground floor internal common parts and stairway.

7. The block was built in 2013 of part rendered brick construction. There is a small garden surrounding the block comprising shrubs and gravel. Entrance to the block is by a keypad to a corridor leading to apartment 2 and the stairway to upper floors. A notice board is adjacent to the entry door. There are two locked cupboards with storage and service installations. The corridor is carpeted. The walls are painted in plain colour. © 2020

The Lease

8. Each lease of the subject property was made on 27 September 2013 in substantially similar terms. The first parties to the lease were [NAME] ([COMPANY] ([NAME]), the respective Applicants and [COMPANY] (the Management Company).

9. Relevant clauses are: At 1.29 “the Service Charge means a reasonable proportion of the total costs charges and expenses incurred by the Management Company (including the reimbursement of the premium for buildings insurance incurred by [NAME]) in performing its obligations set out in the Seventh Schedule” And at clause 9 The Management Company “covenants with [NAME] subject to the payment by [NAME] of the Service Charge to observe and perform the obligations contained in the Seventh Schedule.

10. By the Fourth Schedule paragraph 1 [NAME] covenants “to pay the Rent to [NAME] and the Service Charge to [NAME] or the Management Company on the days and in the manner as referred to in this Lease, and by the Fifth Schedule paragraph 1 [NAME] covenants “to pay to the Management Company in advance on the dates as stated in every year the amount of the Service Charge estimated by the Management Company as being required to enable the provision of the Services during that year and forthwith upon demand to pay to the Management Company any under payment in respect of the provision of Services for any previous calendar year”.

11. The Seventh Schedule sets out [NAME]’s service obligations and includes at clause 4 an obligation to keep proper books of account of all costs, charges and expenses incurred in carrying out its obligations under this schedule and by clause 4.1 entitles the Management Company “to appoint managing agents and/or accountants to carry out all or any of its obligations contained in this Lease.” Clause 4.1 further © 2020

provides that the fees of the managing agent are deemed an expense properly incurred under the Lease.”

12. The service charge year is the calendar year. The [NAME] had not raised significant service charges until the appointment of [NAME] in October 2018.

The Statutory Framework

13. Sections 18 -30 of the Act provide a statutory framework for the regulation of the relationship between a landlord and tenant of residential property in connection with service charges.

14. Section 19 provides . (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 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. (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.

15. S20(C) (1)provides (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 leasehold valuation Tribunal or the First- tier 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. © 2020

16. S27A provides(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.

17. Paragraph 5A Schedule 11 CLRA 2002 provides (1) A tenant of a dwelling in England may apply to the relevant court or Tribunal for an order reducing or extinguishing the tenant's liability to pay a particular administration charge in respect of litigation costs. (2) The relevant court or Tribunal may make whatever order on the application it considers to be just and equitable. (3) In this paragraph— (a)“litigation costs” means costs incurred, or to be incurred, by the landlord in connection with proceedings of a kind mentioned in the table, and (b)“the relevant court or Tribunal” means the court or Tribunal mentioned in the table in relation to those proceedings. © 2020

The Parties Submissions

18. The Applicants’ complaint was that the budget figures presented by [NAME] were higher than before their appointment without any or adequate explanation of either their engagement or the reason for the increase.

19. The Respondent asserted that the charges were estimates and that the accounts would show if actual expenses were not incurred. It admitted that ground maintenance had not occurred in 2018 and referred to the accounts for the year which showed no payment for that year.

The Decision

20. The Tribunal examined the parties respective submissions set out in their schedule of expenses and received oral representations from [NAME] sides before coming to its decision as summarised in the table above.

21. The item of charge for 2019 ground maintenance was reduced because it was apparent on inspection that the shrubs were overgrowing notwithstanding they were planted within 6 years of the date of the application. In particular the balcony of apartment 2 was significantly affected by growth of nearby shrubs.

22. Cleaning was reduced as being too high for the area subject to cleaning. [NAME] [NAME] gave convincing evidence that the cleaners attendance was limited in time and [NAME] asserted [NAME] [NAME] took on herself responsibility for some cleaning.

23. The day to day maintenance figure and contribution to reserves figure was reduced as the standard of construction was such that the estimates were creating an over provision.

24. Items were reduced to nil when the Respondent admitted no work was done against the estimates. The charges for emergency lighting, fire safety and tv/satellite provision were allowed as being necessary and the Applicants had not adduced any evidence to rebut the [NAME] estimates. © 2020

25. The professional charges were reasonable. Although there are legitimate criticisms of the managing agents, they are undertaking management duties and will continue to do so and are entitled to their fee.

26. As far as the insurance premium was concerned the Applicants complained the sum demanded was significantly higher than previously. The First Respondent adduced written evidence of the quotation for the insurance premium. The only response which the Applicants made was an expression of dismay that the premium was now much higher. The Tribunal is satisfied that [NAME] has an obligation to provide buildings insurance under the terms of the lease and that the sum claimed is within a reasonable range. However, [NAME] should give more information to the Lessees regarding the terms of the policy and the work it has undertaken to ensure the premium payable is reasonable.

Costs

27. The Respondent has not made a claim for any costs of litigation. Consequently, the Tribunal directs that the Applicants have no liability to pay an administration charge in respect of litigation costs.

28. The Applicants were not unreasonable in bringing these proceedings. The Tribunal is satisfied that the [NAME] and its agent [NAME] had not provided good information to them to explain the appointment of [NAME] and the basis of the budgetary estimates.

Accordingly, the Tribunal directs that the costs incurred by [NAME] are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the Applicants.

Appeal

29. If either of the parties is dissatisfied with this decision they may apply to this Tribunal for permission to appeal on a matter of law to the Upper Tribunal (Lands © 2020

Chamber). Any such application must be received within 28 days after these written reasons have been sent to them rule 52 of The Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013).

Tribunal Judge PJ Ellis Chair

FIRST - TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case Reference : BIR/00GL/LIS/2019/0042

Property : 2 & [NAME], Stoke on Trent, [POSTCODE]

Applicants : [redacted]

[COUNSEL] (2)

Applicants’ : None Representative

Respondents : [redacted]

(1)

[COMPANY] (2)

Respondents’ : Stephensons Solicitors

(1) Representatives

Legal Department [COMPANY] (2)

Inspection & Hearing : 20 January 2020

Tribunal : Tribunal Judge [NAME].P. J. Ellis.

Tribunal Member [NAME]. FRICS

Date of Decision : 9 March 2020 __________________________________________________

AMENDED DECISION © 2020

We exercise our powers under Rule 50 of The Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 to correct the accidental omission or clerical error at paragraph 2 below of our Decision dated January 2020. Our amendments are either underlined or struck through. The correction is made in order to assist the parties by clarifying the meaning and effect of our Decision Tribunal Judge P.J Ellis 12 February 2020

2. Pursuant to s27A(3) of the 1985 Act the Tribunal determines that the amount of estimated service charges payable by the Applicants to the Management Company in advance for service charge year 2019 is their reasonable proportion of the sum of £2038.00 for the apartment block comprising 2 [NAME] and £2038.00 for [NAME] and 6 [NAME].

Year Item Cost Claimed £ Decision Not more than £ 2018 Grounds Maintenance 56.00 Nil 2018 Cleaner 42.00 42.00 2019 Grounds Maintenance 224.00 100.00 2019 Cleaner 445.00 300.00 2019 Carpet Cleaning 25.00 Nil 2019 Drain & Gully Cleaning 150.00 Nil 2019 Gutter Cleaning 200.00 Nil 2019 Day to Day Maintenance 250.00 150.00 2019 Out of Hours 40.00 Nil 2019 Access Control 25.00 Nil 2019 Emergency Lighting 108.00 108.00 2019 Fire Safety Systems 312.00 312.00 2019 TV/Satellite Maintenance 150.00 150.00 2019 Insurance 498.00 498.00 * 2019 Professional Fees (inc VAT) 220.00 220.00 2019 Contribution to Reserves £400.00 £200.00

* *see further at paragraph 26

Introduction 1. This is an application for determination of the reasonableness and payability of service charges and associated applications related to costs by [NAME] [NAME] [NAME] and [NAME] [NAME] [NAME] of [NAME] on Trent. They were unrepresented. The First Respondent is [RESPONDENT] ([NAME]) who did not attend the hearing but supplied written evidence particularly relating to the insurance premium. The Second Respondent is [RESPONDENT].

The [COMPANY] 5. [ADDRESS] is a substantial development of new residential property offered either as terraced or semi-detached houses or apartment blocks. The subject properties are two of three apartments in one such block. 2 [NAME] is on the ground floor. [NAME] is on the first floor. The leaseholder of 6 [NAME] did not take part in these proceedings. [NAME] described themselves as first time buyers.

7. The block was built in 2013 of part rendered brick construction. There is a small garden surrounding the block comprising shrubs and gravel. Entrance

to the block is by a keypad to a corridor leading to apartment 2 and the stairway to upper floors. A notice board is adjacent to the entry door. There are two locked cupboards with storage and service installations. The corridor is carpeted. The walls are painted in plain colour.

The Lease 8. Each lease of the subject property was made on 27 September 2013 in substantially similar terms. The first parties to the lease were [NAME]) [COMPANY] ([NAME]), the respective Applicants and [COMPANY] (the Management Company).

11. The Seventh Schedule sets out [NAME]’s service obligations and includes at clause 4 an obligation to keep proper books of account of all costs, charges and expenses incurred in carrying out its obligations under this schedule and by clause 4.1 entitles the Management Company “to appoint managing agents and/or accountants to carry out all or any of its obligations contained in this

Lease.” Clause 4.1 further provides that the fees of the managing agent are deemed an expense properly incurred under the Lease.”

The Statutory Framework 13. Sections 18 -30 of the Act provide a statutory framework for the regulation of the relationship between a landlord and tenant of residential property in connection with service charges.

15. S20(C) (1)provides (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 leasehold valuation Tribunal or the First-tier 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.

16. S27A provides(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.

17. Paragraph 5A Schedule 11 CLRA 2002 provides (1) A tenant of a dwelling in England may apply to the relevant court or Tribunal for an order reducing or extinguishing the tenant's liability to pay a particular administration charge in respect of litigation costs. (2) The relevant court or Tribunal may make whatever order on the application it considers to be just and equitable. (3) In this paragraph— (a)“litigation costs” means costs incurred, or to be incurred, by the landlord in connection with proceedings of a kind mentioned in the table, and (b)“the relevant court or Tribunal” means the court or Tribunal mentioned in the table in relation to those proceedings.

The Parties Submissions 18. The Applicants’ complaint was that the budget figures presented by [NAME] were higher than before their appointment without any or adequate explanation of either their engagement or the reason for the increase.

The Decision 20. The Tribunal examined the parties respective submissions set out in their schedule of expenses and received oral representations from [NAME] sides before coming to its decision as summarised in the table above.

22. Cleaning was reduced as being too high for the area subject to cleaning. [NAME] [NAME] gave convincing evidence that the cleaners attendance was limited in time and [NAME] asserted [NAME] took on herself responsibility for some cleaning.

24. Items were reduced to nil when the Respondent admitted no work was done against the estimates. The charges for emergency lighting, fire safety and tv/satellite provision were allowed as being necessary and the Applicants had not adduced any evidence to rebut the [NAME] estimates.

Costs 27. The Respondent has not made a claim for any costs of litigation. Consequently, the Tribunal directs that the Applicants have no liability to pay an administration charge in respect of litigation costs.

Appeal 29. If either of the parties is dissatisfied with this decision they may apply to this Tribunal for permission to appeal on a matter of law to the Upper Tribunal (Lands Chamber). Any such application must be received within 28 days after these written reasons have been sent to them (Rule 52 of The Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013).

Tribunal Judge PJ Ellis Chair

FIRST - TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case Reference : BIR/00GL/LIS/2019/0042

Property : 2 & [NAME], Stoke on Trent, [POSTCODE]

Applicants : [redacted]

[COUNSEL] [NAME] (2)

Applicants’ : None Representative

Respondents : [redacted]

(1)

[COMPANY] (2)

Respondents’ : Stephensons Solicitors

(1) Representatives

Legal Department [COMPANY] (2)

Inspection & Hearing : 20 January 2020

Tribunal : Tribunal Judge [NAME].P. J. Ellis.

Tribunal Member [NAME]. FRICS

AMENDED DECISION © 2020

* *see further at paragraph 26

Tribunal Judge PJ Ellis Chair