Tribunal Sets £13,500 Service Charge for Major Works in London

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AW/LSC/2021/0024 ([NAME_1]

2) LON/00AW/LSC/2021/0129 ([NAME_1]

9) LON/00AW/LSC/2021/0315 (Flats 2 & 9) HMCTS code : Face to face hearing Property : Flats 2 & 9 [ADDRESS] [POSTCODE] Applicant : [redacted] : [NAME_2], [NAME_4] Respondent : [redacted] [NAME_9] ([NAME_1]

9) Representative : In person Type of application : For the determination of the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Tribunal members : Judge [NAME_11] [NAME_13] Venue and hearing date : 10 [ADDRESS] [POSTCODE] 23 & 24 March 2022 Date of decision : 19 April 2022

DECISION

2 Decisions of the tribunal (1) The [NAME_15] are liable to pay £13,500 towards the costs of the

major works identified in the Notice of Intention date 18

February 2020 and as demanded. (2) The [NAME_15] are liable under the terms of the leases to

contribute to the costs of [NAME_16] as

demanded. (3) The [NAME_15] are liable to contribute to the Company

costs/expenses/liabilities/secretarial under paragraph 14 of

The Third Schedule to the leases as demanded. (4) The respondents are liable to pay to the management costs of

[NAME_5] as demanded. (5) The [NAME_15] are liable to contribute to the cost of the

Professional fees under The Third Schedule to the leases as

demanded. (6) The [NAME_15] are liable to contribute to the annual service

charges demanded for the service charge years 2019, 2020

and 2021 without deduction. (7) The [NAME_15] are liable to contribute to the annual service

charges for the service charge years 2016, 2017 and 2018

without deduction. (8) Administration fees in the sum of £35 (including VAT) are

payable in accordance with the terms of the leases as

demanded. (9) The [NAME_15] are liable to pay the landlord’s legal fees incurred

in respect of the proceedings before the tribunal under

clause 6(2) of the leases. (10) Legal costs incurred by [NAME_5] in respect of seeking advice as to

management of the building are recoverable under the terms

of the Management Agreement. (11) The tribunal declines to make an order under section 20C of

the Landlord and Tenant Act 1985. _________________________________________________

3 The applications 1. In applications* LON/00AW/LSC/2021/0024 ([NAME_1] 2) and

LON/00AW/LSC/2021/0129 ([NAME_1] 9) the applicant landlord 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 tenants in respect of major works and annual charges for the

service charge years: [NAME_1] 2: 2019, 2020 and 2021 [NAME_1] 9: 2020 and 2021 In application** LON/00AW/LSC/2021/0315 the [NAME_15] of [NAME_1] 2 brought an application against the landlord seeking a determination of the reasonableness of service charges for the years 2016, 2017, 2018, 2019 and 2020. In a written request to the tribunal [NAME_17] sought to be joined as an applicant to this application. *Directions dated 21 May 2021 and **16 November 2021 The background 2. The property which is the subject of this application are two flats within

two converted properties comprising 10 leasehold flats. The applicant is

the head leaseholder and landlord of the building known as [ADDRESS] [POSTCODE] of which [NAME_18] and [NAME_19] are the long [NAME_15] of Flats 2 and 9, respectively. The [NAME_15] of

the 10 flats in the building each own a one tenth share in the Freehold

Company with the building being managed by [NAME_4]

(‘[NAME_5]’). 3. The [NAME_15] of [NAME_1] 2 holds an interest in the subject [NAME_1] pursuant to the

following lease and deeds of variation:

(i) Sub- underlease dated 1 January 1964.

(ii) Deed of variation dated 22 April 1970.

(iii) Deed of variation dated 13 January 1981.

(iv) Deed of surrender and grant of new lease dated 9 December 1987.

(v) Deed of variation dated 28 June 1998,

(vi) Deed of variation dated 13 June 2002.

4. [NAME_17] holds and interest in the subject [NAME_1] pursuant to the

following lease and deeds of variation:

(i) Sub-underlease dated 21 August 1964.

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(ii) Sub under-lease dated 26 June 1985 resulting from the surrender

and grant of the sub under-lease dated 21 August 1964.

(iii) Deed of variation dated 22 April 1970.

(iv) Deed of variation dated 13 January 1981.

5. It was agreed by the parties that the leases (as varied) allow for the

collection of service charges in advance in quarterly instalments. Any

excess of funds can be retained and used for the expenditure

incurred in the subsequent year and thereafter any excess must be

returned to the respective [NAME_15]. 6. The respondents’ long leases of their respective flats require 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

lease are referred to below, where appropriate. 7. The service charge year runs from 1 January to 31 December of each

year with provision for the collection of estimated service charges in

advance in quarterly instalments during each service charge year. It

was agreed by the parties that the respondents’ leases do not

make provision for the collection of a reserve/sinking fund as any excess

sums paid had to be re-credited to the [NAME_15]’ service charge accounts

for the following year. The [NAME_15] are each required to

contribute 1/10th of the service charge/major works costs. The issues 8. At the start of the hearing the parties identified the relevant issues for

determination in applications LON/00AW/LSC/2021/024 & /0129 as: (i) The payability and/or reasonableness of service charges for major works in the service charge year 2020 in the sum of £13,500 in respect of each respondent. (ii) The payability and/or reasonableness of actual annual service charges (including building insurance) for the years 2019, 2020 and 2021([NAME_1] 2) in the sum of £6,116.61 including a £65 late payment fee in addition to legal costs of £4,290 and additional fees of [NAME_5] of £540. (iii) The payability and/or reasonableness of actual annual service charges(including building insurance) for the service charge years 2020 and 2021 in respect of [NAME_1] 9 in the sum of £2,013.04 including £35 late payment fee and in addition legal costs of £1,950 and additional fees of [NAME_5] of £216.

9. In application LON/00AW/LSC/2021/0315 both [NAME_15]

challenged the heads of service charges which were narrowed to include:

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(i) Management fees and management expenses/administration

charges– excessive and not recoverable under the lease.

(ii) Bad debt charges.

(iii) Section 20 levy fund – reserve fund is not recoverable under the

terms of the lease.

(iv) [NAME_16] – a company charge and not

recoverable under the terms of the lease.

(v) Secretarial costs – as (iv) above.

(vi) Contribution to Company expenses and liabilities – as (iv) above.

(vii) Legal fees - not recoverable under the terms of the lease.

(viii) Professional fees – not recoverable under the terms of the

lease. The hearing 10. At the oral face to face hearing of the applications, the applicant was

represented by [NAME_2] of [NAME_4] and the

respondents appeared in person. An inspection of the building and

subject flats was not carried out as neither party requested one and in

event the tribunal was provided with extensive photographs of the

building. 11. Applications LON/00AW/LSC/2021/0024 and /0129 were heard

together. Application

LON/00AW/LSC/2021/0315 was heard

immediately afterwards with the tenants as applicants and the landlord

as the respondent. 12. Having heard evidence and submissions from the parties in respect of all

three applications and considered all of the documents provided, the

tribunal has made determinations on the various issues as follows. The tribunal’s decision and reasons Major works 13. The tribunal finds that in respect of both respondents the consultation

process for the major works notified in 2020 were properly notified by

the service of Stage 1 and Stage 2 Notices. The tribunal finds that these

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notices were sent by email to the respondents with attachments and

hard copies were also posted to the [NAME_15] at their respective addresses. 14. The tribunal prefers the evidence of the landlord to that of the [NAME_15]

on the issue of service and receipt of these notices. The tribunal finds

that the [NAME_15] both received the Notice of Intention dated 18 February

2020 as the [NAME_15] subsequently provided a detailed joint letter

dated 8 June 2020 opposing the major works, although [NAME_19] told the tribunal that she received an email with an attachment

of the Notice of Intention which she could not open. [NAME_18] told the tribunal he had subsequently

received the Notice of Intention but had not received the Notice of

Estimates, although [NAME_19] accepted, she had received this

document. 15. The tribunal is satisfied by the applicants that the respondents received

both the Notice of Intention dated 18 February 2020 which set out with

sufficient detail the intended works and the Notice of Estimates

dated 23 September 2020. The tribunal is also satisfied that as the

applicant selected the contractor ([COMPANY_20].) as with

lowest quote, it was not required to serve a Stage 3 Notice on the

respondents. Further, the tribunal finds the argument raised by [NAME_19] that the Notices had to be served in accordance with the Law of

Property Act 1925 refers only to notices required by the lease (unless

varied by practice and agreement) and not those required by statute

under s.20 Landlord and Tenant Act 1985. 16. The tribunal finds that the earlier consultation process started by way of

the service of a Notice of Intention dated 26 April 2019 was subsequently

abandoned by the applicant when further works were identified and on

legal advice the section 20 process was restarted. Therefore, the earlier

notice is not relevant to the current major works consultation. 17. In the absence of any alternative expert or professional evidence

relied upon by the respondents, the tribunal is satisfied that the

works specified by [NAME_21], [NAME_27],

are reasonably required and fall within the

applicant’s repairing and maintenance obligations under the terms

of the respondents’ leases. The tribunal finds that applicants have been

required by the local authority to install railings at the front of the

building as a health and safety measure and that it is reasonable for the

applicant to incorporate these works into the schedule of major

works and to which the [NAME_15] are required to contribute. 18. The tribunal finds that the demands for payment of the major works by

way of demands for the service charge year 1/1/2020 to 31/12/2020 to

the [NAME_15] dated 23/12/19, 4/3/20, 11/6/2020, 17/9/2020 and

requesting quarterly payments of £3,3750 totalling the £13,500 required

from each [NAME_15] in respect of their respective 1/10 share of the estimated

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costs of the major works, were made in accordance with the terms of

the respondents’ leases. As accepted by the applicant, there is no

provision for the collection of a reserve fund, therefore costs of major

works have to be collected in full before they were commenced. 19. The tribunal finds that the four demands for payment of £13,500 (in four

equal instalments) as set out above were made in accordance with the

leases (as varied) and were made in respect of service charges for the

service charge year 1/1/20 to 31/12/20. The tribunal finds that the

respondents cannot now seek to argue that any sums now paid in respect

of these quarterly demands are ‘out of time’ as they constitute

expenditure anticipated in 2021 or 2022. The tribunal finds that the

expenditure of the costs of major works was clearly anticipated and

identified in 2020 and demands for this anticipated expenditure sent out

for the service charge year 2020 are therefore payable by the

respondents. Annual service charges 2016 – 2021 20. The tribunal finds in respect of the specific items of annual service

charges disputed by the [NAME_15] the following: [NAME_16] and company costs/secretarial costs 21. The tribunal finds these charges are reasonable and payable by the

[NAME_15] in respect of each service charge year payable. 22. The tribunal finds that paragraph 14 of The Third Schedule (costs

expenses outgoings and matters in respect of which the [NAME_15] is required

to make a contribution) makes provision for the collection of such costs.

This paragraph states

The costs and expenses of the [NAME_22] in complying with the

covenants on their part contained in Clauses 4(1) 4(2) 4(3) 4(4)

and 4(5) and not specifically referred to in this Schedule. 23. The tribunal finds that the Directors of the landlord company are

unremunerated and that it is reasonable and prudent for Directors

insurance to be in place. The tribunal finds the secretarial and other

company costs are associated with the Directors’ duties and also are costs

to which the [NAME_22] are required to contribute under paragraph 14 of

The Third Schedule. In the absence of any evidence to the contrary,

the tribunal finds these sums are reasonable in amount and are properly

included in the service charge demands.

8 24. The tribunal also finds that the landlord company secretarial costs are

recoverable under the terms of the Management Agreement as specified

in Appendix Three. Professional fees 25. The tribunal finds these costs are chargeable under the provisions of The

Third Schedule and form part of the reasonable costs incurred by the

carrying out of major works and are reasonable in amount. 26. Professional fees have been incurred by surveyors in respect of the

specification of works and the tender analysis as well as damp

reports. The respondents’ argument that these sums are _?_ is rejected

by the tribunal. Management Fees of [NAME_5] 27. The tribunal finds The Third Schedule to the leases make provision for

the collection of service charges incurred as a result of the lessor

complying with its obligations under their terms. It was not disputed by

the [NAME_15] that the landlord was entitled to engage the services of a

managing agent in order to meet its obligations under the leases. 28. At the hearing it was conceded by the [NAME_15] that the fees of [NAME_5] for the

service charge years 2016, 2017, 2018, 2019 and 2020 were reasonable.

Therefore, only the fees incurred in 2021 remained in dispute. The

tribunal finds that the annual charge of £500 per annum per [NAME_15] to be

reasonable and payable. 29. The tribunal finds that the services provided by [NAME_5] have been extensive

and in accordance with the terms of the written Management

Agreement. The tribunal also finds that [NAME_5] have spent extensive

periods of time dealing with issues raised by the condition of the

building, the directors, and the [NAME_15]. [NAME_5] additional fees/late payment fees/bank charges 30. The tribunal finds that the fees chargeable by [NAME_5] are set out in the

written contract made between the landlord freeholder company and the

managing agents [NAME_5]. This written contract sets out the fees chargeable

and their rate and is regularly updated to reflect increases in costs. A

copy of the ‘Agreement between the client and the Manager setting out

the terms of appointment for management’ dated 19th November

2020 was provided to the tribunal. The tribunal was informed that this

Agreement is updated on an annual basis in respect of the level of

charges but was otherwise an accurate statement of the terms and

conditions under which [NAME_5] provided its services.

9 31. The tribunal finds these fees have been properly incurred under the

terms of Agreement and as specified in Appendices 2 and 3 and are

reasonable in their amount. Land Registry costs 32. The tribunal finds it reasonable that [NAME_5] should request copies of leases

from the Land Registry in the course of managing this building and that

in accordance with the terms of the written contract, these costs are

passed on to the [NAME_15] except where they relate to specific [NAME_1] licences

to alter or applications for lease extensions for which the individual [NAME_1]

is liable. Reserve fund/Section 20 Levy 33. The tribunal finds this has been more accurately renamed Section 20

Levy and has not and does not reflect any attempt by the landlord to

collect a reserve fund, as it is accepted by all parties that there is no

provision in the leases to do so. The tribunal finds that the use of the

heading ‘Reserve Fund/sinking Fund’ has been misleading and its

renaming to Section 20 Levy more accurately reflects what the sum

represents namely charges incurred by [NAME_5] in respect of managing

major works including the service of notices, 34. Further, where the term ‘sinking fund’ appears in the service charge

demands or other documentation, the tribunal accepts that the use of a

‘sinking fund’ by the landlord is a mechanism by which funds for major

works paid by other [NAME_15] are ‘[NAME_14] fenced’ from the annual service

charges as the lease allows excess sums to be retained in this way for a

12-month period before being returned to the respective [NAME_15]. The

tribunal also finds the [NAME_15], have no legal standing to

argue that sums should be returned to other [NAME_15] who have in fact

paid the service charge demands as and who are not a party to this

application. Bad debts 35. This sum is attributable to sums not collected by previous managing

agents on behalf of the landlord in respect of works of repair to [NAME_1] 2

and are therefore recoverable under the terms of the lease under The

Third Schedule at the reduced sum of £425 per leaseholder. 36. In conclusion, the tribunal finds that both the costs of the major works

and the annual service charges demanded by the landlord during the

period 2016 to 2021 are reasonable and payable by the [NAME_15] and as demanded.

10 Legal costs 37. The tribunal finds that the leases make reference to the recovery of costs

in Clause 2(6) which states the [NAME_15] are required,

To pay unto the [NAME_22] on demand all costs charges and

expenses (including legal costs and fees payable to a Surveyor)

which may be incurred by the [NAME_22] or [NAME_22] in or

in contemplation of any proceedings under section 146 and 147

of the Law of Property Act 1925 or any statutory provisions re-

enacting those sections with or without alteration

notwithstanding forfeiture may be avoided otherwise than relief

granted by the Court 38. The landlord seeks the legal costs incurred through its instruction of its

solicitors [NAME_23] in respect of seeking advice on major works and in

respect of these applications. The [NAME_15] argue that the leases make no

provision for legal costs (other than for forfeiture) and therefore, these

cannot be charged to the [NAME_15]. 39. Although neither party referred the tribunal to the leading case of

[NAME_24] (2021) EWCA 1725 this was brought to the

parties’ attention during the course of the hearing, in order to allow them

an opportunity to make representations in respect of this decision on

costs. 40. Following and applying the decision in Kensquare the tribunal finds that

the costs of the applicant incurred in respect of the tribunal proceedings

are recoverable under clause 6(2) of the leases. 41. The tribunal finds that other legal costs incurred in respect of seeking

advice about major works are recoverable under the terms of the

Management Agreement. Application under s.20C 42. In the statement of case and at the hearing, the respondents

applied for an order under section 20C of the 1985 Act. Having

heard the submissions from the parties and taking into account the

determinations above, the tribunal declines to make such an order.

Name: Judge Tagliavini Date: 19 April 2022

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