First-tier Tribunal Upholds Service Charge Decision

OUTCOME: Dismissed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case reference

:

CAM/11UB/LSC/2022/0066 Property : [NAME] 4, [ADDRESS], Aylesbury, Bucks [POSTCODE] Applicant: [redacted]

Respondent Landlord

:

[APPELLANT] of application : Application for payability and reasonableness of service charges, pursuant to s.27A Landlord and Tenant Act 1985 Tribunal : Tribunal Judge [NAME] of paper determination : 9 August 2023

DECISION

DECISION

The Tribunal determines that: (1) The estimated costs challenged by the Applicant are all costs which were reasonably estimated and reasonable in amount, and the Applicant’s 1/3 proportion of such costs is therefore payable;

(2) The application by the Applicant under s.20C of the Landlord and Tenant Act 1985 is refused.

REASONS Background 1. The Applicant, by his application dated 28 November 2022, seeks a determination as to the payability and reasonableness of estimated service charges, for the service charge year 1 October 2022 to 30 September 2023, pursuant to s.27A of the Landlord and Tenant Act 1985. Relevant Law 2. See Annex 1 to this decision. The Property 3. The Property is [NAME] 4, [ADDRESS], Aylesbury [POSTCODE]. This is a 2 bedroom [NAME] in a block of purpose built block of 4 flats, said to be built in the mid 1980s.

4. The Property is on the first floor, along with [NAME] 3. The other 2 flats are on the ground floor. The Parties 5. The Applicant is [APPELLANT], who acquired his leasehold interest in the Premises on 1 September 2022, it appears for £161,000.

6. The landlord is [RESPONDENT], but the management of the premises is the responsibility of [ADDRESS] to [COMPANY], who have appointed [NAME] as their [NAME] agent.

The Lease 7. The Lease is dated 14 February 2011 but is a surrender and re-grant of an earlier lease.

8. The original lease is dated 2 September 1987. The following are express covenants amongst others on the part of the [NAME]:

“2. The [NAME] covenants with [NAME] as follows: (1) To pay the reserved rent at the times and in the manner aforesaid. (2) To pay and contribute to [NAME] a 1/3 proportion of the cost incurred by the [NAME] of the items set out in sub clause (i) to (iii) below (or the cost reasonably estimated by the [NAME] as being likely to be incurred in any relevant financial year of the [NAME]):

(i) the cost of maintaining repairing redecorating and renewing the Building in accordance with clause 5(1) hereof; (ii) the cost of insuring throughout the term hereby created the Building in accordance with clause 5(2) hereof; (iii) the proper fees and disbursements paid to any [NAME] appointed by [NAME] for the general management of the Building PROVIDED THAT so long as [NAME] do not employ [NAME] they shall be entitled to add the sum of 15% to any of the above items set out in (i) hereof.

(3) to pay and contribute a 1/3 proportion of the cost of making repairing renewing rebuilding and cleansing all yards ways sewers drains water courses party walls party structures fences and car parking areas and other things which shall belong to or be used for the [NAME] in common with the remaining parts of the Building or any adjoining or other premises and to keep [NAME] indemnified against such cost and in the case of dispute to be determined by the [NAME] or their surveyor whose decision shall be final.”

9. The following are express covenants amongst others on the part of the [NAME]: “5. [NAME] hereby covenant with the [NAME] as follows: (1) Subject to the payment by the [NAME] of the contributions hereinbefore provided to maintain repair redecorate and renew and light as often as may be necessary:

(a) the main structure and exterior (including without prejudice to the generality thereof the main walls foundations roofs chimney stacks timbers and the main drains gutters and rainwater pipes) of the Building (b) the gas and water pipes and tanks and electric cables and wires in under or upon the Building and enjoyed and used by the [NAME] in common with the owners and Lessees of the other parts of the Building and (c) the main entrance communal hallway landings and staircase enjoyed or used by the [NAME] and the occupiers of the other flats in the Building Together with any other communal parts of the Building

(2) to keep the Building insured against loss or damage by fire storm tempest and (if possible) aircraft and explosion and such other risks is the [NAME] shall deem fit…”

10. The Lease terms immediately thereafter consist of service charge machinery as follows, so far as material to this application: “(3)(a) As soon as practicable after the end of each of [NAME] financial years [NAME] shall furnish to the [NAME] an account of the cost incurred by [NAME] in the due performance of their obligations hereunder for the relevant financial year due credit being given therein for any advanced payment made by the [NAME] in respect of the said financial year and upon the furnishing of such account there shall be paid by the [NAME] to [NAME] any balance or difference found to be payable or there shall be allowed by [NAME] to the [NAME] any amount which may have been overpaid by the [NAME] by way of advanced payment for the following year as the case may be (b) the amount of the cost incurred by [NAME] in the due performance of its obligations hereunder shall be ascertained and certified annually by a certificate signed by the [NAME]’s auditors as soon after the relevant financial year of [NAME] as may be practicable…”

Background 11. Shortly after he acquired his legal interest in the premises, on 12 October 2022 the Applicant was sent a demand for service charge for the year 1 October 2022 until 30 September 2023, in the sum of £1684.16.

12. This was an estimated sum on account of service charge, and was due by 1 November 2022.

13. The above sum is calculated as follows:

14. A budget certificate dated 12 October 2022 provided a service charge budget for the following items in the following sums: Item £ General repairs 600 Grounds maintenance 860 Electricity 250 Accountancy fees 250 Management services 720 Fire and safety inspections 350 Fire alarm and emergency lighting 275 Buildings insurance 1000 D&O insurance 210 Sundry charges 25 Confirmation statement 13 [NAME] 500 TOTAL 5053

15. The Applicant’s proportion, being 1/3 of the above total, is the reason for the sum in the demand of £1684.

16. On 17 October 2022, a document showing the actual expenditure for the year ending 30 September 2022 was prepared.

17. On 8 November 2022 the Applicant emailed [APPELLANT] to complain of very unreasonable service charges.

18. On 29 November 2022, the Applicant filed the instant application under section 27A of the Landlord and Tenant Act 1985.

19. In December 2022 there was a fairly serious leak from [NAME] 3 (the [NAME] of which is a Mr [NAME], who happens to be a director of [COMPANY]). This led to an insurance claim in respect of damage to [NAME] 1, [NAME] 3 and the communal area.

20. The Application came before the Tribunal on 11 January 2023, when the procedural judge imposed a stay of 3 weeks for the parties to try and narrow the issues.

21. On 21 February 2023 the Applicant states that he was informed by [APPELLANT] that no reserve fund account had been opened.

22. On 14 March 2023 solicitors for [COMPANY] wrote to the Applicant because he had not paid the demand made on 12 October 2022.

23. On 15 March 2023 an e-mail was sent by the [NAME] to [NAME] regarding the service charges and the water leaks.

24. On 20 March 2023 the Applicant paid his arrears; not only the sum within the demand of 12 October 2022, but also costs of £295 and £6 for obtaining an official copy of entry of title.

25. On 22 May 2023 directions were given by the procedural judge towards the hearing in this matter. The judge considered the matter to be suitable for a paper determination unless either party requested an oral hearing, which neither has done.

26. At some point in time thereafter the Applicant filed in his part of the standard form Tribunal Scott Schedule, for the disputed service charge year 1 October 2022 to 30 September 2023, as follows: Item Cost Tenant’s [NAME] 4 1/3 cost [NAME] 4 paying 1/3 cost Reserve fund £500 None set up General repairs £600 None carried out Management Services £720 High

27. The Respondent has not completed the column for landlord’s comments in the Scott Schedule, but has provided a detailed response to the disputed service

charges, in the form of a 3 page letter from [NAME]. This is marked at the top as having been received on 3 July 2023, presumably by the Applicant.

28. On 10 July 2023 the Applicant settled a document which would appear to be his response to the Respondent’s statement of case, although it is not entitled as such.

The Competing Arguments

The Applicant’s proportion 29. This is not a matter raised in the Application form itself. Nor is it specifically mentioned in the Tribunal directions. The Scott Schedule details (such as they are) are set out above. The Applicant’s response does not mention it being an issue either.

30. The issue of apportionment appears to have been raised by the Applicant on or about 7 February 2023 in an email timed at 16:53 to [NAME], which we do not have.

31. We have the response of [NAME] in our papers. In that response, [NAME] said that they had previously advised that the first floor flats pay a higher proportion of the overall service charge budget than the ground floor flats; that they had checked this, and to be sure had engaged [NAME] of [NAME], who is a specialist in leasehold matters, to confirm this; neither [NAME] nor the directors were responsible for the drafting of the leases.

32. In their statement of case, the Respondents add that they had provided the Applicant both the original lease and the new deed (granting a new extended term to the Applicant), and explained the situation that clause 4 of the new deed clearly states that all terms set out in the 1987 lease remain for the new term.

Reserve fund 33. In his Application form, the Applicant does not specifically mention the reserve fund, but the Tribunal notes that he alleges that when he had requested a list of planned future works, there were no details provided. In his response to the Respondent’s statement of case, the Applicant complains that there was no reserve from the account set up. Hence, we assume, his comment in the Scott schedule of “none set up.” He also states that he had been trying to get information about the status of the reserve fund since he received the first application for payment from [APPELLANT].

34. In an email in the Applicant’s disclosure, the Respondent’s [NAME] [APPELLANT] had explained that the service charges and reserves are held in one ring fenced client account with [COMPANY]. [NAME] seemingly attached a letter from

the bank confirming that the account is ring fenced. Further, they added that they hold client money protection insurance, are registered for anti-money laundering with HMRC and are members of the property ombudsman scheme. Finally, for these purposes, [NAME] stated that they had built funds slowly over time and spent them to make sure the scheme is compliant with relevant fire safety and health and safety requirements, as well as try and deal with reactive works that have arisen: see email of 19 October 2022.

35. In their Statement of case, the Respondents echo this. They say the reserve is held in the service charge client account and is typically used to ensure that they have funds on account to address any exceptional costs that might arise, or to meet costs which exceed the amounts budgeted for; that is why it is referred to in the budget as a [NAME].

36. They refer to the December 2022 escape of water, which had led to an increased cost in insurance over and above the budgeted cost of £1000 by some £641.21; they say that drawing funds from the [NAME] to cover this expenditure was the only way of meeting these costs without raising additional funds from [NAME].

37. They further write that that in the period when the Applicant was not paying the demand made of him in October 2022, they needed the [NAME] to meet ongoing costs for the scheme.

General repairs 38. In his Application form, the Applicant queries whether it would be a better option for each of the 4 [NAME] owners to insure and do their own maintenance, given that maintenance has never been carried out by the [NAME], and indeed since the building had been built in the mid 1980s, he alleges. He claims that this budgeted amount for repairs would be an unnecessary cost, with nothing to show for it.

39. In his response to the Respondent’s Statement of Case, the Applicant also says that the general repairs work charges should not apply as no repairs whatsoever have been carried out on the original staircase, and the recently repaired top staircase ceiling (following the water leak) was of a very unprofessional standard; he repeats that the e-mail exchanges highlight that the building in question was never maintained, as clearly shown in his photographs.

40. In their statement of case, the Respondent states that the escape of water had been the subject of a claim under the buildings insurance policy; that the initial urgent works were covered by the general repairs provision along with a drawdown of general reserve funds. They add that they are currently awaiting the funds from the [NAME], less the excess on the policy, to cover those costs. In a table they then set out costs which have been included, which we take to mean already incurred. These incurred costs include an emergency attendance following significant damage caused by the escape of water, leading to an electrical condition report to assess the state of the communal electrics (£350);

plus supply and fitting of 10 year optical smoke alarm, and replacing a conduit system removed after the flood (£228); and a faulty external light (148.50).

41. The Tribunal notes that these costs, incurred just over half way in the year 2022/2023, already exceed the budgeted cost of £600.

Management Costs 42. [RESPONDENT] explain in the Respondent’s statement of case that they charge £720 including VAT per annum to manage the communal areas of flats 1 to 4, equating to £60 including VAT per month; they consider this to be a very competitive management fee, which would compare well when benchmarked against other block management companies. They note that the Applicant has not provided any other supporting evidence in relation to his claim that the figure for management fees is high.

43. In his Application form, the Applicant does not specifically challenge management fees. In his response to the Respondent’s statement of case, the Applicant does not mention them either. We are left essentially with his bald assertion in the Scott Schedule that the fees are “high”, save perhaps for some further insight in the email exchanges, wherein the Applicant alleges, “I can’t see the point of your association with the building as the only thing I see is the building insurance which can easily be arranged by individuals and cheaper” and that “as a [NAME] I do have the right to terminate your services”.

Determination 44. We remind ourselves that all the costs in this application are estimated costs. 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. See s.19(2) of the Landlord and Tenant Act 1985.

45. Moreover, a [NAME] may always challenge the actual costs when the landlord has given them the final account, by application under s.27A of the Act, including any challenge as to whether they were reasonably incurred, reasonable in amount or (as regards works) whether they were to a reasonable standard.

The Applicant’s proportion 46. Whilst the proportion of 1/3 may seem harsh on the Applicant, the Tribunal has no jurisdiction to vary this contractual proportion, fixed as it is. The Tribunal cannot re-write the terms of the Lease on a s.27A application.

Reserve fund

47. It would appear that the Applicant’s complaint is that the reserve fund is not in a separate account. Whilst this might possibly be beneficial for the [NAME]/landlord relationship in terms of greater transparency, the jurisdiction of this Tribunal under s.27A is limited to determination as to whether a service charge is payable and, if it is, as to (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. See s.27A(1) of the Act.

48. There is no complaint here that the reserve fund estimate was not reasonably estimated as being likely to be incurred, or that it was unreasonable in amount, and accordingly we find that it was. The Applicant’s proportion of the £500 is therefore payable, we determine.

General repairs

49. We note that the figure for the previous year was also £600. It was reasonable for the landlord to estimate that a figure for general repairs was likely to be incurred in the year ending 2023. This figure need only be reasonable. Given this, and the fact that the landlord has already incurred a greater sum than the estimate in under half a year, we consider the sum of £600 was reasonable in amount, and the Applicant’s proportion is payable.

50. We understand the Applicant’s concern about the state of repair of the communal parts, and his anxiety as to whether works have been of a reasonable standard. We note that the Respondent would appear to be waiting for [NAME] to pay out to complete the works. So, without any encouragement, we would reiterate that the Applicant has the right to challenge the quality of the workmanship when the final account is made at the end of the service charge year, if the repairs have not been completed satisfactorily.

Management fees

51. [COMPANY], which has stepped into the shoes of the [NAME], is entitled under the Lease to use a [NAME] agent, and to recharge the proper fees and disbursements of the same in the general management of the building. For clarity, the Applicant alone does not have the right to terminate that [NAME] agent’s employment.

52. This is a small block, and the management fee works out at £200 plus VAT for the Applicant, given his proportion of 1/3.

53. The Applicant has not provided an alternative figures for management fees, instead making an assertion they are “high”, unsupported by evidence. In Enterprise Home Developments LLP v Adam [2020] UKUT 151 (LC) the Upper Tribunal held at paragraph 28:

“Much has changed since the Court of Appeal’s decision in [NAME] v [NAME] but one important principle remains applicable, namely that it is for the party disputing the reasonableness of sums claimed to establish a prima facie case. Where, as in this case, the sums claimed do not appear unreasonable and there is only very limited evidence that the same services could have been provided more cheaply, the FTT is not required to adopt a sceptical approach. In this case it might quite reasonably have taken the view that Mr [NAME] had failed to establish any ground for thinking the sums claimed had not been incurred or were not reasonable, which would have left only the question whether any item of expenditure was outside the charging provisions.”

54. In the Tribunal’s experience, the sum claimed of the Applicant (and in total for the 4 flats) does not seem unreasonable, even if it may be on the “high” side – therefore, we are not required to adopt a sceptical approach.

55. Accordingly, we determine that the estimated cost of the management fee for this block of £720 is reasonable, and the Applicant’s proportion is therefore payable.

Application under Section 20C/Paragraph 5A to CLARA

56. In Tenants of [ADDRESS] v [COMPANY] (LRX/37/2000), HHJ Rich held:

"In my judgement the only principle upon which the discretion should be exercised is to have regard to what is just and equitable in all the circumstances. The circumstances include the conduct and circumstances of all parties as well as the outcome of the proceedings in which they arise…………In my judgement the primary consideration that the LVT should keep in mind is that the power to make an order under section 20C should be used only in order to ensure that the right to claim costs as part of the service charge is not used in circumstances that makes its use unjust. Excessive costs unreasonably incurred will not, in any event, be recoverable by reason of s.19 of the Landlord and Tenant Act 1985. Section 20C may provide a short route by which a Tribunal which has heard the litigation giving rise to the costs can avoid arguments under s.19, but its purpose is to give an opportunity to ensure fair treatment as between landlord and tenant, in circumstances where even although costs have been reasonably incurred by the landlord, it would be unjust that the tenant or some particular tenant should have to pay them."

57. In the instant case, the Applicant has not been successful on any of his challenges. 2 were not within our jurisdiction under s.27A. One did not raise a prima facie case. The fourth was ostensibly premature. Accordingly, we do not find it just and equitable to make a s.20C order in favour of the Applicant.

Judge:

S J Evans Date: 9/8/23

ANNEX – RIGHTS OF APPEAL

1. If a party wishes to appeal this decision to the Upper Tribunal ([NAME]) then a written Application for permission must be made to the First-Tier at the Regional Office which has been dealing with the case.

2. 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.

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

4. 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 Landlord and Tenant Act 1985 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 20C (1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, a First-tier Tribunal, or the Lands Tribunal, or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application.

(2) ………

(3) ……….

(4) The court or Tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances.

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, (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.

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case reference

:

CAM/11UB/LSC/2022/0066 Property :

[NAME] 4, [ADDRESS], Aylesbury, Bucks [POSTCODE] Applicant: [redacted]

Respondent Landlord

:

[APPELLANT] of application : Application for permission to appeal Tribunal : Tribunal Judge [NAME] of paper determination :

11 September 2023

DECISION

© CROWN COPYRIGHT 2013

DECISION

1. The Tribunal determines that it will not conduct a review pursuant to rules 53 and 55 of the First-tier Tribunal (Property Chamber) Rules 2013 because it is not satisfied that a ground of appeal is likely to be successful.

2. The Tribunal further determines that permission to appeal be refused, as there are no reasonable prospects of success and no other reason why an appeal should be heard.

3. In accordance with section 11 of the Tribunals, Courts and Enforcement Act 2007 and rule 21 of the Tribunal Procedure (Upper Tribunal) ([NAME]) Rules 2010, the Applicant may make further application for permission to appeal to the Upper Tribunal ([NAME]). Such application must be made in writing and received by the Upper Tribunal ([NAME]) no later than 14 days after the date on which the First-tier Tribunal sent notice of this refusal to the party applying for permission to appeal.

4. The Upper Tribunal ([NAME]) may be contacted at: 5th [ADDRESS] [POSTCODE] (tel: [PHONE]); or by email: [EMAIL] .

REASONS

1. By written application dated 30 August 2023 and received in time on 31 August 2023, the [NAME] Applicant seeks permission to appeal the decision of the Tribunal dated 10 August 2023.

2. As regards the first 2 paragraphs of the Applicant’s reasons for permission to appeal, pursuant to s.27A of the Landlord and Tenant Act 1985, the Tribunal’s jurisdiction is limited. The Tribunal may determine whether a service charge is payable and, if it is, as to - (a) the person by whom it is payable, (b) the person to whom it is payable, (c) the amount which is payable, (d) the date at or by which it is payable, and (e) the manner in which it is payable. The matters on which the Applicant now seeks to rely do not fall within the Tribunal’s jurisdiction, and have no obvious relationship to the 4 items challenged by the Applicant (see paragraph 26 of the Tribunal’s decision). No error on the part of the Tribunal has been alleged, and this ground has no prospects of success.

3. As for the request for permission to appeal on the matter of general repairs and reserve fund, the Applicant accepts by his own wording that it is repetition of his initial challenge. There is no argument advanced that the Tribunal has erred in its determination. A reserve fund is usually for major works, but not always. In the instant case, the Respondent was collecting funds on account to address any exceptional costs that might arise, or to meet

costs which exceed the amounts budgeted for. No error on the part of the Tribunal’ reasoning has been alleged, and this ground has no prospects of success.

4. The Tribunal has no jurisdiction on a s.27A application over which bank accounts the [NAME] use. The Tribunal has correctly identified the Respondent as [RESPONDENT] because, pursuant to the Lease, it is the [NAME] and bears the obligation to provide the services, and to demand and recover the service charge contributions from the Applicant. This ground has no prospects of success.

Judge: S J Evans Date: 11/9/2023