First-tier Tribunal Rules on Service Charges and Legal Fees

OUTCOME: Allowed in Part

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case reference : LON/00AK/LAC/2021/0024

HMCTS code (paper, video, audio) : P: PAPERREMOTE

Property : 13 [ADDRESS] [POSTCODE]

Applicant: [redacted]

Respondent: [redacted]

Tribunal members : Judge H Carr

Venue : 10 [ADDRESS] [POSTCODE]

Date of decision : 25th April 2022

DECISION

Covid-19 pandemic: description of hearing

This has been a remote hearing on the papers which has been consented to by the parties. The form of remote hearing was P:PAPERREMOTE. A face-to-face hearing was not held because it was not practicable and all issues could be determined on paper. The documents that I was referred to are in a bundle of 192 pages, the contents of which I have noted. The order made is described at the end of these reasons.

Decisions of the tribunal

(1) The tribunal determines that applicant’s share of the accountancy fees is payable by the applicant in respect of the service charges for the years ending June 2015 – June 2020 inclusive.

(2) The tribunal determines that the applicant’s share of £450 of legal fees charged for the preparation of evidence is payable by the applicant.

(3) No other legal fees that have been challenged are payable by the applicant.

(4) The tribunal makes the determinations as set out under the various headings in this Decision

(5) 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.

(6) The tribunal determines that the Respondent shall pay the Applicant £100 within 28 days of this Decision, in respect of the reimbursement of the tribunal fees paid by the Applicant.

The [NAME]

1. The Applicant seeks a determination pursuant to Schedule 11 to the [NAME] and Leasehold Reform Act 2002 (“the 2002 Act”)] as to the amount of administration charges payable by the Applicant in respect of the service charge years 2015 – 2020. .

The procedure

2. Directions were issued in this matter on 17th November 2021. The judge directed that the matter be decided on the papers in the week commencing 25th April 2022,

3. The judge enabled the parties to request that there be a hearing of the matter. No such request having been made, the matter is being decided on the basis of the hearing bundle provided.

The background

4. The property which is the subject of this [NAME] is a 2 bedroom flat in a modern purpose built block. The applicant’s proportion of the payable service charges is 5.15469%.

5. 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.

6. 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

7. The judge in the directions identified the relevant issues for determination as follows:

(i) The payability and/or reasonableness of administrative charges for 2014 - 2021 relating to legal fees

(ii) The applicant says that the legal fees are unenforceable because they are ambiguous and unreasonable.

(iii) The total amount in dispute is £4,418 of which his proportion is £227.79

8. 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 relevant terms of the lease

9. The applicant refers the tribunal to the following clauses of the lease

5.13 Indemnify the Landlord and the Company against all damage costs and expenses damage losses actions demands proceedings claims and liabilities made against or suffered or incurred by the Landlord including (without prejudice to the generality of the foregoing) Solicitors’ costs and surveyors’ fees any advice sought or any action reasonably contemplated or taken by or on behalf of the Landlord or the Company arising out of the prevention or procuring the remedy of any breach or non-performance by the Tenant of any of the covenants conditions or agreements herein contained and on the part of the Tenant to be observed and performed

5.14 Indemnify the Landlord and the Company against all costs fees charges disbursements and expenses (including without prejudice to the generality of the foregoing) those payable to counsel solicitors and surveyors property and reasonable incurred by the Landlord and the Company arising out of every [NAME] made by the Tenant for a Consent approval or licence required by the provisions of this Lease whether such Consent approval or licence is granted refused or granted subject to any qualification or condition or whether the qualification is withdrawn

5.15 Perform and observe the covenants and stipulations contained or referred to in the title to the Estate and to keep the Landlord indemnified from and against all actions claims demands losses costs expenses damages and liability in any way relating thereto so far as they are still subsisting and capable of being enforced and affect the property.

10. He says that clause 4.5 is ambiguous. That clause refers to costs of notices under ss146 and 147 of the LPA 1925.

11. The respondent refers to the following clauses of the lease - paragraphs 10, 12 and 16 of Schedule 4 to the Leases.

Paragraph 10 Schedule 4 – to employ such staff or agents as the Company deems appropriate to manage the Estate and discharge all proper fees charges or expenses payable to such staff or agents including the cost of computing and collecting the expenses and the Tenant’s proportion of the Expenses

Paragraph 12 Schedule 4 – To keep proper books of accounts of the sums received from the Tenant and the other tenants in the Building and of all items comprised or to be comprised in the Expenses

Paragraph 16 Schedule 4 – To take reasonable steps to enforce any covenant entered into with the Company by the Tenant or the other tenants in the Building

The payability of the legal and accountancy fees

12. The applicant provides a statement at A77 of the bundle. Here he asks whether the costs are justified according to the lease agreement but does not provide an argument. He notes that as accountancy and legal fees are not separated tenants have to ask for more information on the details. He asks for the breakdown of charges of £1103.99 for 2021.

13. He states that tenants have no liability to pay the legal fees now or in the future.

14. On the Scott schedule the applicant argues in relation to all of the legal fees that he is not willing to pay and that he does not believe this is in the true context of the leaseholder agreement and there is legal precedent to support this. The [NAME] legal dispute should not be added to service charges. He says that recovering legal costs of this type needs independent determination of liability to pay under the lease.

15. He refers the tribunal to a letter dated 8th June 2017 (at page A88 of the bundle) which informs the leaseholders that a [NAME] payments cannot be required under the lease and that money was credited back to leaseholders. He says that individual costs were credited back. Legal costs were returned to his account. However the invoice indicates that the legal costs of [NAME] the challenge has been passed onto the leaseholders.

16. In relation to the charge of £450 he says that the cost of the legal dispute against [ADDRESS] End management should not be added to the service charges.

17. The respondent argues as follows:

18. Since 1st June 2014 the management obligations set out in the lease have been carried out by [RESPONDENT] ([RESPONDENT]) on behalf of the respondent. [RESPONDENT] has undertaken the collection of administration charges and service charges due to the respondent in respect of the Estate.

19. The respondent notes that the claim is for administration charges but that no administration charges are sought on behalf of the respondent. The respondent therefore argues that the [NAME] should be dismissed.

20. The respondent says it appears from the applicant’s statement that he no longer disputes the accountancy fees of £400 plus VAT per annum.

21. The respondent understands that the applicant is only disputing the items in respect of which invoices were supplied by the respondent on 21st December 2021.

22. The respondent states that some of the leaseholders on the estate have been reluctant to pay service charges so legal costs and administration costs have accrued in seeking to collect them.

23. For each of the six accountancy years ending 30th June 2020 the accountancy fees have been £480 including VAT. These charges are charged to the [NAME].

24. No legal fees were charged to the [NAME] for the years ending 30th June 2016, 30th June 2018, 30th June 2019 which have not been credited back to the [NAME].

25. The respondent says that the only legal fees charged to the [NAME] for the six accountancy years ending 30th June 2020 including VAT are set out in the invoices attached to its statement.

26. The respondent says that the sums demanded are patently reasonable bearing in mind the size of the deficit (£27,856), the large number of leases where arrears existed and the amount of work needed to pursue debtors.

27. The respondent points out that use of solicitors is very limited although one solicitor’s bill is included in the service charge accounts for the period in dispute. It is only for £80 plus VAT plus disbursements of £3.

28. The respondent says that the invoice for 21st May 2020 is not in respect of work done to enforce payment of service charges but work done to supply evidence in a court case mounted by [ADDRESS] End Management Limited against the respondent in an effort by [ADDRESS] End Management Limited to resume management.

29. The respondent argues that it was desirable for the maintenance, safety, amenity, and enjoyment of the Estate that [ADDRESS] End Management Limited does not resume management because there is no evidence that it had undertaken any management duties in the time it was in charge.

30. The respondent points to the letter from the applicant dated 17th January 2022 in the section marked Part 6 Tenants Account History. In the calendar year 2015 the amounts of £99 and £144 were charged to the applicant initially but they were then deducted from his account.

The tribunal’s decision – the form of [NAME]

31. The tribunal determines to treat the [NAME] as an [NAME] for a determination of the reasonableness and payability of service charges.

The reasons for the tribunal’s decision.

32. The tribunal does not consider that the respondent was prejudiced by the form of the [NAME]. It considers that it is in the interests of justice to treat the [NAME] in this way particularly as the [NAME] is from [NAME].

The tribunal’s decision – accountancy fees

33. The tribunal determines that the amount payable in respect of accountancy fees is the applicant’s portion of £480 per annum for the years in dispute.

34. The tribunal has limited the years in dispute to the service charge years ending June 2015 – 2020 inclusive as these are the years stated in the [NAME] form and elaborated upon in the Scott Schedule.

Reasons for the tribunal’s decision

35. The tribunal agrees with the respondent that the applicant has not pursued his challenge to the accountancy fees and therefore determines that the accountancy charges for the years in dispute are reasonable and payable.

The tribunal’s decision – legal fees

36. The tribunal determines that legal fees relating to the repayment of arrears are not payable for the years in dispute.

37. The tribunal determines that charge for legal fees for the year ending 30th June 2020 Invoice number 10096 total £450 is payable and reasonable.

The reasons for the tribunal’s decision.

38. The tribunal limits the years in dispute to the service charge years ending June 2015 – June 2020 inclusive as these are the years specified on the [NAME] and elaborated upon in the Scott Schedule.

39. The tribunal understands the applicant’s challenge to be to the payability of legal fees in general and more particularly for legal costs for the recovery of arrears against particular leaseholders for non-payment of [NAME] fees.

40. The tribunal considers that legal costs are payable under clause 5.13 of the lease. However that clause does not authorise the payment of fees for the collection of arrears of the [NAME] as it has been found by a court that contributions to the [NAME] are not payable under the lease.

41. The tribunal has examined the invoices provided by the respondent. It notes the following:

(a) For the year ending 30th June 2015 there is an invoice dated 29th April 2015 for the sum of £144. The invoice provided is for arrears recovery

(b) For the year ending 30th June 2017 invoices are provided as follows:

(1) 13th October 2014. The invoice provided is for debt recovery and has a hand written note describing the work as Reserve Arrears Recovery. It is for £144.

(2) 29th April 2015. The tribunal notes that there is only one invoice for that date which is referred to above in relation to the service charge year ending 30th June 2015.

(3) 22nd July 2015. This invoice is for £99 and is for professional charges undertaken by [NAME]

(4) 2nd September 2015. This invoice is for case preparation fee against 2 lessees and is for £288. There is a hand written note, arrears recovery -[NAME].

(5) 24th September 2015. The invoice is for £144 for case preparation fee and has a hand written note – arrears recovery – [NAME].

(6) 26th November 2015. The invoice is for £144 and is a case preparation charge. The hand written description says it is for arrears recovery – reserve.

(7) 6th April 2016. The invoice is for £144 and is a case preparation charge. The hand written description says arrears recovery – [NAME].

(8) 5th October 2016. The invoice is for £144 and is a case preparation charge. The hand written description says Reserve arrears recovery.

(9) 7th December 2016. The invoice is for £144 and is for a case preparation charge. The hand written description says arrears recovery. There is no indication of what sort of arrears are being recovered.

(10) 21st May 2020. This invoice says it is for 3 hours of a senior team member dealing with court case against freeholder by [ADDRESS] End Management Limited.

42. The 6 invoices which refer to legal charges for the recovery of reserve arrears are not payable under the lease. If reserve funds are not payable then charges for recovery of arrears of reserve funds cannot be payable.

43. There are other invoices that do not specify what type of arrears are being pursued. In the absence of clear information provided by the respondent the tribunal determines that those invoices for the recovery of arrears are not payable under the lease.

44. The solicitor’s charge of £80 plus VAT plus disbursements is also not recoverable as the respondent has not provided details of what this charge relates to. The sentence – legal fees limited to costs recovered indicates that it relates to the recovery of arrears but the type of arrears is unknown.

45. The respondent has provided information about the charge of £450 which is for work done to supply evidence in a court case mounted by [ADDRESS] End Management Limited against the respondent in an effort by [ADDRESS] End Management Limited to resume management. The tribunal considers that this work falls within clause 5.13 of the lease and accepts the respondent’s argument that the work is for the benefit of the property and the Estate.

46. The respondent states that the applicant has already been refunded some of the legal costs he has challenged. For those fees which have already been refunded the applicant should note that no further refund will apply.

The other challenges

47. The applicant has asked the tribunal to determine a number of other matters, such as issues around ground rent, future charges of legal fees and management charges.

48. The applicant has not included the reasonableness of management fees in his [NAME]. If he wishes the tribunal to make a determination on this he must put in an [NAME] and support it with evidence, including evidence of comparable management fees.

49. The tribunal cannot determine the reasonableness and payability of legal fees not yet demanded.

[NAME] under s.20C and refund of fees

50. In his [NAME] the Applicant made an [NAME] for a refund of the fees that he had paid in respect of the [NAME]. Taking into account the determinations above, the tribunal orders the Respondent to refund any fees paid by the Applicant.

51. In the [NAME] form the Applicant applied for an order under the [NAME] and Leasehold Reform Act 2002 which the tribunal has treated as an [NAME] under section 20C of the 1985 Act. Taking into account the determinations above, 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: 25th April 2022

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 [NAME] for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case.

The [NAME] for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the [NAME].

If the [NAME] is not made within the 28-day time limit, such [NAME] 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 [NAME] for permission to appeal to proceed, despite not being within the time limit.

The [NAME] 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 [NAME] the [NAME] is seeking.

If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).