Tribunal Reduces Unfair Service Charges for Tenants

OUTCOME: Allowed

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER

(RESIDENTIAL PROPERTY)

Case Reference : CAM/42UG/LSC/2019/0037

Property : [ADDRESS], Melton, Woodbridge, Suffolk 1P12

1RQ

Applicant : [redacted]

Respondents 1 [COMPANY_2]

2 [COMPANY_3] : [NAME_4] (counsel), instructed by [COMPANY_5] of Application A to determine reasonableness and payability of service

charges for the years 2018–2019 [LTA 1985, s.27A]

B for an order limiting payment of landlord’s costs by

way of an administration charge

[CLRA 2002, Sch 11, para 5A]

C for an order that the landlord’s costs are not to be

included in the amount of any service charge payable

by the tenants [LTA 1985, s.20C]

Tribunal Members : G K Sinclair & R Thomas MRICS

Date and venue of : Thursday 31st October 2019 at

Hearing Ipswich Magistrates Court

Date of decision : 11th November 2019

DECISION

• Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 1–2

• Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . para 3

• The lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 4–10

• Relevant statutory material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 11–17

• Inspection and hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 18–37

• Discussion and findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . paras 38–45

1. In this application the applicant lessee of one of the four bedsit flats in the block

asks the tribunal to determine :

a. The reasonableness and payability of service charges in the period in

question

b. An order limiting payment of landlord’s costs by way of an administration

charge, and

c. An order that the landlord’s costs are not to be included in the amount of

any service charge payable by them.

2. For the reasons which follow the tribunal determines that :

a. The service charge budget for 2018–19 be reduced by reducing the

estimated management fees from £1 590 to £1 000, by deleting entirely

the accounts preparation fee of £482, and deleting the £550 under section

S2 (internal common parts). The applicant’s share of each is one quarter

b. There is no lawful basis under the lease for levying an administration

charge and legal review fee, each of £60, and these are rescinded

c. Save in the case of forfeiture proceedings under section 146 the lease

makes no relevant provision for recovery of the [NAME_6]’s legal costs.

d. For the avoidance of doubt the tribunal makes an order under paragraph

5A that the [NAME_6]’s costs of an incidental to this application may not be

recovered from the applicant personally

e. For the avoidance of doubt an order is made under section 20C that the

[NAME_6]’s costs of and incidental to this application my not be taken into

account in the calculation of any service charge payable by any of the

lessees named in the application, or when assessing the amount of any

retained but unspent service charge funds (if any) that are remittable to

the [COMPANY_7].

Background

3. The applicant is one of four lessees of bedsit flats. He challenges the service and

administration charges which, on behalf of his [NAME_6], its managing agent seeks

to recover. A second lessee, [NAME_8], also brought a similar claim. However,

faced by tribunal directions requiring him to assemble documents and prepare

the hearing bundle, he felt overwhelmed by the task because of his dyslexia and

withdrew his application. (At least, that his how he explained it when attending

the hearing in support of [NAME_1]).

The lease

4. [NAME_1]’s lease dated 2nd May 1984 was granted by [COMPANY_9] to

[NAME_10] for a term of 105 years from 1st October 1982, but with the

stated intention of transferring the freehold interest in the block to [COMPANY_2] within 28 days of the grant of the last lease of flats

and parking spaces on the development. Although the latter company is named

in and is a party to the lease this is not the typical tripartite arrangement where

the [NAME_6] names a management company to take principal responsibility for the

provision of services and collection of service charges. The ongoing relationship

is simply one between [NAME_6] and lessee.

5. Clauses 1.3 and 1.4 define what is meant by “the flat” and “the parking space”

respectively. The maintenance year is defined in 1.8 as the twelve month period

ending 30th September, and 1.9 explains that the service charge shall be :

...a sum equal to one quarter... of the aggregate annual maintenance

provision for the whole of the block (other than the entrance hall stairs

and landing of the block giving access to the first floor) for each

maintenance year (computed in accordance with Part II of the Fourth

Schedule) and in the case of a lessee of a flat on the first floor in addition

a sum equal to the half... of so much of the aggregate annual maintenance

provision as relates to the entrance hall stairs and landing giving access to

the first floor and the lighting and cleaning thereof for each maintenance

year (computed in accordance with Part II of the Fourth Schedule).

6. The lessee’s covenants appear in clause 3 and the Third Schedule and include, at

3.2, a covenant to pay the service charge to the company by two equal instalments

in advance on the half-yearly day (31st March and 30th September). The [NAME_6]’s

covenants can be found in clause 5 and the Fifth Schedule, and at clause 6.1 is the

usual proviso for re-entry if the rents reserved or service charge payments shall

be unpaid for 21 days after becoming payable (whether formally demanded or

not) or if any of the covenants on the lessee’s part are not performed or observed.

7. At paragraph 13 of the Third Schedule (registration of dispositions) the lessee

covenants, upon every underletting, assignment, etc of the flat to notify the

[NAME_6], produce a copy of the relevant document and pay 0.1% of the value of the

transaction (but not less than ten pounds) for registration of every such notice.

8. By paragraph 16 the lessee covenants to pay to the [NAME_6] on demand :

...all costs, charges and expenses (including legal costs and surveyor’s fees)

which may be incurred by the company or which may become payable by

the company in respect of the preparation and service of a schedule of

dilapidations or under or in contemplation of the Law of Property Act

1925 or in the preparation or service of any notice thereunder respectively

notwithstanding that forfeiture is avoided otherwise than by relief granted

by the Court.

9. By paragraph 17 the lessee covenants to pay all reasonable costs and expenses of

the company (including all solicitors and surveyor’s costs and fees) incurred in

granting any consent under the lease.

10. Part II of the Fourth Schedule deals with the computation of the service charge

and includes at paragraph 2(i) an estimate of the amount likely to be incurred in

that year, and at 2(ii) provision for a reserve or sinking fund. The Fifth Schedule

lists the purposes for which the service charge is to be applied, including at

paragraph 2 the decoration and repair of the common parts – both internal and

external. Paragraph 4 refers to the employment of staff to perform such services

as the company shall think necessary in or about the block, and paragraph 5 to

payment of costs incurred in management. While these include costs incurred

in the running and management of the block and the collection of the rents and

service charges in respect of the flats there is no express mention of legal costs.

Material statutory provisions

11. Section 18 of the Landlord and Tenant Act 1985 defines the expression “service

charge”, for the tribunal’s purposes, as :

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...

12. The overall amount payable as a service charge continues to be governed by

section 19, which limits relevant costs :

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.

13. The tribunal’s powers to determine whether an amount by way of service charge

is payable and, if so, by whom, to whom, how much, when and the manner of

payment are set out in section 27A of the Landlord and Tenant Act 1985. The

first step in finding answers to these questions is for the tribunal to consider the

exact wording of the relevant provisions in the lease. If the lease does not say

that the cost of an item may be recovered then usually the tribunal need go no

further. The statutory provisions in the 1985 Act, there to ameliorate the full

rigour of the lease, need not then come into play.

14. The tribunal’s jurisdiction to determine the reasonableness and payability of

administration charges and to vary leases accordingly is governed by section 158

of and Schedule 11 to the Commonhold and Leasehold Reform Act 2002. Not

every payment required under a lease falls within the tribunal’s jurisdiction, with

paragraph 1(1) stating that :

In this Part of this Schedule “administration charge” means an amount

payable by a tenant of a dwelling as part of or in addition to the rent which

is payable, directly or indirectly –

(a) for or in connection with the grant of approvals under his lease, or

applications for such approvals,

(b) for or in connection with the provision of information or

documents by or on behalf of the landlord or a person who is party

to his lease otherwise than as landlord or tenant,

(c) in respect of a failure by the tenant to make a payment by the due

date to the landlord or a person who is party to his lease otherwise

than as landlord or tenant, or

(d) in connection with a breach (or alleged breach) of a covenant or

condition in his lease.

15. Section 168 of the Commonhold and Leasehold Reform Act 2002 provides that

a landlord under a long lease of a dwelling may not serve a notice under section

146(1) of the Law of Property Act 1925 (restriction on forfeiture) in respect of a

breach by a tenant of a covenant or condition in the lease unless it has been

finally determined on such an application to the tribunal by a landlord that the

breach has occurred, or the tenant has admitted the breach, or a court in any

proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute

arbitration agreement, has finally determined that the breach has occurred.

16. By the more recently introduced paragraph 5A a tenant of a dwelling in England

may apply to the relevant court or tribunal for an order reducing or extinguishing

the tenant’s liability to pay a particular administration charge in respect of

litigation costs incurred in proceedings before it, whereupon the court or tribunal

may tribunal may make whatever order on the application it considers to be just

and equitable.

17. Finally, by section 20C of the Landlord and Tenant Act 1985 a tenant may make

an application for an order that all or any of the costs incurred, or to be incurred,

by the landlord in connection with proceedings before a court or tribunal are not

to be regarded as relevant costs to be taken into account in determining the

amount of any service charge payable by the tenant or any other person or

persons specified in the application.

Inspection and hearing

18. The tribunal inspected the exterior of the building and the internal common

staircase at 10:00 on the morning of the hearing. Also present were [NAME_4],

counsel for the respondents, and the [NAME_3] agent managing this and another

block in the immediate area, [NAME_11]. The applicant had already set off for

the hearing.

19. The block comprises the bar across the top of the letter T, with the stem being

several freehold terraced houses and each end of the bar comprising projecting

part-rendered panels with two windows to each of four flats, two on the ground

floor and two above. The top of the T is a brick gable wall, in the centre of which

are a row of three doors. Those on the left and right are the entrances to the

ground floor flats; that in the middle leads to the entrance hall and stairs up to

the two upper flats.

20. Near the ridge line are a small group of television aerials, notionally communal,

although the individual satellite dishes for each flat were, the tribunal was told,

of recent origin.

21. The block is situate near the end of a small residential estate road, from which a

private car park shared by and situate between the rear garden to the block and

the houses opposite is accessed. At the rear is a large communal garden laid to

grass, with one high wooden fence of uncertain ownership between the freehold

houses on the left hand boundary (when viewed from the road) and two in the

ownership of the block : along the rear, bounding a footpath, and to the right

(incorporating a pedestrian gate), between garden and car park. Large parts of

the fence along the rear were covered in ivy.

22. Part of the right hand boundary, extending from the gable wall of the block and

by the curved entrance to the car park, comprises a high brick wall in which is

inset another pedestrian gate enabling access to the garden from near the doors

to the flats. In front of both the gable wall and entrance doors and under the

windows facing the road is another small area laid to grass.

23. By an amended set of directions responsibility for preparation of the hearing

bundle was imposed on the respondent. The bulk of it was the respondent’s own

statement of case to which, unnecessarily, were exhibited copies of the various

applications and the tribunal’s initial directions order.

24. In his application relating to service charges [NAME_1] challenged the

demands for October 2018 and May 2019. The first he had paid; the second he

had withheld because of the ongoing dispute. He alleged that the charges were

unreasonable, that none of the anticipated works charged for have been done,

that the lawn that is mown is full of weeds, the fencing disappeared under ivy,

and that four tiny studio flats should not be charged so much. He also drew the

tribunal’s attention to the fact that the four lessees had formed an [COMPANY_7]

which, by the date of the hearing, had taken over responsibility for management.

25. By a directions order dated 20th June 2019 the respondent was required to

produce copies of all relevant service charge accounts and estimates for the year

in question, in answer to which the applicant was to provide a detailed schedulebased

challenge. What he produced took up a single line on the model schedule

which, with column headings, read :

Item Cost Applicant’s comments

Statement 1 July 19 863.63 Unreasonable & untruthful

26. In his section 20C application he referred to his age (70), his low income, and to

various health problems; all of which are not really relevant to that issue. In his

application under paragraph 5A of Schedule 11 to the 2002 Act he mentioned the

same, save for his age.

27. Apart, therefore, from broad allegations about the quality of the gardening, that

no maintenance was being undertaken, and a general point that too much was

being charged for four small bedsits, the respondent had little to go on.

28. The bundle included a short witness statement from [NAME_11], adopting as her

evidence what was included in the respondent’s statement of case. She referred

to photographs she had taken on the block and garden on her inspections and an

email and list of dates of attendance by her gardening contractor, [COMPANY_12] (from the Braintree area), sought to show that [NAME_1]’s complaints on

that score were wrong and the amount charged by the company for fortnightly

visits was reasonable.

29. The demands for the 2018–19 accounting period appeared to be based on an

income and expenditure account for the previous year, at page 169 in the bundle.

Nothing was said about a £14.68 monitoring charge, and on the subject of both

terrorism and buildings insurance the tribunal explained to [NAME_1] (and

to [NAME_8] sitting beside him) that while [NAME_8] may have been able to

obtain insurance for his flat, landlord’s insurance was different and had to cover

the [NAME_6]’s freehold interest as well as all the flats (but not their contents), and

that unless he could show (which he had not) that the insurance cover sought and

premium paid by the [NAME_6] were excessive, and beyond the range of normal

market rates, these were costs that he could not successfully dispute.

30. He had nothing more to say on the subject of gardening, and reluctantly accepted

that work had been done – but in 2017 – to paint the rendered panels. This, said

[NAME_11], was done off a ladder rather than scaffolding. There was a modest

£350 in the budget, at page 164, for the year 2018–19. Also in the budget, but for

the first time, was a section 2 covering internal communal cleaning, general

maintenance and a contribution to reserves. These totalled £550 and produced

astonishment from the applicant. Neither the [NAME_6] nor its managing agent had

a key to the entrance door (the tribunal and [NAME_11] had to be let in by a

neighbour) and so any cleaning inside was done by the tenants themselves.

31. However, the tribunal noted that management fees of £1 514.04 for 2017–18 had

risen for the year in question to a budgeted £1 590, on top of which was a fee of

£482, described as an “accounts preparation fee.” What, the tribunal asked, was

included in the standard management fee? [NAME_4] replied that it covered

preparing and issuing service charge estimates, accounts, providing account

information to external auditors, credit collection, reconciling accounts,

correspondence with residents, planning the insurance and handling claims,

general maintenance, site inspections, attending regular meetings when required,

arranging ad hoc repairs, managing contractor performance, authorising the

payment of invoices for planned maintenance and utility suppliers, plus safety

audits.

32. Why then charge separately for an accounts preparation fee, asked the tribunal,

referring to paragraph 3.4 of the current (3rd) edition of the RICS Blue Book?

33. [NAME_11] stated that health and safety reports were arranged every five years,

as in 2017–18, but none was included for the year in question. This would not

generally include an asbestos survey.

34. By reference to [NAME_1]’s [NAME_3] statement of account dated 1st July 2019

(page 138) the tribunal enquired about the administration charge dated 23rd April

2019 and a legal review fee dated 9th May 2019, each in the sum of £60. What

were these for? [NAME_11] explained that the administration charge is for

attempts to collect the service charge, which involves writing three letters. The

legal review fee is for someone in credit control who collates the documents and

passes to the legal team for enforcement. When it was suggested that this would

not take long she agreed that she would like to earn £60 for an hour’s work. The

tribunal then pointed out that the administration fee was levied on 23rd April,

just after the 21 days for payment of the 31st March payment had elapsed. No

letter – let alone three – seemed to have been written. This appeared to have

been an automatic charge.

35. Asked the legal basis for imposing such charges, [NAME_4] said that the [NAME_6]

relied upon paragraph 16 of the Third Schedule. Where, asked the tribunal, was

there evidence of a determination to pursue him to forfeiture?

36. Bearing in mind that the lessees had, through their newly formed [COMPANY_7],

now assumed responsibility for management the tribunal enquired when this had

first come to the [NAME_6]’s attention. [NAME_1] thought that the company was

formed in about March or April, and notice sent to [NAME_3]. [NAME_11] said

that the claim notice was dated 23rd May 2019.

37. In his closing submissions [NAME_4] argued that the applicant had made no

effort to make a sustainable application. The respondent has had almost to guess

in what way, other than the gardening situation, the budget was opposed other

than by saying it is lies and not correct. Nonetheless, the respondent had been

dragged to a hearing to present a case without knowing to what level items were

disputed. In particular, as to the gardening, there had never been an objection

to the gardening and the quality provided. He therefore submitted that the

application should fail in every respect.

Discussion and findings

38. It is unfortunate that the applicant did not take advantage of the advice which is

available to lessees with respect to long leasehold or property management

issues. His case might otherwise have been better prepared. Nevertheless, he did

raise an overall complaint about the costs imposed for a small modern block of

modest bedsits with a garden laid only to grass and where little else was done, or

expected to be done, beyond gardening.

39. His complaint concerning the gardening fails, however. At a cost of two men for

one hour once a fortnight, at the equivalent of an hourly rate of £9.50, the sum

charged is reasonable. There is no doubt that the work was undertaken, and the

applicant was unable to produce any photographs of long, unkempt grass and

weeds proving to the contrary.

40. Equally, he had nothing with which to put up any effective argument about the

cost of the buildings insurance; a task which is rarely straightforward.

41. Where he is on stronger ground, especially viewed with hindsight, is in saying

that the [NAME_6] or its agent have never had (and still don’t have) a key to the

communal entrance door and therefore including estimates for work to the hall

or stairs that could never have been undertaken was wrong.

42. The tribunal considers that, adding together the standard management fee and

that for preparation of the accounts for audit, a total of just under £2 000 or

£500 per flat is excessive for the work likely to be required. The tribunal reduces

the sum allowed to £1 000, or £250 per flat.

43. The tribunal does not accept that any letters – let alone three – were written to

the lessee with a view to recovery of service charge arrears. The first charge was

imposed almost immediately after the 21 day deadline had passed. Equally, the

legal review fee is excessive for the work needed by a credit control accounts

clerk, at his or her usual hourly rate. More importantly, even if the amounts

charged were reasonable, there is no lawful basis under the lease for imposing

such charges.

44. As for the suggestion that these costs were incurred in or in contemplation of

section 146 proceedings, there is no evidence that anyone on behalf of the [NAME_6]

ever formed that intention, that there was correspondence with the lessee to that

effect, or that consideration had been given to applying to the tribunal under

section 168 of the 2002 Act for a determination that the applicant was in breach

of covenant. Only then could a section 146 notice be served upon the applicant

as the essential precursor to forfeiture proceedings.

45. Finally, while the lease makes provision for recovery of the costs of management

there is no such provision for the recovery of solicitors’ legal costs and fees except

in specific circumstances (registration of notices and requests for consents) that

do not apply here. The applicant’s other applications under section 20C and

paragraph 5A of Schedule 11 might therefore be regarded as otiose, but for the

avoidance of doubt the tribunal makes the orders requested.

Dated 11th November 2019

Graham Sinclair

First-tier Tribunal Judge