First-tier Tribunal Rules on Service Charge Reasonableness

OUTCOME: Allowed in Part

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : MAN/00BU/LSC/2024/0004

Property

:

4, [ADDRESS] [POSTCODE]

Applicants

:

[redacted] [NAME] 5

Respondents

:

[redacted] [NAME] of Application

Tribunal Members

:

:

Landlord and Tenant Act 1985, section 27A Landlord and Tenant Act 1985 section 20C Commonhold and Leasehold Reform Act 2002, Schedule 11, Part 1 and paragraph 5A

Tribunal Judge C Wood Tribunal Member S Latham

Date of Decision : 18 September 2025

DECISION

© CROWN COPYRIGHT 2025

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Order

The Tribunal orders as follows: Service Charges – s27A Landlord and Tenant Act 1985, (“the 1985 Act”)

1. In accordance with section 19(1) of the Landlord and Tenant Act 1985, the following costs have been reasonably incurred and are chargeable as service charge and the Applicants are liable to pay as service charge their contribution in accordance with the terms of the Lease: (1) Items 10 (A)-(C): remedial fire safety and other works to basement – service charge year 2021/22; (2) Items nos. 8, 21 and 30: insurance – service charge years 2021/22, 2022/23 and 2023/24 (3) Items nos. 29 (C), (D), (F) and (I) – drainage works – service charge year 2023/24 (4) Item no. 33 – miscellaneous expenses – service charge year 2023/24 2. In accordance with section 19(2) of the Landlord and Tenant Act 1985, the estimated costs in respect of Item no. 34 – external remediation works – service charge year 2024/25 are reasonable and the Applicants are liable to pay as service charge their contribution in accordance with the Lease.

3. In accordance with section 19(1) of the Landlord and Tenant Act 1985, the following costs have not been reasonably incurred to the extent demanded and the Applicants’ contributions to the service charges are limited as follows: (1) Items nos. 1-4: service charge for service charge years 2018 – 2021: service charge year 2018/19: £253.20 service charge year 2019/20: £268.20 service charge year: 2020/21: £278.09 Payability of these amounts is subject to the application of s20B and s21 of the 1985 Act. (2) Items nos. 6, 23 and 32: management fees – service charge years 2021/22, 2022/23 and 2023/24: service charge year 2021/22: £400 service charge year 2022/23: £450

service charge year 2023/24: £200

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4. Item no. 5: £1000 “levy” and Reserve Fund: the Managers are authorised under the terms of the Order to demand interim service charge payments in advance and to establish a reserve fund. Section 20C of the 1985 Act and paragraph 5A of Part 1, Schedule 11 to CLARA 5. The Tribunal determines that it is just and equitable in all of the circumstances to make orders under s20C and paragraph 5A limiting the charging as service charge or as an administration charge to 95% of the costs incurred by the Managers in connection with the proceedings before the Tribunal. Rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, (“the Rules”)

6. The Tribunal declines to make any order for costs under Rule 13(1)(b) of the Rules against either the Applicants or the Managers. Background 7. By an application dated 14 January 2024 (“the Application”), the Applicants sought a determination under s27A the 1985 Act, as to the reasonableness and payability of service charges for the service charge years 2018-2021 and 2021/22, 2022/23 and 2023/24.

8. Applications were also made pursuant to s20C of the 1985 Act and paragraph 5A of Part 1, Schedule 11 of CLARA.

9. By an email dated 5 November 2024, the parties were informed of the Tribunal's proposal to bar [COMPANY] from further participation in the proceedings by reason of its failure to comply with the Tribunal's directions dated 27 March 2024. The parties were invited to make representations in response to this proposal. Mr [NAME] and Ms [NAME] made representations in an email dated 11 November 2024 in which they indicated support for the Tribunal's proposal. No other representations were received. The Tribunal deems that the barring of [COMPANY] took effect on 12 November 2024. An order confirming the barring order has now been issued.

10. The Application is one of several applications concerning the Property currently before the Tribunal. These include two s20ZA applications relating to the basement works and the major external works. The determinations of these applications are set out in two decisions of even date with this Decision.

11. In-person hearings were held on 9 and 17 December 2024.

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12. An inspection of the Property was undertaken by the Tribunal on 10 March 2025.

13. A copy of the lease dated 10 October 1997 between [NAME] and [NAME], (together “the Lessors”) (1), [NAME] , (“the Management Company”) (2) and [NAME], (“the Lessee”) (3) in respect of [NAME] 2, (“the Lease”), was provided to the Tribunal. It is understood that the leases for each of the 5 flats at the Property are in substantially identical form and content as the Lease with regard to the provisions relevant to this Decision.

14. By an order dated 19 January 2021, (“the Order”), [NAME] and [NAME] of [COMPANY] were appointed as joint managers of the Property with effect from 1 February 2021 on the terms set out in the Order. The Law Service Charges 15. Section 18 of the 1985 Act provides: (1) in the following provisions of this Act “service charge” means “an amount payable by a tenant of a dwelling as part of or in addition to the rent – (a) which is payable directly or indirectly for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs. (2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable. (3) For this purpose – (a) “costs” includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period.

16. Section 19 of the 1985 Act provides that – (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;

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and the amount payable shall be limited accordingly.

17. Section 27A of the 1985 Act provides that: (1) an application may be made to a leasehold valuation 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 date at or by which it is payable, and (d) the manner in which it is payable. (2) Subsection (1) applies whether or not any payment has been made. (3) ….. (4) No application under subsection (1)…may be made in respect of a matter which – (a) has been agreed by the tenant…… (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.

18. In Veena SA v Cheong [2003] 1 EGLR 175, [NAME] comprehensively reviewed the authorities at page 182 letters E to L inclusive. He concluded that the word “reasonableness” should be read in its general sense and given a broad common sense meaning [letter K]. S20C and paragraph 5A 19. Both provisions enable the Tribunal to make an order where it considers it is just and equitable to do so limiting the right of the landlord to recover costs incurred in connection with the tribunal proceedings as service charge, (s20C), and reducing and/or extinguishing a tenant’s liability to pay an administration charge in respect of litigation costs. Inspection 20. The Tribunal inspected the Property on 10 March 2025. Ms [NAME] was in attendance at the inspection to provide access to the Tribunal. None of the other parties attended the inspection.

21. The Tribunal was provided with photographs of the interior of [NAME] 5 as evidence of the damage caused to the [NAME] by reason of water ingress from the roof.

22. The Tribunal noted the following at the inspection:

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External communal areas:

The render to the front of this 3-storey house is poor and there is external cracking between the ground and first floor. The side elevation has been painted and there are signs of some external cracking. The rear elevation is unrendered and repointing is required. The brickwork requires attention around the first-floor window. It was not possible to see the condition of the roof from ground level. The tarmaced drive is uneven.

Internal communal areas:

The carpets and decoration were in a fair state. Gaps are apparent on the doors leading onto the communal stairwell and hall.

It was explained to the Tribunal that the second-floor window has damp issues and was boarded over, as the frame was poorly fitted. Hearing 23. The Applicants and Mr [NAME] and Ms [NAME], (“the Managers”), attended the hearings of the Application. [NAME] did not participate in the hearings.

24. The parties’ submissions were made by reference to a revised Scott Schedule. The item numbers refer to the numbers on the Scott Schedule.

25. The following items of expenditure had been agreed between the parties and were therefore no longer a matter for determination by the Tribunal. For the avoidance of doubt these matters are the items numbered 11, 12, 13, 15, 17, 18, 19, 20 (A), (B) and (D), 22, 24, 25, 26, 27, 28, 29 (A), (B), €, (G), (H), (J), (K) and (M) and 31.

26. The items of expenditure which remain in dispute are as follows: 26.1 Items nos. 1-4: service charge for service charge years 2018 – 2021 26.2 Item no. 5: £1000 “levy” requested by the Managers in respect of remedial fire safety works to the basement 26.3 Items nos. 6, 23 and 32: management fees – service charge years 2021/22, 2022/23 and 2023/24 26.4 Items nos. 8, 21 and 30: insurance – service charge years 2021/22, 2022/23 and 2023/24 26.5 Item no. 10 – (A)-(C): remedial fire safety works to basement – service charge year 2021/22 26.6 Items nos. 29 (C), (D), (F) and (I) – drainage works – service charge year 2023/24

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26.7 Item no. 33 – miscellaneous expenses – service charge year 2023/24 26.8 Item no. 34 – external remediation works – service charge year 2024/25 26.9 Reserve Fund The Parties’ Oral Submissions and Evidence 27. The parties’ oral submissions and evidence given in response to questions from the other party and the Tribunal in respect of the service charge items in dispute are summarised as follows: 27.1 Items 1 –4: service charge for years 2018-2021 (1) [NAME] was the Management Company throughout this period. (2) The Applicants submit that they did not receive any service charge demands and/or any summary statement of rights and obligations. (3) They said that they paid monthly instalments of £75 under protest. (4) The Applicants also rely on s20B(1) of the 1985 Act to deny liability for payment of service charges in respect of these years. 27.2 Item no. 5: £1000 “levy” requested by the Managers in respect of remedial fire safety and other works to the basement and Items 10 (A)-(C): remedial fire safety and other works to basement – service charge year 2021/22 (1) The Applicants state as follows: (a) remedial works had been carried out in 2018 in response to a previous improvement notice; (b) the need for the remedial works in 2021 arose because of works carried out since 2018 by the [NAME]/their lodger which resulted in the issue of further enforcement notices in or about September/October 2020; (c) the costs incurred in respect of these further remedial works cannot have been reasonably incurred where the works were required because of the wrongful actions of another leaseholder; (d) the Applicants paid the £1000 levy under protest; (e) in order for the Managers to recover the full cost of the works a s20 consultation should have been undertaken or a s20ZA dispensation from consultation obtained. In the absence of both, if the costs are determined to have been reasonably incurred, the Applicants’ liability is limited to £250; (f) the works were not confined to what was required under the enforcement notices but included an element of betterment eg 60-minute fire retardant measures.

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(2) The Managers state as follows: (a) the £1000 levy is not subject to the consultation requirement; (b) a s20ZA dispensation application has now been submitted in respect of the costs of these works; (c) the Applicants have not produced any evidence to support their claims that the remedial works were required because of the acts of another leaseholder or that the works could have been done more cheaply; (d) there is no requirement under the Lease or otherwise for the Managers to take action against a leaseholder at the behest of another leaseholder (and, in this respect, it appears that the Applicants may have misunderstood paragraphs 1(a) and (c) of the Fifth Schedule of the Lease); (e) the works required under the enforcement notices were still outstanding as at the effective date of the Managers’ appointment (1 February 2021). Effecting the works as quickly as possible was reasonable and necessary to avoid further enforcement action and because of possible insurance implications if such works were not done. In this respect, the works were actioned in consultation with Greater Manchester Fire and Rescue Service, (“GMFRS”), and the Local Authority and using a specialist contractor; (f) with regard to the claim of betterment, the invoices do not refer to the use of 60-minute fire retardant materials as claimed); blocking up the windows was considered to be a more cost-effective long-term measure. 27.3 Items nos. 6, 23 and 32: management fees – service charge years 2021/22, 2022/23 and 2023/24 (1) The Applicants state as follows: (a) the management fees are unreasonable and should be reduced as the Managers have failed to discharge their duties under the Lease (eg breach of the covenants contained in the Fifth Schedule to the Lease to insure, repair and maintain the structure of the Property, the car park and gardens and the internal communal areas) and under the Order (failure to discharge various legislative obligations including with regard to Health and Safety and Fire Safety eg there has been no gas pipe inspection as required; (b) there has been a failure by the Managers to engage with the Applicants in respect of matters of disrepair first brought to their attention prior to their appointment eg water ingress from the roof; issues with the drains; and

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unreasonable delays in effecting repairs which has led to an increase in the costs. (2) The Managers state as follows: (a) the management fees charged are in accordance with the terms of the Order; (b) there is ample evidence of considerable management work having been undertaken at or in connection with the Property in accordance with the Lease and/or the Order eg lighting and heating of common parts, obtaining of Fire Risk and H&S assessment, cleaning of common parts, accountancy fees, obtaining of asbestos report, servicing of emergency lighting etc, gardening, bank charges, wall repair costs, testing of electrical supply to the common parts, jet washing external areas, roof inspection, locksmith, tree works, the costs in respect of which have all been agreed by the Applicants; (c) in addition, a considerable amount of back-office work has been undertaken eg setting the budget, issuing service charge demands, renewing insurance, reconciling service charge payments etc; (d) having regard to all of the above, the management fees of £2000 plus VAT per annum (together with an additional payment of £200.98 (2.5% of costs of basement works) are in accordance with the Order and, having regard to the extent of work required to be undertaken by the Managers, more than reasonable; (e) the Managers note that there is no gas supply to the common parts. The terms of the Lease make it clear that the pipes serving an individual [NAME] form part of the leaseholder’s demise and are their responsibility accordingly; (f) further, the Managers are satisfied that the Property is not an HMO within s257 of the Housing Act 2004, as claimed by the Applicants, as the conditions set out in s257(2)(a) and (b) are not satisfied in respect of the Property. This is not affected by the occupation of [NAME] 2 by the leaseholders’ daughter as she is regarded for these purposes as a family member. 27.4 Items nos. 8, 21 and 30: insurance – service charge years 2021/22, 2022/23 and 2023/24 (1) The Applicants state as follows: (a) the Managers failed to effect insurance until June 2021 although they were appointed with effect from 1 February 2021;

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(b) the insurance which has been arranged is more extensive than that required under the terms of the Lease which provides for the Property to be insured against “loss or damage by fire and aircraft” and in respect of “…injury and damage to persons entitled to use…” the internal and external common parts of the Property; (c) the insurance policies are likely to be declared/are invalid by reason of incorrect statements made by the Managers on the proposal declarations regarding eg the condition of the Property, insurers having previously declined cover and/or the existence of CCJs against [NAME]; (d) there is a potential conflict of interest because of an apparent connection between the Managers’ firm and the insurance brokers used by them, and an alleged failure by the Managers to disclose commission received by them. (2) The Managers state as follows: (a) they acknowledge that there was a period of 5 days when the Property was not insured (from expiry of existing policy on 19 June 2021 to enactment of the Managers’ policy on 24 June 2021). No claims have been received in respect of that period; (b) they also acknowledge that the insurance cover is more comprehensive than the cover required under the terms of the Lease; (c) the cover required under the terms of the Lease is very limited; a specialist quote to restrict cover to “loss or damage by fire and aircraft” would have been needed; (d) a partial refund has been paid in respect of the cover relating to contents; (e) they reject the claim that there is any conflict of interest in their choice of insurance brokers; (f) the requirement to disclose receipt of commission to leaseholders was only introduced in December 2023; (g) it is acceptable for a manager to receive a reasonable commission in respect of the costs of undertaking certain administration work in respect of the policy eg dealing with claims. The Managers confirmed that they have undertaken such work; (h) there is no evidence to support the Applicants’ claim that the insurance policies are likely to be invalid and/or evidence that any policy has been cancelled/voided;

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(i) in anticipation of their appointment as Managers, the brokers were provided with a copy of the dilapidations/condition report relating to the Property. The Managers wholly refute that they have misrepresented and/or misstated the condition of the Property to brokers/insurers; (j) if any insurance policy was avoided, the leaseholders would have a claim against the Managers under their professional liability insurance. 27.5 Items nos. 29 (C), (D), (F) and (I) – drainage works – service charge year 2023/24 (1) The Applicants state as follows: (a) they first raised the issue of the drains with the Managers at the site visit in or about August 2020 but no action was taken until October 2023. They explained the impact upon their health and well-being of living with the smell of raw sewage for more than 2 years; (b) the delay is more inexplicable as the Applicants believe that the Managers had sufficient funds available to them to undertake these works in September/October 2021; (c) an insurance claim was made in 2018 in respect of remedial drains works but subsequently withdrawn by a director of [NAME]. The Applicants believe that the Managers should have pursued a claim with insurers and refers to the obligation upon the Managers under s20D of the 1985 Act to pursue alternative sources of funding including insurance prior to seeking recovery of costs of “remediation works” as service charge from leaseholders; (d) the Applicants dispute the need for/reasonableness of 2 CCTV drain inspections in August 2021 and June 2023. (2) The Managers state as follows: (a) it is indicative of the inconsistencies in the Applicants’ approach that they criticise the Managers for obtaining comprehensive insurance cover whilst failing to acknowledge that a limited policy such as that required under the Lease would not cover the works required to the drains; (b) enquiries were made of insurers as to the possibility of bringing a claim for these works but it was indicated that such a claim would not be accepted primarily because of the time that had passed since the defects had been originally identified;

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(c) the Managers prioritised the basement works at the Property (because of the fire safety issues and the possibility of further enforcement action being taken) over the drain works which is why they were not undertaken until 2023; (d) further delay was caused by the lack of available funds and the undertaking of a consultation exercise. In particular, they deny that they had sufficient funds in September/October 2021 to carry out these works; (e) two CCTV inspections were required because contractors were unwilling to provide a quote for the works in reliance on another contractor’s inspection; (f) prior to the works being done, the drains required to be cleared on a couple of occasions. Whilst the Managers consider that these costs were reasonably incurred, as a gesture of goodwill, they have refunded costs of £95 to each leaseholder; (g) in addition, the contractor subsequently became VAT registered which resulted in a £380 refund to leaseholders; (h) the chosen contractor was willing to honour the original 2021 quotation; (i) the Managers waived their 2.5% capital works’ fee (although they were entitled to this under the terms of the Order). 27.6 Item no. 33 – miscellaneous expenses – service charge year 2023/24 (1) The Applicants claim that there is insufficient information regarding these costs to know if they are reasonable or not. (2) The Managers state that the costs relate to filing fees at Companies House and also to the fees for obtaining Land Registry searches required to establish the extent of the title to the Property in connection with the proposed major works. 27.7 Item no. 34 – external remediation works – service charge year 2024/25 (1) The Applicants state as follows: (a) the costs of c£100,000 are “probably not unreasonable” but have increased significantly since the 2020 report when costs of £40,000 were anticipated for more extensive works. The delay in getting the works done and the escalation of costs is as a result of failures by the Managers; (b) in addition, they dispute the reasonableness of appointing a surveyor in 2023 when [NAME] 1 had still not been sold. (2) The Managers state as follows: (a) none of the works have been started as they could not engage contractors without being certain that they had funds available to meet all liabilities;

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(b) they did not regard it as reasonable to do the works in stages and/or effect ad hoc repairs as this would ultimately increase costs for the leaseholders eg by duplicating the need for access equipment. They consider that this approach was agreed at the leaseholders’ meeting held in April 2023 at which Mr. [NAME] attended remotely; (c) the Managers referred to the delays resulting from the death of the leaseholder of [NAME] 1/the obtaining of probate/the sale of the [NAME] and their knowledge that 1/5th of the service charge monies for the major works would not be available until these matters had been resolved but that, at the time they appointed the surveyor, they had been told that a sale had been agreed. By instructing the surveyor, they were trying to ensure that they were ready to act as soon as the monies became available; (d) following a s20 consultation, service charge demands were issued to each of the leaseholders “as authorised agents for [COMPANY]” and/or on behalf of [NAME]. They have since been advised that the demands should have been issued by the Managers in their own right. In order to try to pre-empt a challenge to the demands on this basis, the Managers have issued a s20ZA application. 27.8 Reserve Fund (1) The Applicants state that the Managers have been putting away £2000 per annum in a reserve fund although there is no provision in the Lease or in the 1985 Act which permits this. (2) The Managers state that, whilst there is no provision in the Lease requiring the establishment of a reserve fund, the Order refers to establishing such a fund and the Managers’ original budget, as produced to the parties/Tribunal as part of the appointment proceedings, included a reserve fund. Section 20C/Paragraph 5A 28. No submissions were made by either of the parties in respect of the Applicants’ s20C/paragraph 5A applications. Rule 13 – costs’ applications 29. Both the Applicants and the Managers made oral applications at the hearing on 17 December 2024 for a costs order against the other party under Rule 13(1)(b) of the Rules. Written submissions were subsequently made by both parties in accordance with directions issued by the Tribunal.

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Tribunal’s Determination 30. The Tribunal’s reasons for its determinations under s27A of the 1985 Act are as follows: 30.1 Items 1 –4: service charge for years 2018-2021 (1) The Tribunal accepts that the lack of information from [NAME] has made it difficult for the Applicants to articulate their claim which the Tribunal considers relate to issues of payability as well as reasonableness of costs. (2) With respect to payability, the Tribunal notes: (a) the Lease requires the Lessor “to draw up an annual account” of the amount due from each lessee; (b) the right of a leaseholder under s21A of the 1985 Act to withhold payment of a service charge until a summary statement of rights and obligations has been received with the demand; (c) the limitation on the liability of a tenant under s20B(1) of the 1985 Act to pay any costs as service charge which were incurred more than 18 months before a demand for their payment, save where the tenant was notified in writing of such costs within the period of 18 months following the date when they were incurred (s20B(2)). (3) The Tribunal also notes the following documents contained in the hearing bundle: (a) annual service charge accounts for [NAME] for each of the years ended 30 September 2019 and 30 September 2020. It is not clear if these were served on the Applicants and, if so, when. Further, it notes that the accounts are very limited in detail and do not include any breakdown of service charge expenditure; (b) a copy of a letter dated 15 June 2019 from the Applicants in which they confirm that they are aware of expenditure by [NAME] on buildings’ insurance (estimated at £500 per annum) and electricity to the common parts (estimated at £150 per annum); (c) documents relating to property and employer’s liability insurances citing an annual premium of £674.46 and an employer’s liability insurance certificate for the year 19 June 2020 – 18 June 2021; (d) invoices for cleaning services from October 2020 – May 2021 at £43 per month.

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(4) Having regard to the available evidence, the Tribunal is satisfied on the balance of probabilities that, in respect of each of the service charge years 2018-2021, [NAME] incurred relevant costs chargeable as service charge for insurance (buildings and employer’s liability), the landlord’s electricity supply and cleaning. (5) It is clear from the Applicants’ letter (paragraph (b) above) that they were aware in 2019 of expenditure being incurred on insurance and electricity. It may also be the case that the Applicants were made aware of expenditure on other relevant costs during this period and that the monthly payment of £75 reflects expenditure on service charge items in respect of which no documentary evidence has been made available. (6) In respect of the service charge items in paragraph (4) above, the Tribunal is satisfied that the costs as evidenced are reasonable and relies on its knowledge and experience to determine the costs for the same items in the other years as follows: (a) buildings and employer’s liability insurance: 2018/19: £600; 2019/20: £650; 2020/21: £674.46; (b) electricity: 2018/19: £150; 2019/20: £175; 2020/21: £200 (c) cleaning: £516 (7) Subject to s20B and s21 of the 1985 Act, the Tribunal determines the Applicants’ liability in respect of each of the service charge years to be as follows: (a) 2018/19: £253.20 per annum (b) 2019/20: £268.20 per annum (c) 2020/21: £278.09 per annum (8) The Tribunal has no jurisdiction to order the payment of refunds as requested by the Applicants. 30.2 Item no. 5: £1000 “levy” requested by the Managers in respect of remedial fire safety and other works to the basement and Items 10 (A)-(C): remedial fire safety and other works to basement – service charge year 2021/22 (1) The Tribunal notes that the Schedule of Functions and Services, (“the Schedule”), to the Order includes under the heading Service Charge the preparation of an annual service charge budget including provision for interim advance payments.

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(2) The Tribunal is satisfied that the “levy” comprises such an interim advance payment. (3) The Tribunal is satisfied that the costs for the remedial works to the basement were reasonably incurred and reasonable in amount. In particular, the Tribunal notes that: (a) the works were carried out in consultation with GMFRS/the Local Authority and using a specialist contractor; (b) the Applicants have not produced any evidence supporting their claim of “betterment” (c) the Managers’ decision to block-up windows appears a reasonable decision having regard to all of the circumstances including the statements in the Bar Preservation Timber Survey dated 23 February 2021 regarding the poor condition of wooden lintels/window frames and the possible need to replace them in the future; (d) it was reasonable to undertake the works at the earliest possible opportunity in order to avoid any further enforcement action and possible problems with arranging insurance cover; and, (e) the Applicants have not produced any evidence to support their claim that the works could have been done more cheaply. (4) The Tribunal’s determination of the Managers’ s20ZA dispensation application in respect of these works is set out in a decision of even date. (5) The Applicants have not provided any evidence to support their claim that the works were required because of the wrongful actions of another leaseholder. Even if they were, the Tribunal is satisfied that: (a) the Managers had little option at the time but to effect the remedial works for the reasons set out in paragraph 3(d) above; and, (b) the Lease contains no provision requiring the Management Company to take action against a leaseholder at the behest of another. 30.3 Items nos. 8, 21 and 30: insurance – service charge years 2021/22, 2022/23 and 2023/24 (1) The Tribunal notes that the Applicants have not made any claim that the premium for the cover as effected is unreasonable but that the cover is more extensive than that required and/or permitted under the Lease. By extension, it

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is assumed that their challenge is that the premium is more costly than would have been the case for a policy in the terms set out in the Lease. (2) The Tribunal is satisfied that to obtain a more comprehensive policy (including expressly or implicitly cover against the risks in the Lease) is not a breach of the Lease per se. Further, under the heading “Insurance” in the Schedule, the Managers are required to effect “appropriate building insurance for the Property”. (3) The Applicants have not produced any evidence that a policy offering such limited cover is available or at what cost. Further the Tribunal notes that the cover included in the insurance policy for the period 19 June 2020 – 18 June 2020 prior to the Managers’ appointment, (a copy of which is included by the Applicants in their hearing bundle), is also more extensive than that provided for under the terms of the Lease. There is no evidence that the Applicants raised any objection to the terms of this policy. (4) The Managers suggest that it would require a bespoke policy with a costs’ implication but likewise provide no evidence to support this claim. (5) The Tribunal accepts that there might be some merit in the argument that a lower premium would be payable in respect of fewer risks. However, it also considers that it is reasonable to argue that such a policy would be very difficult, if not impossible, to obtain as it appears to significantly differ from what would be regarded as the current industry standard and therefore might attract a higher premium because of its bespoke nature. (6) Further, the Tribunal considers that obtaining such limited cover may not discharge the Managers’ duty to obtain “appropriate building insurance” in accordance with the Order. (7) The Tribunal is satisfied that costs of the insurance premiums have been reasonably incurred. The Tribunal accepts the Managers’ evidence that the brokers placed the insurance cover after seeking quotes from the market. In the absence of any evidence from the Applicants regarding the amount of the insurance premiums, the Tribunal determines that they are reasonable. (8) With regard to the disputed claims regarding the validity of the insurance policies effected by the Managers, the Tribunal notes that there is no evidence of a determination of invalidity rendering a policy void ab initio having been made. It also notes the Managers’ oral submissions that claims have been made,

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and accepted, under the policies effected by them and the evidence that the brokers were made aware before the insurance was placed of the condition of the Property. (9) The Tribunal considers that the Managers’ error in failing to insure the Property for 5 days from 19 - 24 June 2021 is better considered as a management issue. 30.4 Items nos. 29 (C), (D), (F) and (I) – drainage works – service charge year 2023/24 (1) The Tribunal considers that Applicants’ complaints regarding the delay in undertaking these works is more appropriately dealt with as a management issue. (2) The Tribunal is satisfied that the Applicants’ reference to s20D of the 1985 Act as requiring the Managers to have taken reasonable steps to seek alternative sources of funding to meet the costs of the drainage works is misguided as these are not “remediation works” within the scope of s20D. (3) With regard to the costs, the Tribunal notes that: (a) a s20 consultation was undertaken in respect of these works and it is not aware that the Applicants raised any issues regarding the costs of the works at this time and/or suggested an alternative contractor and/or has obtained any alternative quotation(s); (b) the contractor honoured a 2021 quotation despite undertaking the works in 2023; (c) the Managers waived their capital works’ fee to which they were entitled under the Order; and, (d) the Tribunal accepts as reasonable the Managers’ explanation for the obtaining of 2 CCTV inspections but also notes that these costs have been refunded by the Managers in any event. (4) Having regard to the above, the Tribunal determines that the costs for the drainage works are reasonable. 30.5 Item no. 33 – miscellaneous expenses – service charge year 2023/24

The Tribunal accepts the Managers’ evidence that these costs relate to Companies House filing fees and Land Registry fees and determines them to have been reasonably incurred/are reasonable accordingly. 30.6 Item no. 34 – external remediation works – service charge year 2024/25

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(1) The Tribunal notes that, as no works have been started and/or costs incurred to date, their determination in this respect is made pursuant to s19(2) of the 1985 Act and, once incurred, the amount of the costs may be subject to “necessary adjustment…by repayment, reduction or subsequent charges or otherwise”, including, without limitation, as determined by a tribunal in accordance with a further s27A application. (2) The Tribunal believes that any “patch” repair to the roof could only have been regarded as a temporary measure and would not have removed the need for more extensive roof works to be included as part of the major external remediation works. It therefore considers that this does not affect the estimated costs for the external remediation works. (3) Further, it notes that, if such a temporary repair had been done, it is likely that there would have been some duplication of access costs. (4) The Tribunal notes that the Managers have undertaken a s20 consultation in respect of these costs but that a s20ZA dispensation application has been sought because of a possible challenge to the validity of the notices/demands. As part of the consultation the Applicants nominated a contractor but the Managers were unable to obtain a quote from them. The Applicants have not provided any evidence regarding the costs of the works and the Tribunal notes their oral submission to the effect that the costs are “probably reasonable”. (5) Having regard to the above, the Tribunal is satisfied that the costs for the external remediation works are reasonable. (6) The Applicants’ challenge to the costs again seems to be in respect of the delay in undertaking these works and the Tribunal again considers that this issue is better dealt with as a management issue. 30.7 Reserve Fund (1) The Tribunal is satisfied that the reference to the establishment of a reserve fund by the Managers under the heading “Service Charge” in the Schedule entitles the Managers to do so. 30.8 Items nos. 6, 23 and 32: management fees – service charge years 2021/22, 2022/23 and 2023/24 (1) The Applicants’ challenges to the reasonableness of the management fees are founded on claims of failures of compliance by the Managers with their

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obligations under the Lease, the Order, certain legislative provisions and with delays in undertaking works which have resulted in an increase in costs. (2) The Tribunal is satisfied that there is no statutory requirement for the Managers to arrange for a gas inspection at the Property. (3) The Tribunal is satisfied that the Managers have undertaken management works at the Property as listed in their oral submissions and associated administrative work. (4) Without attributing any blame to any party or individual, the Tribunal also accepts that the Managers have encountered considerable difficulties in the management of the Property since their appointment which has involved significant time/resource possibly in excess of their expectations as at the date of their appointment. In this context, the annual management fees of £2000 plus VAT is currently lower than what could reasonably be expected to be paid by leaseholders. Notwithstanding this, the management fees as set out in the Order are as proposed by the Managers at the date of their appointment and are fixed unless and until varied by a further order. It is reasonable to expect that the Managers were aware of this at the date of their appointment. (5) The Tribunal accepts the Managers’ evidence that it is unable to commit to works unless and until they are satisfied that they have, or will have, the available funds to pay contractors in full. The Tribunal further accepts that the lack of available funds will have impacted the date of undertaking the drains’ works and the proposed external remediation works. In this respect, the Tribunal notes that the death of the [NAME] and the consequential delays arising from the obtaining of probate/sale of the [NAME] were matters outside the control of the Managers. (6) Save as set out in sub-paragraphs (9)(c) and (d), with regard to the external remediation works, the Tribunal is satisfied that the delay in undertaking these works does not indicate any failure of management by the Managers. (7) With regard to the drain works, The Tribunal is satisfied that the Managers have made reasonable enquiries of insurers to see if it was possible to make a claim for the repair costs to the drains but that, in view of insurers’ responses and the history of prior claims, it was reasonable to conclude that pursuing a claim was unlikely to be successful.

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(8) The Tribunal also accepts the Managers’ evidence of the greater cost- effectiveness of doing all of the external works at the same time. (9) Nonetheless, the Tribunal considers that there have been the following failures of management by the Managers: (a) the failure to renew the insurance in respect of the Property for 5 days from 19- 24 June 2021. Whilst the Tribunal notes the Managers’ evidence that to date no claims have been made in respect of this period, it does not consider that the existence of the Managers’ professional indemnity insurance excuses this management failure; (b) the withholding of documents to which it appears the Applicants are entitled to have sight; (c) the error in issuing the s20 consultation documentation/demands for the external remediation works in the wrong name which has led the Managers to conclude that a s20ZA dispensation application is required; (d) the failure to carry out at least a “patch repair” to the roof to try to limit the water egress from the roof into [NAME] 5 at the earliest possible opportunity/as soon as they had sufficient funds to do so. The Tribunal notes that in the minutes of the leaseholders’ meeting in April 2023 reference was made to a contractor having quoted costs of c£2000 for undertaking such a repair and the Managers having funds at that time of c£7500. (10) In view of the matters set out in (8) above, the Tribunal determines that the Applicants’ liability for management fees for each of the service charge years 2021/22, 2022/23 and 2023/24 is reduced as follows:

service charge year 2021/22: £400 per annum

service charge year 2022/23: £450 per annum

service charge year 2023/24: £200 per annum 30.9 The following paragraphs do not form part of this determination but are included for the sake of completeness/to assist the parties. (1) In addition to claims relating to specific failures of management, the Applicants raised issues regarding the conduct of the Managers which the Applicants consider the Tribunal should address. These claims are disputed by the Managers. (2) The Tribunal is satisfied that it has no jurisdiction within a s27A application to make determinations regarding the conduct of the Managers.

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31. Section 20C and paragraph 5A applications 31.1 Having regard to all of the circumstances, the Tribunal considers that it is just and equitable in all the circumstances to limit the recovery of costs as service charge and/or administration charge to 95% of the costs incurred by the Managers in respect of these proceedings. 31.2 For the avoidance of doubt, the Tribunal notes that there is no provision in the Lease entitling the Managers to recover costs incurred in respect of these proceedings from leaseholders as service charge or as an administration charge.

32. Rule 13(1)(b) of the Rules – costs’ applications

General 32.1 The general presumption is that parties in proceedings before the First-tier Tribunal will be responsible for their own costs. An award of costs is to be regarded as the exception rather than the rule. 32.2 Guidance for the making of awards under Rule 13(1)(b) of the Rules is set out in the Upper Tribunal decision in [ADDRESS] (1985) v [NAME] [2016] UKUT 0290 (LC), (“[ADDRESS]”). 32.3 In particular, the Upper Tribunal outlined the following 3-stage process: (1) Stage 1: has the person acted unreasonably? The test is an objective one. At this stage, conduct prior to the proceedings in respect of which the application is made is not relevant. (2) Stage 2: should the Tribunal make an order for costs or not? This is a matter for the Tribunal’s discretion. Even where unreasonable conduct has been established at Stage 1, it is not inevitable that an order should be made. At this stage, conduct prior to proceedings may be relevant; (3) Stage 3: how much should be ordered? Again, this is a matter for the Tribunal’s discretion. 32.4 As set out in the [ADDRESS] decision, the Stage 1 test may be expressed in different ways. Would a reasonable person in the position of the party have conducted themselves in the manner complained of? Or…is there a reasonable explanation for the conduct complained of?” 32.5 The Upper Tribunal cautioned about being “over-zealous in detecting unreasonable conduct after the event”, particularly in cases where the parties are unrepresented.

33. The Applicants’ application

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33.1 The Tribunal notes that, in respect of an application for an award of costs against the Managers, the relevant conduct is in relation to their defence and/or conduct of the Application. 33.2 The Applicants’ written representations in support of their application set out two grounds in support of their application as follows: (1) Ground 1: unreasonable conduct (2) Ground 2: failure to comply with tribunal directions. 33.3 Ground 1: (1) As all of the conduct referred to in Ground 1 relates to conduct prior to the issue of the Application in January 2024, it cannot constitute relevant conduct as it does not relate to the Managers’ defence and/or conduct of the Application. (2) For this reason, the Tribunal determines that none of the conduct set out in Ground 1 satisfies the Stage 1 test for the making of a costs’ order. 33.4 Ground 2: (1) The Tribunal is satisfied that a failure to comply with the tribunal’s directions is not of itself evidence of unreasonable conduct sufficient to satisfy the Stage 1 test. (2) With regard to the following issues raised by the Applicants, the Tribunal is satisfied that the conduct referred to in each case is open to a reasonable explanation, namely: (a) the failure to provide pre-appointment service charge accounts is attributed to a failure on the part of [NAME]/its directors to hand over documents; (b) many factors might account for the delay in the production of a budget which it appears was ultimately produced; and, (c) the possibility of parties failing to agree a joint hearing bundle is anticipated in the express wording of the directions. (3) With regard to the withholding of certain documentation eg Fire Safety and H&S reports, whilst no reasonable explanation for this has been provided by the Managers, the Tribunal does not consider the conduct to be of sufficient significance in the context of the Application for it to exercise its discretion under Stage 2 to make a costs’ award. As noted in paragraph 30.8(9)(b) above, the Tribunal does consider it to be a failure of management affecting the reasonableness of the management fees.

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34. Having regard to all of the above, the Tribunal is satisfied that there is no relevant conduct on the Managers’ part which satisfies the Stage 1 or 2 tests as set out in the [ADDRESS] decision to justify the making of a costs’ award under Rule 13(1)(b) of the Rules.

35. The Managers’ application 35.1 The Managers’ application is detailed in their application sent to the Tribunal on 15 January 2025. 35.2 In support of their claim, the Managers cite the following examples of what they consider to be unreasonable conduct on the Applicants’ part: (1) their failure to obtain any independent evidence to support their claims of unreasonableness of costs as evidence that the bringing of the Application “is vexatious and designed to harass” and that it is “an abuse of process”; (2) the Applicants’ apparent unwillingness to narrow the issues in dispute until late in the proceedings; (3) their failure to engage in the Managers’ complaints process and/or Ombudsman process as further evidence that the bringing of the Application is to be considered as “vexatious” or “an abuse of process”; (4) their decision to attend the CMC on 4 August 2024 from a foreign jurisdiction restricting the ability to use that CMC to progress matters regarding the Application; (5) issues regarding the preparation of a joint hearing bundle; (6) their lack of genuine belief in their claims as evidenced by an inconsistency in their approach to insurance matters; and, (7) the Applicants’ non-reliance/disregard of legal advice.

36. The Tribunal is satisfied that, with regard to the matters referred to in 35.2 above: (1) whilst a failure by an applicant in a s27A application to provide independent evidence to support their claims may significantly diminish their prospects of success in that application, it is not in itself evidence that the application is vexatious/designed to harass and/or is an abuse of process sufficient to justify the making of a costs’ award; (2) the Upper Tribunal made it clear in the [ADDRESS] decision that, in the case of litigants in person such as the Applicants, a lack of understanding of the law or procedure, a failure to understand the strength of competing issues generally

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including pursuing matters because of a late recognition of their limited prospects of success will not, in the absence of other relevant conduct, satisfy the Stage 1 test; (3) in the absence of a finding of dishonesty, an inconsistency in claims and/or evidence may make such claims/evidence less persuasive but does not of itself constitute evidence of a lack of genuine belief in those claims; and, (4) with regard to the matter referred to in paragraph 35.2 (3) above, the Tribunal considers that this refers to conduct unrelated to the Application and cannot therefore be regarded as relevant conduct relating to the bringing of and/or conduct of the Application by the Applicants. In any event, the Tribunal is not persuaded that the Applicants’ request for an order to be made in separate proceedings regarding the Managers’ conduct is evidence that the making of the Application should be regarded as “vexatious and designed to harass” or “an abuse of process”; (5) with regard to the matter referred to in paragraph 35.2(4) above, the issue raised by the Judge at the CMC held on 4 August 2024 regarding the giving of evidence was applicable to all of the parties in whatever jurisdiction they chose to attend but raised an additional procedural issue in respect of the Applicants because of their being outside the UK. The Tribunal is satisfied that, if there was a failure to substantially advance the Application at the CMC, it was not as a result of the Applicants’ attendance from outside the UK; (6) with regard to the matter referred to in paragraph 35.2(5) above, whilst the Managers may consider the issues raised by the Applicants regarding the hearing bundle to have been “trivial” and their failure to agree a hearing bundle “unreasonable”, the Tribunal is satisfied that none of the conduct referred to meets the threshold for “unreasonable conduct”. As with the Applicants’ claim against the Managers in this respect, the Tribunal again notes that the failure of parties to agree a hearing bundle is not uncommon and, indeed, the directions, whilst encouraging parties to do so, anticipate that this may be the case. (7) with regard to the matter referred to in paragraph 35.2(7), this appears to be a matter of speculation on the part of the Managers as there is no evidence before the Tribunal of the Applicants having disregarded legal advice given to them in respect of the Application.

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37. Having regard to all of the above, the Tribunal is satisfied that there is no relevant conduct on the Applicants’ part which satisfies the Stage 1 test as set out in the [ADDRESS] decision to justify the making of a costs’ award under Rule 13(1)(b) of the Rules.