Service Charges & Estate Management - June 2013 update

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SERVICE CHARGES AND ESTATE MANAGEMENT

JUNE 2013 UPDATE

Di Marco v Morshead Mansions Ltd [2013] EWHC 1068 (Ch)

Summary: A tenant has a right under the Landlord and Tenant Act 1985 (“the 1985 Act”) to apply to the court for the information which the landlord has to produce under s.21 and s.22. Those sections created a duty to tenants in respect of which they had a direct civil enforcement remedy.

Facts: The appellant tenant (T) was one of 104 long-lease tenants of a block of flats. The respondent landlord (L) was the freehold owner of the building. Each of the leases contained service charge provisions. Article 16 of L's articles of association contained a provision entitling L to levy charges. L raised funds purely through art.16 demands rather than through the service charge.

In previous proceedings, T had unsuccessfully resisted L’s claim based on an art.16 demand on the ground that it was an attempt to recover service charges, which could be subject to challenge under the 1985 Act.  The Court of Appeal dismissed T’s appeal (Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371, [2009] 1 B.C.L.C. 559).

The instant proceedings were two actions brought by L, claiming rent and two art.16 demands.  T challenged the validity and propriety of using art.16 to deal with service charge matters and the use of money raised without compliance with the 1985 Act.  T counterclaimed for an order for information to be provided pursuant to s.21 and s.22 of the 1985 Act

First Instance: The judge ordered summary judgment in respect of rent and interest and struck out part of T's defence relating to art.16. As regards T’s counterclaim, the judge considered the statutory provisions and held that on their true construction they did not give rise to a duty which could be enforced in a civil suit because the statute provided for a criminal sanction and because the instant case was not one where the legislation was for the benefit of a class of individuals.  Accordingly, T had not shown that he had a cause of action.

Issue: T appealed against the decision striking out his counterclaims.  L submitted that the judge was right to find that there was no statutory duty; the remedies for breaching the duties in s.21 and s.22 were criminal and not civil and it was unlikely that Parliament intended to create a statutory duty enforceable in the courts.

Decision of Appeal: Mann J held, on the true interpretation of the 1985 Act, a tenant had a right to apply to the court for the information which the landlord had to produce under s.21 and s.22. Those sections created a duty to the tenants in respect of which they had a direct civil enforcement remedy. Tenants with qualifying tenancies were a class of persons who suffered harm if there was a breach. The duties were not owed to the public at large. They were designed to achieve a situation in which the class of persons had certain information which members of that class needed in order to be able to check that their interests in paying no more than they should was properly restricted and given effect to. While the criminal sanctions provided an incentive to comply with the provisions, they were less likely to achieve the intended result, namely the production of records and information, than injunctive relief which was specifically framed and geared to the provision of information. Whilst there had been some prosecutions under s.25 for failure to comply with s.21 and s.22, Parliament did not consider that to be the only enforcement route. Nor did the prospective introduction of the additional sanction of the right to withhold rent support L's case as to Parliament's intention. Parliament intended the duties to be enforceable in the same manner as other civil duties, namely on application to the civil courts.

The judge erred in his reasoning and the basis for striking out part of the counterclaim could not stand. T's claims for information under the Act ought not to have been struck out on the footing that there was no statutory tort or statutory cause of action. Since that was the only basis on which the judge struck them out, those claims should be reinstated.

Cussens v Realreed Limited [2013] EWHC 1229 (QB)

Summary: A county court has jurisdiction under the County Courts Act 1984 s.15 to make a declaration for the purposes of s.168 of the Commonhold and Leasehold Reform Act 2002 that a tenant was in breach of covenant.

Facts: The appellant tenant (T) held two flats in a block called Chelsea Cloisters, London SW1 under two leases.  The respondent was the landlord (L).  Both leases provided that “No Apartment may be used for any unlawful or immoral purpose and the Lessee shall not do any act or thing that may be or become a nuisance disturbance damage annoyance or misery to the Landlord or the occupiers of any other part of Chelsea Cloisters”.

The Judge found that the two flats had, when sub-let, been used for prostitution, that the leases imposed on T absolute obligations that they should not be, and that therefore in the case of each lease the tenant was in breach of her covenant.

In his judgment the Judge said: “The declaration sought is actually an application for a determination that a breach of a covenant or condition in each of the respective leases has occurred, pursuant to section 168(4) of the Commonhold and Leasehold Reform Act 2002 . That being a necessary precursor to the service of notice under section 146 of the Law of Property Act 1925 and proceedings for forfeiture of the leasehold interest held by [T].

It is accepted that this court has jurisdiction to hear these matters, notwithstanding the reference in section 168(4) to the LVT. Although the defendant's costs position has been reserved in light of the claimant's choice to use the courts facilities to resolve the issues between the parties rather than the [LVT].”

The judge ordered T to pay L’s costs to be assessed on the standard basis.  In so doing, he rejected T's argument that costs should be decided as if the proceedings had been brought in the LVT on the basis that she had not previously raised the issue that the proceedings should have been brought there.

Issue: T appealed on the grounds that the judge incorrectly ruled that (1) the county court could hear an application for a declaration by a landlord under s.168(4); and (2) he was entitled to follow the normal rule of awarding costs on a standard basis to the successful party even though a LVT designated to hear such applications had no such power.

Decision of Appeal: Dismissing the appeal, Andrew Smith J held that the judge was wrong that he had jurisdiction under s.168(4) to make the declaration in the county court.  The section contemplated firstly that the determination required before notice of forfeiture could be made on application to the LVT.  Section 168 did not contemplate that proceedings could be brought in the county court simply for the purposes of obtaining a determination. However, under the County Courts Act 1984 s.15, a county court could hear any action founded on a contract.  A lease was a contract and a landlord was entitled to enforce a tenant's covenants.  L had to allege and prove the terms of the lease on which he based the claims, therefore, the proceedings for declarations were within the jurisdiction conferred by s.15. The determinations of breach made in those proceedings were effective under s.168.

As to the costs order, the judge's incorrect decision on his jurisdiction did not drive his decision on costs or materially affect his essential reasoning on costs. Neither party objected to the proceedings in the county court and both appeared content with the forum so there was no good reason for the judge to have departed from the general rule that costs follow the event.

Comment: In a footnote to his judgment, Andrew Smith J remarked that he could see “no proper or principled objection to the costs judge taking into account on the assessment the alternative procedure available to the landlord [i.e. an application to the LVT], and, to some extent, to restrict the costs awarded on the assessment in light of that.”  This remark is obiter but it must be questioned whether, as a  matter of principle, the fact that an issue could have been determined in another (costs free) tribunal is relevant to the assessment of costs, particularly where neither party applied to transfer the proceedings.

R (on the application of Spaul) v Upper Tribunal (Administrative Appeals Chamber), Unreported, 22 May 2013 (QB) (Leggatt J)

Summary: The Upper Tribunal, in refusing permission to appeal from a decision of a leasehold valuation tribunal, had not erred in concluding that there had been no substantial procedural defect in an alleged failure to serve notices on the claimant leaseholder at what he said was his proper address.

Facts: The managing agent of a building in London applied to the LVT for a determination that the costs to be incurred on major works were reasonable.  In accordance with the Leasehold Valuation Tribunals (Procedure) (England) Regulations 2003 reg.5 the LVT had sent notice of the application to those named as respondents, including the claimant lessee.  The notice had been sent to the address provided by the managing agent which was the claimant’s flat in the building. The lessee’s case was that he had not received the requisite notice of consultation under s.20 of the 1985 Act, nor notice of the application to the LVT.  He said that he did not live at the flat and that the managing agent knew that, and knew his proper address which it had not given to the LVT. Furthermore, the failure to give notice of the consultation and of the application was a "substantial procedural defect" justifying the grant by the Upper Tribunal of permission to appeal against the decision of the LVT, within the relevant Interim Practice Directions and Guidance of the Upper Tribunal (Lands Chamber). The Upper Tribunal refused permission to appeal on the ground that there was nothing to suggest that the managing agent knew that the lessee’s address was not at the building and that the managing agent knew what that address was.

Issue: The lessee applied for judicial review of the Upper Tribunal’s decision refusing his application for permission to appeal from a decision of the LVT on the ground that, if the Upper Tribunal had properly considered the evidence, it would have been bound to decide that there were reasonable grounds for finding that there had been a substantial procedural defect in the decision of the LVT.

Decision: In dismissing the application, Leggatt J held that the evidence presented to the Upper Tribunal on the critical issue was wholly unsatisfactory and there was no witness statement to indicate what that material was. It appeared that the application for permission to appeal had been presented to the Upper Tribunal on the incorrect basis that the application to the LVT was by the landlord rather than by the managing agent. His case was that he had informed the landlord and the managing agent of his change of address and he said that there had been some evidence to that effect before the Upper Tribunal in the form of a letter. However, he failed to show that that letter had been included in the material before the Upper Tribunal. In any event the managing agent’s case in opposition to the lessee’s application for permission to appeal contained a detailed rebuttal of the allegation that the managing agent was aware of the lessee’s address.  There was compelling contemporaneous documentary evidence that the lessee had been asked by the managing agent for an address for correspondence apart from the flat and that none had been forthcoming. In the circumstances, although the Upper Tribunal might have gone too far in stating that there was nothing to indicate that the managing agent knew that the lessee had an address other than the flat and what that address was, it could not possibly be said that on the material before the Upper Tribunal it was not entitled to conclude that there were no reasonable grounds for asserting that there had been a substantial procedural defect. The lessee’s claim for judicial review failed.

Triplerose Ltd v Grantglen Ltd [2012] UKUT 204 (LC)

Summary: Service charge demands failed to correctly identify the landlord as required by s.47 of the LTA 1987.  The failure could not be rectified by the provision of the correct name and address of the landlord on the application to the LVT.  Consequently, the LVT had erred in finding that the service was payable: Beitov Properties Limited v Elliston Bentley Martin [2012] UKUT 133 (LC) applied.

Moorings (Bournemouth) Ltd v McNeill [2013] UKUT 243 (LC)

Summary: Having withdrawn an express challenge to the validity of a parking scheme in county court claim for the refund of clamping fees, the respondent tenant was estopped from challenging the legitimacy of parking restrictions in LVT proceedings and was liable to pay the administration charges for parking in breach of the parking regulations made under his lease.

Facts: The respondent was a tenant of a flat in an estate comprising a purpose built block of 18 flats and two blocks of garages comprising a total of 18 garages.  Each tenant of the flats owned one garage. The lease to each of the flats provided no right to park, save for the right to use the garage.  The leases also included a tenant’s covenant “to observe such reasonable restrictions and regulations as the lessor may from time to time make for the good running and management of the Estate.”

There had been a problem with parking on the estate which had lead to obstruction of access to one or more of the garages.  The managing agents circulated details of a parking scheme in an attempt to alleviate the difficulties.  The respondent’s vehicle was clamped for being parked in breach of the parking scheme and the respondent was required to pay a release fee.  The respondent issued county court proceedings for the repayment of the release fee.  In those proceedings the respondent attacked the legitimacy of the parking scheme.  At a hearing, the respondent made an admission that he was not seeking to challenge the parking scheme.  The preamble to the court’s order included the admission.  At a subsequent hearing the respondent discontinued the county court claim.       

As a result of those proceedings and the hearings, and the necessity of the appellants to defend the challenge to the parking scheme, costs of £3,206.76 had been incurred. The appellants determined that the costs should not fall upon the tenants generally pursuant to their service charge obligations and therefore sent a demand to the respondent claiming those costs with respect to solicitors and managing agents costs incurred as a result of the breaches of covenant by the respondent in failing to comply with the parking scheme.  As the costs had not been paid the appellants decided to issue a s.146 notice in respect of that breach of covenant. Consequently the appellant required a declaration pursuant to the provisions of s.168 of CALRA that the respondent was in breach of covenant.

The appellant applied for a determination pursuant to Sch 11 of CLRA 2002 that administration charges were to be paid by the respondent on the basis that he had breached his lease covenants.  The application was determined on paper.

The LVT rejected the appellant’s argument that the respondent was estopped from challenging the validity of the parking scheme in these proceedings.

Decision of Appeal:  Allowing the appeal, HHJ Walden-Smith held that Khan v Gollechha International Limited [1980] 1 WLR 1482 and SCF Finance Co Limited v Masri (No.3) [1987] QB 1028 make clear that in order for an issue estoppel to arrive, or for a matter to be res judicata, it is necessary for the issue to have been an issue that was raised in earlier proceedings and that point to have been the one which was conceded in a clear manner in the face of the court. If those two requirements are fulfilled, then a party will be estopped from raising the same issue in subsequent proceedings. In the instant case, it was clear that the respondent did raise the issue as to the legitimacy of the parking scheme in the county court proceedings. He then conceded the legitimacy of that parking scheme and that concession was recorded in the court’s order.

JONATHAN UPTON

TANFIELD CHAMBERS

JUNE 2013