First-tier Tribunal Rules on Service Charge Budget Reasonableness

OUTCOME: Allowed in Part

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AF/LSC/2024/0265 Property : [ADDRESS], [POSTCODE] Applicant : [redacted] : In person Respondent : [redacted] : [NAME_9] [NAME_2] of application : For the determination of the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Tribunal members : Judge Vodanovic Mrs A [NAME_3] Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 22.6.2025

DECISION © CROWN COPYRIGHT

Decisions of the tribunal (1) The tribunal makes the determinations as set out under the various headings in this Decision. (2) There being no provision within the Lease to pass on any of the landlord’s costs of the tribunal proceedings to the Applicant (the Lessee), the tribunal need not consider the application under section 20 C of the Landlord and Tenant Act 1985. Even if such a provision were to exist within the Lease, the tribunal would have made an order under the same section 20C so that none of the landlord’s costs of the tribunal proceedings could have been passed to the lessee through any service charge. (3) The tribunal determines that the Respondent shall pay the Applicant £330 within 28 days of this Decision, in respect of the reimbursement of the tribunal fees paid by the Applicant. The application 1. The Applicant seeks a determination pursuant to s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) as to the budgeted amounts of service charges payable by the Applicant in respect of the service charge years 2022/2023 and 2023/2024. The final reconciliations in relation to the service charges for those two years have not as yet happened. The extent of the dispute between the parties to be determined within this application is therefore in relation to budgeted amounts only; it does not prevent the Applicant from later challenging the incurred service charges should he choose to do so. The hearing 2. The Applicant appeared in person at the hearing and the Respondent was represented by [NAME_2] and [NAME_9] who are both employees of [NAME_4] (‘the Managing Agent’). They both confirmed they were instructed by the Respondent to manage the Property and to attend this hearing.

3. Two days before the hearing the Tribunal noted that a complete copy of the original Lease dated 1987 was missing from the Bundle and requested that the parties provide a further complete copy. Neither party could find a complete copy of the Lease in respect of Flat 4, but the Applicant was able to obtain a copy of the second page of the Lease from his neighbour’s Lease. The Respondent was able to have a look at this copy as was the Tribunal; nothing turned on the wording of it. 2

4. The Tribunal set out at the start of the hearing that the issues in dispute were the budgeted amounts for years 2022/2023 and 2023/2024 (‘the relevant years’), as per the Applicant’s Application and the Schedule which solely dealt with those budgeted amounts. The full accounts and the reconciliations of the service charges for the relevant years had not been provided by the Applicant and his objections raised in the Schedule did not query individual items of expenditure. For those reasons, the Tribunal did not consider the incurred costs.

5. The Tribunal further made it clear that issues relating to the Applicant’s application to become a director of the [COMPANY_5] ([COMPANY_5]) and the rejection of that application, as well as any issues relating to the running of the [COMPANY_5] by its directors were not issues for this tribunal to determine. The background 6. The property which is the subject of this application is a Victorian detached house split into four flats, hereinafter referred to as the Building. The Applicant is the owner and occupier of the leasehold to [ADDRESS], which is a ground floor flat with a garden immediately at the back of it (as shown on the plan attached to the Lease at [140]).

7. Some photographs of the Building were provided in the hearing bundle. Neither party requested an inspection and the tribunal did not consider that one was necessary, nor would it have been proportionate to the issues in dispute.

8. The Applicant holds a long lease of the property. The original Lease is dated 21st December 1987 and the period of the Lease was extended on 28th September 2016. A full copy of the Lease Extension is contained within the Bundle. The relevant provisions of the original Lease are still binding between the parties. The Lease requires the landlord to provide services and the tenant to contribute towards their costs by way of a variable interim charge and ultimately a service charge. The specific provisions of the lease will be referred to below, where appropriate. The issues 9. At the start of the hearing the parties identified the relevant issues for determination as follows: (i) The reasonableness of the budgeted service charges for the years 2022/2023 and 2023/2024 (the interim charges); 3

(ii) The interim charges (for the whole building) over the relevant years relating to: a. General Repairs External; b. Bin Rental; c. Communal cleaning; d. General & Grounds Maintenance; e. Building insurance; f. General Repairs Internal; g. [NAME_6].

10. Having heard evidence and submissions from the parties and considered all of the documents provided, the tribunal has made determinations on these various issues as follows. The budgeted figures raised by the Applicant in the Schedule are for the whole building. The interim charges for the Applicant’s property are obviously less than those figures, dependant on the percentage contribution as set by the Lease but this was not in issue between the parties. The remainder of the discussion by the Tribunal as to those figures will proceed on the basis of the total figures given for the whole building. General Repairs External 11. The budgeted costs for the year 2022/2023 were £3,000 [31] and for the year 2023/2024 they were £4,000. The Applicant raised an objection to these costs on the basis that he could see no works having been done and it was not clear what the £7,000 was held for; the building was very run down. The tribunal’s decision 12. The tribunal determines that the budgeted amounts in respect of the general repairs - external in the sum of £3,000 was reasonably budgeted for the year 2022/2023 and similarly in the sum of £4,000 for the year 2023/2024. 4

Reasons for the tribunal’s decision 13. It is not in dispute that the Lease imposes various repairing and maintenance obligations on the Landlord (see clause 5(d) of the Lease [132]). It is further not in dispute that this obligation is conditional upon the payment of an interim charge and the service charge by the Applicant to the Respondent, as charged by them on behalf of the Landlord. The issue that the Tribunal is concerned with here is the interim charge in terms only of the reasonableness of the amount charged.

14. It is not unreasonable though for the Respondent to budget for repairs to a building in order that it can comply with its repairing obligations under the Lease. There is evidence of some works having been carried out. Whether or not they are reasonably incurred and reasonable in amount is not for this Tribunal to determine based on the issues raised in the Application. The figure of £4,000 budgeted for the year 2023/2024 appears reasonable as it was based on the previous year’s expenditure of some £3,800. As it turns out, a much smaller figure was actually spent on repairs that year but this will be credited back to the Applicant in any event.

15. The basis of the budgeted figure for the year 2022/2023 of £3,000 is less clear. The accounts for the year ending September 2022 appear to show a figure of £870 spent on general repairs. The Respondent company was incorporated in November 2021. The Managing Agent took over the management of the Building in May 2022 and the Tribunal was informed that having reviewed the properties a budget was set for the building in consultation with the Respondent. There are no specifications for the basis of the budget and no real explanation was given as to how this figure was arrived at. There were a number of items that were identified as needing to be dealt with such as drains and gutters, and potentially a fence. All of those would have needed some budget being set. Looking at the expenditure on the externals in the year 2022/2023 being in excess of £3,000, the Tribunal appreciates the budgeted figure appears reasonable with the benefit of hindsight but even without that hindsight, given the size of the building and the repairing obligations, it was not unreasonable to set an amount as a budgeted figure. It is not accepted that nothing was being done on the Building. What might have been done may not have necessarily been visibly appreciated by the Applicant. All that the Tribunal has to determine is whether the budget was reasonably set at that amount. Whether the works actually done were of a reasonable standard was not part of the remit of the Application and the issues raised in the Schedule did not cover this. The figure budgeted for the year 2022/2023 was reasonable. 5

Bin Rental: budgeted figures of £120 (2022/2023) and £470 (2023/2024)

16. The Applicant conceded that this item was properly chargeable to him as a leaseholder within the terms of the Lease.

17. The Respondent conceded that the Council has incorrectly charged them for four bins instead of one and that resulted in an increase to the budget the following year. A credit is going be issued to the Respondent by the Council which will be passed on to the leaseholders of the Building. Consequently, the budgeted figure should never have been £470 but instead it should have been £120 as per the previous year.

18. A further argument raised by the Applicant was that he should not be charged, along with the other leaseholders, for the rental of a bin from the Council but instead a one off purchase of a bin is what should be done so as to avoid the rental costs going forward. The tribunal’s decision 19. The tribunal determines that the budgeted amount of the interim charge for this item for the year 2022/2023 is reasonable in the sum of £120. The budgeted amount of the interim charge for the year 2023/2024 is not reasonable and should have been £120, as conceded by the Respondent. Reasons for the tribunal’s decision 20. Given the concession as to there being no rationale for the increased amount of this particular budgeted item for the year 2023/2024, the Tribunal gives no further reasons on this point.

21. The Tribunal does not accept that it would have been more cost effective for the purchase of a one off bin to have been made for two reasons: (i) there were no quotes provided to show what it would have actually cost to purchase a bin such that it was unable to compare the cost of one against the other; and (ii) the Respondent’s explanation of the efficiency of renting a bin from the Council was accepted because it meant that if there was any damage caused to it, the Council would simply replace it and was ultimately responsible for the maintenance of it. This is certainly not an unreasonable basis on which to budget for the provision of such an item. Communal cleaning 22. The budgeted amounts being challenged for the years 2022/2023 and 2023/2024 are £800 for each year. 6

The tribunal’s decision 23. The Tribunal determines that the Respondent is entitled under the terms of the Lease to budget for the provision of cleaning services. However, it would have been reasonable to budget a figure of £400 per annum, and not £800. Reasons for the tribunal’s decision 24. There was some discussion during the hearing as to whether the Respondent is able to charge this item at all by way of service charges in respect of obligations imposed on the Landlord under clauses 5(d) to (g) of the Lease. These clauses did not appear to cover this item. However, during the course of the hearing dealing with other matters, the Tribunal’s attention was drawn to the Fifth Schedule which did refer to the ability to charge interim charges and service charges for all those expenses incurred under clauses 5(d) to (g) and ‘any other costs reasonably incurred in maintaining the Building’. The Tribunal therefore decided that this item was recoverable under the terms of the Lease and could reasonably be budgeted for.

25. The objection that is in fact raised by the Applicant is that this is not good value. It concerns a very small area of the internal hallway and the stairwell; no cleaning is done and the amounts budgeted for are excessive.

26. Having been raised in the Schedule by the Applicant, the Respondent failed to set out how it arrived at the budgeted figure of £800. There was no specification of the works. All that was provided was a log to show that an employee of the Managing Agent had been attending once a month, but it was not clear for what purpose. It was said that these were monthly visits, which were supported by the GPS log of the vehicles attending at the Building, but it was not clear at all what anyone was required to do during any attendance. There was a suggestion that what needed to be done was the hoovering of the stairs once a month. The amount of £800 spread over 12 months would result in each visit costing around £66.67. Some visits were as short as 11 minutes in duration.

27. In the absence of any explanation of specification of works and details of what has actually been done during these visits, the Tribunal accepts that it would be reasonable to budget for a sum to cover the communal cleaning costs but this is more reasonably set at £400 per annum as a budgeted figure. 7

General and Grounds Maintenance 28. The sum of £600 was budgeted for each of the two service years 2022/2023 and 2023/2024. The objections raised by the Applicant were that no works were done at all to justify this amount or any amount. The tribunal’s decision 29. The Tribunal determines that it was not reasonable for any figure to be budgeted under this heading on the basis that the Lease does not provide for the recovery of those sums at all. Reasons for the tribunal’s decision 30. The Landlord’s repairing and other obligations were set out in clauses 5(d) to (g). These were conditional upon the payment of interim and service charges by the leaseholders. The Fifth Schedule to the Lease dealt with the definitions of the ‘total expenditure’ in respect of which interim and service charges could be recovered from the leaseholders and the apportionment between them of that total expenditure.

31. The Building was not specifically defined within the Lease but the Tribunal gave it its natural meaning, i.e. the physical construction which contained the four flats. The garden was mentioned separately to the Building within the Lease and was defined by being delineated in red on a plan attached to the Lease. It was clear that the garden was part of the demise within the Lease and the Landlord had no maintenance obligations towards it or the internal part of the flat. All the gardens were to the rear of the Building.

32. To the front of the Building there is a large yard which is covered in gravel. There is also an access alleyway leading from that yard along the side of the Building to the rear gardens. These are marked out in faint blue at [144]. The Lease stipulates that there is a right of access granted to the Applicant across the yard and the alleyway as well as parking on the yard. It appears that all the other leaseholders are also granted the same rights of access and use.

33. The Lease does not however stipulate who is responsible for the maintenance of the yard and the alleyway. It appears to be silent on it.

34. The ability to recover service charges from the leaseholders is expressly dealt with in the Fifth Schedule and makes reference to clauses 5(d) to (g) and any other costs or expenses incurred in respect of the Building. All the obligations referred to within clauses 5(d) to (g) referred to the 8

Building also. The yard and the alleyway do not fall within the definition of the ‘Building’.

35. There is no basis on which the Landlord can seek any interim or service charge in respect of this item under the Lease. No amount should have been budgeted for this. Buildings Insurance 36. The sums budgeted for the year 2022/2023 were £2,050; for the year 2023/2024 this sum was £3,000. The objection raised by the Applicant is that there is an inexplicable increase of £950 from one year to the next and he has obtained cheaper quotes. The tribunal’s decision 37. The Tribunal determines that the budgeted figure of £2,050 was entirely reasonable for the year 2022/2023. The budgeted figure for the year 2023/2024 was reasonably set in the sum of £3,000. Reasons for the tribunal’s decision 38. The Applicant did not in fact seek to raise a challenge to the budgeted figure of £2,050 for the year 2022/2023. It was only in relation to the year 2023/2024 that he was arguing the budgeted sum was unreasonable, largely based on his own quotes obtained and provided for in the hearing bundle at [88].

39. During the course of the hearing, [NAME_9] on behalf of the Respondent explained that the issues relating to the leak to the Applicant’s property were indeed subject to an insurance claim. There had also been other insurance claims which would have been declared to the insurance broker. As a result, these are likely to have affected the insurance premium.

40. The Applicant’s quote will not have taken this into account and in any event the quotes he obtained were in respect of three flats only and not four. The Respondent’s quotes would have been in relation to four flats.

41. It was further explained by the Respondent that there had been increases in insurance premiums across the board, the index linking had been high and a higher sum of £3,000 was set for the year 2023/2024.

42. Based on all of the above, the Tribunal concluded that the budgeted sum was entirely reasonable. 9

43. As it happened, the actual insurance premium for the year 2023/2024 was lower than the budgeted figure and this will be reconciled on the service charge account eventually. General Repairs Internal 44. The amounts budgeted for the respective service years 2022/2023 and 2023/2024 were £350 and £500. The objection raised by the Applicant is that there are no internal repairs carried out and this figure is also in addition to the [NAME_6] in relation to the internal repairs. The tribunal’s decision 45. The budgeted amounts for the respective service charge years are reasonable in amount as interim charges. Reasons for the tribunal’s decision 46. The Landlord clearly has an obligation to carry out general repairs to the internal parts of the Building as per the Lease. The Applicant conceded this. It is further entitled under the terms of the Lease to charge an interim charge in respect of its obligations. The amounts set for the respective years’ budgets are not unreasonable as interim charges. Whether they were reasonably incurred and/or reasonable in amount are not disputes which are before this Tribunal at this stage. It is open to the Applicant to challenge these once the service charge accounts are reconciled.

47. Whilst the Applicant claimed that nothing had in fact been done, the Tribunal did not accept this was the case as there had clearly been some repairs done as evidenced by the Ledger account history. It was to be expected that some repairs might arise in relation to this item, in terms of the stairwell, the carpet, the cupboard in the communal area, etc. The sums budgeted are not excessive at all and if they are not spent they will be credited back to the service charge account. [NAME_6]

48. The budgeted figure for each of the service charge years was £500. The Applicant’s objection is based on the fact that the only internal parts that require any attention by the Landlord are the hallway and stairwell, the combined area of which is very small. This is in addition to the separately budgeted costs for the internal repairs as set out in the above item. 10

The tribunal’s decision 49. The Tribunal determines that there is no provision within the Lease that would allow the Landlord to recover an interim or a service charge in respect of this. No amount should therefore have been budgeted for this item. Reasons for the tribunal’s decision 50. There is no provision within the Lease which would allow for the collection of a [NAME_6]. The Respondent was invited to point out any part of the Lease that would allow for this but was unable to. The definitions of ‘total expenditure’ within the Fifth Schedule to the Lease, paragraph 1(1) refer to expenditure incurred in carrying out the obligations under clauses 5(d) (e) (f) and (g) of the Lease and ‘any other costs and expenses reasonably and properly incurred in connection with the Building’. The relevant clauses of the Lease referred to do not make provision for the collection of a [NAME_6] at all and certainly not in relation to the internal parts. The second definition relates to costs and expenses ‘incurred’ rather than anticipated to be incurred, which is what a [NAME_6] contemplates. In the absence of a specific provision within the Lease for a [NAME_6], it is not reasonable to budget for such an amount. Application under s.20C and refund of fees 51. At the end of the hearing, the Applicant made an application for a refund of the fees that he had paid in respect of the application/ hearing . Having heard the submissions from the parties and taking 1 into account the determinations above, the tribunal orders the Respondent to refund any fees paid by the Applicant within 28 days of the date of this decision.

52. In the application form, the Applicant applied for an order under section 20C of the 1985 Act. There was however no provision within the Lease to pass on any of the Respondent’s costs of the tribunal proceedings to the Applicant. The Respondent was invited to point out any part of the Lease that would allow it to do so, but was unable to. In the circumstances, the tribunal need not consider further the application under section 20 C of the Landlord and Tenant Act 1985.

53. Even if such a provision were to exist within the Lease, the tribunal would have made an order under the same section 20C so that none of the landlord’s costs of the tribunal proceedings could have been passed The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 1 11

to the lessee through any service charge, on the basis that it is just and equitable in the circumstances for such an order to be made.

54. The Applicant had succeeded in challenging a significant number of the budgeted amounts. He had not succeeded in them all but despite the opportunity being given to the Respondent to explain in the Schedule how the budgeted amounts had been arrived at, it failed to do so in relation to all of the items. It was also only at the hearing that certain concessions were made by the Respondent. 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 application for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28-day time limit, such application must include a request for an extension of time and the reason for not complying with the 28-day time limit; the tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed, despite not being within the time limit. The application for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party making the application is seeking. If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber). Name: Judge Vodanovic Date: 22.6.2025 12