First-tier Tribunal Rules on Validity of Service Charges

OUTCOME: Allowed in Part

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/OOAP/LSC/2023/0394 Property : [ADDRESS] [POSTCODE] Applicants : [redacted] Representative : [NAME_1] (leaseholder of [NAME_4] 1) Respondent : [redacted] : [NAME_8] of Counsel Type of Application :

For a service charge determination pursuant to Section 27A(3) of the Landlord and Tenant Act 1985

Tribunal Members :

Judge P [NAME_11] Date of hearing : 15 April and 4 June 2024 Date of Decision : 23 July 2024

DECISION

Description of hearing

The hearing was a face-to-face hearing.

2 Decisions of the tribunal

(1) The following item is payable in the reduced amount set out below: • [NAME_7] Management Fee 2019 – reduced from £960 to £768. (2) The following items are not payable at all: • Bin purchase 2019 (£300) • [COMPANY_13] 2019 (£600) • [NAME_16] 2019 (£480) • Legal Fees – Cladding 2022 (£300) • [NAME_17] 19/10 and 27/11 in 2023 (£240). (3) It is noted that the following points were agreed/conceded during the course of these proceedings: • January to May 2019 Service Funds – the Respondent accepts that the aggregate sum of £481.56 for Flats 1 – 3 and 5 – 7 is not payable and states that this sum has been refunded. • Parking Fine 2019 of £65 – the Respondent accepts that it is not payable and will reimburse it into the service charge account. • [COMPANY_19] cost of £240 – the Respondent accepts that this cost is not payable and will reimburse it. (4) The remaining items challenged by the Applicants are payable in full. Introduction 1. The Applicants seek a service charge determination pursuant to section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”).

2. The Property is a purpose-built development comprising two buildings connected by a small courtyard. The Respondent is the freeholder of the Property and the Respondents are some of its leaseholders.

3 3. The Applicants challenge various service charges for the years 2019 to 2022 and various estimated service charges for the years 2023 and 2024 (and into 2025 in the case of building insurance). General point made by Applicants 4. The Applicants assert that the disputed repairs charges cannot be deemed fair due to the improper construction of the building by the Respondent in its capacity as the original developer. The Applicants note that the Respondent seeks to rely on the provisions of the leases allowing it to charge leaseholders for the cost of maintaining the building, but they argue that the actual context within which the repair works were required is the Respondent’s breach of its obligations as developer. The parties’ respective key submissions on the individual issues 5. As this case has not proceeded in the classic way with a full statement of case on the part of the Applicants and detailed witness statements in support, and as there is a large number of individual items in dispute, the best approach in our view is to list each item in dispute and to record the most relevant submissions made by each party on that item (whether in writing or at the hearing).

6. At the hearing it was accepted by [NAME_20] on behalf of the Applicants that the list of disputed items set out in the Respondent’s written closing submissions was a complete and accurate list of the items in dispute. The items – leaving aside those agreed at the hearing as no longer in dispute – are as follows. [NAME_7] Management Fee 2019 (£960)

7. The Applicants state that from May to October 2019 the service charge was paid by leaseholders to a bank account in the name of [COMPANY_72], not [COMPANY_6], and that if [COMPANY_72] were the managing agents it is unclear why [COMPANY_6] would be able to charge a management fee. In any event, it is unclear to the Applicants what either company ([NAME_7] or [NAME_21]) did in relation to managing the building during this period other than collecting the service charge. There were no out-of-hours hotlines, risk assessments, health and safety assessments or compliance matters, nor any maintenance-based repairs undertaken during this period.

8. The Respondent states that the Applicants seem to be disputing that the Respondent was entitled to charge any management fee during the relevant period, suggesting that zero or almost no management was carried out, but states that this is simply untenable. The Applicants

4 also imply that all repairs related to defects, but this is untrue. The fee for the relevant 6 month period is reasonable as it is similar to what [NAME_22] charged (pro rata) years later.

9. At the hearing [NAME_20] for the Applicants said that very few services were provided and that accounting issues were handled poorly as items were wrongly charged. Bin purchase 2019 (£300)

10. The Applicants state that an additional bin was required because the developer had not provided enough bins. The Council’s planning documents (see bundle) state that 1 x 1100 litre bin should be provided per 6 dwellings for refuse waste, and 1 x 1100 litre bin should be provided per 10 dwellings for dry recycling. The Property consists of 8 dwellings, and therefore should have been provided with 2 x 1100 litre refuse bins and 1 x 1100 litre recycling bins. The Property was only provided with 1 x 1100 litre refuse bin and 1 x 1100 litre recycling bin, which the leaseholders found to be insufficient, and therefore a second refuse bin was obtained. The second refuse bin should have been provided by the developer as per its planning application, and therefore should not have been charged to leaseholders.

11. The Respondent states that the extra bin was needed for the high amount of waste, and the Applicants have not been able to challenge [NAME_26]’s evidence on this point.

12. At the hearing [NAME_20] accepted that the Respondent was not making a profit on this item but still maintained that the extra bin had unnecessarily been bought at leaseholders’ expense. [COMPANY_25] 2019 (£240)

13. The Applicants state that [COMPANY_25] is owned by [NAME_26] with the registered purpose of “development of building projects”. C&M was contracted by the Respondent to build the Property but is not and has never been the managing agent. No details of what this administration charge relates to have ever been provided.

14. The Respondent states that this work related to the provision of CCTV and intercom services, and the Applicants have not been charged twice despite the existence of two invoices. The reasons for the work were to make adjustments to coverage and to create new building entry codes for the cleaners.

15. At the hearing [NAME_20] queried why this was described as an admin charge.

5 [COMPANY_13] 2019 (£600 TW - £300)

16. The Applicants state that there was no right to manage company, and therefore there were no company secretarial requirements in running the Property. Any company secretarial costs of the Respondent or its agents are business expenses of those companies.

17. The Respondent states that this is a reasonable set-up fee for a new managing account in accordance with ARMA guidelines. In their experience some management companies have set-up fees, some do not, and some build them into the total charge. [NAME_14] 2019 (£3,840)

18. The Applicants state that the landlord has a duty to ensure that management fees are reasonable, and this management fee is considered excessive for an 8-unit building and is almost double the amount that other building managers were charging at the time as per quotes obtained by the Applicants in 2020. The Applicants obtained quotes from various other companies, including [NAME_22] (the current managers) who took over management of the Property in 2020 for £2,000 per year inclusive of set-up costs, out of hours fees and it charged no separate company secretarial fee. In addition, the Applicants maintain that [NAME_15] offered a poor service.

19. The Respondent states that the actual charge was less, namely £3,517, and that this is reasonable. There is no evidence from the Applicants of poor service, the online articles from others not being relevant to the provision of these particular services, and the email of 14 July 2020 from [NAME_15] to [NAME_27] suggests that it was responding to queries from leaseholders. There is no evidence that the fees were excessive, and the Applicants have not provided in evidence any like-for-like comparison of quotes for this period.

20. At the hearing [NAME_20] said that this fee was excessive, especially when added to the other [NAME_15] fees such as the out-of-hours hotline. She added that the Applicants had obtained a much cheaper alternative quote from [NAME_22]. [NAME_16] 2019 (£480)

21. The Applicants submit that this out of hours fee is unreasonable. The Applicants were able to obtain quotes from other building management companies, and most of the companies who provided a quote did not charge an out of hours hotline fee. The one company that did charge an out of hours fee ([NAME_30]), charged £12 per [NAME_4] inclusive of VAT, per year. This service in their submission is typically included in the management fee, and they state that given that the management fee

6 charged by [NAME_15] was in the region of double the market rate it is even less justifiable to include an additional fee for an out of hours hotline. Furthermore, the out of hours hotline was not used, and the Applicants were not explicitly made aware of the service.

22. The Respondent states that this fee was reasonable and properly incurred for a service that was available to use. [COMPANY_31] 2020 (£380)

23. The Applicants state that this invoice is for investigative work in relation to a leaking pipe in building B, reported by [NAME_4]

6. There had been numerous issues with leaks in building B since 2019 and such leaks were in their view due to poor building standards and inherent defects at the Property, in breach of the Agreement for Lease. This investigative work provided no report as to what was discovered and provided no details on what repairs (if any) were carried out, and the Respondent has ignored numerous attempts from both the Applicants and the new building managers ([NAME_23]) to follow up on this. All costs of investigating and rectifying inherent defects or snags should in the Applicants’ view be covered by the Respondent as per their contractual obligations as developer.

24. In the alternative, to the extent that any remedial works were carried out by [NAME_32] in relation to the leaks, it is the Applicants’ position that such works were not carried out to the appropriate standard in that an improper drying procedure was followed, and as a result the building has since suffered with an ongoing mould issue.

25. The Respondent states that Sinclair investigated a possible blocked pipe, and there is no evidence from the Applicants that this investigation was unnecessary. On the contrary, the existence of leaks show that it was necessary. There is also no evidence that the problem constituted an inherent defect and in any event the cost of remedying inherent defects is recoverable as a service charge under the leases as drafted. The Applicants have not offered comparable quotes. [COMPANY_31] 2020 (£280)

26. The Applicants state that they experienced repeated issues with the door since moving into the Property and that these issues resulted from inherent defects as well as subsequent poor repairs. They state that the design of the door is flawed in that there is not enough space above the door for an adequately sized closer that will hold the weight of the door. As a result, the developer’s builders installed the closer upside down to help it fit, which resulted in the door being too heavy and slamming loudly when shut. The issue was incorrectly diagnosed by [COMPANY_24] who attended on numerous occasions to adjust the

7 door in an attempt to fix the slamming. During such visits, they carried out faulty repairs which led to the door no longer self-closing and thereby creating a security risk.

27. The Applicants go on to say that [NAME_32] were then sent in to carry out repairs to the door, but during these repairs [NAME_32] failed to identify that the closer was installed upside down, and therefore the heaviness of the door continued which later led to the handle snapping off. The failure to properly repair such defects is in the Applicants’ submission a breach of the Respondent’s obligations under the Agreement for Lease as the developer of the building. In the alternative, the Applicants submit that it is not reasonable to charge them for poorly carried out repairs that failed to address the cause of the problem and led to further subsequent damage.

28. The Respondent states that the invoice was for fixing doors and that the Applicants accept that there were problems with the doors. If and to the extent that the Applicants have a cause of action against the developer in respect of any inherent defects the First-tier Tribunal is not the correct forum. Furthermore, the door was used for a year without complaint which casts doubt on the proposition that there was an inherent defect, and the likelihood is that the problems arose over time from heavy usage. Water Damage Report 2020 (£582)

29. The Applicants state that this was to assess the mould/damp issue in building B that had occurred as a result of the 2019/2020 leaks. As noted above, their view is that the escape of water resulted from inherent defects and that the damp and mould occurred as a result of improper drying procedure. Again, they state that the Respondent had a duty as developer to rectify any snags and inherent defects under the Agreement for Lease but the appropriate drying procedure was not followed. In the alternative, they state that the Respondent has a duty to carry out all repairs to a reasonable standard but failed to do so.

30. The Respondent states that this invoice relates to work to investigate damp under a block stair cupboard, and it is not disputed that there was damp in this area. The cause of the leak was never established, and it therefore cannot be said that it was an inherent defect. The Applicants have produced no comparison quote. Water Damage Attendance 2021 (£385)

31. Again, the Applicants state that this charge is not reasonably recoverable as it pertains to the Respondent’s breach of its duties as developer of the building under the Agreement for Lease. In the

8 alternative, the Respondent failed to carry out its duties to carry out repairs to a reasonable standard.

32. The Respondent makes the same comments as in relation to the previous item. [NAME_33] 2021 (£58)

33. Again, the Applicants state that this charge is not reasonably recoverable as it pertains to the Respondent’s breach of its duties as developer of the building under the Agreement for Lease. In the alternative, the Respondent failed to carry out its duties to carry out repairs to a reasonable standard. Further in the alternative it was apparent that superficial cleaning would not be sufficient.

34. The Respondent states that the Applicants accept there were leaks, mould and damp, therefore the work was needed. [NAME_34] 2021 (£660)

35. The Applicants state that a defects report was commissioned by the Respondent as there was an excessively loud noise going through [NAME_4] 1’s bedrooms when the flats above used their plumbing due to a service pipe being located through [NAME_4]

1. The noise disturbance was the result of the location of the pipe and the construction of the pipe and surrounding wall. The defect report outlines numerous inherent defects with the pipe and the surrounding wall that fail to meet the building guidance advised in the building control approved documents. Such inherent defects are breaches of the Respondent’s duties as developer under the Agreement for Lease and therefore in the Applicants’ submission are not reasonably recoverable under the service charge.

36. The Respondent states that the Applicants accept there was an issue with a soil pipe noise from a flushing toilet. The report was needed to investigate the problem and the Applicants have provided no comparable evidence on cost. [NAME_35] 2021 (£260)

37. The Applicants state that the roof above [NAME_36] experienced problems with leaks from 2020. The failure of the roof so early on (after just 2 years) clearly indicates that the roof was not constructed to an appropriate standard and was not fit for purpose. Subsequent reports from [NAME_37] and [NAME_38] confirmed that the roof was constructed to a poor standard, and that subsequent repairs were ineffective. The roof issue is an inherent defect resulting from the Respondent’s breach of its obligations as developer. In the alternative, this repair was carried out

9 to a poor standard leading to additional repairs being required in 2022 and 2023.

38. The Respondent states that this was for emergency repairs to the roof, and the Applicants accept that the roof was leaking. [NAME_39] 2022 (£1,718.40)

39. The Applicants state that the repairs were required due to an inherent defect in the roof due to breaches of the Respondent’s duties as developer under the Agreement for Lease. Therefore, in the Applicants’ submission this charge is not reasonably recoverable under the service charge.

40. The Respondent states that the Applicants accept that the work needed to be done. The need for repair was not due to a developer defect, the reports concluding that it was either due to condensation or to poor edge details and poor flashing. Legal Fees – Cladding 2022 (£300)

41. The Applicants state that the Respondent instructed [NAME_22] to deal with a warranty claim in respect of the rusting cladding at the front of the building. During a telephone conversation with [NAME_4] 1 on 29 September 2023, the property manager disclosed that the claim had been rejected by the manufacture as the rust was caused by water ingress resulting from “poor installation” and “poor detailing”. This in the Applicants’ submission is in breach of the Respondent’s obligations as developer under the Agreement for Lease and therefore the cost is not recoverable from leaseholders as a service charge under their leases.

42. The Respondent states that this charge is for time reasonably spent by [NAME_22] in trying to deal with the issue by speaking with leaseholders, the freeholder and insurers. [NAME_40] 2022 to 2023 (£4,815)

43. The cost of building insurance increased to £4,815 from £1,337 the previous year. This was queried with the managing agents who said they would query it with the brokers but that it was partly due to the updated Rebuild Cost Assessment. The assessment carried out in January 2022 stated a rebuild cost of £3,054,787. The new policy taken out in June 2022 has a declared value of £3,364,542 and an insured value of over £4.5m. The Statement of Facts provided alongside the new insurance policy showed the build year of the property to be between 1980-1999 (whereas the building was completed in 2018), it states that there is only 1 block instead of 2 and wrongly claims that the

10 building has a 100% [NAME_4] roof. In answer to some generic questions to their customer service team, an advisor suggested that older buildings with [NAME_4] roofs usually have higher premiums as more issues occur and they are more costly to repair. Based on this, the Applicants question whether the large increase has been due to the provision of incorrect information.

44. The Applicants also make various comments as to what they believe the insurance policy has been used for in addition to those matters for which it can properly be used.

45. The Respondent states that the statement of facts documents provided by the Applicants is incorrect. Their quotes have incorrect building and cover information, for example the building has cladding, and the quotes show the development as 100% brick which makes a price difference. One quote is in favour of an individual not a company which can also make a price difference. Also, the premium for 2021/22 included a mid-term adjustment and therefore it is not the case that the premium increased to £4,815 from £1,337 (instead it increased from £3,054.78). The premium of £4,815 was the most competitive available, factoring in the rebuild cost assessment.

46. At the hearing [NAME_20] said that the premiums had increased because of the number of claims made in connection with the fixing of developer’s defects. She also speculated as to whether the insurance was being used to fund the Respondent’s case in separate county court proceedings. [NAME_42] 2023 (£1,800)

47. The Applicants state that the EICR that was conducted revealed numerous defects due to poor workmanship. The Respondent, as developer of the building, had the contractual obligation to construct the building in a good and workmanlike manner under the Agreement for Lease and it is not reasonable to charge leaseholders to rectify poor workmanship.

48. The Respondent states that the original work in 2018 was certified and met the standards applicable then. The Respondent submits that some of the regulations changed in 2022 and so another inspection was carried out in 2022 and this led to changes being recommended and actioned. There is a letter from [NAME_43] confirming that the regulations changed three times between 2018 and 2022. [NAME_38] 2023 (£264)

49. The Applicants state that this report was commissioned by the Respondent to cover all three roof areas. It details numerous defects

11 with the main roof and the [NAME_4] 1 roof and historic poor repairs. The defects with the main roof were reported by [NAME_36] from 2020, and the [NAME_37] and [NAME_38] reports confirm that the repairs that were carried out by the Respondent to a poor standard. The Respondent also failed to diagnose inherent defects in the roof, and that failure led to a need for further works.

50. The Applicants add that leaks from the [NAME_4] 1 Roof were reported from 2019. Numerous attempts to repair that roof were undertaken in the summer of 2019, and by October 2019 the [NAME_44] had verbally expressed concerns that the roof was failing to drain and that part of the roof covering had become detached and was flapping. The [NAME_44] followed up these concerns in writing numerous times, but no action was taken. In December 2023 the [NAME_4] 1 roof started to leak and plasterboard in the ceiling started to fall off. The [NAME_4] 1 leaseholder provided the Respondent with a copy of a defects survey by [NAME_45] confirming the defects. These defects resulted from the Respondent’s breach of its obligations as developer. In the alternative, the repairs were carried out to a poor standard.

51. The Respondent states that it is an insurance requirement to commission periodic inspections of roofs. The report covers the whole roof. [NAME_37] repairs to [NAME_4] 1 and Main Roof 2023 (£974.40)

52. The Applicants state that the charge of £974.40 relates to temporary repairs carried out to the [NAME_4] 1 roof after leaking was reported in December 2022. That roof was defective, and the defects were a result of the Respondent’s breach of its obligations as developer under the Agreement for Lease. It would therefore be improper to pass these costs on to leaseholders as service charges.

53. The Respondent states that these were emergency temporary repairs to the retained part of the building. The costs were small compared to the value of the Property and were designed to repair damage which had caused leaks, not to transform the building. [NAME_46] 2023 (£60)

54. The Applicants state that the door handle was broken due to the door being too heavy for the closer and due to the closer having been installed up-side-down. As a result, residents were locked in the building and a locksmith was called. A smaller closer than required was installed by the Respondent, and this was an inherent defect. The building doors were custom made and were designed with insufficient space above the door to allow the correct size closer to be installed. This defect resulted in the door being too heavy and the handle

12 eventually snapping off. The residents had reported problems with the doors in 2019 and 2020, and in the Applicants’ submission the defects were a result of the Respondent’s breach of its obligations as developer under the Agreement for Lease. In the alternative, this repair would not have been required if the Respondent’s previous repairs on the door had been carried out to a reasonable standard.

55. The Respondent notes that the Applicants accept that the handle was broken and that the Applicants have not offered a price comparison. Even if these are inherent defects, they are covered by the service charge provisions of the leases. [NAME_47] 2023 (£408)

56. The Applicants state that [NAME_48] attended to repair a broken door handle and determined during this visit that the door handle had snapped due to the door closer being incorrectly installed. However, in the Applicants’ opinion the engineer failed to realise that the reason for the incorrect installation was that there was insufficient room above the door for it to be fitted correctly. As a result, after the re-fit the door close was scraping the plasterboard, causing damage and loud squeaking. Again, in the Applicants’ submission, the defect was a result of the Respondent’s breach of its obligations as developer under the Agreement for Lease. In the alternative, this repair would not have been required if the Respondent’s previous repairs on the door had been carried out to a reasonable standard and was itself not carried out properly.

57. The Respondent notes that the Applicants accept that the door repairs were needed and that the Applicants have not offered a price comparison. Even if these are inherent defects, they are covered by the service charge provisions of the leases. [NAME_47] 2023 (£510)

58. The Applicants state that the contractor was called back after residents complained about loud squeaking caused by the use of the door. The contractor informed those residents present that the issue with the door had been caused by the door having been poorly designed and there being insufficient room above the door for a closer to be fitted correctly. The contractor removed the closer that day, and no new closer was supplied or fitted. A sign was left on the door stating that a new closer would be ordered very soon but the contractor did not return.

59. The repair was in the Applicants’ submission required due to an inherent defect with the door, and therefore it would be unreasonable to charge leaseholders for this repair under the service charge. In the alternative, this repair would not have been required if the

13 Respondent’s previous repairs on the door had been carried out to a reasonable standard and was itself not carried out properly.

60. The Respondent notes that the Applicants accept that the door repairs were needed and that the Applicants have not offered a price comparison. Even if these are inherent defects, they are covered by the service charge provisions of the leases. [NAME_47] 2023 (£282)

61. The Applicants state that the contractor attended for a third time to reinstall a closer and repair the damaged plasterboard. Again, this repair was required due to an inherent defect with the door, and therefore leaseholders should not be charged for it under the service charge. In the alternative, the Respondent may only recover charges for repairs that were carried out to a reasonable standard.

62. The Respondent notes that the Applicants accept that the door repairs were needed and that the Applicants have not offered a price comparison. Even if these are inherent defects, they are covered by the service charge provisions of the leases. [NAME_17] 19/10 and 27/11 in 2023 (£240)

63. The Applicants state that the contractor was asked to attend to fix a roof panel that had come loose. The building managers did not inform any of the leaseholders that the contractor was attending and did not check with the leaseholders what access was required to fix the panel. Access to [NAME_4] 6’s garden was required but nobody was at home, and the contractor charged a fee without carrying out the repairs. Regular site visits are included in the management fee, and therefore there is no good reason for the building managers to not be familiar with the site to know what access was required and to notify the relevant leaseholders of the contractor’s attendance. The contractor was then asked to attend for a second time. [NAME_4] 6 was informed of the appointment and waited home all day. The contractor was provided with [NAME_4] 6’s phone number and told to ring the door buzzer to gain entry but the contractor charged another missed appointment fee despite neither phoning nor ringing the buzzer to gain entry.

64. The Respondent states that the contractor attended the Property but could not gain access. [NAME_40] 2023 to 2024 (£5,110)

65. The Applicants seek a decision from the tribunal as to what would be a reasonable charge.

14 66. The Respondent states that £5,109.81 is the figure provided by [NAME_49] who state that they have applied a 13.05% indexation plus a 5% rate increase following a review and to reflect current market conditions. [NAME_40] 2024 to 2025 (£6,132)

67. Again the Applicants seek a decision from the tribunal as to what would be a reasonable charge.

68. The Respondent states that £6,132 is a reasonable projection. Carpet Replacement plus mould/damp repair 2024 – estimated cost (£2,500)

69. The Applicants state that this work is required to rectify ongoing mould/damp issues. Leaks occurred as a result of inherent defects, and the damp/mould occurred due to incorrect drying procedure. The Applicants state that the Respondent had a duty as developer to rectify any snags and inherent defects and to conduct any repairs in a good workmanlike manner. The appropriate drying procedure was not followed, and the repairs were not carried out to a reasonable standard.

70. The Respondent states that the damp caused damage to the carpets and that this will need to be repaired. External Repairs 2024 – estimated cost (£1,000)

71. The Applicants state that this amount has been budgeted due to previous expenditure. All previous expenses labelled “external” were relating to the roof defects which were improperly and unreasonably charged to the service charge. The repairs should not have been charged to leaseholders in the first place, and in any event if the repairs charged had been properly carried out there is no reason as to why further repairs would be required. As a result, it is unlikely that budgeting this as an ongoing expense is reasonable or justified.

72. The Respondent states that this is just an estimate based on [NAME_22]’s ‘best guess’. It has not been charged and will not be charged if repairs are not required. [NAME_26]’s witness evidence 73. [NAME_26], as sole director of the Respondent company, has given a witness statement on behalf of the Respondent. He states that [COMPANY_72] was formed to deal with building management but that the labour was provided by [COMPANY_6] itself

15 which is why the fee went to [COMPANY_6]. There was only one management fee.

74. In relation to the blocked pipe, [NAME_26] has provided a copy of the damp report. In relation to the door repair issue, he states that there is a building control certificate and a 10 year supplier warranty and he does not accept that there is an inherent defect; rather it is a user problem. [NAME_26] also confirms the various points made by the Respondent in written submissions.

75. At the hearing [NAME_20] cross-examined [NAME_26] on various points, during the course of which each of them made criticisms of the conduct of the other. [NAME_20] questioned why the [NAME_15] ‘company secretarial fee’ was labelled as such if it had nothing to do with company secretarial matters. She also questioned the [NAME_5]/[NAME_21] relationship. In relation to [NAME_15]’s management fee, [NAME_26] said that he only obtained one other quote when tendering for management services. 76. [NAME_26] had a hazy recollection of certain items of correspondence, and he said that he generally passed correspondence on to the relevant person in the office. He was unable to say what had caused the condensation if not the leaks, and nor was he able to offer much analysis as to what was or was not a developer’s defect. As regards any delays in carrying out roof repairs, [NAME_26] said that he had to obtain quotations and wait for suitable weather to coincide with the chosen contractor being available.

77. As regards the mid-term building insurance adjustment, [NAME_26] said that this was to reflect an increase in the calculation of the reinstatement cost. Additional points made at hearing 78. [NAME_50] for the Respondent noted that the Applicants had not given any witness evidence – apart from a short witness statement from [NAME_71] on which she was unavailable to be cross-examined – and he added that many of the Applicants’ submissions were not backed up by evidence. By contrast, [NAME_26] had given a witness statement which had been tested in cross-examination, and [NAME_50] observed that on many points [NAME_26] had not been questioned. He also noted that [NAME_20] was presenting herself as a litigant in person but was in fact a qualified solicitor. In addition, he said that the Applicants had not applied for permission to rely on expert evidence and therefore – to the extent that they are seeking to do so – they cannot rely on any expert evidence.

16 Tribunal’s analysis Inherent defects issue 79. The Applicants seek to argue that various items of disrepair constitute inherent defects. As such, they argue, these items are the responsibility of the Respondent as developer under the Agreement for Lease in respect of each [NAME_4] and are therefore not recoverable from leaseholders under their respective leases via the service charge.

80. The hearing bundle contains a sample lease, and it is common ground that all of the leases are in the same form for all material purposes. Under clause 9 of the lease the service charge and other sums are expressed to be payable in full without any set-off, counterclaim, deduction or withholding (other than as required by law). Clause 13 states that “this lease constitutes the whole agreement between the parties and supersedes all previous discussions, correspondence, negotiations, arrangements, understandings and agreements between them relating to its subject matter”.

81. The service charge payment provisions are set out in paragraph 2 of Schedule 4 and contain an obligation to pay the “Service Charge”. In the definitions section of the lease the Service Charge is defined as “a fair and reasonable proportion determined by the Landlord of the Service Costs”, and the Service Costs are defined in Part 2 of Schedule 7. Under paragraph 1(a) of Part 2 of Schedule 7, the Service Costs include “all of the costs reasonably and properly incurred of … providing the Services” and “the Services” are defined in Part 1 of Schedule 7. Included within the definition of “the Services” in Part 1 of Schedule 7, at paragraph 1(a), are “cleaning, maintaining, decorating, repairing and replacing the Retained Parts and remedying any inherent defect”.

82. Under the relevant part of clause 13 of the lease as quoted above, the contents of any previous agreement such as an agreement for lease have no bearing on the interpretation of the lease itself. It follows that the obligations of the parties under the lease itself, including the service charge payment obligations, apply in full notwithstanding the contents of any such prior agreement. Under the service charge provisions quoted above, the service charge includes the remedying of any inherent defect. This is relatively unusual, but nevertheless it is what the lease states and the original parties to the lease have to be assumed to have freely agreed to the terms of the lease and to have had the opportunity to take independent legal advice on those terms in the absence of any proof to the contrary.

83. Therefore, under the terms of their leases the leaseholders are obliged to contribute towards the cost of remedying any inherent defect. Whilst this is not the correct forum in which to examine in detail any

17 other possible remedies that the Applicants might have and whilst in any event we do not have full information, in principle it is possible that leaseholders could have other remedies. For example, it is conceivable that there might exist a separate claim against the developer in the county court or a claim against the solicitors who negotiated the original leases or who acted on any lease assignment or a claim based on any misrepresentation. We make no comment as to the likelihood of any such claim succeeding, we are merely observing that it is conceivable that other remedies exist in other forums. However, there is no such claim available to the leaseholders in a section 27A application to this tribunal in the context of the wording of these leases.

Accordingly, subject to the usual arguments about reasonableness, payability etc in any service charge application, the leaseholders are liable to contribute towards the cost of remedying any inherent defect. [NAME_7] Management Fee 2019 (£960)

84. The relationship between [NAME_5] and [NAME_21] does not seem wholly transparent. However, only one management fee is being sought and so the key issue is the reasonableness of that fee.

85. For a good service, based on the comparable evidence and our own experience as an expert tribunal the amount of the fee seems reasonable. In addition, we do not accept the Applicants’ submission that the Respondent provided either no services or hardly any services, as they have not been able to point to any major failings (subject to what we say below) and they have not given any witness evidence on any of these matters.

86. However, there were a number of management failings in 2019. Whilst the point has now been conceded by the Respondent, it made a series of errors when seeking service charge and insurance premium contributions during this period. In addition, the Respondent wrongly charged its own parking fine to leaseholders. To take account of these failings we consider that it is appropriate to reduce the management fee by 20% so as to recognise that there were problems whilst also acknowledging that the Respondent did provide management services in relation to the Property. Bin purchase 2019 (£300)

87. The Respondent argues that the bin was needed but does not address the argument that an extra bin should have been provided free of charge. As the Respondent failed to organise a free extra bin it should not be entitled to pass the wholly unnecessary expense on to leaseholders. Therefore, this sum is not payable at all.

18 [COMPANY_25] 2019 (£240)

88. The description of these charges is admittedly unclear, but the Respondent has provided a copy invoice containing clearer details and which is for the same sum. The Applicants have produced no credible hard evidence that the Respondent has fabricated these charges or that they are unreasonable or that they are being charged twice for this item, and the amount itself seems reasonable in the absence of any evidence to the contrary. This sum is therefore payable in full. [COMPANY_13] 2019 (£600)

89. It is not satisfactory that this has been labelled as ‘Company Secretarial’ if in fact it relates to something entirely different. In addition, by way of support for its position the Respondent has provided a copy invoice that refers to “Annual Company Secretarial” and a copy of [NAME_15]’s email of 9 October 2019 listing its various services, and the email states that one service for which it will charge extra is “Company Secretarial issues” at a charge of £500 + VAT (i.e. £600).

90. It is hard to see why a reference to annual company secretarial in an invoice or a reference to company secretarial issues in a formal introductory email could really in fact relate to the set-up fee for the managing account in accordance with ARMA guidance. Therefore, based on the information before us we consider on the balance of probabilities that this does indeed relate to company secretarial issues, possibly those relating to [COMPANY_6] itself. In the absence of a proper explanation from the Respondent we consider on balance that this sum is not payable by leaseholders as it is unclear which head of service charge it would properly fall under. In conclusion, this sum is not payable at all. [NAME_14] 2019 (£3,840)

91. The amount charged works out at £366 + VAT per [NAME_4], which whilst slightly on the high side is within a range of fees which could be considered reasonable, and the Respondent is not obliged to go with the cheapest quote. Whilst there is anecdotal evidence that other people in other buildings have been unhappy with [NAME_15]’s level of service, there is no direct evidence from the Applicants of poor service, and they have not given a witness statement on any of the points on which they seek to rely and on which the witness’s evidence could have been properly tested in cross-examination. Therefore, this sum is payable in full.

19 [NAME_16] 2019 (£480)

92. There is some evidence that this was available as a service. However, whilst [NAME_15]’s basic fee is not so high as to be unreasonable it is in our view on the high side of reasonable. In our experience many managing agents include an out-of-hours service within the basic fee, and we consider that it is unreasonable to charge extra for this service where – as here – the basic fee is already on the high side of what is reasonable. Therefore, the out-of-hours fee is disallowed in its entirety. [COMPANY_31] 2020 (£380)

93.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 94. [NAME_32] were instructed by [NAME_15] and the Applicants have produced no evidence to show that the instruction was unnecessary. In any event, there is also, in our view, some evidence within the Water Damage Report dated 30 December 2020 to support the proposition that the damage was not caused by an inherent defect. Therefore, this sum is payable in full. [COMPANY_31] 2020 (£280)

95.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease.

96. Again, [NAME_32] were instructed by [NAME_15] and the Applicants have accepted that there were problems. Their view as to the reasons for the problems differ from the Respondent’s, but there is no direct evidence of any inherent defect, and the door was originally signed off as being fit for purpose. Therefore, this sum is payable in full. Water Damage Report 2020 (£582)

97.

98. In any event, the cause of the leak was not fully established and the tribunal is therefore not in a position to conclude that it resulted from an inherent defect. The report was clearly needed as the problem had to be investigated, and the Applicants have not challenged the cost itself. Therefore, this sum is payable in full.

20 Water Damage Attendance 2021 (£385)

99.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 100. This is payable for the same reasons as set out above in relation to the Water Damage Report. There is no proper evidence before us that the Respondent has been negligent. Therefore, this sum is payable in full. [NAME_33] 2021 (£58) 101.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 102. In any event, the Applicants’ challenge to this item is quite weak. They accept that there were leaks and cannot show that the leaks resulted from an inherent defect. Therefore, this sum is payable in full. [NAME_34] 2021 (£660) 103.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 104. The Applicants have not offered any alternative basis of challenge or any alternative quote, and in any event they have not demonstrated to our satisfaction that this cost arose as a result of an inherent defect. Therefore this sum is payable in full. [NAME_35] 2021 (£260) 105.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 106. The Applicants have suggested that this repair was carried out to a poor standard but have provided no hard evidence to support this assertion nor provided any witness statement on which they could be cross- examined, and in any event nor have they demonstrated to our satisfaction that this cost arose as a result of an inherent defect. Therefore, in the absence of any stronger challenge this sum is payable in full.

21 [NAME_39] 2022 (£1,718.40) 107.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. In any event, the [NAME_37] report does not reach a firm conclusion as to the cause of the problems. In the absence of any stronger challenge by the Applicants this sum is payable in full. Legal Fees – Cladding 2022 (£300) 108.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. 109. However, the Respondent states that this charge is for time spent by [NAME_22] trying to deal with the rusting cladding issue by speaking with leaseholders, the freeholder and insurers, but there is nothing about this situation which in our view falls outside a managing agent’s normal management duties. Therefore, it was not reasonable to charge an additional sum for this service and the charge is disallowed in its entirety. [NAME_40] 2022 to 2023 (£4,815) 110. We have considered the alternative quotations provided by the Applicants and do not consider them to be like-for-like, broadly for the reasons articulated by the Respondent. And whilst we accept that the Applicants had difficulties in obtaining information from the Respondent, they did eventually have sufficient information to obtain reliable quotes. As regards the Applicants’ queries regarding the accuracy of the Statement of Facts provided alongside the new insurance policy, the Applicants have failed to show why any such inaccuracies when taken together would necessarily increase the premium. 111. In any event, the Applicants do not seem to place particular reliance on their alternative quotes; instead they have raised a number of other issues, including their belief the insurance policy has been used for in addition to those matters for which it can properly be used. However, much of their evidence on this point is speculative and/or insufficiently proven on this point, and the key issue remains as to whether the actual amount charged was reasonable; in particular whether it was reasonably reflective of the market and – if not – whether this was for good reasons (for example due to the claims history in circumstances where the claims did not arise as a result of landlord default).

22 112. The rise from £3,054 to £4,815 is significant, but there is some evidence of market testing by the Respondent and insurance premiums have been rising due to a number of market factors. In the circumstances, the tribunal is not in a position to accept that the rise to £4,815 is necessarily unreasonable and accordingly this sum is payable in full. [NAME_42] 2023 (£1,800) 113.

For the reasons set out above, even if (which is not proven) this does constitute the remedying of an inherent defect the Applicants are liable to contribute towards the cost of remedying inherent defects notwithstanding the contents of the Agreement for Lease. 114. In any event, this was a fee for work which was assessed as needing to be done in an electrical report, and the work was necessitated by changes in the relevant regulations. During the hearing [NAME_26] was cross-examined as to when he knew that the regulations had changed, but regardless of this point these issues needed to be dealt with. This sum is therefore payable in full. [NAME_38] 2023 (£264) 115. In our view the Applicants have overcomplicated this particular issue. The Respondent was obliged to commission periodic roof inspections and is entitled to pass the cost on to leaseholders through the service charge. There is no challenge to the amount of the cost. This sum is therefore payable in full. [NAME_37] repairs to [NAME_4] 1 and Main Roof 2023 (£974.40) 116.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. In any event, the Applicants are unable to demonstrate that the problems were caused by an inherent defect. In the absence of any stronger challenge by the Applicants this sum is payable in full. [NAME_46] 2023 (£60) 117. The evidence indicates that the repair was needed and the cost of effecting such repair is covered by the service charge provisions under the lease. The Applicants’ narrative is noted, and it is possible that their analysis is correct and that this was an ongoing problem which was not properly dealt with by the Respondent’s managing agents. The problem, though, is that the Applicants have not given a witness statement on which they could be cross-examined, and they have offered no expert or other hard evidence to support their position. In

23 the circumstances, the Applicants have not discharged the burden of proof and this sum is payable in full. [NAME_47] 2023 (£408) 118. For the same reasons as in relation to the [NAME_46] charge, this sum is payable in full. [NAME_47] 2023 (£510) 119. For the same reasons as in relation to the [NAME_46] charge, this sum is payable in full. [NAME_47] 2023 (£282) 120. For the same reasons as in relation to the [NAME_46] charge, this sum is payable in full. [NAME_17] 19/10 and 27/11 in 2023 (£240) 121. The Applicants’ narrative in relation to the apparent non-attendance of the contractor is quite compelling, and the leaseholders/occupiers are the ones who are most likely to know the true position as to whether the contractor tried to gain entry on the stated days. Admittedly there is no witness statement, but the Applicants have provided sufficient credible details that the onus falls to the Respondent to rebut the Applicants’ evidence, ands in our view the Respondent has failed adequately to rebut that evidence. On the balance of probabilities, therefore, we accept that the contractor either failed to attend on these two occasions or failed to make any real attempt to attend in an effective manner. The Applicants should not be obliged to pay for the alleged visits by the contractor and the aggregate charge is disallowed in its entirety. [NAME_40] 2023 to 2024 (£5,110) 122. The rise is from £4,815 to £5,110. This is not a large increase, and the building insurance market is subject to a number of factors that could justify a rise. This sum is therefore payable in full. [NAME_40] 2024 to 2025 (£6,132) 123. The figure of £6,132 is just an estimate. It would constitute a larger rise than for 2023 to 2024, but we do not have information before us to indicate that it constitutes an unreasonable estimate in view of the volatility of the insurance market. Furthermore, if the actual insurance premium turns out to be lower the leaseholders will be entitled to a refund of the overestimated amount, but in our view it is arguable that

24 it is prudent for the Respondent to be cautious in order to ensure that it does not underestimate the amount that will become payable in due course. 124. Carpet Replacement plus mould/damp repair 2024 – estimated cost (£2,500) 125.

For the reasons set out above the Applicants are liable to contribute towards the cost of remedying an inherent defect notwithstanding the contents of the Agreement for Lease. In addition, the Applicants have failed to demonstrate that the need for this work is as a result of an inherent defect. 126. The actual cost is not yet known, but the Respondent is entitled to make an estimate based on the information available to it. There is no challenge to the estimated cost itself and no specific reason to doubt it, and therefore this sum is payable in full. External Repairs 2024 – estimated cost (£1,000) 127. The Applicants speculate as to the reason for this charge, but the Respondent has provided an explanation and has said that it will not be included in the actual service charge if in practice the expenditure is unnecessary. In principle it is good building management to make some provision for estimated repairs and the amount seems reasonable in the absence of any credible arguments to the contrary, and therefore this sum is payable in full. Cost applications 128. If either party wishes to make any cost applications it must make them by email to the tribunal, with a copy by email to the other party, by no later than 5pm on 6 August 2024. Any such cost applications must identify the legal basis for the application in question and must include suitable supporting evidence. 129. If a party makes a cost application within the time limit set out above the other party may respond to that application by email to the tribunal, with a copy to the other party, but it must do so by no later than 5pm on 20 August 2024.

Name:

Judge P Korn

Date:

23 July 2024

25 RIGHTS OF APPEAL

A. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) a written application for permission must be made to the First-tier Tribunal at the regional office dealing with the case.

B. 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.

C. If the application is not made within the 28 day time limit, such application must include a request for extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at such reason and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit.

D. 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.

APPENDIX 1

List of Applicants (all of them leaseholders)

[NAME_1]

[NAME_4] 1 [NAME_52]

[NAME_4] 2 [NAME_55]

[NAME_4] 3 [NAME_57]

[NAME_4] 4 [NAME_60]

[NAME_4] 6 [NAME_62] and [NAME_65] [NAME_4] 7 [NAME_68]

[NAME_4] 8

26 APPENDIX 2

Appendix of relevant legislation

Landlord and Tenant Act 1985 (as amended) Section 18 (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. Section 19 (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 provisions of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise. Section 27A (1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to - (a) the person by whom it is payable,

27 (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. (2) Subsection (1) applies whether or not any payment has been made. (3) An application may also be made to the appropriate tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to - (a) the person by whom it would be payable, (b) the person to whom it would be payable, (c) the amount which would be payable, (d) the date at or by which it would be payable, and (e) the manner in which it would be payable. (4) No application under subsection (1) or (3) may be made in respect of a matter which - (a) has been agreed or admitted by the tenant, (b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party, (c) has been the subject of determination by a court, or (d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement. (5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment (6) An agreement by the tenant of a dwelling … is void in so far as it purports to provide for a determination – (a) in a particular manner, or (b) on particular evidence.