Tenant Loses Challenge to Increased Service Charges

OUTCOME: Refused

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BK/LSC/2024/0158 Property : [ADDRESS] [POSTCODE] Applicant : [redacted] : [COUNSEL], counsel Respondent : [redacted] Limited Representative : [COUNSEL], counsel Type of application : For the determination of the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Tribunal member : Judge Tagliavini Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 3 September 2024

DECISION

2

Decisions of the tribunal (1) The application is refused. (2) The tribunal finds the tribunal’s jurisdiction is limited to considering the rationality of the respondent’s decision to vary the proportion of service charges payable by the applicant from 1 April 2024. (3) The tribunal finds the respondent’s decision to exercise its right to vary the applicant’s [NAME] in this respect was rational. (4) The tribunal finds the respondents decision to increase the percentage of service charge payable by the applicant from 1 April 2024 to 1.845% of the Total Expenditure was rational. (5) The tribunal does not make an order under section 20C of the Landlord and Tenant Act 1985. (6) In so far as it may be necessary, the tribunal does not make an order under paragraph 5 of schedule 11 of the Commonhold and Leasehold Reform Act 2002. The application 1. The applicant seeks a determination pursuant to s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) as to the amount of service charges payable by the respondent in respect of the service charge year 1 April 2024 to 31 March 2025.

. .] The hearing 2. Neither party requested an oral hearing and therefore the tribunal determined this application on the documents provided by the parties. This included a digital bundle comprising 242 pages and 2 videos clips showing the interior and exterior of the property at 34-35 [ADDRESS] [POSTCODE] (‘the Building’). The background 2. The property which is the subject of this application is a 1-bedroom flat in a mansion block comprising 10 flats.

3. Photographs of the Building were provided in the hearing bundle. Neither party requested an inspection and the tribunal did not consider

3 that one was necessary, nor would it have been proportionate to the issues in dispute.

4. The applicant holds a long [NAME] of the property which requires the landlord to provide services and the tenant to contribute towards their costs by way of a variable service charge. The specific provisions of the [NAME] and will be referred to below, where appropriate. The issues 5. At the start of the hearing the parties identified the only relevant issues for determination as follows: (i) The payability of the service charges for 2024/25 which was increased by the respondent from 0.67% of the total expenditure to 1.845%. The applicant’s case 6. The applicant did not challenge the reasonableness of individual items or heads of service charge but asserted in her application that the increase to the percentage payable was, Disproportionate and unreasonable permanent increase of the service charge by a sudden (approximate) tripling of the Service Charge Percentage from the commencement of the following Accounting Period… No engagement from the Landlord on the matter in question despite the tenant's comments as to the unreasonableness of nearly tripling the Service Charge Percentage and this increase not only being sudden (from one accounting period to another) and unexpected, but also not being commensurate with Flat E's percentage of shares in the [NAME] Company. The floorplan of the Applicant's home Flat E has not undergone any extension (e.g. tripling the demised area of the flat) in order for the Applicant's home to be charged a larger percentage share of the Total Expenditure. Neither have the common parts of the Building, to which the Applicant would have access for their quiet and peaceful enjoyment, tripled in size. Lastly, the common parts around the Applicant's home Flat E have not been improved and their condition remains in stark contrast to the better maintained other parts of the Building.

4 Random (previously unknown as contracted and paid for by the collective tenants in the building, including Flat E) [NAME]'s certificate only reiterates the wording of the relevant clause in the [NAME] (paragraph 2 of Schedule 5) with no transparency as to how the increased (approximately tripled) Service Charge Percentage has been calculated and the means relied upon to ascertain that this increase is fair and reasonable. The Landlord's Notice of Variation of Service Charge Percentage states inconsistent, opaque reasons for the revision of the Service Charge Percentage: (a) the recent completion of the [NAME] claim, a process which saw the tenant's Flat E deliberately excluded from the Share of the [NAME] despite tenant's Flat E express interest in writing to participate in the [NAME]. (b) Inclusion of the former care taker's flat in the service charge accounts although said flat (former common parts) has now been privately disposed of and owned by another tenant in the building. As privately owned, said property’s (former care taker's flat) [NAME] would be liable for the service charge payments on the property. Hence, this too constitutes an inconsistent and illogical argument as it would be expected for the service charge percentage to decrease since former common parts, to the maintenance of which the Applicant had previously contributed through the service charge, has now been sold privately and the [NAME] would be liable for the service charge demand henceforth. The respondent’s case and submissions 7. In its written submissions the respondent asserted that, The Service Charge is defined at clause 2.1 of the [NAME] by reference to schedule 5 to the [NAME]. Schedule 5 to the [NAME] includes the following relevant provisions:

1. In this Schedule the following expressions have the following meanings respectively: ... “Service Charge”: the Service Charge Percentage of Total Expenditure for each Accounting Period ...

5 ... “variation notice": a notice in writing served by the Landlord on the Tenant pursuant to Paragraph 2 of this Schedule ...

2. The Landlord may at any time and from time to time serve a variation notice on the Tenant providing that as from the commencement of the next following Accounting Period this [NAME] shall be read and construed as if in Paragraph 5 of the Particulars there had either been substituted such different percentage of the Total Expenditure as may be specified in the variation notice (the “revised percentage") or such different percentages of such different heads of expenditure comprising the Total Expenditure as may be specified in the variation notice (the "revised percentages”) Provided that the variation notice shall on each and every occasion that it is served be accompanied by a certificate from the [NAME] certifying that: (a) The revised percentage is a fair and proper percentage of the Total Expenditure or the revised percentages are fair and proper percentages of the respective heads of expenditure that will then henceforth comprise the Total expenditure. (b) As from the date when the revised percentage or revised percentages become effective the aggregate of the Service Charge payable under this [NAME] and the service charge demanded and payable under other leases of flats in the Building shall not at any time during the Term exceed 100% of the Total Expenditure.

8. The respondent asserted that after the sale of the [NAME]’s flat and the complaints received in respect of the inequitable division of service charges, the respondent engaged its [NAME] to calculate the floor area of each of the Flats said to be about 20,163 square feet. The size of Flat E is about 372 square feet, being 1.845% of the total floor area. In about March 2024, the respondent sent to the lessees of all of the Flats variation notices pursuant to paragraph 2 of schedule 5 of their leases, said to apply from the next accounting period.

9. The respondent submitted that in [NAME] v [COMPANY] [2023]AC 855, the Supreme Court considered the application of the landlord’s discretionary management decision and more particularly, the power under a [NAME] to vary apportionment of service charges between tenants. The Supreme Court held that discretionary management decisions are not within the court’s purview under section 27Aof the LTA1985, unless section 27A(6) was engaged by wording that would render the landlord’s decision "final and binding”.

10. In [NAME], the landlord’s power was derived from a clause that expressly required that a decision for a varied apportionment be

6 determined “reasonably.” However, paragraph 2 of schedule 5 to the applicant’s [NAME] does not include any requirement for the respondent to make its decision in accordance with a standard of "reasonableness”.

11. The respondent also relied upon the Upper Tribunal decision in Bradley v [COMPANY] [2024] UKUT 120 (LC) which referred to the decision of Lord [NAME] in [NAME] who stated at paragraph 15 of that decision, If the landlord’s discretionary decision in question was unaffected by the statutory regime and fell within the landlord's contractual powers under the [NAME], then there might at the most be a jurisdiction to review it for rationality:

12. Consequently, the respondent asserted the tribunal in this application, only has jurisdiction to consider whether, the landlord has acted rationally in exercising its unqualified right to vary the percentage of the service charge paid by the applicant. The applicant’s submissions in reply 13. The applicant asserted that the certificate accompanying the Variation Notice stated that the revised percentage was a “fair and proper percentage of the Total Expenditure.’ Consequently, the use of the words, “fair and proper percentage” within the [NAME], and its requirement that the words be included within the certificate, shows that the [NAME] agreed that the respondent’s discretion would not be unqualified. The applicant submitted the revised percentage must be fair and proper and therefore the examination of the revised percentage is not limited to questions of rationality. Consequently, the tribunal has the jurisdiction to consider the “reasonableness” of the increased percentage of service charge payable by the applicant.

14. The applicant asserted that tripling the service charge with no appreciable benefit to the applicant is unfair and improper. Further, tripling the service charge without any consultation with the applicant is also unfair and improper. The applicant also asserted the common parts closest to the applicant’s flat have not been improved and are in marked contrast to the other, plusher common parts closes to the other flats in the subject property.

15. The applicant also submitted that if the tribunal does not accept the applicant’s submissions that the discretion to revise percentages must be exercised fairly and properly, the applicant suggests that a revised percentage which results in a threefold percentage increase when the number of flats contributing to the service charge has increased, is irrational.

7 16. The applicant submitted that in the absence of a fair, proper and/or rational explanation from the respondent as to the methodology beneath the revised percentage, or any alternative methodology regarding apportionment being advanced by the respondent, the applicant submits that the Tribunal should find that the Applicant should pay no more than the previous percentage of 0.676%.

17. In the further alternative, the applicant submitted that given the stark discrepancy between the communal areas enjoyed by the applicant and those relating to other flats within the Building, a fair, proper and/or rational method of apportionment would be to include the square footage of each flat and the square footage of each flat’s corresponding communal areas.

18. Having read written submissions from the parties and considered all of the documents (including the video clips) provided, the tribunal determines the respondent has acted rationally in deciding to exercise its unqualified right to increase the [NAME] percentage payable by the applicant, with effect from 1 April 2025 and until such time as it may be further varied. Reasons the tribunal’s decision 19. The tribunal accepts the respondent’s submission and determines the respondent has an unqualified right to decide to vary the applicant’s [NAME] in respect of the percentage payable towards the Total Expenditure. The tribunal does not accept the applicant’s submissions that this right has been qualified by the requirement imposed on the respondent to serve a certificate from the [NAME] certifying the revised percentage is a ’fair and reasonable percentage of the Total Expenditure….’ The tribunal finds this ‘qualification’ applies only to the form of the Notice that must be provided by the respondent and does not qualify the right to serve such a notice having made the determination to do so.

20. The tribunal finds there is no provision in the [NAME] that requires the respondent to consult the applicant before making the decision to exercise its right to vary the percentage of service charge payable. Therefore, the tribunal determines the respondent’s decision not to consult the applicant cannot be regarded as unfair and improper or irrational.

21. The tribunal finds and determines the respondent’s decision to vary the percentage of the total Expenditure payable by the applicant and the other lessees, for the reasons relied upon, demonstrates and supports the rationality of the respondent’s decision.

8 22. The tribunal finds and determines the respondent’s decision to impose variation of the percentage of the Total Expenditure by reference to floor area is a rational choice of the manner of apportionment.

23. In the application form the applicant applied for an order under section 20C of the 1985 Act. Having considered the submissions from the parties and taking into account the determinations above, the tribunal determines that it is not just and equitable in the circumstances for an order to be made under section 20C of the 1985 Act, Further, in so far as it may be necessary, the tribunal declines to make any order under paragraph 5A of Schedule 11 of the Commonhold and Leasehold Reform Act 2002.

24. In conclusion, the tribunal refuses the application.

Name: Judge Tagliavini Date: 3 September 2024

Rights of appeal By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written application for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28-day time limit, such application 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 application for permission to appeal to proceed, despite not being within the time limit. The application for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party making the application is seeking.

9 If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).