First-tier Tribunal Rules on Service Charge Validity

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/OOAH/LSC/2024/0683 Property : [ADDRESS], [POSTCODE] Applicant : [redacted] : None Respondent : [redacted] : [COUNSEL], Prime Property Management (managing agent) Type 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 H [NAME] : 10 [ADDRESS] [POSTCODE] Date of decision : 27th October 2025

DECISION

2 Decisions of the tribunal (1) The tribunal determines that no service charges are payable by the Applicant in respect of the service charges for the years 2020 to 2024 until valid service charge demands for those years are produced by the Respondent. (2) The tribunal determines that no service charges relating to reserve fund or payments on account are payable by the Applicant for the years in dispute. (3) The tribunal determines that the sum of £410 demanded by the Respondent is not a service charge and should be removed from the service charge demands. (4) Otherwise the tribunal determines that the service charges demanded are payable and reasonable once valid service charge demands are produced. In particular the tribunal determines that a. the management fees demanded for the years in dispute are payable and reasonable. b. That the service charges demanded in connection with the garage are payable and reasonable. (5) The tribunal refuses the Applicant’s Rule 13 application. (6) The tribunal makes the determinations as set out under the various headings in this Decision. (7) The tribunal makes an order under section 20C of the Landlord and Tenant Act 1985 so that none of the landlord’s costs of the tribunal proceedings may be passed to the lessees through any service charge. 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 amount of service charges and (where applicable) administration charges payable by the Applicant in respect of the service charge years 2020 – 2025 inclusive.

The hearing 2. The Applicant appeared in person at the hearing and the Respondent was represented by Mr [RESPONDENT] of Prime Property Management. Ms [RESPONDENT] and Dr Contractor, directors of the Respondent, were in attendance.

3 3. The tribunal notes that the Respondent made two applications for strike out of the application. The first was on 7th April 2025 on the basis that the application was ‘a fishing expedition’ as the Applicant was challenging every charge from 2019. This application was refused by Judge B [NAME] who, on 24th April 2025, amended directions and provided an opportunity for the Applicant to submit a revised Scott Schedule.

4. The second was on 23rd June 2025 on the basis that the revised Scott Schedule failed to specify the specific charges that are in dispute. Judge Dutton refused the strike out application finding that the Scott Schedule, whilst not in standard form raised failures to comply with lease terms and statutory obligations. It was therefore able to stand as a statement of case.

5. The bundles in this application were received very late. The Applicant submitted the bundle on 21st August 2025. The Respondent complained that it did not contain documentation from the Respondent that were necessary for its case. The Respondent therefore provided a bundle on the morning of the hearing.

6. Despite the late provision of documentation, the tribunal determined, with the agreement of the parties, that it was in the interests of justice that the hearing took place on the day listed. It had sufficient information on which to decide the application. The background 7. The property which is the subject of this application is a one bedroom flat on the second floor of a purpose-built block with the benefit of an in- block garage.

8. 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.

9. The Applicant holds a long lease of the property which requires the landlord to provide services and the tenant to contribute towards their costs by way of a variable service charge. The specific provisions of the lease and will be referred to below, where appropriate. The issues 10. At the start of the hearing the parties identified the relevant issues for determination as follows:

4 (i) The payability and/or reasonableness of service charges for years 2020, 2021, 2022 and 2023, actual charges, and 2024 and 2025, estimated charges. The applicant challenges in particular a. The service charges for roof, cladding, external works and Flat 5 internal works b. Whether service charge demands comply with the statutory requirements (ii) The payability of £410 insurance shortfall (iii) The payability and reasonableness of management fees (iv) Whether service charges are payable in relation to [NAME] (v) The applicant makes an application under Rule 13 11. Having heard evidence and submissions from the parties and considered all of the documents provided, the tribunal has made determinations on the various issues as follows. The reasonableness and payability of the service charges demanded The Applicant’s arguments 12. He says that the lease lacks clarity regarding the service charge mechanism. It contains no provisions for a reserve or sinking fund, no framework for interim service charge payments and no mechanism for issuing balancing charges, demanding shortfall payments or arranging repayments.

13. The Applicant refers the tribunal to a decision made by the tribunal in 2017 which confirmed that the lease does not authorise advance service charges or a sinking fund.

14. The Applicant says that the Respondent has failed to implement planned maintenance relying on piecemeal repairs since 2001. The grounds have been neglected, and storm and cladding damage has not been properly dealt with. The Applicant says that demands for such reactive works are not reasonably incurred.

15. The Applicant also says that the Respondent has failed to provide annual budgets, that the accounts submitted are neither signed nor audited and that the Respondent has failed to comply with the tribunal’s directions on disclosure.

5 16. The Respondent says that the Applicant has failed to identify costs that are in dispute. It also says that annual accounts have been provided by the landlord as per Clause 5(h) of the lease. The Respondent points out that there is no requirement to prepare a budget and there is no requirement for the accounts to be audited.

17. The Respondent says that its repairing obligations are dependent upon lessees paying all service charges due as per Clause 4(f) of the lease.

18. The Respondent agrees that the lease does not make the landlord’s role straightforward, particularly given its nature as a share of the freehold company. The tribunal’s decision 19. The tribunal determines that no service charges demanded prior to 2025 are payable until statutory compliant service charge demands are produced by the Respondent.

20. Service charges are not payable on account, nor are service charges payable in respect of a sinking/reserve fund.

21. Otherwise, and once statutorily compliant demands have been produced, the service charges are payable and reasonable. Reasons for the tribunal’s decision 22. The tribunal noted that whilst it had evidence that the service charge demands served by Prime Property Management complied with the statutory requirements, it had no evidence that service charge demands served prior to the appointment of Prime Property Management did comply.

23. Therefore the tribunal determines that until the Respondent produces to the Applicant service charge demands in the correct statutory form for the service charge years in dispute prior to 2025 or re-serves its service charge demands in the correct statutory form no service charges are payable.

24. The tribunal agrees with the Applicant that the Respondent is unable to charge in advance or to operate a sinking fund as there is no provision in the lease for such charges. Therefore the service charge demands require recalculation to remove these amounts and any associated administrative fees.

25. The tribunal agrees with the Respondent that the Applicant has failed to make its case in connection with the quality of works etc and failed to

6 itemise costs in dispute, and that therefore the sums demanded in connection with those works, subject to the service of valid service charge demands, is payable and reasonable. The payability of the £410 insurance shortfall 26. The Applicant argues that he repaired a leak at a cost of £189. The Respondent then charged £410 via [NAME].

27. The Respondent says that the sum of £410 is a shortfall in an insurance claim and not a service charge item applied to the Applicant. The charge followed the Applicant’s flat being subject to damage following a water leak and the insurance payout did not fully cover the costs of the damage. In these circumstances the lessee must cover the shortfall. The tribunal’s decision 28. The tribunal determines that sum of £410 falls outside of its jurisdiction as it is not a service charge but a personal liability of the Applicant Reasons for the tribunal’s decision 29. The tribunal accepts the explanation of the Respondent that this charge is a result of a leak from the Applicant’s flat into the flat below. The damage was largely covered by an insurance payment but the Applicant remains liable for the excess.

30. This charge is not however a service charge but a personal liability. The monies should be deducted from the service charge account and any fees added to the account as a result of late payment etc should be deducted.

31. The tribunal notes that the Applicant has offered to pay £300 of this sum. It is for the Respondent to decide on next steps including legal action in the County Court where of course legal fees and interest charges may be added to the claim. Management fees 32. The Applicant argues that management of the property has been substandard and that specific management responsibilities have not been fulfilled.

33. The Respondent says that the annual charges since 2020 have been £1200 which equates to £200 per unit which is at the lower end of the market rate for management.

7 34. The Respondent also says that the market has been tested for management fees. The tribunal’s decision 35. The tribunal determines that the amount payable in respect of management fees is reasonable and payable.

Reasons for the tribunal’s decision 36. The Applicant produced no evidence to support his allegations of poor standards of service.

37. The tribunal agrees with the Respondent that the amounts demanded are reasonable. [NAME]

38. The Applicant explained that [NAME] was bought by the company in 1985. The Applicant argues that [NAME] has been insured at leaseholders’ expense but has generated no income. The Applicant has urged repair, but no action has been taken. Service charge budgets for 2025 include £520 for rubbish clearance for the garage. Statutory accounts list freehold and garage as a depreciating asset but service charge accounts conceal it. The Respondent has breached its duty by failing to maintain, disclose or generate income from [NAME]. The Applicant’s main point is that as he does not own the garage and is unable to use it he should not be liable for its maintenance, insurance or management charges.

39. The Respondent says that the lease allows it to charge these sums. It refers the tribunal to the Fifth Schedule of the lease. The tribunal’s decision 40. The tribunal determines that the service charges demanded in connection with [NAME] are reasonable and payable. Reasons for the tribunal’s decision 41. The obligation to pay service charges is set out in the lease agreement. In this case the service charge obligation includes all buildings on the property enjoyed and used by the Lessee in common with the owners and lessees of the other residential flats and premises comprised in the property. [NAME] is part of the property enjoyed and used in common as described in the lease and shown on the lease plan.

8 The application under Rule 13 42. The Applicant argues that the Respondent has committed many procedural failings, with late and missing [NAME] and contradictory witness statements. He asks for £229 for his time and £90 per hour for his assistant’s time. The total comes to £2295 plus direct repair costs plus rent loss. The tribunal’s decision 43. The tribunal determines to dismiss the application under Rule 13. Reasons for the tribunal’s decision 44. [ADDRESS] C v Alexander [2016] UKUT 290 sets out the approach of the tribunal to applications under Rule 13 of its procedural rules. There are three stages to the decision-making process. The first is that the tribunal has to decide whether the party acted unreasonably, the second is whether a costs order should be made given any unreasonable conduct found, and thirdly the tribunal should determine the terms of any order. The case makes it clear that the hurdle for unreasonable conduct is high.

45. The tribunal determines that the conduct of the Respondent with regard to any procedural issues was not vexatious nor was it designed to harass which are the tests of unreasonable conduct. There were delays, but these were explained by the Respondent, and several of the delays were due to lack of information or cooperation from the Applicant. Application under s.20C 46. At the hearing, the Applicant applied for an order under section 20C of the 1985 Act. Having heard the submissions from the parties and taking into account the determinations above, in particular in relation to the sinking fund and payments in advance which have already been the subject of a tribunal decision, the tribunal determines that it is just and equitable in the circumstances for an order to be made under section 20C of the 1985 Act, so that the Respondent may not pass any of its costs incurred in connection with the proceedings before the tribunal through the service charge.

Name: Judge H Carr Date: 27th October 2025

9 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).