Service Charge Recoverability Ruling by First-tier Tribunal

OUTCOME: Allowed

1

Case Reference : CHI/OOHB/LSC/2020/0108

Property : [APPELLANT[NAME], [ADDRESS] [POSTCODE].

Applicant: [redacted]

Respondent: [redacted] The Landlord and Tenant Act 1985, section 27A

The Landlord and Tenant Act 1985, section 2oC

Paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 (Respondents)

Tribunal Member : Judge M Davey

Date of Decision with reasons : 26 July 2021

© CROWN COPYRIGHT 2021

FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

2 DECISION

The Tribunal determines that the disputed Service Charges are recoverable or irrecoverable as set out in the following Reasons.

REASONS

The Application

1. By an application dated 19 October 2020 (“the Application”), the Applicants applied to the First-tier Tribunal (Property Chamber) (“the Tribunal”), under section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) for a determination as to the payability of the Service Charge, under their leases of apartments at The [APPELLANT[NAME], [ADDRESS], [POSTCODE] (“[NAME]”), for the Service Charge Years 1 January to 31 December 2018 and 2019.

2. The Applicants, listed in the Annex to these Reasons, are the long [NAME] of 11 of the Apartments at [NAME].

3. In their Application the Applicants asked the Tribunal to determine the following matters:

4. Whether the Respondent Landlord is failing in its obligation to provide reliable and timely accounts for 2018 and 2019 and to decide if the Landlord is failing in its obligation to provide supporting information and to verify that credits will be due where there is evidence that:

• Budgeted costs and actual underspend have not been reconciled. • Services provided to manage the Landlord’s further development of [NAME] are included in [NAME] Service Budget and charged to the [NAME]. • Defects in the heating network may have resulted in overcharging for gas. • Defects in the [APPELLANT[NAME] that should have been dealt with in a timely manner and repaired at the Landlords expense during the warranty period are charged to [NAME]. • Defects in [NAME] and undercroft (legacy works), that existed prior to completion, or as a consequence of damage during construction works were charged to the [NAME]. • Utility billing is based on unreliable/unverified usage data. • Services have been procured via inadequately managed contracts Case Management Hearing and Directions

5. The initial Application challenged Service Charges demanded of the Applicants in respect of the years 2018 and 2019 and the subsequent position statements of 4 December 2020 (Applicants) and 5 January 2021

3 (Respondent) provided by the parties were directed to those two years. At a case management hearing held by a Tribunal Member, [NAME] ([NAME]), on 11 January 2021, the parties agreed that the Service Charges for 2017 and 2020 could be included in the Tribunal’s determination and the Member so directed.

6. [NAME] further directed that the Tribunal would also determine applications in respect of (1) an order under section 20C of the 1985 Act preventing the Landlord from recovering the costs of the proceedings from a tenant through the service charge and (2) an order under Para 5A of Schedule 11 to the 2002 Act preventing the Landlord from recovering litigation costs in respect of the proceedings from a tenant.

7. In his Directions of 11 January 2021 Mr [APPELLANT], directed that it was likely that the Application could be determined on the papers, without an oral hearing, in accordance with Rule 31 of the First Tier Tribunal Property Chamber Procedure Rules 2013, and set out a timetable to enable the matter to be determined. Mr [NAME] also directed that the Tribunal would not inspect [NAME] unless a party or parties requested an external inspection. No such request was made. The Tribunal has therefore determined the matter on the basis of the written submissions of the parties. The Applicant provided a statement of case dated 27 February 2021 and the Respondent provided a statement of case dated 30 March 2021. The Applicants provided a reply, dated 4 April 2021, to the Respondent’s statement of case and subsequently provided a bundle of documents in accordance with Directions.

8. The Applicants also sent a supplemental 465 page bundle to the Tribunal at the request of the Respondent’s agent ([NAME]). Tribunal Judge, [NAME] (Deputy Regional Judge), determined that the initial bundle contained all the materials relevant to the disputed matters and therefore directed, on 17 May 2021, that the supplemental bundle should not be included unless either party made a specific application to the Tribunal no later than 24 May 20121 identifying a reason why any pages in that bundle should be considered by the Tribunal. No such request was made.

9. The Application was subsequently set down for determination by Tribunal Judge Martin Davey sitting alone.

The Case for the Applicants

10. Mr [NAME] ([NAME] of apartment 25) prepared the case for the Applicants. In his statement Mr [NAME] explained that the Applicants hold leases in similar form of apartments in a building, the [APPELLANT[NAME], containing 38 apartments. He provided a copy of the lease of Flat 34 as a sample lease (“the Lease”). The Building is part of a larger development in central Bristol, Finzels Reach (“[NAME]”) that comprises residential, office and retail buildings and a hotel. There is an underground car park (“the [ADDRESS]”) with specific parking spaces allocated to users, including [NAME] of the [APPELLANT[NAME].

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11. The Lease is a tripartite lease granted on 24 May 2017 and was made between the Landlord, [APPELLANT], the Tenant, [APPELLANT] and [APPELLANT] and [NAME] Manager, [RESPONDENT] (Residential) Ltd. The Lease was granted for a term of 250 years less ten days from 1 January 2015. [NAME] Manager is now also the Landlord and has appointed [NAME]) [APPELLANT] to manage the [APPELLANT[NAME] and the rest of [NAME] as well as the [ADDRESS]. We were not told when the transfer took place.

12. The Landlord’s responsibilities and obligations are contained in Schedules 4, 7 and 9 to the Lease and include carrying out and providing the Building Services and insuring the Building.

13. [NAME] Manager’s responsibilities are to carry out and provide [NAME] and [COMPANY].

14. The Service Charge comprises, the Building Service Charge Percentage of the Annual Building Expenditure, [ADDRESS] Charge Percentage of the [ADDRESS] and [NAME] Service Charge Percentage of the [NAME].

15. The Lease provides that the Building Service Charge Percentage is a fair and reasonable percentage of the Building Service Charge payable by the Tenant as provided for in the budget or estimate provided by or on behalf of the [NAME] Manager for the current year or a fair and proper proportion in respect of [NAME] if no proportion has been provided. [NAME] Service Charge Percentage is a fair and reasonable percentage of [NAME] Service Charge payable by the Tenant as provided for in the budget or estimate provided by or on behalf of the [NAME] Manager for the current year or a fair and proper proportion in respect of [NAME] if no proportion has been provided. The [NAME] Manager is [RESPONDENT] (Residential) Limited.

16. Paragraph 4.1 of Part 1 of Schedule 9 to the Lease provides that “The Landlord shall within 6 months after the end of each Service Charge Year prepare and submit to the Tenant a statement of the Annual Building Expenditure incurred by the Landlord and any [NAME] and the [ADDRESS] incurred by [NAME] Manager.

17. Paragraph 4.3 of that Schedule provides that the Landlord/[NAME] Manager may include with the statement referred to in paragraph 4.1 such provision for expenditure in any subsequent year as the Landlord or [NAME] Manager shall consider appropriate.

18. The annual statements are delivered in the form of a year-end audit pack. Provision for expenditure is referred to as a budget.

19. The Applicants allege the following in their case:

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• No budgets or statements were provided for 2017; • 2018 [APPELLANT[NAME] statement was issued on 25 October 2019;

• 2019 [APPELLANT[NAME] statement was issued on 12 November 2020

with invoice for balancing payment; • No budgets or statements for [NAME] have been provided

for any year; • [ADDRESS] budget was issued in November 2018, which

was the first notification [NAME] 
received that there

was a separate service charge for the car park; • [ADDRESS] statement (and invoice) was issued on 3

December 2020; • [ADDRESS] statement has never been issued; • [ADDRESS] statement was issued on 3 December 2020

with invoice for balancing payment; • To date 2021 budgets for [NAME] and [ADDRESS] have not

been issued, but 2021 invoice for [ADDRESS] 
was issued on 1

December 2020; • Concerns about budgets and issuing of accounts were raised

by [NAME] at a meeting with [NAME] in 
November 2019. Commitments given by [NAME] to provide budgets in advance

and accounts within timescales defined in the Lease have

not been met.

20. The Applicants state that Service Charge costs have escalated since 2017, rising by 31% in 2018, 62% in 2019 and 45% in 2020 (compared with the 2017 Service Charge) and seek to identify inaccurate invoicing of Tenants by [NAME].

21. Finally, the Applicants seek orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 preventing the Landlord from recovering its costs in connection with the present proceedings by way of service charge or an administration charge respectively. They argue that the dispute has only arisen because of inadequacy of the service provided by the [NAME] agents and frequent and persistent errors and omissions in the accounting and management processes.

The case for the Respondent

22. The Respondent’s case was prepared by Mr [RESPONDENT] (Hons) MRICS of [NAME] ([COMPANY], [ADDRESS] [POSTCODE], who is employed as a Director at [NAME] at the above address. [NAME] are duly appointed as the [NAME] on behalf of the Respondent in respect of the [APPELLANT[NAME], [NAME] and [ADDRESS].

23. Mr [NAME] explained that Finzels Reach is a 5-acre mixed-use development in the centre of Bristol, comprising 13 different plots (including residential, office, leisure, retail and hotel uses). The [APPELLANT[NAME] is one of these plots.

6 24. Mr [APPELLANT] states that The Building Service Charge relates specifically to expenditure within the [APPELLANT[NAME] and is apportioned to the 38 [NAME] on a floor area basis.

25. [NAME] Service Charge relates to the public realm / common areas of the [NAME] and is apportioned to the 13 properties on [NAME] on a floor area basis. [APPELLANT[NAME] is apportioned 5.53% of the total [NAME] Service Charge expenditure. This is subsequently recovered from the [NAME] as part of the Building Service Charge as stated above, which Mr [NAME] says is clearly stated within the budgets.

26. [ADDRESS] Charge relates specifically to the basement car park beneath the public realm area (“the [ADDRESS]”). Mr [NAME] says that expenditure is apportioned on a per space basis across two Schedules and is charged independently to [NAME], who have an obligation to contribute under the terms of their leases.

27. Mr [NAME] says that each of the above Service Charges has an accounting period of 12 months, which runs from 01 January to 31 December. In accordance with the residential leases, the invoices are issued 6-monthly in advance and the Service Charges operate on an on account basis. An independent accountant conducts an external review of the annual reconciliations before the final Service Charge is demanded if the actual cost of services exceeds the advanced charges paid.

28. The Respondent refutes the assertion that [NAME] have consistently failed to fulfill their obligations within the leases and referred back to their Position Statement, which sets out the details for each period in question. With specific regard to the 2017 budgets, Mr [APPELLANT] says that these would have been available to the Applicants from their solicitor in the enquiries before contract.

29. [NAME] says that the 2020 year-end reconciliations for the three Service Charges in question are yet to be completed and are currently with their independent accountant.

30. With regard to the contested costs, Mr [NAME] says that the annual expenditure is clearly stated in the Service Charge reconciliations that have been provided.

31. Mr [NAME] states that [NAME] have maintained regular and frequent communications with the Applicants and spent a considerable amount of time, both in meetings and correspondence, to explain the rationale for the expenditure and means of apportionment.

32. Mr [NAME] stated that the Applicants have raised a significant number of questions across the three Service Charges over three annual periods, which has required the disclosure of a very large number of documents. [NAME] have completed the two Scott Schedules submitted by the Applicants and subsequently identified £7,334.61 of expenditure that they believe was either in error or, in the case of the £5,000 [NAME], can be returned on

7 request.

33. [NAME] also accept that further work on the electricity apportionment in relation to the [ADDRESS] Charge is required and will endeavour to work with the Applicants on this matter.

34. Mr [NAME] says that the lack of clarity in the way the contested figures have been presented has also made it difficult to understand the actual sums in dispute. However, by [NAME] calculation, the total amount in dispute by the Applicants across the three Service Charges for the three (sic) years in question is £13,528.33 including VAT.

35. Mr [NAME] says that the Respondents refute the comments about the “frequent and persistent errors and omissions in the accounting and management processes”, alleged by the Applicants, and argues that the documents submitted have provided clear evidence as to the efficacy and transparency of the Service Charge accounts.

36. Mr [NAME] says that a substantial number of hours have been spent going through archive audits, preparing the relevant information, considering the various cases made by the Applicant and providing appropriate responses. He says that in essence, only two headings of expenditure in relation to the [APPELLANT[NAME] Service Charge actually now remain in dispute, with the other items being in relation to [NAME] Service Charge and [ADDRESS] Charge.

37. Mr [RESPONDENT] submitted that the Respondent’s reasonable costs in relation to this matter should therefore be recoverable through the Service Charges in question.

The Applicants’ Response

38. The Applicants state that although [RESPONDENT] refute the assertion that the Landlord has consistently failed to fulfill its obligations under the Lease, and refer to their position statement of 5 January 2021, [NAME] position statement demonstrates that they did not fulfill their obligations as none of the accounts for the [APPELLANT[NAME] or [ADDRESS] were issued within the timescales specified in the Lease. They also state that [NAME] accounts have not been provided for any of the years in question.

39. The Applicants also maintain that, although [NAME] refute the Applicants’ comments about the “frequent and persistent errors and omissions in the accounting and management processes”, errors are frequent, particularly in relation to billing, and are only corrected once the errors are highlighted by the [NAME]. They state that there are many examples and a sample of these was enclosed.

40. The Applicants say that they have not been able to determine how the contested sums attributed to the Applicants have been adjusted by [NAME], in the absence of their calculations. The Applicants presented the total cost of the relevant item in the accounts as these costs (and any subsequent

8 adjustments) apply to all [NAME] and stakeholders in [NAME], not only the 11 Applicants.

41. With respect to [NAME] claim that the action has resulted in additional work, the Applicants state that they formed a group to facilitate more efficient communication because individual [NAME] were expending many hours communicating with [NAME] on similar issues. They acknowledge that some improvements were made by [NAME], of [NAME], in general administration but say that many of the costs in question predate Ms [NAME] time with the Company. They say that significant issues remain and have not been adequately addressed by [NAME]. 
They also assert that the Applicants have incurred costs in time and legal expenses in their attempts to achieve a satisfactory response from the Landlord.

42. With regard to the section 20C and paragraph 5A applications, the Applicants repeat the submission made in their statement of case and dispute [NAME]’ claim for reimbursement of its costs via the Service Charge or by way of administration charge. They say that the claim has been brought about because of the inadequacy of the service provided by [NAME] and multiple errors and omissions in the related accounting and management processes. The Applicants state that even before the claim is determined by the Tribunal, [NAME] have conceded elements of the claim contended by the Applicants and it is doubtful they would have done so had this claim not been brought. They say that to allow [NAME] to recover its costs in relation to a claim instigated due to their mistakes and inefficiency would be unfair. Additionally, [NAME] have not identified any provision in the Lease that enables them to claim their costs in these circumstances.

43. The specific Service Charge issues raised by the Applicants and the response of the Respondent are as follows.

[APPELLANT[NAME]: [NAME]: 2018.

Applicants

44. The expenditure was £4,116 as against a budget of £500. The Applicants state that the information provided by [NAME] confirms that elements of the work carried out in 2018 were to correct construction defects, which they submit should have been covered by the [NAME]’s warranty. The Applicants also argue that they have been charged for items relating to other buildings in the development and for items that they believe were the responsibility of the [NAME], being related to construction activity. The invoices challenged amount to £2,426.03.

Respondent

45. [NAME] argues that save for two invoices (totalling £381.84 in cost) the expenditure incurred was all in order and required to undertake routine and reactive repairs to the [NAME] plant and machinery in [NAME].

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46. The Respondent says that completion of the development took place on 1 August 2017 and the [NAME]’s warranty was for 12 months expiring on the 31 July 2018, after which time repairs became a service charge cost. [NAME] say that for the sake of completeness they were not instructed to deal with snagging items, which were the responsibility of the project manager.

[APPELLANT[NAME]: [NAME]: 2019

Applicants

47. The expenditure was £15,662.00 as against a budget of £1,500. The Applicants state that costs were mostly relating to repairs to the boilers, which they believe should have been covered by the [NAME]’s warranty obligation, the system having been faulty from the outset. As in the case of the 2018 accounts, the Applicants also argue that they have been charged for items relating to other buildings in the development and for items related to construction activity that they believe were the responsibility of the [NAME]. The sums challenged amount to £12,183.90.

Respondent

48. The Respondent says that the expenditure incurred was all in order and required to undertake routine and reactive repairs to the [NAME] plant and machinery in [NAME]. The [NAME]’s warranty was for 12 months expiring on the 31 July 2018, after which time repairs became a service charge cost. The Respondent states that they could not identify any invoices within the documents for this period that relate to another property and there are none identified within the additional schedule prepared by the Applicants.

[APPELLANT[NAME]: [NAME]: 2018

Applicants

49. The Applicants argue that the budgeted [APPELLANT[NAME] Service Charge costs for 2018 exceeded the total Service Charge costs by £5,091, which was not returned to [NAME]. Indeed a sum of £5,000 was allocated to reserves in the 2018 accounts, no provision having been made for the same in the budget for 2018. Furthermore, the [NAME] was not used in 2019 to defray unexpected costs of £26,088 in that year.

Respondent

50. The Respondent states that the [NAME] was set up with a view to building up a sufficient sum of money to deal with any significant future repairs on behalf of the [NAME] as would be considered good practice for a property of this type. They state that the fund has since been held on behalf of the [NAME] but the Respondent has no reservations

10 whatsoever in returning it to the [NAME], together with any interest that has since accrued.

[APPELLANT[NAME]: Website/E-Strategy: 2019

Applicants

51. The 2019 budget made provision of £1,070 for a new online portal for the [NAME] of [NAME]. The actual cost under this head was £1,284. The Applicants argue that because this cost is also in [NAME] accounts it has been double counted and should not be charged again to the [APPELLANT[NAME].

Respondent

52. The Respondent states that they could not identify the two invoices that make up the £1070 (sic) within the Applicants schedule and therefore cannot verify as to whether they have been double counted.

[NAME]: Audit fees: 2019

Applicants

53. The fees for this year were £4,500 as against a budget of £2,500. The Applicants say that the auditors have justified the additional cost as being caused by extra work they had to carry out as a result of invoices being incorrectly posted to or from other properties. The Applicants argue that they should not have to bear a cost that is attributable to errors by [RESPONDENT].

Respondent

54. The Respondent says that [NAME] has a complex Service Charge that requires the [NAME] to recharge over 30 different sub-metered electricity supplies, 14 sub-metered water supplies and seven sub-metered gas supplies to the 13 different entities/ plots that benefit from the services. They say that this undoubtedly places a greater burden on the accountants and in their opinion the £2,000 additional cost is therefore reasonable. They also say that the Applicants have only identified one invoice that has been accidentally mis-posted to another property.

[NAME]: Marketing and Promotions 2019

Applicants

55. The total [NAME] expenditure on marketing consultants (the [NAME] Partner) was £1,293.48, whilst expenditure on the website /e strategy was £7,956. The Applicants believe that it is unreasonable to charge the [NAME] for marketing consultancy costs and the provision

11 of a public wi-fi network for the whole [NAME]. They consider that such a network does not benefit the [NAME] and furthermore is a major capital project on which [NAME] were not consulted. They dispute £6,252 of the costs involved including £4,428 relating to the public wifi network.

Respondent

56. The Respondent states that in their opinion [APPELLANT] [NAME]’ annual contribution of £331.54 towards site wide Wi-Fi is fair and reasonable, in that the [NAME] enjoy the benefits of this service throughout the public realm areas of [NAME].

[NAME]: other professional fees 2018

Applicants

57. The Applicants state that a fee of £3,900 to the Creative Partner for marketing is unreasonable in amount.

Respondent

58. The Respondent states that this cost relates to the advice provided by the [NAME] for the initial setup and development of the occupier portal with the service provider, [NAME] and is a reasonable expense.

[NAME]: income 2019

Applicants

59. The Applicants argue that the Respondent has not accounted for income from the food market and filming that has taken place on the public areas of the site.

Respondent

60. The Respondent says that the space is not (as alleged by the Applicants) sub- let to the [COMPANY], [COMPANY], which provides the service on a cost neutral basis. They say it was always the [NAME]’s intention to utilise the public realm space to enhance and enliven [NAME] and the Respondent does not derive any income or profit from this activity.

[ADDRESS]: Service Charge: 2017

Applicants

61. The Applicants state that the balancing charges for 2017 (£182.70 per [NAME]) were not issued until December 2020 and are therefore irrecoverable by virtue of Section 20B of the Landlord and Tenant Act 1985.

12 Respondent

62. The Respondent says that there were delays in issuing 2017 year end balancing charges, but all the costs were properly incurred and certified accordingly. The Respondent therefore remains of the opinion that the charges should be paid in full.

[NAME]: [ADDRESS]: 2018

Applicants

63. The Applicants state that expenditure was £20,350 as against a budget of £3,000. They argue that some of these costs, included in the 2018 accounts, were incurred in 2017 before the [NAME] took ownership of their apartments and as such should be irrecoverable.

64. The Applicants state that [NAME] have also been charged in error for items relating to specific buildings in the development that should be charged to relevant [NAME].

2019: [NAME]

65. The costs of £4,828.00 exceeded the budgeted sum of £3,000. As in the case of 2018, the Applicants state that [NAME] have also been charged in error for items relating to specific buildings in the development that should be charged to relevant [NAME].

Respondent

66. The Respondent commented on a number of detailed disputed costs for 2018 arguing that most of them were properly charged to the Service Charge accounts. They state that there is an excess of £250 on the [ADDRESS] insurance policy and, unless there is clear evidence as to who has actually caused the damage, they take a view not to submit a claim unless the sum involved is significant enough to warrant a claim.

67. With regard to 2019 the Respondent says that the Applicants’ case makes no specific reference to any invoices or sums, so no direct response can be provided other than that it remains their opinion that all costs allocated to this expenditure heading were properly incurred.

[ADDRESS]: Electricity: 2019

Applicants

68. The Applicants consider the electricity charge to [NAME] to be unreasonably apportioned as between [NAME] and commercial users and to be overcharged by £1,861.77. They also challenge a specific balancing invoice in respect of electricity.

13 Respondent

69. The Respondent states that the basement [ADDRESS] is served by two incoming electricity supplies, which in turn are served by 13 sub-meters. Nine of the sub-meters exclusively serve the residential parking areas of the [ADDRESS] and the other four serve both the residential and commercial areas of the [ADDRESS]. Those shared sub-meters are currently apportioned on a 30/70 basis. In 2018 the [ADDRESS] was extended to incorporate 122 new spaces, principally for the new commercial developments. At this time, it was necessary to adjust the apportionment of the [ADDRESS] expenditure to include the additional spaces. The apportionment of the four shared sub- meters should have been changed to 53/47 and the Respondent agrees with the Applicant’s calculation in this regard.

70. The Respondent says that the balancing invoice referred to by the Applicants relates to the balancing charge in the 2019 year-end reconciliation and whilst the Respondent accepts that the electricity figure will change (see above) the Respondent cannot agree to this duplicated cost which is covered by the adjustment referred to in paragraph 69 above.

[ADDRESS]: Service Charge: 2020

Applicants

71. Although the total budget has increased by 17.5% from the previous year there has been an increase of 41% in the amount payable by the [NAME] due to the apportionment referred to above.

Respondent

72. As noted above, the Respondent agrees that the apportionment needs to be amended to reflect the revised apportionment for the four shared sub- meters and says that this figure will be included in the 2020 year end reconciliation, but this is subject to the actual consumption figures. They say that if agreeable with the Applicants they will send their agreement to this calculation when the figures become available.

[NAME]: 2020

Applicants

73. The Applicants argue that a charge in the budget for the cost of maintenance of new stackers in the [ADDRESS] should be allocated to specific space [NAME] and not all space [NAME] because the maintenance of the stackers relates to those specific spaces.

14 Respondent

74. The Respondent says that the stackers are considered part of the integral plant and machinery within the [ADDRESS] and therefore the cost is properly charged.

[ADDRESS]: Soft and hard surfaces: 2019 and 2020

Applicants

75. The Applicants argue that costs of waste management, pest control, lift maintenance and lift repairs are services applicable to all tenants and should not be borne solely by [NAME].

Respondent

76. The Respondent says that the [ADDRESS] costs referred to here are specific to the [ADDRESS] and have therefore been allocated as such. They say that it is necessary for the [NAME] to use the [ADDRESS] to put their household waste in the shared residential bins. In addition to this, bike storage is also provided in the [ADDRESS], which is open to all [NAME] with a bike.

77. The Respondent says that the waste management is a weekly service provided by [COMPANY], purely for waste generated from cleaning in the [ADDRESS] itself. This was a nil cost in 2019. The other costs relate purely to the [ADDRESS] area and are therefore properly charged as such. The Respondent believes that the use of the [ADDRESS] by the [NAME] without an allocated space is minimal and those with a parking space derive the most part of the services due to their far more frequent usage.

[NAME], [APPELLANT[NAME], [ADDRESS] on-going contracts (all years)

78. The Applicants argue that several on-going maintenance and consultancy contracts have contributed to the escalation of Service Charge costs and question whether the services are being provided at competitive rates.

Respondent

79. The Respondent says that all contracts are at a competitive rate for the services, as per the information provided. They say that all expenditure details have been disclosed in the audited accounts for the various Service Charges. The Respondent accepts that the Landlord has an obligation to ensure competitive service pricing and are confident that they deliver this.

Discussion and determination

80. As stated above, the development at Finzels Reach is an extensive 5-acre

mixed development in the centre of Bristol constructed over a period of

time ending in late 2019. It comprises 13 plots used as apartments,

offices, retail buildings and a hotel. The [APPELLANT[NAME] is a residential building

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on the development completed on 1 August 2017. It contains 38 one and

two bedroom apartments, which have been sold on long leases. The

[NAME] Applicants all own leases of Apartments in the [APPELLANT[NAME].

81. The dispute between the parties stems from a combination of factors. The

first is that the [APPELLANT[NAME] was completed, and the apartments therein sold

on long leases, at a time when the wider [NAME], including the [ADDRESS],

was in a state of on-going development with all the inconveniences that

inevitably accompany such a state of affairs.

82. The second factor is that, by virtue of the nature of the development, the

Apartment leases at the [APPELLANT[NAME] provide for a complex Service Charge

composed of three elements.

83. The Service Charge provided for by the Lease is structured as follows. It

comprises three heads of expenditure being that on the Building, [NAME] and the [ADDRESS]. The [NAME] pay a percentage proportion of

each head of expenditure. Each apartment [NAME] in [APPELLANT[NAME] pays

a proportion of the Service Charge expenditure on the Building on a floor

area basis. [NAME] expenditure, which relates to the public

realm/common areas of the [NAME], is apportioned to the 14

plots on [NAME] on a floor area basis. [APPELLANT[NAME] is apportioned 5.53%

of the total [NAME] expenditure and that proportion of the costs is

recovered from individual [NAME] through their Service Charges

on a floor area basis.

84. Paragraph 2.2 of the 9th Schedule to the Lease provides that “In respect of

the [COMPANY] the costs shall where appropriate be separated

into services provided to the respective areas of use of the basement

floor and then divided equally between the number of Parking Spaces

and Motorcycle Spaces as appropriate or the [ADDRESS] shall be divided between the number of Parking Spaces and

Motorcycle Spaces using a weighting appropriate to level of user of the [COMPANY].” In practice the expenditure is apportioned on a per space

basis across two schedules and is charged independently to [NAME].

85. The scheme of payment of the Service charge contained in the lease is that

the Landlord is required to estimate the Service Charge for the Service

Year in question. The Tenant is then required to pay the advance

Estimated Charge in instalments during that year. The Lease provides for

two instalments on 1 January and 1 July each year (unless a quarterly

payment scheme is chosen by the Landlord, which it was not). Within 6

months after the end of the Service Year the Landlord is obliged to prepare

and submit to the Tenant a certified statement of the three heads of

expenditure (i.e. the Building, [NAME] and the [ADDRESS] expenditure) in

that year and the Service Charge payable. If the Service Charge exceeds

the Estimated Charge paid, the Tenant is obliged to pay the balance. If the

Service Charge is less than the Estimated Charge the difference is to

be credited against future rents.

16 86. Because the Leases of apartments in the [APPELLANT[NAME] were first granted

during 2017, following completion of the Building, the Lease provides, in

paragraph 5.3 of Schedule 9, that “on the date hereof the Tenant shall pay

to the Landlord the Initial Service Charge being one half of the Estimated

Service Charge and as set out in paragraph E of the Additional

Particulars.” The Tribunal has not seen the Estimated Service Charge for

2017 but the said paragraph E in the case of Apartment 34 provides that

the Initial Service Charge is to be £2,569.13 payable on 24 May 2017.

87. The third factor is that the Applicants have taken issue with how the

Service Charge machinery in the Lease has been operated by the

Respondent’s [NAME], [RESPONDENT]. More specifically, the Applicants

challenge the payability and reasonableness of certain elements of the

charges made in respect of the years 2017, 2018, 2019 and 2020.

88. The Applicants were particularly concerned that the actual [APPELLANT[NAME]

Service Charge costs for 2019 (£128,957) exceeded the budgeted sum of

£102,902 by £26,055 and they have focussed on some of those heads of

expenditure that have exceeded the budget sums by a wide margin.

89. The starting point for the Tribunal is section 27A(1) of the Landlord and

Tenant Act 1985 which gives the Tribunal jurisdiction to determine

whether a service charge is payable and, if it is, (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. For this purpose service charge is defined in section

18 of that Act.

90. Section 18 provides that

(1)………“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.”

91. Section 19(1) of the Act provides that relevant costs shall be taken into

account in determining the amount of service charge payable for a period

(a) only to the extent that they are reasonably incurred and (b) where they

are incurred on the provision 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.

17 92. With regard to the timeliness of the provision by the Landlord of budgets

and certified end of year statements the Applicants say concerns about

budgets and issuing of accounts were raised by the [NAME] at a

meeting with [NAME] in November 2019 and that commitments were

given by [NAME] to provide budgets in advance and accounts within

timescales defined in the Lease. It is however clear that the certified

statements were not issued within the six-month timescale provided

for by the Lease. The [APPELLANT[NAME] for 2018 was not issued until

24 October 2019 and the Statement for 2019 was not issued until 26

November 2020 with an invoice for the balancing payment. We do not

know when the 2017 statement was issued. However, although, in their

Statement of Case, dated 27 February 2021, the Applicants stated that no

budgets or statements had been provided for 2017, it would appear that

the statement has since been provided by the Respondent.

93. The Applicants also state that no budgets or statements for [NAME] have

been provided for any year. However, the Respondents point out that [NAME] Service Charge contribution is recovered as part of the

Building Service Charge and is clearly stated within the budgets.

94. Whilst it is clearly the case that late issue of budgets and final accounts by

[NAME] is a matter to be deprecated, that lateness cannot invalidate the

[NAME]’ obligation to pay the interim charge or the service charge, as

the case may be, when the demand is eventually made, unless precluded by

section 20B of the 1985 Act (as to which see below).

This brings us to the specific matters raised by the Applicants.

Service charge year 2017

1. [APPELLANT[NAME] – [NAME] contribution

95. The Applicants requested the 2017 accounts in order to ascertain whether they had been correctly charged for [NAME] contribution given that the budgeted sums in 2018 and 2019 had been more than the actual amount. However, the accounts having now been supplied, this no longer appears to be a disputed sum. (Indeed it transpired that there had been an under-spend on [NAME], which the Respondent says has been credited to the [APPELLANT[NAME] Service Charge).

2. [ADDRESS] Charge invoice

96. The Service Charge provided for by the Lease contains three elements, being the Building Costs, [NAME] contribution and the [ADDRESS] charge. Nevertheless, it is clear from the Service Charge accounts for 2019 that the Service Charge demands issued by [NAME] do not include the [ADDRESS] Charge element of the Service Charge. [ADDRESS] Charge is clearly charged and accounted for separately from the Building Costs and [NAME].

18 97. Thus in respect of the Service Charge year 2018, the [APPELLANT[NAME] Service Charge audit pack was issued on 24 October 2019 whilst a [ADDRESS] Charge balancing credit for 2018 was issued to [NAME] on 16 December 2019. In respect of Service Charge Year 2019, the year-end [APPELLANT[NAME] pack was sent to [NAME] on 26 November 2020 (a section 20B 1985 Act notice having been issued on 26 June 2020). [ADDRESS] Charge audit pack and certificate for 2019 were sent to [NAME] on 3 December 2020.

98. The Applicants state that the first time they learned of a [ADDRESS] Charge was when [NAME] wrote to [NAME] on 19 November 2018 in the following terms.

“You will have recently received invoices relating to service charge for the use of the underground car park at Finzels Reach, Bristol. I appreciate that you may not have received invoices relating to this before and it may have come as a surprise. I am writing to provide some additional clarity on the situation. The underground car park has been in use at Finzels Reach since the development's initial construction. We have consulted each lease and noted that your lease demises you the use of one space within the car park since the beginning of your tenancy. The [NAME] operated a service charge for the underground car park which the [NAME], and consequently [RESPONDENT], inherited when [NAME] was sold. This service charge is separate to the building service charge that you already pay and focuses on services that exclusively serve the car park. These include but are not limited to: Mechanical and electrical maintenance & repairs for the gates, entry system, fire alarm etc.; Health & safety risk assessments;
Annual planned preventative maintenance;
Electricity; Cleaning; Pest control.” Due to the ongoing development in the commercial elements of Finzels Reach, spaces have been added and re-allocated over several months. This has had an impact on how much is owed by the residential tenants. We wanted to ensure these issues were ironed out, and the car park plans were finalised, to prevent having to issue several different demands in the year so as to be accurate with the invoices. We are still working on the year-end 2017 accounts to ensure everything is as accurate as possible - I appreciate your continued patience on this matter. Please find enclosed a full budget pack outlining the service charge costs in detail as well as all invoices that are due for payment. Please also note that the service charge reconciliation for the year-end 2018 accounts will be carried out in early 2019 and there may be additional balances or credits due after this exercise has been completed, dependent on actual expenditure during the service charge period. I would be grateful if you could arrange for payment of the enclosed invoice as soon as possible. Should you have any further queries, please do not hesitate to contact me.” As noted above it subsequently transpired that there was an under-spend in 2018 and balancing credits were issued, although not in early 2019.

19

99. This leaves the matter of the [ADDRESS] Charge for 2017. The Applicants state that no sums were demanded until 3 December 2020 when the Respondent issued a [ADDRESS] Charge Statement and invoice for 2017 for [ADDRESS] Charge of £182.70 per [NAME] with no accompanying letter or explanation. The Applicants argue that because this was three years after the costs were incurred the sums claimed are irrecoverable, no notice having been served under section 20B of the Landlord and Tenant Act 1985.

100. The Respondents simply state in their Statement of Case that,

“With specific regard to the 2017 budgets, these would have been available to the Respondent from their solicitor in the enquiries before contract.” This comment does not of course sit happily alongside the letter of 19 November 2018. In their comment in the Scott Schedule the Respondent states that “There were delays in issuing 2017 year end balancing charges, but all the costs were properly incurred and certified accordingly.” This does not of course answer the point about section 20B, which provides (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 was 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.” 101. The demand of 3 December 2020 refers to a balancing charge for 2017. However, the Tribunal does not have evidence of any interim 2017 charge having been demanded before 3 December 2020 or that a section 20B notice had been served in time (i.e. within 18 months of the cost having been incurred) in respect of the same. This is despite the fact that the accountants had certified the expenditure by a certificate dated 27 February 2019. That certificate relates to costs incurred between 3 August 2017 and 31 December 2017 and states that the actual charge and the “balancing charge” were identical at £182.70. 102. The Tribunal accordingly determines that the [ADDRESS] Charge for 2017 is not payable by virtue of section 20B of the 1985 Act.

Service Charge year 2018

1. [APPELLANT] [NAME] (£2,426.03) 103. This disputed sum mainly concerns the assertion by the Applicants that they were being charged for items of repair that should have been covered by the

20 [NAME]’s warranty since they amounted to the remedying of construction defects. The Respondents argue that the warranty expired on 31 July 2018 and therefore costs incurred after that date fell within the service charge. They also state that no construction defects have been remedied with service charge funds. 104. The 2019 charges for [NAME] were £4,116. The Applicants challenge 5 invoices totaling £2,426.03. The Respondents accept that two of the invoices totaling £381.83 were wrongly charged. The main dispute relates to a charge of £1,683 for remedial work on the communal heating system. The work was carried out on 3 April 2018 and the invoice is dated 16 August 2018. In the absence of evidence as to the terms of the [NAME]’s warranty it is not sufficiently clear whether the repairs that occurred before the warranty expired but were invoiced afterwards were covered by that warranty and as such not chargeable to the Service Charge. If they were not covered by the warranty they are clearly recoverable under the Service Charge. If they were covered by a warranty then it would have been unreasonable for the landlord to incur those costs and recover them by way of the Service Charge.

2. [APPELLANT[NAME]: [NAME] (£5,000) 105. The 2018 Budget did not make provision for a [NAME] contribution. However, the 2018 accounts made provision for a sum of £5,000. The Applicants query why this was not offset against the deficit in 2019. The Respondent says that the [NAME] was set up to deal with significant future repairs. The Lease is somewhat opaque on the matter of a [NAME], although paragraph 7 of Part 1 of Schedule 9 to the Lease is headed “Retained Sums” and provides that

“Any sums retained by the Landlord or [NAME] Manager by way of provision for expenditure in any subsequent year or earned by the Landlord or [NAME] Manager or forming income by any other method shall be held by the Landlord and [NAME] Manager upon trust for the persons who from time to time shall be the [NAME] to apply the same and any interest accruing thereto for the purposes set out in this Schedule and any such sums expended when such trust shall end shall be paid to the persons who shall then be the [NAME] in shares equal to their respective interests in the Buildings and the [ADDRESS]…” 106. There is no other provision in the Lease dealing with the retention of such sums. Thus the matter remains unclear. However, the Landlord has conceded in the present case that any sums retained can be returned at the request of the Applicants.

3. [NAME]: Marketing Fees (£3,900). 107. This refers to an invoice dated 30 November 2018 from [NAME] for advice in setting up of the occupier portal with the service provider, [NAME]. There is no evidence that the sum is unreasonable or was unreasonably incurred and the Tribunal therefore allows this as a legitimate service charge cost.

21

4. [ADDRESS]: [NAME] (£8998.48) 108. The Applicants challenge a number of invoices from the [NAME] contractor on the grounds that they relate to matters including construction works, the [NAME]’s warranty and insurance, which should not have been charged to the service charge. They also argue that some of the invoices relate to a period before the Leases began. 109. The Respondent states that no cost relating to construction defects, either within the [ADDRESS] or the public realm have been paid from Service Charge monies. The Tribunal finds that in so far as these costs are attributable to matters of maintenance and repair of the items set out in Part 3 of Schedule 9 to the Lease they are recoverable by way of Service Charge. This includes key fobs for access to the [ADDRESS]. In the absence of evidence as to the warranty it is not sufficiently clear whether the repairs that occurred before the [NAME]’s warranty expired were covered by that warranty and as such not chargeable to the Service Charge. It is however troubling that there should have been so many maintenance faults at such an early stage of a new development. The Tribunal agrees that in so far as a cost was incurred before a lease was granted it should not be recoverable from the [NAME] in question. Service Charge year 2019

1. [APPELLANT[NAME]: [NAME] (£12,183.90) 110. The budgeted sum for this head of expenditure was £1,500 whereas the actual expenditure proved to be £15,662. The Applicants challenge eleven specific invoices relating to works in the service charge year 2019 totaling £12,183.90. Most relate to repairs to the boilers. The Applicants assert that these were covered by a warranty obligation, although the Tribunal has not seen any warranty that would cover the works in question. Other works are alleged by the Applicants to be the [NAME]’s obligation, being related to incomplete construction works although this is not obvious on the face of the invoices. The Applicants also state that some invoices related to other buildings although this has not been established. The Tribunal finds that costs of repairs to the boilers are a recoverable service charge cost, save in so far as the costs would have been recoverable under any applicable warranty, as to which the Tribunal does not have sufficient evidence to decide.

2. [APPELLANT[NAME]: Website/E-Strategy Strategy (£1,284) 111. The Applicants argue that the sum of £1,284 (according to the end of year statement) expended in 2019 was incorrectly demanded because [NAME] accounts also included the costs of the wifi portal as a resource for the whole [NAME] and therefore the former was a duplicated charge. The Respondent says that it cannot identify the two invoices that make up the £1,070 within the Applicant’s Schedule 2.2 and so cannot verify whether they have been double counted. 112. The Respondent’s reference to invoices totalling £1,070 refers to the

22 budgeted sum rather than the actual sum of £1,284 in the end of year accounts. The Tribunal agrees with the Applicants that this sum must relate to the [NAME]’ portal which is otherwise accounted for in [NAME] accounts (see below) and therefore the charge in the [APPELLANT[NAME] Service Charge is a duplicate charge and irrecoverable as such

3. [NAME]: Audit fee 113. The audit fee was budgeted for the sum of £2,000 but the actual charge was £4,500. The Respondent’s explanation was that the accountants had to carry out more work than in previous years mainly because invoices were incorrectly posted to/from other properties and a full reconciliation of electricity had to be carried out. 114. The Applicants argue that they should not have to pay for the consequences of incorrect invoice posting. The Tribunal finds that although the gap between the budgeted and actual [NAME] audit sums is substantial it does not have sufficient evidence to establish whether the sum charged for the work involved was unreasonable.

4. [NAME]: Income 115. The Applicants ask whether [NAME] has the right to sub-let common areas on [NAME] for filming and other commercial purposes without accounting for the cost. The Respondent says that the space is not sub-let to the [COMPANY] which provides the service on a cost neutral basis. The Respondent says that the [NAME]’s intention was always to utilise the public realm space to enhance and enliven [NAME] and that they do not derive any income from this activity. 116. The Tribunal finds that it does not have any evidence of unaccounted for profits from such activities to be able to make a determination on this claim.

4. [NAME]: Marketing and Promotions 117. The disputed sums relate to (1) Marketing consultancy costs and (2) the costs of a public [NAME] wide wifi network provided for the Respondent by [NAME]. 118. Expenditure on [NAME] website/e strategy in 2019 was £7,956.00. This mainly falls into two parts. The first is the cost of the occupier portal for [NAME] provided by the service provider, [COMPANY]. This involves an annual licence fee. The fee for August 2019 to July 2020 (charged by The [NAME] Partner) was £1,584, which the Applicants do not dispute. The Applicants also accept the portal cost of £684 charged by [COMPANY]. Similarly the Applicants accept an email and software licence fee of £627.48 charged by the [NAME] Partner. 119. However, the Applicants do not accept a consultant charge of £666 by the [NAME] Partner to the extent that it includes a fee of £300 for “general advice” and a fee of £84 for Welcome Packs for [ADDRESS] (another building on [NAME]). They say that neither of these sums benefits the

23 Applicants and argue that it is unreasonable to charge [NAME] for marketing consultancy costs. The Applicants also challenge a fee of £360 from the [NAME] Partner for web page artwork relating to the portal, a and an accrual of £900 relating to a [NAME] Partner invoice, which the Applicants have not seen. 120. Under the separate [NAME] charge head of other professional fees the Applicants also challenged a sum of £3,900 for an invoice raised by the [NAME] Partner. The Respondent subsequently produced the invoice, which was for advice provided by the [NAME] Partner for the initial set up of the portal. 121. The second part of the costs under this service charge head relates to the costs of the public wifi network at [NAME] provided by [NAME] amounting to £4,428 in 2019. The Applicants argue that this 3 year contract (at a total cost of £18,570) is a major capital project for which there was no consultation with [NAME]. They also argue that it is unreasonable to charge [NAME] for the provision of a public wifi network for [NAME], for which they have no need given that they have their own domestic wifi. The Applicants argue that the cost should fall on the [NAME] who will derive a benefit from the system. 122. The Respondent argues that in its opinion the [APPELLANT[NAME]’s annual contribution of £331.54 towards site wide Wi-Fi is fair and reasonable in that the [NAME] enjoy the benefits of the service throughout the public realm areas of [NAME]. 123. The issues raised by this head of expenditure are as follows. (1) Are all of the costs relating to the setting up and running of the occupier portal recoverable? (2) Is the provision and maintenance of a public wifi network a recoverable [NAME] Service Charge cost under the Lease? 124. [NAME], for which a service charge may be raised, are set out in Part 4 of the 9th Schedule to the Lease, which lists 33 services. They include:

11. Providing equipment and operating amenities for persons visiting [NAME] including main reception facilities.

28. Providing such other services as may from time to time be consistent with the principles of good [NAME] management and or preserving the amenities of [NAME].

32. Any other reasonable and proper expenses incurred by [NAME] Manager in respect of [NAME]. 125. The Applicants do not dispute that it is reasonable to set up and charge for the portal. The Tribunal accordingly finds that the expenses in question are reasonable and proper expenses having regard to the nature of [NAME]. This includes the web page artwork fee and the “general advice” fee, which has not shown to be dissociated from the portal charge. The Tribunal does not have sufficient evidence to say that the £900 accrual was unreasonably

24 incurred. More generally, the Tribunal agrees that the costs of general [NAME] services would not be recoverable in the absence of a specific head of service in the Lease ([NAME] list). 126. The public wifi network is more problematic. It is arguable that the [NAME] gain little benefit from this amenity. However, the Tribunal finds that it was reasonable and proper for the Respondent to provide a public wifi network on an [NAME] of this size and nature and as such it is legitimate to require a contribution from the [APPELLANT[NAME] of 5.53% of the costs reasonably incurred in accordance with the Lease. The structure of the Service Charge is that [NAME] expenses as defined in the Lease relate to the whole [NAME] of which the [APPELLANT[NAME] is a part. The Lease does not provide for costs of a service to be allocated to specific units on [NAME] according to whether individual units require that service. The test is whether the cost is a legitimate [NAME] Service cost and whether the expense in question was reasonably incurred. If so, the Lease obliges the [APPELLANT[NAME] [NAME] to contribute the appropriate amount (i.e. 5.53% apportioned to all [NAME]), which, as the Respondent submits, is a modest charge. The Tribunal considers that it would have been fairer for the Lease to have provided for a schedule charging system whereby charges for specific services could have been more accurately targeted on those units that benefit from the service, but this Lease has not adopted that approach.

5. [NAME] 127. The Applicants challenge four invoices. They argue that they relate to matters that are not service charge costs within the terms of the Lease not within the relevant Service Charge costs. The first invoice related to electrical works within the [ADDRESS] and as such is properly chargeable. The bulk of the invoice related to repairing damage caused to the gates by a forklift truck. The Applicants argue that this cost should not be recharged to [NAME] because it was caused by a contractor’s vehicle.

Whilst it is of obvious concern to [NAME] that the repairs were apparently necessary because of the actions of contractors working on the site that does not prevent the costs being service charge costs. However, the Respondent will quite separately owe a duty of care to [NAME] to pursue any claims against a third party for such damage or to make an insurance claim where that is reasonable.

The other invoices all relate to, replacement of key fobs, electrical faults and work on the fire detection system, which are all properly charged to the Service Charge.

6. [ADDRESS] 128. The electricity supply to the basement car park is complicated. There are two supplies which are served by 13 sub-meters 9 of which exclusively serve the residential parking area of the car park. The other four serve both the residential and the commercial areas of the car park. The apportionment used for the four sub-meters is 30:70.Because the car park was extended in 2018 to incorporate 122 new spaces, principally for the new commercial

25 developments, it was necessary to reapportion the charges. The Respondent accepts that the apportionment should have been 53:47 and they agree with the Applicants’ calculation that the [NAME]’s have been overcharged by £1,861.77. 129. A similar adjustment will be necessary when the 2020 final charges are known.

Service charge year: 2020 . 1. [NAME] 2020 130. The Applicants argue that the cost of maintaining stackers included in the 2020 budget should be attributable to the specific car spaces to which they are allocated and not to all [NAME]. The Respondent considers that the stackers are part of the integral plant and machinery within the [ADDRESS] and as such are properly charged. The Tribunal finds that charges are properly made for the reason advanced by the Respondent.

2. Car park soft and hard surfaces: 2019 and 2020

Applicants

131. The Applicants argue that costs of waste management, pest control, lift maintenance and lift repairs are services applicable to all tenants and should not be borne solely by [NAME]. The Respondent says that the car park costs referred to here are specific to the [ADDRESS] and have therefore been allocated as such. The Tribunal agrees that these costs are properly charged. It is true that [NAME] use the [ADDRESS] to put their household waste in the shared residential bins but it appears to be the case, from the Respondent’s submission, that the use of the car park by the [NAME] without an allocated space is minimal and those with a parking space derive the most part of the services due to their far more frequent usage.

3. [NAME], [APPELLANT[NAME], [ADDRESS] on-going contracts

132. The Applicants argue that several on-going maintenance and consultancy contracts have contributed to the escalation of service charge costs and question whether the services are being provided at competitive rates. It is quite true that the services in question come at a considerable cost but it has not been established that the charges are excessive or otherwise improperly incurred or that a proper procurement process has not been followed by the Respondent.

Section 20C and Paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 133. The participating Applicants in this Application, indicated in Annex 1

to these Reasons, have made applications to the Tribunal for an order

under Section 20C of the 1985 Act preventing the Landlord from

26

recovering its costs incurred or to be incurred in connection with the

present proceedings in the Tribunal by way of any future service charge

demand. Section 20C(3) provides that the Tribunal may make such order

as it considers just and equitable in the circumstances. The Respondents

also seek an order under paragraph 5A of Schedule 11 to the 2002 Act

extinguishing any liability, for payment, by way of an administration

charge, that might arise under the Lease in respect of litigation costs

incurred by the Landlord in connection with these proceedings. The Applicants’ case

134. The Applicants submit that they should not be liable for the Landlord’s costs relating to the dispute, on the basis that the dispute has only arisen due to the inadequacy of the service provided by [NAME] and frequent and persistent errors and omissions in the accounting and management processes.

The Respondent’s case

135. The Respondent refutes the comments about “the frequent and persistent errors and omissions in the accounting and management processes” and trust that the documents submitted have provided clear evidence as the efficacy and transparency of the service charge accounts. They state that a substantial number of hours have been spent going through archive audits, preparing the relevant information, considering the various cases made by the Applicants and providing appropriate responses. They state that in essence, only two headings of expenditure in relation to the [APPELLANT[NAME] service charge actually now remain in dispute, with the other items being in relation to [NAME] and [ADDRESS] Charge. They therefore submit that their reasonable costs in relation to the matter should be recoverable from the Service Charges in question.

Discussion and determination

136. The first matter to consider is whether the Lease would permit the recovery of the Landlord’s costs by way of service charge or administration charge

. Paragraph 26 of Part 2 of the 9th Schedule to the Lease includes the following service,

“employing or retaining any solicitor accountant [NAME] [NAME] [NAME] agent or management company or other professional consultant or advisor in connection with the management administration repair and maintenance of the Building and the Development including the preparation of any accounts certificates and statements relating to the Annual Building Expenditure and the collection of the Service Charge.”

Parts 3 and 4 of the 9th Schedule contain identical provisions relating to [NAME] and [COMPANY].

137. This provision enables the Landlord to recover the cost of engaging a [NAME] in connection with the matters identified. [NAME] manage

27 the [APPELLANT[NAME] and the Landlord is able to recover the Management fee under the lease. That fee was £11,400 in each of 2018 and 2019. One of the tasks of the [NAME] is to respond to Tribunal proceedings. Thus the fee already covers the Agent’s costs.

138. There is no evidence that the Landlord or [NAME] has incurred legal costs in employing solicitors or other professionals in connection with the Tribunal proceedings. However, even if this were to be the case the Tribunal finds that paragraph 26 of Part 2 of the 9th Schedule to the Lease would not permit recovery of those costs by way of service charge. That provision is insufficiently clear that it extends to such expenditure as opposed to expenditure on the matters explicitly identified therein. It follows that a section 20C order is not necessary even if it were just and equitable for the Tribunal to make such an order.

139. The Tribunal also finds that the Lease does not contain any provision whereby costs incurred in connection with the Tribunal proceedings are recoverable from any [NAME] by way of an administration charge and therefore an order under the 2002 Act is not necessary in relation to these proceedings.

Right to appeal

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application by email to [EMAIL] to the First-tier Tribunal at the Regional Office, which has been dealing with the case.

2. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28 day time limit, that person shall include with the application for permission to appeal a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.

Annex The Applicants

Apartment 11 [NAME] [NAME] 14 [NAME] 15 [NAME]

28 Apartment 17 [NAME] 19 [NAME] 20 [NAME] [NAME] and [NAME] 25 [NAME] [NAME] 27 [NAME] 33 [NAME] [NAME] 34 [NAME] and [NAME] 37 [NAME]