Service Charges & Estate Management November 2013 Update

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SERVICE CHARGES AND ESTATE MANAGEMENT

NOVEMBER 2013 UPDATE

Cullen v Barnard Lodge Management Limited [2013] UKUT 0493 (LC)

Summary: It was not open to the appellants to appeal on the grounds that the LVT failed to deal with a contention which was not a live issue before the LVT, nor was it open to the appellants to raise an argument on a point which had been conceded before the LVT.

Facts: Two service charge demands, one dated 1 May 2010 and the other dated 15 October 2010, were in issue before the LVT.  The hearing before the LVT lasted two days but was adjourned part-heard for several months.  At the first hearing in March 2011 the appellants were represented by counsel but, for financial reasons, the appellants represented themselves at the adjourned hearing in September 2011.  The appellants’ Statement of Case to the LVT stated “the first notification received by the applicants from the respondent in accordance with [section 47 and 48 of the 1987 Act] was the attached application for payment dated 15 October 2010.”

The Upper Tribunal granted permission to appeal on the ground that “There is a realistic prospect of success … that the LVT failed to deal with the applicant's contention that the service charges were not due by reason of failures on the part of the landlord to comply with the provisions of section 47 and 48 of the Landlord and Tenant Act 1987. Permission to appeal limited [to] this issue.”

At the hearing of the appeal the appellants accepted that the validity of the May and October 2010 notices, namely their alleged failure to comply with section 47 and 48 of the 1987 Act, was not argued before the LVT by counsel or by themselves.

Decision on Appeal:  The UT (HHJ Gerald) held that the validity was not argued before the LVT because it was not an issue.  The appellants had accepted that the second notice was valid.  It followed that any defect in the first notice was cured in the sense that it complied with sections 47 and 48 of the 1987 Act.   The LVT could not be criticised for failing to adjudicate upon an issue they were not asked to adjudicate upon. It was not open to the appellants to appeal against the decision on the grounds that the LVT failed to deal with a contention which in actual fact was not a live issue before the LVT. Further, it was not open to the appellants to raise an argument on a point which had been conceded before the LVT.

Blackpool BC v Cargill [2013] UKUT 0377 (LC)

Summary: The terms of the leases allowed a local authority appointed ALMO to recover services charges described as management costs.  The UT approved the method of assessing such costs on a percentage basis of borough-wide costs (but reduced the percentages allowed as reasonable).

Facts: An ALMO decided to increase the management costs payable by long leaseholders (“lessees”) following a survey which showed that too little was being charged with the result that lessees were being subsidised by tenants who were not long leaseholders (most of these tenants were secure tenants).  The ALMO was responsible for managing all of the council’s tenanted properties, i.e. those occupied by lessees and those occupied by tenants.  The management charges increased from between to £55-65 to just under £200 per year.  The largest element of the new charge reflected a proportion of the employment costs of three members of staff whose responsibilities included running the leasehold estate.  The ALMO assessed the proportion of each member of staff’s time that was spent managing properties occupied by lessees and charged an appropriate percentage of the salary based on that assessment.

First Instance: The LVT held that some services which were described as management costs were not costs which were recoverable under the leases and held that a management charge of £50 for the cost of those services that were recoverable would be reasonable.

On Appeal: The Upper Tribunal (HHJ Huskinson) held that the costs of the services described as management costs were recoverable under the terms of the leases.  It approved the ALMO’s method of apportionment of salary costs but reduced the percentages of such costs bearing in mind the percentage estimates had been decided upon a “general feel” of what time was spent on managing the leasehold estate rather than a more sophisticated method of assessment.

Comment: see also London Borough of Southwark v Paul & Benz [2013] UKUT 0375 (LC) in October’s Update for another case in which the UT approved the apportionment of staff costs on a borough-wide basis.

Scriven v Calthorpe Estates [2013] UKUT 469 (LC)

Summary: The Upper Tribunal gave guidance as to how the FFT’s power to review a decision should be used.

Facts:  There was no question of the power of review being exercised in this case (as it was not yet available to the LVT) but the Deputy President (Martin Rodger QC) gave useful guidance as to the circumstances when it will be appropriate to review a decision and the procedure that should be adopted.

The statutory basis of the FTT’s power of review is s.9 of the Tribunals, Courts and Enforcement Act 2007 (“the 2007 Act”) and The Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 (“the 2013 Rules”), which came into force on 1 July 2013.

Guidance

 

  1. The purpose of the power conferred on the FTT is to avoid the need for an appeal to the Upper Tribunal in the case of clear errors.
  2. A review may only be undertaken when the FTT receives an application for permission to appeal. There is no power to review a decision at any other time.
  3. The power is discretionary and is exercisable by a tribunal on its own initiative or on application by any party.
  4. The steps which may be taken consequent on a review are those specified in s.9(4) of the 2007 Act.  The FTT may correct accidental errors in the decision, amend the reasons given for the decision, or set the decision aside; it may also decide that no action is required, in which case it is required to go on to consider whether to grant permission to appeal.
  5. Before exercising any of the power's conferred by s.9(4) , the FTT should consider whether it is appropriate to give notice to every other party to the proceedings that an application requesting a review has been received or that it proposes to carry out a review of its own initiative.
  6. Where the FTT is considering making any significant change to its decision, fairness, transparency and convenience would all seem to require that it first allow the parties to make representations on the proposed change, if they have not yet had an opportunity to do so; where the consequence of a review may be to deprive a successful party of the benefit of a decision in its favour, the fairer and more efficient course is likely to be to allow representations to be made at the outset.
  7. The FTT may only take action in consequence of a review if it is satisfied that a ground of appeal is likely to be successful. 
  8. The power should only be exercised in cases where a decision is clearly wrong. It does not enable the FTT to take a different view of the law from that previously reached, when both views are tenable.
    Comment:  See also London Borough of Havering v MacDonald [2012] UKUT 154 (LC) in July 2012’s Update on whether, and if so to what extent, the LVT can at the permission to appeal stage, seek to amplify the reasons given in support of its decision.

 

Fairhold Mercury Ltd v HQ (Block 1) Action Management Co Ltd [2013] UKUT 487 (LC)

Summary: The Upper Tribunal (Martin Rodger QC, Deputy President) held that the omission of the letters "RTM" in the name of a company which otherwise satisfied the requirements of s.73 Commonhold and Leasehold Reform Act 2002 was not fatal to the company's status as a right to manage company.

The Deputy President said it was unfortunate that the important and valuable right conferred by the 2002 Act had been kept in abeyance for so long on such “relatively flimsy grounds”.

He then gave guidance on when permission should be given:

“When permission to appeal is requested in a case such as this, raising a discrete question of the interpretation of a statutory provision, the first-tier tribunal should consider whether there is a reasonable prospect of the applicant demonstrating that the tribunal has wrongly interpreted or applied the relevant law. The first-tier tribunal should ask itself whether the appeal has a real or realistic prospect of success, as opposed to only a fanciful prospect. If the first-tier tribunal, having heard the argument and made its own decision, is satisfied that there is no real prospect of the Upper Tribunal coming to a different conclusion, it should refuse permission; if it considers that the point in issue remains fairly arguable, it should grant permission. If the point on which permission is sought is a purely technical one, as it was in this case, the first-tier tribunal should be slower to grant permission than in cases of more substance.”

Fairhold (Yorkshire) Ltd v Trinity Wharf (SE16) RTM Co Ltd [2013] UKUT 502 (LC)

Summary: A landlord, when opposing a claim for the right to manage a leasehold property under CLRA 2002 s.84(3), was not limited to arguing only the grounds raised in its counter-notice. The LVT could of its own motion consider whether the statutory procedures had been followed

Facts: Trinity had sought to exercise the right to manage five blocks of flats under CLRA 2002.  The freeholder, Fairhold, served a counter-notice under s.84 of that Act citing 3 grounds for resisting the claim to exercise the right to manage.  Trinity then made an application to the LVT for a determination that it was entitled to exercise the right to manage.  In its statement of case, Fairhold raised additional grounds for contending that Trinity was not entitled to exercise the right to manage.  The LVT refused to entertain those additional grounds stating that “the only grounds that can be relied upon in opposing a Right to Manage application are those set out in the counter-notice.”

On Appeal: The President of the Upper Tribunal (Sir Keith Lindblom) allowed an appeal against that decision to exclude the additional grounds.  There was nothing in the 2002 Act which limited the Tribunal’s jurisdiction to the points raised in the counter-notice.  An application under s.84(3) was for  determination of whether the RTM company was entitled to acquire the right to manage.  Whilst it was desirable that all the issues were canvassed at an early stage it remained the task of the Tribunal to satisfy itself that the statutory procedures had been followed. 

Forest House Estates Ltd v Dakhil Allah R Al-Harthi [2013] UKUT 479 (LC)

Summary: The correct question on an application for a determination of breach under s.168(4)  of CLRA 2002 is whether a breach has occurred, not whether it has been remedied by the date of the hearing.

Facts: The lease of a flat included a tenant’s covenant: “forthwith to provide and thereafter at all times to maintain throughout the Flat (with the exception of the kitchen and bathroom) good quality carpeting and underlay”.  The managing agents wrote to the tenant stating that they understood the tenant was in the process of having wooden flooring laid and that the work needed to cease immediately as it was against the terms of the lease.  The tenant replied  stating that wooden flooring had been laid over the original installation, plus additional insulation, and that it would subsequently be 95% covered by good quality rugs.  The landlord applied to the tribunal for a determination under s.168(4) of the 2002 Act that a breach of covenant had occurred in this respect.  The tenant wrote to the LVT stating it had been necessary to totally change the flooring of his apartment. This had been achieved by removing the original carpeting but leaving in place the original underlay, laying additional underlay then laying wooden flooring on top, on which he positioned rugs covering some 95% of the floor. This letter contained a denial that he was in breach of covenant, on the grounds that the floor covering was much more effective than just underlay and carpets.  The flat was not carpeted on 3 August 2012 but fitted carpets were laid to the hall, two bedrooms, lounge and dining room of the Flat some time after 3 August 2012 and before the LVT inspected the Flat on 17 September 2012.

First Instance:  The LVT held “[the tenant’s letters] appear to acknowledge that wooden flooring had been laid in the premises ... However, at the time of the [LVT's] inspection, fitted carpets had been laid in the hall, two bedrooms, lounge and dining room. .. The carpets appeared to be of good quality … At the time of the [LVT's] inspection there was accordingly no evidence of a breach of paragraph 17 of the second schedule to the lease.”  In its refusal of permission to appeal, the LVT gave further explanation, saying that “the relevant date at which the [LVT] has to decide whether a breach “has” occurred is the date of the [LVT's] determination, and not, as seems to be suggested in the application for permission to appeal, the date of the application, because only if a breach of covenant were occurring at the date of the [LVT's] determination would there be a breach in respect of which a landlord would be able to serve a notice under s.146(1) of the Law of Property Act 1925 ”.

Issue: whether the LVT should have considered whether there had been a breach, or whether there was a breach at the time of their inspection.

Decision on appeal: The Upper Tribunal (Peter McCrea FRICS) held that the reasoning in GHM (Trustees) Limited v Glass (LRX/153/2007), which concerned a tenant's covenant to inform the landlord of an assignment or underletting, applied equally to the subject covenant in respect of carpeting.  In GHM (Trustees) Limited v Glass the President (Mr George Bartlett QC) said: “in my judgment the LVT was in error in refusing to make a determination that a breach had occurred on the ground that the breach had been remedied by the acquisition of the landlords of knowledge on the tenants' identity. The jurisdiction to determine whether a breach of covenant has occurred is that of the LVT. The question whether the breach has been remedied, so that the landlord has been occasioned no loss, is a question for the Court in an action for breach of covenant”.

The UT held that by fitting wooden flooring with the intention of covering this with rugs, the tenant was in breach of the covenant: “The problem is not the nature of the flooring or the quality of the rugs, but the failure to cover the floor throughout the Flat (with the exception of the kitchen and bathroom). The [tenant’s] letter of 12 July admits facts which amount to a breach of that obligation. The breach may have been temporary, and perhaps even trivial, but it was clearly a breach.”

Comment: It is not uncommon for a breach to be remedied before the hearing.  In those circumstances, if the tenant does not admit the breach, it may still be important for the landlord to obtain a determination so he can recover his costs under the usual covenant to pay the costs of and incidental to the preparation and service of a s.146 notice.  Similarly, if a breach has been remedied, the tenant may want the tribunal to record this so as to avoid any further dispute relating to remedy and forfeiture.  In this case, the UT held that the LVT was entitled to record the fact that the breach had been remedied by the time of its inspection, but that finding was peripheral to its main task under s.168(4) of the Act.   

JONATHAN UPTON

TANFIELD CHAMBERS

NOVEMBER 2013