Tenant Wins Unreasonable Service Charge Refunds and Disclosures

OUTCOME: Allowed

© [APPELLANT]-TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY) Case reference : LON/00AB/LSC/2019/0096 Property : Flat 501, [NAME], [ADDRESS], [POSTCODE] Applicant : [redacted] : In Person [APPELLANT] Respondent : [redacted] : [COUNSEL] (Regional Manager, [RESPONDENT]) [NAME] Respondent : [redacted] : [COUNSEL] (Property Services Analyst, [COMPANY]) Type of [NAME] : For the determination of the reasonableness of and the liability to pay a service charge Tribunal Members :

Judge Robert [NAME] and Date of Hearing : 10 [ADDRESS] [POSTCODE] on 2 [APPELLANT] 2019 Date of decision : 12 [APPELLANT] 2019

DECISION

2

Decisions of the Tribunal (1) The Tribunal records that the parties have made the following concessions: (i) The Respondents have withdrawn their demand against the Applicant in respect of an excess service charge in the sum of £531.79 for 2014/15 and £494.89 for 2015/16. (ii) The Applicant withdrew his challenge to the interim service charge for 2018/19 in the sums of £916.90 (demanded on 10 October 2018) and £916.61 (demanded on 18 February 2019). The Applicant reserves his right to challenge the payability and reasonableness of the service charges demanded for 2018/19 when the service charge accounts for the year are available. (2) The Tribunal records that the Respondents have agreed to disclose the following to the Applicant: [redacted] copy of the Section 20B Notice served in respect of the 2016/7 financial year; (ii) By 9 [APPELLANT], the [NAME] Respondent will provide the Applicant with a copy of the block service charge accounts for 2016/7; (iii) [APPELLANT] Respondent will use its best endeavours to provide the Applicant by 31 [APPELLANT] with a copy of the estate service charge accounts for 2o17/8; (iv) The [NAME] Respondent will use its best endeavours to provide the Applicant by 31 [APPELLANT] with a copy of the block service charge accounts for 2o17/8; (3) The Tribunal makes an order under section 20C of the Landlord and Tenant Act 1985. (4) The Tribunal determines that [APPELLANT] Respondent shall pay the Applicant £300 within 28 days of this Decision, in respect of the reimbursement of the tribunal fees paid by the Applicant. The [NAME]

1. On 15 March 2019, the Applicant issued an [NAME] seeking a determination pursuant to s.27A of the Landlord and Tenant Act 1985 (“the Act”) as to the amount of service charges 2014/5, 2015/6 and

3 2018/9 in respect of his flat at Flat 501, [NAME], [ADDRESS], [POSTCODE] (“the flat”).

2. On 18 April 2019, the Tribunal issued Directions. It clarified that the appropriate respondents are: (i) The freeholder, [COMPANY] (“BRL”) which is responsible for the estate charges and has appointed [COMPANY] (“[NAME]”) as its managing agents. (ii) The immediate landlord of the flat is Adriatic Land 3 (GR1) [RESPONDENT] (Adriatic), being the party responsible for the block service charge. [NAME] also acted as its managing agents until November 2018 and is responsible for the 2014/5, 2015/6, 2016/7, 2017/8 and part of the 2018/9 service charge years. The current managing agents are [COMPANY] (“[NAME]”).

3. The Tribunal identified that the following service charges are in dispute: (i) An excess service charge of £531.79 payable for 2014/15; (ii) An excess service charge of £494.89 payable for 2015/16; and (iii) The interim service charge for 2018/19 in the sums of £916.90 (demanded on 10 October 2018) and £916.61 (demanded on 18 February 2019).

4. Pursuant to these Directions, each of the parties have filed separate Bundles of Documents. There is a large amount of duplication. The parties have completed a Scott Schedule. The Hearing 5. The Applicant appeared in person. He was accompanied by two tenants, [NAME] [NAME] and [NAME]. Neither had provided witness statements. On 9 June 2019, there was a fire at [NAME]. Twenty flats were destroyed. The Applicant’s flat was affected by smoke and water damage. The Applicant is currently residing at temporary accommodation secured by the building’s Insurers. The fire does not impact upon the issues that this Tribunal is required to determine.

6. The Respondents were represented as follows: (i) [APPELLANT] Respondent, BRL, were represented by [APPELLANT], a Regional Manager with [NAME]. He was accompanied by [NAME]

4 (a Director of BRL), [NAME] (Head of [COMPANY] Home Ground who collect the ground rents); [NAME] (a Director with [NAME]); and [NAME] (a Property Manager with [NAME]). (ii) The [NAME] Respondent was represented by [RESPONDENT], a Property Services Manager with [NAME].

7. Although the issues in dispute were resolved by the parties taking realistic positions, the Tribunal agreed to issue a short decision recording the background to the dispute. The Background 8. [NAME] is a block of 79 flats, all of which are let on long leases. The block was completed in 2011. It is part of the Barking Riverside Development which is scheduled to be completed by 2030 with a total of some 10,800 dwellings. It includes a significant number of social units.

9. On 3 November 2017, the Applicant acquired the leasehold interest in Flat 501 for £306k. This is a two-bedroom flat which he occupies with his wife and child. This is on the fifth floor. He occupies his flat pursuant to a lease dated 28 [APPELLANT] 2013 for a term of 125 years from 1 September 2011.

10. Issues 1 and 2 relate to excess service charges for 2014/5 and 2015/6, service charge years prior to his acquisition of his flat. The Applicant complains that he was not given a realistic indication of the level of service charges when he purchased his flat. The charges are now much higher than had been indicated. During his purchase, his Solicitor required the vendor to give the normal undertaking to discharge all arrears of service charges due on the property up to the date of completion (see A54). The vendor agreed to retain a sum of £400 for the balancing payment for the year 1 [APPELLANT] 2017 to 31 July 2018. In response to an enquiry “Is any excess payment anticipated for the Property at the end of the financial period?”, the reply was given: “refer to disclaimer”. The disclaimer read: “We are awaiting client approval for YE 14 Accounts, YE15 is currently being prepared. The accounts are yet to be reconciled and we are not in a position to confirm the balancing charge will be....”.

11. The service charge provisions are to be found in the Fifth and Sixth Schedules of the Lease. There are two elements: “a block charge” levied by the [NAME] Respondent and the “estate charge” levied by [APPELLANT] Respondent. The tenant is required to pay “a fair and reasonable proportion” of these charges.

5 12. On 24 September 2018, [APPELLANT] informed the Applicant that his annual service charge would be £1,833.80: (i) The budget for the [NAME] “block charge” was £108,128 of which he was required to pay 1.4085%, namely £1,522.98. (i) The budget for the estate charge was £45,797, of which he was required to pay 0.6787%, namely £310.82. [NAME] provided budgets for both the block and the estate service charges. The Tribunal was told that the proportion is worked out according to the number of bedrooms in a flat. The formula is “the number of bedrooms in the flat + 1” compared with the whole of the block (or the estate).

13. The lease makes provision for the financial year to be 1 January to 31 December, but gives the landlord the discretion to vary this. Both the [APPELLANT] and [NAME] Respondent have elected operate a financial year 1 [APPELLANT] to 31 July.

14. As soon as practicable after the end of each financial year, the landlord is obliged to furnish the tenant with the service charge accounts, the amount of the service charge costs to be ascertained and certified. There have been unacceptable delays by both Respondents in providing the tenants with the certified accounts. In the experience of this Tribunal, it should be practicable for a landlord to provide accounts within an outside range of six months after the end of the financial year. Any delay requires an explanation.

15. The lease provides that the tenant shall pay an advance service charge on 1st January. In practice, the Respondents have demanded two six monthly payments in September and February. The Applicant had no objection to this practice. This is to his advantage: (i) The tenant pays six monthly, rather one larger annual payment. (ii) The Respondent’s should have draft accounts for the previous year, so that the budget reflects the actual expenditure in the previous year.

16. The Sixth Schedule provides that where there is any surplus between the interim service charge and the actual expenditure, the surplus is to be carried forward to the next financial year. Where there is a shortfall, the Respondents are entitled to demand an excess service charge. Within 28 days of the issue of the certified service charge accounts, the tenant is entitled to inspect the relevant “vouchers and receipts” by prior appointment with the landlord.

6 Issues 1 and 2: Excess Service Charges for 2014/5 £531.79 and 2015/6 (£494.89).

17. The Directions required the Respondents to disclose all relevant service charge accounts together with all relevant demands for payment. The directions also identified that the Tribunal would need to be satisfied that the sums demanded were payable by reason of Section 20B of the Act.

18. Mr [NAME] stated that the following demands had been made: (i) 2014/5: On 26 December 2016, [NAME] gave the tenants the relevant Section 20B notification that additional relevant costs had been incurred for which they would be required to contribute. On 9 December 2017, [NAME] had demanded payment of this sum when the service charge accounts had been finalised. The demand was made more than 28 months after the close of the financial year. (i) 2015/6: On 22 May 2017, [NAME] gave the tenants the relevant Section 20B notification. On 2 May 2018, [NAME] had demanded payment of this sum when the service charge accounts had been finalised. The demand was made more than 21 months after the close of the financial year.

19. The Respondents had not included any of these documents in their Statements of Case. The relevant Section 20B Notices would have been served on the Applicant’s [NAME]. The Applicant had not been given any notice of these in the pre-purchase enquiries.

20. The Tribunal indicated that it would require strict proof of service of all these documents. The Respondents recognised the evidential problems that they faced and agreed to withdraw these claims.

21. The Tribunal records that the Respondents have also agreed to withdraw an administration charge of £54 as a gesture of goodwill. Issue 3: The Advance Service Charge for 2018/9 (£1,855.86)

22. The Applicant disputed the two interim service charges which had been demanded, namely £916.90 on 10 October 2018 and £916.61 on 18 February 2019. He asserted that there had been an increase of nearly 40% over the past two years. The [NAME] Respondent disputes this in their Statement of Case (at Tab 1). It contends that the budget for 2017/8 was £103,074.96, whilst that for 2018/9 is £108,127.76. This is an increase of £5,052.80 or 4.9%. This seems to relate to the block charge.

7 23. [APPELLANT] Respondent has provided the “estate” service charge accounts for 2014/5, 2015/6 and 2016/7 when the expenditure was £259,623; £291,807 and £278,848 respectively. Only part of this is apportioned to [NAME]. The Tribunal understands that £47,151.46 was budgeted for [NAME] in 2017/8 and £45,797.00 in 2018/9.

24. The Applicant’s concern rather relates to the “block” service charge. Despite the Directions, the [NAME] Respondent did not provide the relevant estate service charge accounts for 2014/5 to 2016/7. Mr [NAME] referred to a document (at R2 Tab 5) whereby the budget for 2018/9 was constructed. The budgeted block expenditure for 2017/8 was £87,624.73 (namely £134,776.19 less £47,151.46), whilst the actual expenditure was £103,074.96. The [NAME] Respondent therefore budgeted a figure of £108,127.76 for 2018/9. The fact that there was a significant overspend in 2017/8 is confirmed by two documents which were provided to the Tribunal (i) the Section 20B Notice which [NAME] sent to the Applicant on 31 January 2019; and (ii) the draft estate service charge accounts for 2017/8.

25. The Tribunal indicated the difficulty that the Applicant faced in challenging an interim service charge which is based on an estimated budget. His real concern was not with the budgeted expenditure, but rather the actual expenditure. The Applicant agreed and withdrew his challenge to the interim service charge.

26. The Respondents agreed to provide the Applicant with the block service charge accounts for 2016/7 and 2017/8 and the estate service charge accounts for 2017/8. We would expect the Respondents to provide the Applicant with the 2018/9 service charge accounts by 1 February 2020, namely within 6 months of the end of the financial year.

27. Upon receipt of the service charge accounts, the Applicant will need to consider whether he wishes to challenge any of the items of expenditure on the grounds that they are not payable under the terms of his lease or that they have not been reasonably incurred or are of an unreasonable standard. The mere fact that the lift was out of order for a number of weeks is not sufficient. He would need to establish that his landlord had failed to take reasonable steps to remedy the defect. A tenant should consider obtaining alternative quotes if he wishes to argue that any cost is too high. Any case that services have not been of an adequate standard should be supported by clear evidence. It is unclear how the recent fire would impact upon the service charges that are payable. [NAME] under s.20C and Refund of Fees 28. In the [NAME] form, the Applicant applied for an order under section 20C of the 1985 Act. Although the Respondents indicated that no costs would be passed through the service charge, for the avoidance

8 of doubt, the Tribunal nonetheless determines that it is just and equitable in the circumstances for an order to be made under section 20C of the 1985 Act, so that the Respondents may not pass any of its costs incurred in connection with the proceedings before the Tribunal through the service charge. The Applicant has also sought an order under Paragraph 5A of Schedule 11 of the Commonhold and Leasehold Reform Act 2002. Such an order is not appropriate as the Respondents do not intend to pass on any litigation costs.

29. At the end of the hearing, the Applicant made an [NAME] for a refund of the Tribunal fees of £300 that he had paid in respect of the [NAME] pursuant to Rule 13(2) of the Tribunal Procedure ([APPELLANT]-tier Tribunal) ([NAME]) Rules 2013. Having heard the submissions from the parties and taking into account the determinations above, the Tribunal orders that [APPELLANT] Respondent refund any fees paid by the Applicant within 28 days of the date of this decision. Judge Robert Latham 12 [APPELLANT] 2019

Rights of appeal

By rule 36(2) of the Tribunal Procedure ([APPELLANT]-tier Tribunal) ([NAME]) 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 ([NAME]), then a written [NAME] for permission must be made to the [APPELLANT]-tier Tribunal at the [NAME] which has been dealing with the case. The [NAME] for permission to appeal must arrive at the [NAME] within 28 days after the tribunal sends written reasons for the decision to the [NAME]. 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. 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. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal ([NAME]).