First-tier Tribunal Upholds Most Service Charge Claims

OUTCOME: Allowed in Part

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : MAN/00CX/LSC/2018/0021

Property : [ADDRESS], [POSTCODE]

Applicant : [redacted]

Respondents

:

[redacted] [COMPANY_3] T/A [NAME_14] : Landlord and Tenant Act 1985, Section 27A & Section 20C

Tribunal Members : District Judge [NAME_4]

Date of Hearing

:

15 October 2019

Date of Decision : 31 October 2019

© CROWN COPYRIGHT 2019

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Determination:

1. The service charges as claimed for both years in question are reasonably incurred and payable save for:- • [NAME_5] invoice 6002 of 6 January 2017 of which £1700 is disallowed. • The cost of any [NAME_5] tankering, post 28 February 2017, which is disallowed to the extent that collection and disposal exceeds £1000 per tanker load. • [NAME_5] invoice 6670 of 24 July 2017, which is limited to £1440, being the amount for which the applicant contends 2. There be no Order in respect of the Section 20C application.

3. The respondent’s tenure as manager is extended until further Order on the terms of the current Order, with liberty to apply. Application and background 1. The application. [NAME_1] applies for a determination of various items of service charge for the years 2016/17 and 2017/18, in respect of 10 properties which he owns on the Woodcote development at Goose Eye, near Keighley. The service charge year end is 31 July.

2. [NAME_1], or companies of which he was sole director, built and managed the development from its inception circa 2004 until, by an Order of the Tribunal of 12 May 2016, [NAME_2] of [NAME_3] was appointed manager, with effect from 1 August 2016, on the terms set out in that decision, and subsequently varied by a Tribunal decision of 26 April 2017.

3. By consent, we order that the title of this application should be amended to show the respondents as:- [NAME_2] [NAME_2] (1) and [COMPANY_3] T/A [NAME_3] (2)

4. Background. The service charges of this development have been much litigated before the Tribunal. The principal recent determinations being 12 May 2016 (appointment of manager); 14 October 2016 (Urgent grant of Section 20ZA dispensation for proposed works to Sewage Treatment plant and [NAME_10]); 26 April 2017 (Section 27 application and Loan finance permission – 2 determinations). These decisions, none of which have been successfully appealed, contain a helpful picture of past events, based in some instances upon inspections by the Tribunal, and findings of fact, which have informed this determination.

5. This application by [NAME_1] stems mainly from the actions taken by

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[NAME_2] after his appointment, by the Tribunal, as manager, in respect of the sewage disposal system. The system serves not only the development, but also a further 19 (until 2017 thought to be 14) dwellings, including the Goose Eye public house, in the hamlet of Goose Eye. The development comprises 48 dwellings, 23 of which are below gravity feed level and require sewage pumping. The treatment plant is at the lower edge of the development and is intended to process sewage to a standard whereby it can be lawfully discharged into the adjacent beck – under the supervision if the Environmental Standards Agency.

6. The system was not working satisfactorily at the time [NAME_2] took over, nor at the time of the hearing in May 2016, which led to his appointment. The extent of the failure is disputed. We will make appropriate findings in that regard. The appropriate remedy is disputed, as, in any event, is the cost of the remedy (replacement) chosen by [NAME_2] and the time taken to implement it, about which we will also make findings. We are also called upon to determine how such costs as have been reasonably incurred should be apportioned.

7. There are 4 categories of service charge:- (i) Sewage. Serving 62 properties in 20 16/17 and discovered to be 67 properties for 2017/18. (ii)Estate. Serving all 48 properties on the development (iii)Leasehold with common parts. (iv)Leasehold without common parts.

[NAME_1]’s 10 properties are liable to pay (i), (ii) and (iv). Flats 1/3, 1/5 and 3/1 are also liable for (iii).

8. The Law. The statutory provisions have been set out in detail in the previous decisions and both parties are represented. We reminded ourselves of the relevant provisions of, in particular, sections 19 & 27A. We remind ourselves that we have to determine whether the costs claimed in the service charges have been reasonably incurred having regard to all the relevant circumstances as we find them to be, in the light of the evidence available to us.

9. Inspection and Directions. We inspected the development on 30 July in advance of what was planned to be the Final hearing on that day, but in the event was utilised as a Directions hearing. We concentrated on the sewage disposal system and had it explained to us sufficiently to enable us to make sense of the documentary evidence.

10. The Hearing. In accordance with those Directions the parties completed a [NAME_6] which we used, with the agreement of the parties’ advocates, as a template for the hearing. There were 1000 pages of documentary evidence,

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including the narrative statements of [NAME_1] and [NAME_2]. [NAME_1] was represented by [NAME_7] of counsel and the Respondents by [NAME_8] solicitor. We heard from [NAME_1], [NAME_2] and [NAME_9].

11. [NAME_6]. Item 1. The applicant avers that the closure of the treatment plant on the first day of [NAME_2]’s management was peremptory and bad management, thereby unnecessarily requiring expensive tankering for a prolonged period. The decision to replace rather than renovate was excessive. Renovation would have cost circa £40,000. The outturn cost (including item8) was circa £76,000. [NAME_9] gave evidence in support, and the applicant relied upon the report from [COMPANY_5] of 13 October 2016. [COMPANY_5] report of May 2017 upon which the Respondent relies is challenged on the basis that it is after the event, likely to be intended mainly to justify overcharging by [NAME_5], and is not independent because it is by the company that carried out the works.

12. The respondents rely upon that report as being a report from someone who actually carried out all the work. It is not based on a cursory or limited inspection. Additionally. the serious defects alleged, leading to the decision to replace, are supported and corroborated by several previous Tribunal findings. The fact that the plant is now working well is cited in support. [NAME_9]’ evidence is challenged on the basis that he was involved in advising the previous manager (effectively [NAME_1]), and whatever the extent of his input and expertise, the plant did not work consistently well. If the problem solving was as easy as he now contends it could and should have been addressed years ago.

13. We find that the decision to replace the sewage Treatment plant was not unreasonable. The decision to do so immediately was justified. More than anything there is cogent evidence that the plant was so badly failing that it had become insanitary and odorously noxious, and there was a real risk of a substantial fine for unlawful discharge. The support of the majority of the residents in respect of the various applications to the Tribunal corroborates this view. At times the site was intolerable for some residents. There are specific previous Tribunal findings that, based on two actual inspections, the plant was failing and had done so for some time. We accept that there was a report from the Environment Agency showing improved water quality, but it was 12 months before the appointment of the new manager and the other evidence of urgency is more impressive. The comments of the Tribunal when granting an urgent application for dispensation substantiate the urgency. We accept that is not determinative of the appropriateness of the method used to address the urgency, or the reasonableness of the cost, but it is evidence of the urgency itself, contrary to the impression given by the applicant and [NAME_9].

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14. As to the cost of the works, we find that, in the circumstances, it is not unreasonably incurred. It was certainly costly. It was a major piece of work. It may have been possible, in more leisurely circumstances, to have reduced some of the costs. Our finding is that these were not leisurely circumstances. The [NAME_5] report may have been retrospective, but at least, in the absence of bad faith (of which there is no evidence) it is a report based on actual events and not in any way speculative. The estimate put forward by the applicant, is based on limited inspection, and hedged with many conditions and provisos. [“not fully accessible; subject to present treatment plant being serviceable; decking to be removed prior to work; difficult to give a definitive figure” etc.] The works actually carried out were more extensive both as to the plant and the access, lighting and Health and Safety issues. Although at first glance the difference between £40,000 and £76,000 is substantial, the gap, when considering the above is probably significantly less.

15. [NAME_6]. Item 2. The applicant contends that a replacement, as extensive as that carried out, was unnecessary. He provides an estimate to support his figure of £4032 as opposed to the actual expenditure by the respondent of £7498. That quotation does not appear to us to undermine the reasonableness of the managers’ expenditure on the [NAME_10]. The quote is for a domestic installation. It is not like for like. We accept the force of [NAME_2]’s evidence that, apart from de-ragging, the pump has been faultless since it was installed along with an industrial standard control board. We take the view that a proper reading of the Dispensation decision included the [NAME_10]. It is recorded that [NAME_1] made representations as to why replacement was not necessary. It is clear therefore that it was an issue considered by the Tribunal granting dispensation. Even if we are wrong about that, applying all the principles of retrospective dispensation, prejudice, cost, timing and urgency etc, we would grant retrospective Dispensation, for the same reasons that the Tribunal granted dispensation, by the Order of October 2106.

16. Apportionment of [NAME_10] costs. The applicant avers that the [NAME_10] costs should be shared only by the 23 dwellings whose sewage is pumped. The respondent has chosen to divide all the sewage disposal cost between all 67 dwellings that use the system. In that regards he has consulted, informally, with all other leaseholders and the hamlet properties. Their preference is said to be for all the cost to be included. The system can reasonably be regarded as one integrated system. Failure of the [NAME_10] would soon have an adverse effect on the whole development and not be limited only to those whose sewage was in need of pumping. It is not, in our view, unreasonable to take a holistic view.

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17. It is convenient, whilst dealing with apportionment of the [NAME_10] costs to also address the apportionment of sewage costs generally. Various methods have been considered and some utilised previously. The only commercial user, the pub, is said to have the benefit of a binding agreement that it will pay no more than any other dwelling. Square footage, number of bedrooms, rateable value, metered water consumption or a simple equal split regardless of precise usage have all been canvassed. The consensus, following informal consultations with the leaseholders was in favour of the equal split method now employed by the respondent. All of the various methods have pros and cons, such that it would be difficult to say that any chosen method was inherently unreasonable. The equal division method currently employed is not, in all the circumstances, unreasonable.

18. [NAME_6]. Item 3. The £300 charged for water sampling is challenged. The cost of analysis when samples were taken by or on behalf of [NAME_1] when he was the effective manager was £60. The £300 charged by [NAME_5] includes taking the sample, submitting it for analysis and paying for the analysis. The cost of analysis is said to be, nowadays, £90. The testing was carried out at a critical time by the company involved in the engineering of the new system. We can identify only 4 such invoices in our papers. We do not find the costs to have been unreasonably incurred.

19. [NAME_6]. Item 4. This £29.70 charge is challenged on the basis that the electricity supplier should carry out their own readings free of charge. [NAME_2]’s answer is that an employee visits the development to check lighting, replace light bulbs, remove any obvious rubbish and read the meters. Clause 7 of part 2 of Schedule 6 in [NAME_1]’s lease permits this. It is not unreasonably incurred.

20. [NAME_6]. Item 5a. The tankering costs are challenged on four grounds. Firstly, that if the system had not been peremptorily decommissioned hardly any tankering would have been needed. We have dealt with this re Item 1, and determined the issue in the respondent’s favour. Secondly, the use of a “[NAME_11]” company was inappropriate. Thirdly, the cost on a set fee (regardless of discharge quantities at the sewage farm) basis was excessive and fourthly, the period of tankering was in any event too prolonged. The subsequent use of a less expensive contractor is cited in support. The absence of discharge notes, so that quantities can be assessed, indicated that the fixed fee £1500 cannot be demonstrated as value for money. The respondent avers that the location of [NAME_5]’s offices is not relevant. They used local contractors and vehicles did not travel to and from Chesterfield, which is not “[NAME_11]” any event. [NAME_2] says that it was so important that raw sewage be reliably and regularly pumped and tankered off site that he accepted the cost, especially as it was work

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to be done conjunction with the company carrying out the replacement of the decommissioned plant ([NAME_5]). They needed to be sure “where they stood” regardless of volumes. The imperative was to relieve the occupants of the burden and consequences of the failed plant. The prolongation of the period of tankering away all sewage was because [NAME_1] did not pay his service charges, so funding of the works was inhibited and an application had to be made to the Tribunal for permission to borrow, He refers to the evidence given to and accepted by the Tribunal in its decision of April 2017, for which he had made application in November 2016. [NAME_1] counters that his mortgagees made substantial payments, but the evidence before us is that these were not until at the earliest mid 2017, and mostly late 2017. We find that the location of [NAME_5] is irrelevant. (The applicant chose companies based in Derbyshire and Shropshire to suggest as alternative, less expensive contractors). The reasonableness of the cost is the issue. It is apparent from the evidence that eventually [NAME_2] found less expensive contractors ([NAME_12]). Their invoice information is more specific and includes discharge notes. The average cost, based on the invoices with which we have been supplied, is in the region of £1000 vat free. We find that the original decision to accept [NAME_5] as the tanker contractor at a fixed price of £1500 was reasonable. There was wisdom in using the same contractor as that for the reconstruction of the plant, in the critical period of that reconstruction. We recognise that the concept of reasonableness covers a broad spectrum and we are prepared to find, without utilising the dubious benefit of hindsight, that the situation in which the respondent found himself justified that initial decision, notwithstanding that it was at the edge of that broad spectrum. [NAME_2] in his evidence in support of his Dispensation application indicated that tankering costs were £1100 plus vat. We do however find that the by the time the works had been completed – February 2017, the ready availability of less expensive alternatives should and could have been investigated and employed and that he failure to do so renders, thereafter, [NAME_5] fixed price, unreasonable. The costs recoverable in the sewage service charge from 28 February 2017 are limited to £1000 inclusive of VAT (if any). The sewage service charge to 31 July 2017 should be reduced accordingly (and taking account of our determinations re Item 20a and 6 below) before being divide 62 ways equally between all system users, then identified.

21. [NAME_6]. Item 5b.Satisfactory evidence has been provided. Allowed.

22. [NAME_6]. Item 20a. We regard December 23 as a normal working day. If the price is fixed at £1500 a cost of £1700 for 30 December is not justified. We disallow, as unreasonably incurred, £1700 of invoice 6002 of 6 January 2017. 23. [NAME_6]. Item 6. We refer to our determination re Item 5a above. Allow £1440. Disallow balance as being unreasonably incurred.

24. [NAME_6]. Item7. If an alarm goes off, a call out is not unreasonable. Allow.

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25. [NAME_6]. Item 8. See determination re Item 1.

26. [NAME_6]. Item 9. Agreed. And in our view another, albeit small, example of the inadequacy of the plant at time of [NAME_2]’s taking over management.

27. [NAME_6]. Item 10. This is in fact invoice 6396. It is a call out in response to an alarm. Allow.

28. [NAME_6]. Item 11. Agreed.

29. [NAME_6]. Item 12. Window cleaning. Disallow. Clause 5.9 of [NAME_1]’s lease places the window cleaning obligation on him. It is not open to the manager to assume the responsibility without consent, no matter how much commercial sense it makes to employ one contractor. If all other lessees wish to have their obligations discharged communally through the good offices of the manager, then that is a matter for them and seems sensible.

30. [NAME_6]. Item 13. Agreed.

31. [NAME_6]. Item 14. Not claimed by respondent and not included in service charge.

32. [NAME_6]. Item 15. Details provided at the hearing. Reasonably incurred. Allow.

33. [NAME_6]. Items 16 & 17. Allowed. Insurance monies were received and are accounted for elsewhere in the service charge accounts.

34. [NAME_6]. Item 18. Accepted.

35. The remaining items in the [NAME_6] have either been dealt with above, or, as agreed by the parties at the hearing, are no longer live issues because the detail with which we have been presented and have considered, supersedes the issues raised in these items.

36. Costs. Section 20C. [NAME_1] applies for an Order that the costs incurred by the respondent in these proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of service charge payable by the tenants. We are obliged to take account of all the circumstances and make such order as we consider just and equitable. We take account of the fact at this is an application by [NAME_1] only, in respect of 10 out of 48 properties. No other tenants have sought to support the application. [NAME_1] has succeeded only to a limited extent. Several of the items challenged by him were of very minor amount

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and he did not succeed on the largest issue (items 1 and 8). We direct ourselves that consideration of a Section 20C order should not be over influenced by any concept of “costs following the event”, but that that is only one of the factors to be taken into account. [NAME_2] is a Tribunal appointed manager, not the freehold reversioner. We make no specific finding as to whether [NAME_1]’s lease permits costs of tribunal proceedings to be charged as service charge. The Terms of Appointment of manager, however, (paragraph xxxi) assumes so, and repeats the authority to employ solicitors. [NAME_2] has conducted his management in a businesslike manner in the interests of all the leaseholders. He had no option but to defend these proceedings and to a large extent has been justified in doing so. We recognise that any legal costs added to the service charge will be borne by all leaseholders. To the extent that they can be categorised as being part of the sewage charge (about which we make no finding, in the absence of information as to the precise legal relationship with the hamlet dwellers and the public house), they may also be borne by, now, 67 occupiers.

In all the circumstances we find that it would not be just and equitable to make an order which prevents recovery, if otherwise provided for, of the manager’s reasonable cost of these proceedings.

37. Manager’s continuing appointment. [NAME_2] was appointed for 3 years from 1 August 2016. This was varied by paragraphs 42 and 43 of the Determination of 27 April 2017 (loan sanction). We continued the appointment until further order and on the then existing terms, by our Directions of 30 July 2019. That Order should remain in place, with liberty to apply in respect of any of the terms including, but not limited to, duration and remuneration.

Tribunal Judge M J Simpson 31 October 2019