Reasonableness of Service Charges Determined by First-tier Tribunal

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY) Case reference : LON/00AL/LSC/2023/0259 Property : 19 [NAME] [POSTCODE] Applicant : [redacted] : None Respondent : [redacted] :

[COMPANY] of [NAME] : An [NAME] under s.27A Landlord & Tenant Act 1985 Tribunal members : Tribunal Judge Ian B [NAME] Ms [NAME] and venue of Hearing : 3 [ADDRESS] [POSTCODE] Date of Decision : 21 February 2024

DECISION

Decisions of the Tribunal a. The Respondents and their Representatives failed to comply with the Tribunal Directions and to attend the hearing. The Tribunal concluded that Rule 34 of the Tribunal Procedure (First-tier Tribunal) ([NAME]) Rules 2013 was satisfied by proceeding with the hearing in their absence. b. The Tribunal determines that the disputed services charges, amounting to £3.792.94 are reasonable and payable for the period 1 October 2019 to

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3o September 2023. A service charge budget in the sum of £1,170 is allowed for the period 2023/24. c. The total annual sums payable for the disputed service charge items are as follows: i. 2019/20 £817.76 ii. 2020/21 £845.49 iii. 2021/22 £1,026.07 iv. 2022/23 £1103.62 d. Tables 1-5 at Appendix A list the reasonable and payable service charges for each item in the chargeable years in dispute. e. The Tribunal makes a 20C Order under the provisions of the Landlord & Tenant Act 1985 ('the 1985 Act') and paragraph 5A Schedule 11 of the Commonhold & Leasehold Reform Act 2002 ('the 2002 Act') that prevents a recovery of costs incurred by the Respondent in these proceedings. f. The [NAME] and hearing costs of £320 incurred by the Applicant in bringing this [NAME] to Tribunal to be reimbursed by the Respondent. 1. [NAME] 1.1 The [NAME] sought a determination pursuant to s.27A of the 1985 Act and Schedule 11 of the 2002 Act, as the payability and reasonableness of the service charges for the years 2019/20, 2020/21, 2021/22, 2022/23 and the proposed charge for 2023/24. 1.2 The Applicant made an [NAME] to Tribunal dated 6 July 2023 for a 20C Order under the provisions of the 1985 Act and paragraph (a) of Schedule 11 of the 2002 Act. 1.3 Directions were subsequently issued by the Tribunal on 23 August 2024 and these identified that the Applicant disputed service charges amounting to £10,633.37 for years 2019-2023 and the proposed service charge budget for 2023/24.

2. The hearing 2.1 The Tribunal Directions set out that a hearing was to be held on 3 February 2025 at 10.00am at [ADDRESS], WC1. 2.2 Both the parties failed to arrive on time for the hearing and the Tribunal asked the case officer to contact the parties. 2.3 The representative for the Applicant confirmed her intention to attend but advised she was delayed. She subsequently arrived for the hearing at or around 10:30 am.

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2.4 The case officer also made contact by telephone with the Respondent's representative, [COMPANY] ([COMPANY]). [NAME] [COUNSEL] [NAME], a senior manager at [COMPANY] acknowledged that [COMPANY] had received a letter from the Tribunal with enclosed Directions on or around 23 August 2024. He said that “under normal circumstances, such matters would be passed to a specialist in the Respondent's representative's office for their attention however on this occasion this had not happened, for which he apologised.”

[NAME] [NAME] went on to advise the case officer that, as a result, neither the Respondent, nor any representative would be in attendance at the hearing. 2.5 The Applicant on arrival explained to the Tribunal that the Respondent's representative had not complied with the Directions. They had not provided any information to the Applicant in response to her queries in respect of invoices and had ignored all correspondence from her as part of the [NAME] to Tribunal. 2.6 The Applicant referred the Tribunal to a letter dated 24 January 2025, in which she had advised the Tribunal that the Respondent's representative had not complied with the Directions and asked that Tribunal find in her favour in the [NAME].

3. Preliminary matters 3.1 The Tribunal had carried out a review of the bundle submitted in response to its Directions. The information provided in the Bundle had failed to satisfy the Directions, in that no service charge accounts were included for the relevant years. 3.2 The Applicant had submitted information on the Property including a part lease and surrender but had failed to provide the essential information necessary for the Tribunal to proceed with the [NAME]. 3.3 The Applicant was called to a preliminary session with the Tribunal. She asked that [NAME] [NAME], her husband be allowed to participate by telephone during this preliminary session. The Tribunal gave permission for [NAME] [NAME] to take part in the preliminary session. 3.4 The Tribunal explained that despite a lack of assistance afforded by the Respondent's representative in timely provision of the required details, it was necessary for further information to be collated, if the matter was to proceed. Specifically, there were no details on the respective heads of service charge amounts that the Applicant was contesting. 3.5 The Tribunal was able to identify that Respondent's representative offered an on-line facility for retrieval by leaseholders of invoice statements, demands and service charge accounts. The Tribunal gave guidance to the Applicant, so as to enable her to download the relevant

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service charge accounts and demands to enable her to collate the necessary information to satisfy the key requirements of the Directions. Tribunal decision on the preliminary matter of the hearing

3.6 The Tribunal was required to decide at the outset whether to proceed with the hearing given the failure of the Respondent to attend. 3.7 Rule 34 of the Tribunal Procedure (First-tier Tribunal) ([NAME]) Rules 2013 ( the “Tribunal Procedure Rules”) provides that if a party fails to attend a hearing the FTT may proceed with the hearing if the Tribunal: (a) is satisfied that the party has been notified of the hearing or that reasonable steps have been taken to notify the party of the hearing; and (b) considers that it is in the interests of justice to proceed with the hearing. 3.8 The Tribunal were satisfied the Respondent, and their representatives had been aware of the hearing. They confirmed this by email to the Tribunal on 24 August 2024, and verbally on 3 February 2025. 3.9 The Tribunal noted it had not received any direct representation from the Respondent in this matter. The Respondents had offered no good justification for their failure to comply with Directions. The Tribunal decided that any prejudice caused by the Tribunal proceeding was a consequence of the Respondent's acknowledged administrative error following receipt of Directions. 3.10 It was further agreed that an adjournment on this matter would disadvantage the Applicant who had originally submitted their [NAME] for a s.27A determination in July 2023, some 19-months prior to the date of the hearing. 3.11 In Osagie V Onwuka & Anor [2024] UKUT 293 (LC) (2024) the Upper Tribunal provided guidance on the [NAME] of Rule 34 when parties failed to attend a hearing. They emphasise the need for both limbs of the rule to be satisfied if a hearing is to proceed. It also a necessary and sufficient requirement that an adequate explanation of the FTT reasoning in exercise of their discretion is given in the decision. 3.12 It is not in doubt that the Respondent was aware of the hearing, so that the first limb of Rule 34 is satisfied. After due consideration, the Tribunal decided that, to satisfy the overriding objective of the Tribunal Procedure Rules enabling tribunals to deal with cases fairly and justly, it would be appropriate for the matter to proceed at this Hearing. An adjournment would cause significant prejudice to the Applicant. 3.13 The Tribunal was also mindful that the failure of the Respondent and/or their representative to comply with its Directions, thereby frustrating the Applicant's case to proceed, may expose the Respondent to being barred from taking any further part in the proceedings.

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3.14 The Tribunal therefore concluded it would proceed with the matter. 3.15 The Applicant was informed of the Tribunal decision and offered a short adjournment to provide sufficient time for her to download the relevant information from the Respondent's representative's website for review by the Tribunal members.

4. The Property 4.1 19 [NAME], Thamesmead is a first-floor maisonette in a purpose built modern semi-detached block in an established residential estate of similar styled dwellings located south of the River Thames, close to Abbey Wood in south-east London. 4.2 A self-contained access into the subject Property is via a private staircase. There is car parking to the front and side of the dwelling.

5. The law 5.1 The relevant legal provisions are set out in Appendix A to this decision.

6. The lease provisions 6.1 A copy of a lease dated 24 July 1984 between [COMPANY] and [NAME] and [NAME] ([COMPANY] was sourced from HMLR's website under Title No SGL414880. The relevant lease clauses are presented below. 6.2 The maintenance year is defined in 1.7 as: 'The maintenance year shall mean every 12-monthly period ending on the thirtieth day of September the whole or any part of which falls within the term.' 6.3 The service charge is defined as: 'A sum equal to one-half (or such other proportion as may be determined pursuant to part 1 of the full schedule of the aggregate annual maintenance provision for the whole of the building for each maintenance year computed in accordance with part 2 of the fourth schedule.

The maintenance charge is defined as: 'The annual maintenance provision shall consist of: '(a) A sum comprising: - '(i) the expenditure estimated as likely to be incurred in the maintenance year by the company for the purposes mentioned in the fifth schedule together with; '(ii) an appropriate amount as a reserve for or towards those of the matters mentioned in the fifth schedule as are likely to give rise to expenditure after such maintenance year being matters which are likely to arise either only once during the then unexpired term of this or at intervals of more than more year during such an expired term

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including … such matters as decorating of the exterior of the building the repair of the structure thereof and the repair of drains; '(iii) a reasonable sum to remunerate the company for its administrative and management expenses in respect of the building … ' 6.4 In the fourth schedule at (5) it states: 'The company shall arrange for a accounts of the service costs in respect of each maintenance year to be prepared and shall supply to the lessee a summary of such accounts'

7. The Applicant's submission 7.1 The Applicant told the Tribunal she purchased the maisonette on or around 12 September 2019. However, she does not reside at the Property as it is being let on an assured shorthold tenancy (AST). 7.2 The Applicant said it was her opinion that the service charges were excessive and, in the absence of any information from the [NAME] agent, she had compared the [NAME] costs against service charges for other properties she owned. On this basis, the Applicant contended the costs should therefore be no more than £600 per year. 7.3 The Tribunal took the Applicant to the service charge accounts for [NAME], which had earlier been extracted from the Respondent's representative's website, in respect of years 2020/21, 2021/22 and 2022/23. 7.4 The service charge budget for the year 1 October 2023 to 30 September 2024, a summary service charge account for 2020/21, together with a detailed service charge account for the previous year 2019/20, were also retrieved from the aforementioned web portal. 7.5 The service charge accounts, budget and summary/detailed service charge accounts comprised details the Applicant had not previously seen but concurred with the service charges which had been levied throughout the years in dispute. 7.6 The Applicant thereafter made the following comments: 7.6.1 Grounds and general maintenance: The Applicant said that the Respondent had not provided any information on the works carried out within the grounds to [NAME], nor in respect of general maintenance. There had been considerable charges levied throughout the years in dispute, and it was the Applicant's contention that without evidence for the expenditure these charges were not allowable. 7.6.2 Major works charges 2019: No evidence had been provided as to the nature of these works, or for the pathway repairs undertaken in the same period. The Applicant again contended that without evidence to support this expenditure these charges were not allowable.

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7.6.3 Sinking Fund charges: The service charge accounts had revealed there had been a significant contribution to the reserve account (or sinking fund) throughout all years in dispute, ranging from £500 to more than £1,500 in 2019/20. A planned maintenance programme was not provided within the Respondent's representative's web portal, nor any other justification for the monies being placed into the reserve account. It was therefore the Applicant's contention that these sums were both unnecessary and unjustified and lesser sums should have been demanded of the lessees. 7.6.4 Management charges: The Applicant said the quality of service provided by the management company was, in her opinion, inadequate. She claimed there had been no response(s) from the [NAME] agent when these matters were pursued, they had not engaged when she made requests for further information, they rather instructed solicitors to pursue her for unpaid service charges. The Applicant also said she was unaware of any active management of [NAME] and no evidence had been provided by the [NAME] agent as to their precise management duties or tasks. 7.7 Decision of the Tribunal 7.7.1 The Tribunal received submissions from the Applicant and reviewed the information she was able to download from the Respondent's representative's web portal. 7.7.2 The Respondent made no contribution to the [NAME] and provided no information to support the expenditure detailed on the service charges posted on the web portal. Therefore, no supporting information was available to explain many of the expenses shown in the service charge accounts and budget. 7.7.3 The Tribunal relied upon their experience and knowledge in these matters, together with any information elicited from cross examination of the Applicant. 7.7.4 The Tribunal has made their determination based on information made available to it. Any omissions are because of the Respondent's failure to comply with Tribunal's Directions, which sought further information on, and justification of the incurred expenses. 7.7.5 The Applicant did not challenge the payability of the service charges under the provisions of the lease. She accepted that 50% of the charges were payable by the leaseholder of the Property. However, the Applicant disputed the reasonableness of the charges and lack of justification of these sums. 7.7.6 At tables 1-5 appended as Appendix A the Tribunal has determined allowable and payable sums for each item listed in the service charge accounts for the years in dispute. A brief explanation as to the justification for the sums is provided in column 5.

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7.7.7 The Tribunal is in agreement with the Applicant that, due to the lack of evidence for the works carried out under the heading’s 'grounds' and 'general' maintenance, 'pathway repairs', 'health and safety audit' and 'major works', these sums were not payable. It is not reasonable to expect the Applicant to pay monies which are not justified and explained. In addition, the Tribunal had no evidence as to whether these sums had been incurred. 7.7.8 The Tribunal accepts that under the lease terms, a contribution to a reserve fund is payable by leaseholders. However, the sums collected were deemed disproportionate to the total service charge costs. For example, on some occasions the contribution being almost 50% of the total service charge bill. These sums were considered excessive for this type of Property and estate. 7.7.9 The Tribunal noted no planned maintenance programme was available for scrutiny, for the sums demanded to be compared against proposed and costed likely future works. The Tribunal has accordingly reduced the contributions to the reserve fund to a more reasonable level, given the lack of such information available to it. 7.7.10 The sums payable for each year in dispute are therefore shown in the table below:

8. Section 20 Order 8.1 The test for Tribunal in [NAME] a s.20 Order was whether it would be just and equitable for the Applicant to pay the Respondent's costs given Tribunal's findings and whether the Applicant would be disadvantaged by their liability to pay such costs.

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8.2 The Tribunal had noted that the behaviour of the Respondent had been wholly unreasonable. Had the requested documentation been submitted in accordance with the Directions then much Tribunal time would have been saved. 8.3 The Tribunal also noted the initial action of the Respondent's representative (i.e. the [NAME] agent) had been to appoint lawyers in the absence of any engagement with the Applicant. The Respondent and their Representative(s) had then subsequently failed to attend the Hearing. It would therefore be wholly unfair for Tribunal to allow any recovery of costs on the part of the Respondent. 8.4 The Applicant had been successful in all findings of the Tribunal and no material prejudice to other leaseholders had been identified arising from [NAME] an Order. 8.5 Decision of the Tribunal 8.5.1 The Tribunal had consequently decided to make an Order on the basis that the s.27A determination favoured the Applicant. 8.5.2 The Tribunal therefore makes an Order limiting recovery of the Respondent's costs pursuant to s.20C of the 1985 Act, at paragraph 5 (a) of Schedule 11 of the 2002 Act.

9. Reimbursement of [NAME] charges 9.1 The Applicant had been successful in all findings of the Tribunal, and it therefore directs that the [NAME] and Hearing costs of £320 be reimbursed by the Respondent within two-weeks of this Decision.

Name: [RESPONDENT] B [NAME]: 21 February 2025

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A P P E N D I X A Reasonable service charges for each disputed item in the chargeable years Tables 1-5

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A P P E N D I X B The law Relevant legislation Landlord & 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 [NAME] may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to: -

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(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 [NAME] 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 [NAME] 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.

Section 20

(1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either: -

(a) complied with in relation to the works or agreement; or (b) dispensed with in relation to the works or agreement by (or on appeal from) the appropriate tribunal.

(2) In this section 'relevant contribution', in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement.

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(3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.

(4) The Secretary of State may by regulations provide that this section applies to a qualifying long-term agreement: -

(a) if relevant costs incurred under the agreement exceed an appropriate amount; or (b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount.

(5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount: -

(a) an amount prescribed by, or determined in accordance with, the regulations; and (b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations.

(6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount.

(7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined.]

Section 20B

(1) If any of the relevant costs taken into account in determining the amount of any service charge were incurred more than 18 months before a demand for payment of the service charge is served on the tenant, then (subject to subsection (2)), the tenant shall not be liable to pay so much of the service charge as reflects the costs so incurred.

(2) Subsection (1) shall not apply if, within the period of 18 months beginning with the date when the relevant costs in question were incurred, the tenant was notified in writing that those costs had been incurred and that he would subsequently be required under the terms of his lease to contribute to them by the payment of a service charge.

Section 20C

(1) A tenant may make an [NAME] for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings

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before a court, residential property tribunal or the Upper 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 [NAME].

(2) The [NAME] shall be made: -

(a) in the case of court proceedings, to the court before which the proceedings are taking place or, if the [NAME] is made after the proceedings are concluded, to a county court; (aa) in the case of proceedings before a residential property tribunal, to that tribunal; (b) in the case of proceedings before a residential property tribunal, to the tribunal before which the proceedings are taking place or, if the [NAME] is made after the proceedings are concluded, to any residential property tribunal; (c) in the case of proceedings before the Upper Tribunal, to the tribunal; (d) in the case of arbitration proceedings, to the arbitral tribunal or, if the [NAME] is made after the proceedings are concluded, to a county court.

(3) The court or tribunal to which the [NAME] is made may make such order on the [NAME] as it considers just and equitable in the circumstances.

Section 21B

(1) A demand for the payment of a service charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to service charges.

(2) The Secretary of State may make regulations prescribing requirements as to the form and content of such summaries of rights and obligations.

(3) A tenant may withhold payment of a service charge which has been demanded from him if subsection (1) is not complied with in relation to the demand.

(4) Where a tenant withholds a service charge under this section, any provisions of the lease relating to non-payment or late payment of service charges do not have effect in relation to the period for which he so withholds it.

(5) Regulations under subsection (2) may make different provision for different purposes.

(6) Regulations under subsection (2) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

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RIGHTS OF APPEAL 1 If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written [NAME] for permission must be made to the First-tier Tribunal at the Regional Office which has been dealing with the case. 2 The [NAME] for permission to appeal must arrive at the Regional Office within 28-days after the Tribunal sends written reasons for the Decision to the [NAME]. 3 If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit. 4 The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e., give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking.

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