Tribunal Reduces Service Charge but Rejects Section 20C Order

OUTCOME: Allowed in Part

1

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : BIR/00CS/LSC/2022/0008 Property : 196 [ADDRESS], [POSTCODE] Applicant : [redacted] : None Respondent : [redacted] [RESPONDENT] : [NAME] [COUNSEL] [NAME] (counsel) instructed by [COUNSEL], Solicitors Type of application :

1. Application for determination of liability to pay and reasonableness of service charges under sections 27A and 19 of the Landlord and Tenant Act 1985 2. Application for an order under section 20C of the Landlord and Tenant Act 1985 3. Application under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 for an order reducing or extinguishing a tenant’s liability to pay an administration charge in respect of litigation [NAME] Tribunal member : Judge C [NAME] [NAME] and place of hearing : 12 April 2023 at Centre City Tower, Birmingham Date of decision : 16 May 2023

DECISION © CROWN COPYRIGHT 2023

2 Background

1. [NAME] [NAME] has applied to this Tribunal for a determination of the payability of the Maintenance Charge on account for her flat at [ADDRESS], Birmingham (“the Property”) for the calendar year 2022. The sum demanded for that year, in a demand dated 13 January 2022 (“the Demand”), was £2,388.94, which [NAME] [NAME] says is too high.

2. The application was received by the Tribunal on 20 September 2022. Directions were made for the conduct of the case, requiring both parties to file Statements of Case, which both did. [NAME] [NAME] also filed a short reply with some additional documents attached. A face-to-face hearing was arranged for 12 April 2023, which was preceded by an inspection. 3. [NAME] [NAME] represented herself at the hearing, assisted by her son. The Respondent was represented by [NAME] [COUNSEL] [NAME] of counsel. Mr [COUNSEL], a property manager for the Respondent’s managing agent, [RESPONDENT], attended the hearing and gave evidence to us.

4. This determination sets out our decision on the service charge payable in advance for 2022 and our reasons for that determination. Law 5. Sections 18 to 30 of the Landlord & Tenant Act 1985 (“the Act”) contain statutory provisions relating to recovery of service charges (which the Maintenance Charge in this case is) in residential leases. Normally, payment of these charges is governed by the terms of the lease – i.e. the contract that has been entered into by the parties. The Act contains additional measures which generally give tenants additional protection in this specific landlord/tenant relationship.

6. Under Section 27A of the Act, the Tribunal has jurisdiction to decide whether a service charge is or would be payable and if it is or would be, the Tribunal may also decide:- a. The person by whom it is or would be payable b. The person to whom it is or would be payable c. The amount, which is or would be payable d. The date at or by which it is or would be payable; and e. The manner in which it is or would be payable 7. Section 19(1) of the Act provides that:

3 “[NAME] shall be taken into account in determining the amount of the 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 and the carrying out of works, only if the services or works are of a reasonable standard: and the amount payable shall be limited accordingly.” 8. Section 19(2) of the Act provides that: “Where a service charge is payable before the relevant [NAME] are incurred, no greater amount than is reasonable is so payable, and after the relevant [NAME] have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.” 9. In this case, we are only considering section 19(2) as [NAME] [NAME] challenge is to the demand made at the beginning of 2022 for the anticipated [NAME] for that year. If she wishes to do so, when the accounts for 2022 are produced, [NAME] [NAME] could pursue a further case under section 19(1) to ask the Tribunal to determine whether the actual [NAME] were reasonably incurred, and were for works or services which were of a reasonable standard.

10. On the question of whether the Tribunal can take into account the Maintenance Charge payer’s financial position, in [NAME] v [COMPANY] and [NAME]-Taylor [2011] UKUT 367 (LC) the Upper Tribunal said, at paragraph 20: “It is important to make clear that liability to pay service charges cannot be avoided simply on the grounds of hardship, even if extreme. If repair work is reasonably required at a particular time, carried out at a reasonable cost and to a reasonable standard and the cost of it is recoverable pursuant to the relevant lease then the lessee cannot escape liability to pay by pleading poverty. … the [Tribunal] cannot alter a tenant’s contractual liability to pay.” The Lease 11. [NAME] [NAME] is the lessee of the Property under a lease dated 8 October 2010. The original landlord was [RESPONDENT] (though they are not the landlord now).

12. The lease has three parties, being the original landlord, [NAME]) [APPELLANT] (“the Respondent”), and an original tenant. 13. [NAME] [APPELLANT] told us that she took an assignment of the interest of the tenant in the lease (i.e. bought the flat) in around April 2021. Official copies of

4 the legal interest in the flat registered her as the proprietor on 11 April 2022, and stated that the price paid on 21 May 2022 was £101,000. [NAME] [NAME] said there had been a delay in registering her purchase, which she blamed on the managing agents, though of course they are nothing to do with the Land Registry.

14. There was therefore some confusion over the date of purchase, but for the purposes of this application, we were satisfied that the purchase was in 2021, so that [NAME] was the lessee before the commencement of the 2022 calendar year, and before service of the Demand.

15. The lease is for 125 years. A premium was paid. There is a rising ground rent of £250 per annum initially, doubling every ten years thereafter. A Maintenance Charge is payable to the Respondent, the definition of which is: “(subject to the Agreement and Declaration in relation thereto contained in paragraph 8 of the Seventh Schedule) the proportion applicable to the Property (specified in Part III of the Sixth Schedule) of the sums spent or to be spent by the Management Company on the matters specified in the Fifth Schedule and so far as the same relate the matters specified in Part II of the Sixth Schedule as estimated or adjusted in accordance with Part I of the Sixth Schedule” 16. The proportion specified in Part III of the Sixth Schedule is 4.5147%. That Part also identified an Initial Maintenance Charge of £797.30.

17. In paragraph 1 of the Third Schedule, the tenant covenants to pay the Maintenance Charge. Clause 5 and the Fifth Schedule contain covenants on the part of the Respondent to provide services, including keeping the building in which the Property is located in good repair, cleaning, maintenance, insurance, and various other services in fairly standard form. Part II of the Sixth Schedule includes other heads of expenditure which may be incurred by the Respondent and charged to the [NAME], again in fairly standard form. The precise wording of these items is not of great significance in this determination and we have therefore not set out the services which must be provided by the Respondent in detail.

18. The service charge year is 1 January to 31 December in each year (see paragraph 1 of the Part I of the Sixth Schedule).

19. Paragraph 8 of the Third Schedule concerns restrictions upon the sale of the flat, in that no lessee may transfer the Property until the transferee has applied in writing contemporaneously with the transfer to become a member of the Respondent. This strongly suggests the Respondent is a [COMPANY].

20. Paragraph 8 of the Seventh Schedule provides: Maintenance Charge

5 (a) the proportion of the Maintenance Charge applicable to the Property in relation to the Buildings and the Common Parts shall apply only as from the date of construction by the Company of the final flat or dwelling within the Development (b) prior to the date specified in paragraph 8(a) of this Schedule the proportion of the Maintenance Charge applicable to the Property in relation to the Buildings and the Common Parts shall be the amount of such Maintenance Charge as is attributed by the Company or the Management Company to [NAME] divided by the number of flats within [NAME] (c) the Company may at any time prior to the construction of the final flat or dwelling within the Development vary the number of flats or dwellings to be constructed within the Development and/or vary the specification thereof and (if required as a result thereof) shall also vary by notice to the Buyer the proportion specified in Part III of the Sixth Schedule Provided that any such variation shall be reasonable in the context of the change to the Development and shall be calculated on the same basis as the original proportion. Inspection 21. The Property is situated in a purpose built block of 20 flats over four storeys on the corner of [ADDRESS] and Crown Street in Smethwick, constructed in an “L” shape (“[NAME]”). There are three staircases within [NAME], one serving 4 flats, and two serving 8 flats. [NAME] is of traditional brick and rendered block construction with a pitched tiled roof.

22. There are entrance doors at the rear and front of [NAME] enabling access to each staircase. The front entrance is a fire exit for two staircases, with the main access door being at the rear. The most easterly staircase has the main entrance door on the front of [NAME] as viewed from the road. One access door for each staircase has a door entry control system.

23. The staircases are carpeted and decorated, but not heated. They have light and power, emergency lighting, and smoke detectors. We were informed that the smoke detectors are connected by a hard-wired system, though the sophistication of the system was not easy to observe. There is no addressable fire alarm panel or connection to the fire authorities. There is no lift. There is a smoke vent system in the event of fire.

24. Externally, there is a paved car park with 23 parking spaces, two bin stores, a bike store, and a facility for housing a large pressured water tank with associated mechanical and electrical equipment, which we were informed is required to ensure adequate water pressure in the flats. There are areas of lawn laid to grass and flower beds between [NAME] and the car parking area, and along the back of the car park.

6 25. When we inspected, there were three large [NAME] refuse bins in and around the car park area. Only one was in a bin store. We were informed that refuse is placed in the bins by the occupants of the flats in plastic bags and then regularly collected by the local authority.

26. At the front of [NAME] is a grassed area with a few shrubs.

27. There is a separate building adjoining [NAME], on Crown Street, in which two houses are situated. These houses appear likely to have been built at the same time as [NAME]. We were informed their owners do not contribute to any services provided to the flats, but they do contribute towards maintenance and upkeep of the car park and garden areas. Budgeted and actual expenditure 28. The table below shows the information provided to the Tribunal on the budgeted and actual expenditure for the years for which documents were provided for [NAME]: 2019 2020 2021 2022 2023 Budget (£) 28,990 31,425 32,130 45,260 44,678 Actual (£) 29,795 31,480 30,407 not available not available 29. The table below then shows the detail of the budget for 2022, with actual expenditure in 2021 also shown for comparison purposes: Expenditure item 2022 budget 2021 actual Grounds maintenance 1,500 1.376 Cleaning 3,010 2,817 Carpet cleaning 400 - Drain and gulley cleaning 350 - Gutter cleaning 400 - Window cleaning 555 553 Day to day maintenance 2,500 3,022 Out of hours 290 280 Pest control 650 669 Door access system 400 - Fire Risk Assessment 660 207 Function testing 780 780 Emergency Lighting Maintenance 500 193 Fire system Maintenance 500 474

7 Water pump maintenance 750 1,204 TV/Satellite Maintenance 200 - Refuse Management 1,300 1,044 Communal electricity 2,000 1,892 Buildings and terrorism insurance 4,210 3,800 Directors and Officers insurance 120 154 Management fees 5,770 5,600 Accountancy fees 245 236 Audit fees 540 533 Company secretarial fees 840 810 Collection fees 0 - Bank charges 40 13 Sinking fund – renewals 2,000 2,000 Sinking fund – cyclical 2,750 2,750 Sinking fund – External Wall Survey 12,000 - Totals 45,260 30,407 The Applicant’s case 30. The essence of [NAME] [APPELLANT] case is that a budgeted Maintenance Charge of £2,388.94 is too high, and unaffordable. She provided copies of estate agent’s particulars for another flat in [NAME] which stated that the service charge was one of £1,400 or £1,500 per annum. Both figures were given. The particulars contained the statement that “All property information is provided as a guide only. You should check with your solicitor prior to the exchange of contracts.” 31. Two other copies of estate agent’s particulars for flats in the B66 area were also provided. One, in [ADDRESS], showed a service charge of £1,037.07 per annum. A second in an unspecified location showed the service charge as £1,474.42 per annum. 32. [NAME] [NAME] also claimed that the Tribunal should take into account the fact that the Initial Service Charge in the lease was just shy of £800.00.

33. At the hearing, the Tribunal asked [NAME] [NAME] to consider the budget for 2022 which was contained in the Respondent’s Statement of Case. She said that she regarded some of the charges in the budget as being too high. In particular, she challenged the sums included for the items below on the grounds given:

8 a. grounds maintenance. Too expensive; b. cleaning. Too expensive; c. drain, gulley, and gutter cleaning. The challenge was that these items should not be in the budget because in practice they were not carried out; d. window cleaning. [NAME] [NAME] considered this could be provided more cheaply; e. day to day maintenance, f. an out of hours service. Unnecessary; g. door access system. The challenge was on the basis that the system did not work. Doors were able to be opened without any person authorising access; h. TV/Satellite Maintenance. [NAME] [NAME] was unaware of any such equipment; i. Refuse Management. Refuse collection was included in Council Tax and should not be to be additionally funded; j. Electricity. Too expensive; k. Management. Fees excessive; l. Audit, and Company Secretarial fees; fees excessive; m. the provision for an external wall survey. Unnecessary. 34. [NAME] [NAME] accepted in cross examination that maintenance, grounds maintenance, and cleaning were appropriate services to include in the Maintenance Charge; she just felt the budget sums were too high. She expressed the view that the Maintenance Charge should not be significantly different from service charges for similar flats in the B66 postcode area, the average being, according to her researches, between £1,037 and £1,500. The Respondent’s case 35. [NAME] [RESPONDENT] called Mr [RESPONDENT] to give evidence. He is a Property Manager employed by [NAME] and for the last few months he has been managing [NAME].

36. The Tribunal questioned Mr [NAME] on the reason for the inclusion of a fee for an external wall survey. He said this was a result of a change in building regulations. He did not know which regulations or why specifically a decision to include a provision for the survey in the 2022

9 budget had been made. He said the provision had not been spent and it would be released in the 2022 actual results as it was not in fact required.

37. Mr [NAME] confirmed that cleaning and maintenance contractors visited regularly but he did not know the exact frequency or the rates they charged. None of those issues had been raised in [NAME] [NAME] application, but only at the hearing. He accepted that expenditure on a number of budgeted items had not been incurred in previous years, particularly drain, gulley, and gutter maintenance. He did not know the door access system was not working. He agreed there was no TV/Satellite equipment at [NAME].

38. The Tribunal asked Mr [NAME] from whom he took his instructions. He said it was the Respondent but he was not able to say exactly who instructed him. The Tribunal identified that there were only two directors of the Respondent listed at [NAME], one of whom was a company clearly linked to [NAME]. The other was a person called [NAME]. Mr [NAME] said he had not heard of Mr [NAME] and assumed he must be a lessee of one of the flats.

39. The Tribunal asked how the 2022 individual demand to [NAME] [NAME] was calculated, as mathematically it was not a figure derived from the application of the lease percentage in Part III of the Sixth Schedule, to the total 2022 budget figure. 40. [NAME] [NAME] took instructions on this question and told us that the 2023 budget included figures that gave the percentage payable by [NAME] [NAME] as 5.2783% rather than the percentage shown in the lease. The schedule of percentages were indeed attached to the 2023 budget figures, but had not been attached to the Tribunals copies of budgets for any years prior to 2023.

41. The reason for changing the percentage figure, [NAME] [NAME] told us, was that the application of paragraph 8 of the Seventh Schedule had resulted in a variation of the percentage.

42. In her final submissions, [NAME] said that the budget for 2022 should be determined by the Tribunal to be a reasonable budget. It had been properly prepared, with explanatory notes for the budgeted items, and variances against the previous year’s budget identified. She submitted that if budgeted expenditure was not actually expended in any year, this did not mean that the budget was not reasonable. It was the potential liability for the expenditure that should determine whether a sum was reasonably included in a budget, not the fact that there had always or normally been expenditure on that item in previous years. 43. [NAME] also asked us to take into account that [NAME] [NAME] has not provided the Tribunal with any competitive quotes to support her assertions that the budgeted figures were too high.

10 Discussion 44. The Tribunal’s task is to determine whether the budget set for 2022 by [NAME] on behalf of the Respondent was reasonable. Only payment of a reasonable sum can be demanded from [NAME] [NAME].

45. We hope that it became evident to [NAME] [NAME] at the hearing that the assessment of a reasonable budget sum requires us to look at the prospective actual [NAME] of maintaining the Common Parts of the flats in in [NAME]. [NAME] at any other block of flats in B66 are not relevant, and not known to the Tribunal.

46. Estate agent’s particulars showing service charge [NAME] at other blocks of flats can do no more than provide a very rough guideline of what other blocks of flats appear to cost to maintain. That may be of interest as a “sense check”, but unless the Tribunal knows the specific details of the other blocks of flats, and what services have to be provided to them, (which we do not), service charge [NAME] at other blocks are of no assistance to us in our consideration of what a reasonable budget is for the expenditure to be incurred under the lease.

47. We also need to explain to [NAME] [NAME] that affordability is not something we can take into account (see paragraph 10 above). We have no jurisdiction to determine that the Maintenance Charge should be less (on the grounds of any lessee’s ability to pay) than the reasonable sum that is anticipated to be incurred in a Maintenance Charge year. A lessee’s own financial circumstances are not relevant in our determination of the reasonable budget sum. Maintenance Charges are payable because there is a contractual obligation in the lease to pay them.

48. Finally, by way of preliminary comment, we do consider that [NAME] [NAME] has misunderstood Part III of the Sixth Schedule of the lease. There is nothing in the lease that suggests that the Maintenance Charge is limited to the sum stated in that Schedule as the Initial Maintenance Charge. On the contrary, the amount of the Maintenance Charge is clearly variable from year to year, because it depends on the expenditure actually required in each to provide the service which the Respondent is obliged to provide – see paragraphs 1 and 2 of Part I of the Sixth Schedule.

49. We therefore turn to consideration of what sum will constitute a reasonable budget for 2022. We will consider this in two stages: firstly, the overall budget figure, and then the proportion that [NAME] [NAME] has to pay.

50. In her application, [NAME] [NAME] had not identified specific items in the budget she objected to, no doubt because she did not realise the need to do so. We therefore accept that Mr [NAME] was answering questions about specific line by line charges without any pre-knowledge of the challenges he would have to answer.

11 51. Our view is that there were legitimate questions about how individual elements of the budget could be justified. An example is the inclusion of a budgeted sum for TV/Satellite equipment maintenance, as Mr [NAME] accepted there was no such equipment at the flats. But in our view, there is limited value in carrying out a line by line critique of the budget unless the outcome of such a process produces a significantly higher budget figure than the nearest actual expenditure figures available to the Tribunal, such that it looks as if it has been inflated in comparison with the previous year’s actual expenditure. A budget covers anticipated expenditure, and whilst some elements will be predictable and stable, other elements will not. There is a need therefore to look at the overall outcome. Some elements will by over-budgeted, and some under budgeted, but the “swings and roundabouts” may balance out so that the overall figure looks about right. It is not unreasonable to increase an annual budget each year to reflect changing prices in the real world.

52. In our view, the process carried out by [NAME] adopts sensible practice in identifying whether the overall budget is about right. It measures the budget against the 2021 budget, which as it turned out was extremely close to the actual outcome for that year. It explained increases and variances in a reasonable way.

53. We do not propose to vary any of the line-by-line budgeted figures in the 2022 budget. If a little too much expenditure has been included, that might be a good outcome, for it must be desirable to fully cover actual [NAME] in any budget in the knowledge that any surplus is credited to the [NAME] in the following year.

54. There is one glaring exception to the approach we have taken, namely the inclusion in the budget of anticipated expenditure on an external wall survey of £12,000. That was a brand new item. It was not mentioned at all in the budget notes explaining the budget. It was not mentioned at all in the Respondent’s Statement of Case. The amount of proposed expenditure on that single item increased the overall budgeted expenditure from £33,260 to £45,260. The first of these sums would have represented a modest 3.4% increase from 2021. It must be very doubtful that [NAME] [NAME] would have objected to that level of increase. In fact, the percentage increase resulting from the inclusion of the external wall survey budgeted sum was a fraction over a 29% rise. That level of increase should surely have raised eyebrows within [NAME] and the Respondent.

55. Furthermore, the Respondent was entirely unable to produce any justification for including the external wall survey cost in the budget, and its inclusion was not explained at all.

56. We would have expected [NAME] and/or the Respondent to have spotted the impact of including the external wall survey cost in the budget. In the light of [NAME] [NAME] overall complaint that the Maintenance Charge for 2022 was “too high”, they should have realised that it has increased very

12 substantially because of the inclusion of that single item, and they should have come to the Tribunal ready to justify that item in particular.

57. We noted that in the Respondent’s Statement of Case, Mr [COUNSEL], solicitor for the Respondent said: “The Applicant’s suggestion of a no more than £1600 service charge liability and that she be able to pay monthly, is not feasible and contrary to the Lease; it would not cover the cost of servicing each year …”.

58. We do not accept this evidence. Without the unnecessary provision for the external wall survey cost, the 2022 budgeted service charge expenditure would have resulted in a service charge pretty close to £1,600 for that year. This would have then reflected a modest annual rise in the historical level of service charge in the years for which we have figures.

59. In our view, it was unreasonable to include the proposed cost for the external wall survey in the 2022 budget. If we are wrong, it was unreasonable for [NAME] to fail to identify that this was the cause of a very significant rise in the budgeted expenditure and to explain the rationale for the proposed expenditure.

60. As it turns out, the survey was not carried out in 2022, and in the 2023 budget, there is no further proposed expenditure on it. Instead there is a note that the survey is “not required as under 18m and no cladding”. We express surprise that the need for a survey had not been fully investigated by [NAME] in December 2021 or January 2022 when the 2022 budget was prepared, the Building Safety Act having been introduced to Parliament in the summer of 2021.

61. We therefore determine that the overall reasonable service charge budget for 2022 is the sum of £33,260, being all sums included within the budget proposal as set out above, with the exception of the proposed expenditure of £12,000 on an external wall survey.

62. We now consider the proportion that [NAME] [NAME] has to pay. On the face of the lease, her percentage proportion is 4.5147%. As [NAME] [NAME] put in issue the amount of the Demand, our view is that we would have expected the Respondent to explain how that sum was calculated in its Statement of Case. The only place in the documents we considered at the hearing where there is a reference to a different proportion is in the 2023 budget.

63. Yet it is clear that a rational explanation for the sum that [NAME] [NAME] was invoiced for 2022 is that the proportion is based on the percentage of 5.2783% as set out in the 2023 budget document, as that percentage applied to the Respondent’s 2022 budget sum indeed totals £2,388.94.

64. Within the papers we were provided with, we do have a statement of account for [NAME] [NAME] predecessor in title showing the demands on account for 2019 as £1,530.17, for 2020 as £1,658.69, and for 2021 as £1,695.91. As we know the budgeted expenditure for these years, it is

13 apparent that the Respondent has been applying the higher percentage figure for those years too.

65. Unfortunately, we do not have crucial evidence to allow us to know whether the increase in the percentage payable by [NAME] [NAME] of the overall budget (and indeed actual) overall service charge was properly changed under paragraph 8 of the Seventh Schedule of the lease.

66. We are therefore unable to calculate an exact amount that would be properly demanded for the 2022 Maintenance Charge in advance. All we can say is that the proportion payable is that proportion set by the lease. We do not know if the lease proportion is properly 5.2783% as amended by virtue of paragraph 8 of the Seventh Schedule, or 4.5147% as set out in Part III of the Sixth Schedule.

67. A further difficulty with apportionment is dealing with the two houses adjoining [NAME] of flats. If they contribute towards the Maintenance Charge for the car park and gardens, as we were told, then the lessees of the flats will pay a proportionately smaller part of the Maintenance Charge for those areas than they will for the [NAME] of providing services to the building. Yet the lease only appears to have one percentage figure (whether that is the Part III Sixth Schedule percentage or the Seventh Schedule paragraph 8 percentage). So it does not provide a mechanism for charging different percentages for the two cost centres.

68. The parties will need to attempt to come to an agreement on this issue. If they cannot, the point will need to come back to this Tribunal or a court in due course. It would be wise for the Respondent to provide the necessary documentary evidence to support the implementation of paragraph 8 to [NAME] for her to consider.

69. Before concluding our discussion, we add a comment concerning the position of the Respondent. If it is, as we strongly suspect, a [COMPANY], it is clear that its relationship with [NAME] [NAME] does not appear to be functional. Disputes about the Maintenance Charge are not always avoidable, and they require time and attention, and can be costly to some or all of the lessees. We hope that one outcome of this case may be the development of a channel of communication between the company members, who ultimately determine how their managing agent should approach the business of managing their flats, and the professional manager they have appointed, so that matters of common interest, such as whether to include discretionary, and more expensive, additional items within the Maintenance Charge, might be resolved earlier and in a way that avoids [NAME] to all parties. Decision 70. We determine that the overall reasonable budget for the 2022 Maintenance Charge Year is £33,260.00. [NAME] [NAME] own liability is either £1,501.58, if the Part III Sixth Schedule percentage proportion

14 applies, or £1,755.56, if the percentage has been varied to 5.2783% under paragraph 8 of the Seventh Schedule of the lease. We are unable to determine which is correct. Administration Charge 71. One of the issues brought up by [NAME] [NAME] in the appendices to her Statement of Case was that the Respondent had not recognised the payments she had actually made towards the 2022 budget demand. Her case was that she had made a number of payments.

72. The Tribunal identified that an administration charge had been levied upon [NAME] [NAME] resulting from alleged arrears accruing whilst these proceedings were under way. We enquired of [NAME] [NAME] whether she intended to challenge that charge, as it was wholly related to the payability of the disputed 2022 budget demand. We also asked [NAME] [RESPONDENT] to take instructions on whether the Respondent would object to the Tribunal allowing [NAME] [RESPONDENT] to add a claim that the administration charge was not reasonable under the provisions of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”). 73. [NAME] [NAME] instructions were that her client had agreed to refund the administration charge levied, so the matter was therefore resolved without the Tribunal having to consider it further. [NAME] 74. [NAME] [NAME] has applied for [NAME] protection orders under section 20C of the Act and under paragraph 5A of Schedule 11 to the 2002 Act.

75. We do not determine those applications within this determination. The parties will need some time to consider their positions on the applications once they have been informed of the decision we have taken.

76. We direct that the [NAME] applications be adjourned. Within 14 days of the date of this decision, the parties may make written submissions stating what decisions they urge the Tribunal to take, and giving their reasons for so doing. The Tribunal will make a determination thereafter on the basis of the written representations and without a hearing. The parties must identify the [NAME] they have incurred (if any) preferably on Form 260 which should be provided alongside the parties written representations. Appeal

77. Any appeal against this decision must be made to the Upper Tribunal (Lands Chamber). Prior to making such an appeal the party appealing must apply, in writing, to this Tribunal for permission to appeal within 28 days of the date of issue of this decision (or, if applicable, within 28 days of any decision on a review or application to set aside) identifying the decision to which the appeal relates, stating the grounds on which that

15 party intends to rely in the appeal, and stating the result sought by the party making the application.

Judge C [NAME] First-tier Tribunal (Property Chamber)

1

1. Application for an order under section 20C of the Landlord and Tenant Act 1985 2. Application under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 for an order reducing or extinguishing a tenant’s liability to pay an administration charge in respect of litigation [NAME] Tribunal member : Judge C [NAME] [NAME] and place of hearing : Paper determination Date of decision : 06 July 2023

DECISION ON [NAME] © CROWN COPYRIGHT 2023

2 Summary 1. We order: a. Under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, that [NAME] [NAME] liability to pay any litigation [NAME] claimed from her personally as a result of these proceedings is extinguished; b. That no order under 20C of the Landlord and Tenant Act 1985 be made; c. That the Respondent do reimburse Tribunal fees of £300.00 to [NAME] [RESPONDENT]. Background 2. On 16 May 2023, the Tribunal issued a decision (“the Decision”) on an application by [NAME] [NAME] for a determination of the payability of a service charge on account for her flat at [ADDRESS], Birmingham (“the Property”) for the calendar year 2022. The sum demanded for that year, in a demand dated 13 January 2022 (“the Demand”), was £2,388.94, which [NAME] [NAME] said was too high. The Tribunal agreed, and reduced the amount to between £1,501.58 and £1,755.56 (see paragraph 70 of the Decision).

3. Applications for [NAME] protection orders under section 20C of the Landlord and Tenant Act 1985 (“the Act”) and under paragraph 5A of Schedule 11 to the Commonhold and leasehold Reform Act 2002 (“the 2002 Act”) were adjourned for further representations to be provided.

4. The parties have provided further representations, and this decision is the determination of those applications. The Paragraph 5A application under the 2002 Act 5. The Respondent’s representations do not indicate that they have an intention to claim their [NAME] from the Respondent personally. We will therefore deal with this aspect of the [NAME] applications in short order.

6. Where a [COMPANY] seeks to claim all the [NAME] of a tribunal case from the tenant who brought the case, such [NAME] are what is known as an administration charge under Schedule 11, paragraph 1 of the 2002 Act. Paragraph 5A of that Schedule gives this Tribunal jurisdiction to reduce or extinguish such [NAME], if we consider it is just and equitable to do so.

7. Any successful claim that [NAME] [RESPONDENT] should personally pay the whole of the Respondent’s [NAME], however, would depend, firstly, on there being a contractual basis for the claim.

3 8. We cannot see any provision in the lease (which is the contract) under which [NAME] [NAME] can be charged all of the [NAME] personally. Paragraph 12 of the Third Schedule does not work, as the [NAME] were not incurred in connection with recovery of arrears, or incidental to the service of a section 146 notice.

9. In any event, we consider that [NAME] [NAME] substantially succeeded in her application, as the service charge was reduced by the Tribunal to around the level that she was arguing for. It would not be just and equitable for her to have to pay the [NAME] personally.

10. We make an order that [NAME] [NAME] liability to pay any litigation [NAME] claimed from her personally as a result of these proceedings is extinguished. The Section 20C application under the Act 11. We find that paragraph 9 of Part II of the Sixth Schedule to the lease, which allows “the [NAME] incurred by the Management Company in …defending any actions or other proceedings against or by any person whatsoever” to be included within the service charge, clearly allows the Respondent to recover the [NAME] of these proceedings through the service charge.

12. In this case, there are (at least) 20 contributors to the service charge. We say at least because the required contributions of the two houses on Crown Street are unclear. The Respondent is, so far as we understand it, a tenant owned company. We assume there is no other source of funding for the solicitor’s [NAME] incurred in this case other than through the service charge. The [NAME] have to be paid by someone.

13. Although section 20C gives us the jurisdiction to absolve [NAME] [NAME] from any obligation to contribute towards the [NAME], we can only do so if we consider it to be “just and equitable in the circumstances”.

14. If a tenant brings proceedings against a company of which that tenant is a part owner, there is a sense in which the tenant is suing him or herself. That tenant is putting the company to expense, and as a member, it is not inappropriate to consider that the tenant must recognise that the company has no recourse to funds other than those contributed jointly by all the tenants.

15. Neither party has given us any information that explains which personnel approved the draft budget for 2022, or authorised [NAME] and / or the Respondent’s solicitors to defend these proceedings. Ordinarily, it would be the managing agent’s responsibility, but it would be unusual for the managing agent not to agree the budget with its client before issuing it. The client is of course the Respondent, a company owned by all the lessees. It would therefore be expected that some or all of the lessees

4 would have approved the budget and authorised the defence of [NAME] [NAME] claim.

16. In paragraphs 54 to 59 of the Decision, we were to some extent critical of the Respondent and / or [NAME]’s decision to include a provision for an external wall survey in the 2022 budget. We were also critical, in paragraph 69, of the apparent lack of any channel of communication between [NAME] and the owners of their client.

17. Despite our criticisms, in making this [NAME] decision, we have no evidence (as neither party provided any) by which we can identify the person or persons most responsible for taking the decisions of which we were critical.

18. In our view, in the light of our inability to allocate responsibility for including the cost of an external wall survey in the 2022 budget, it would not be just and equitable to increase the [NAME] liability upon all other lessees by granting [NAME] [NAME] an order under section 20C of the Act, without having some evidence to the effect that the remaining lessees wanted the 2022 budget to include an unnecessary budget item. We have no such evidence. We therefore refuse that application.

19. It is of course open to [NAME] [NAME], or any other lessee, to challenge the reasonableness of the legal [NAME] which are likely to be added to the service charge under section 27A of the Act following this decision when the final year accounts which include those [NAME] are produced. Tribunal fees 20. The impact of our decision above is that (unless there is a section 27A challenge), [NAME] [RESPONDENT] will have to pay her share of the Respondent’s [NAME] in these proceedings.

21. In addition, [NAME] [NAME] also funded the Tribunal fees, totalling £300.00.

22. Rule 13(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 gives the Tribunal the power to order a party to reimburse fees paid by another party.

23. Our view is that [NAME] [NAME] substantially achieved her objective in bringing the proceedings of reducing the 2022 budget service charge to levels more akin with residential flat service charge levels in the area. We consider that it is fair and appropriate to order that the Respondent reimburse her the fees of £300.00. The Respondent will be able to add those fees to the [NAME] of the proceedings, so [NAME] [NAME] will end up paying a proportion of those fees, but her liability will be very significantly less than if she has to pay the whole of them. We consider that to be a fair outcome.

24. We add that [NAME] [NAME] indicated she had incurred additional [NAME] of £100.00 in lost income and / or subscriptions to an [NAME]. There

5 are no applications before us under which we can order the Respondent to reimburse these [NAME], and [NAME] [RESPONDENT] will not be able to recover these [NAME] through a Tribunal order in these proceedings. Appeal

25. Any appeal against this decision must be made to the Upper Tribunal (Lands Chamber). Prior to making such an appeal the party appealing must apply, in writing, to this Tribunal for permission to appeal within 28 days of the date of issue of this decision (or, if applicable, within 28 days of any decision on a review or application to set aside) identifying the decision to which the appeal relates, stating the grounds on which that party intends to rely in the appeal, and stating the result sought by the party making the application.

Judge C [NAME] First-tier Tribunal (Property Chamber)