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Service Charges & Estate Management Update – June 2014

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1st June 2014

Pineview Ltd v 83 Crampton Street RTM Co Ltd [2013] UKUT 598 (LC)

A claim notice in a right to manage claim would not be invalid by reason only of having been signed by the right to manage company’s solicitor or other authorised agent, and it did not need to specify whether the premises to which the claim related included appurtenant property.

Facts

The freehold owner appealed against the LVT’s determination that the RTM Company was entitled to the right to manage a self-contained block of flats on the grounds that:

1. the Claim Notice was defective because it had not been signed by an authorised member or officer of the RTM company, but had instead been signed on its behalf by its solicitors; and
2. the Claim Notice was defective because it failed to specify whether the premises to which it related did or did not include appurtenant property.

Decision on Appeal

The UT (Martin Rodger QC, Deputy President) held that the claim notice was valid. (1) The identity of the signatory is not one of the prescribed requirements about the form of claim notices referred to in s.80(9) of the 2002 Act. Neither the 2002 Act nor The Right to Manage (Prescribed Particulars and Forms)(England) Regulations 2010 require that the recipient be informed that the signatory is an authorised member or officer of the company. Assethold Ltd v 14 Stansfield Road RTM Company Ltd [2012] UKUT 262 (LC) followed. (2) Where a self-contained building had the use of appurtenant property, any appurtenant property was automatically part of the premises for the purpose of an RTM claim under the Act: Gala Unity Ltd v Ariadne Court RTM Company Ltd [2012] EWCA Civ 1372) applied. There is therefore no justification for requiring the claim notice to include a comprehensive statement of the appurtenant property over which the RTM company asserts an entitlement to exercise RTM, or of the grounds on which it is said that that property is appurtenant.

Fencott Ltd v Lyttelton Court RTM Company Ltd [2014] UKUT 0027 (LC)

The UT (Martin Rodger, QC, Deputy President) followed its earlier decision in Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd [2013] UKUT 606 (LC) in holding that estate-wide right to manage was permissible. In an addendum judgment, the UT held that no order of the UT (nor of the FTT in the case of an application before it) is required to create a liability on the part of an unsuccessful RTM company to pay the reasonable costs of the landlord or other parties referred to in section 88(1). That liability arises by virtue of the sub-section.

Philip Rainey QC of Tanfield Chambers acted for the respondents.

The UT has granted permission to appeal to the Court of Appeal in both Ninety Broomfield Road and Fencott.

Columbia House Properties (No3) Ltd v Imperial Hall RTM Company Limited [2014] UKUT 30 (LC)

A landlord’s costs in dealing with a Right to Manage claim could include the costs incurred by managing agents under a management agreement.

Facts

In November 2006 the RTM Company served a notice of claim to acquire the right to manage. A counter notice was served and an application made to the LVT. At the hearing the application was withdrawn and the LVT ordered the RTM Company to pay the Landlord costs in the sum of £700 plus VAT. In February 2010 the RTM Company served a further notice of claim to acquire the right to manage. A counter notice was again served. In August 2010 the RTM Company served a further notice of claim to acquire the right to manage without prejudice to the validity of the previous claim notice. A counter notice was served but on 27 October 2010 the parties agreed terms. These included that the RTM Company would acquire the right to manage on 4 April 2011, the LVT application was withdrawn and that the RTM Company would pay the landlord the sum of £6,312.69 in full and final settlement of its surveyors and legal costs arising from or in connection with the February claim notice. That sum was duly paid.

In August 2011 the landlord sought to recover further costs from the RTM Company in respect of all three claim notices totalling £16,488 (subsequently reduced to £15,036 which is not material to this appeal) in respect of work said to have been carried out by the landlord’s Managing Agents. The RTM Company refused to pay and the landlord applied to the LVT for a determination of the amount of costs payable to it pursuant to s.88 of the 2002 Act.

First Instance

So far as the costs claimed by the landlord in respect of the 2006 claim notice the LVT decided that the s.88 costs were dealt with by the LVT when the claim was withdrawn and, accordingly, the LVT did not have jurisdiction to make a further determination in respect of any additional costs. There was no appeal against that part of the decision. So far as the costs relating to the February 2010 claim notice were concerned, the LVT concluded that any legal and surveyors costs had been compromised in the consent order dated 27 October 2010 but that did not exclude a further application pursuant to s.88 in respect of costs relating to the August 2010 claim notice. As to these costs the LVT decided that the landlord “has not shown on the evidence presented that it is entitled to the sums claimed on the revised invoice dated 21 March 2011 … In the circumstances, having considered the evidence as a whole, the Tribunal find that [the landlord] has not shown that the costs claimed have been incurred or that the reasonableness test has been met”.

Issues

The landlord appealed on the grounds that:

1. The LVT erred in law and/or failed to take account of relevant evidence or considerations, and
2. The LVT failed to give reasons for its decision that the costs were unreasonable.

Decision on Appeal

The Upper Tribunal (HHJ Alice Robinson) held that there was clear evidence of some work undertaken pursuant to the management agreement which made provision for the charges to apply and that such work was exceeded “day to day normal management duties.” Accordingly, that part of the LVT’s decision was wrong. The LVT’s reasons questioned the amount of work undertaken, the time it took and how much it was worth. They did not, however, support a conclusion that none of the work carried out was reasonable or that a reasonable figure for that work would be zero. Accordingly, the landlord did not know on what basis the LVT concluded that none of the costs were reasonable. Some work was done, and it is for the LVT using its judgment and experience to assess what a reasonable figure for that work would be.

R (on the application of O Twelve Baytree Limited) v Rent Assessment Panel [2014] EWHC 1229 (Admin)

Under the old tribunal rules an applicant could not bring to an end an application for a determination that they had the right to manage under s84(3) of the Commonhold and Leasehold Reform Act 2002 simply by serving a notice of withdrawal. The tribunal had to decide whether to accede to the request to withdraw or go on to make a substantive determination.

Daniel Dovar of Tanfield Chambers acted for the successful applicant.

Red Kite Community Housing Ltd v Robertson [2014] UKUT 134 (LC)

An LVT had failed to adequately explain its reasons for its decision that the reasonable cost of cleaning was less than the cost explained in detail by the landlord’s evidence. The LVT had placed too much reliance on its own knowledge and experience of cleaning costs without explaining whether that knowledge was specific or general and without giving the parties the opportunity to comment upon it or call evidence to rebut it.

Facts

In 2012, Red Kite acquired the reversion of a block of flats from Wycombe District Council. Ms Robinson held a long lease of a flat within the block. Subsequently, Red Kite increased the service charge for estate management. This included the cost of cleaning. Ms Robinson sought to, amongst other things, challenge the amount payable under the service charge for cleaning and estate management. Red Kite supplied a detailed breakdown of what constituted the cleaning/estate management charge and the services that were provided under it. Ms Robinson did not adduce any evidence of comparable quotes from other contractors to demonstrate that the charge was unreasonable. At the hearing the Tribunal inspected the block and used its knowledge and experience as an expert Tribunal to reduce the relevant service charge by £100. The Tribunal did not explain how it had reached its decision and did not make clear whether this was because the cost of the work was too expensive or because the standard of cleaning was not adequate.

Decision on Appeal

The UT (Siobhan McGrath, sitting as a judge of the UT) allowed Red Kite’s appeal. Judge McGrath held that wherever a Tribunal decides to reject one party’s evidence because it does not accord with its own knowledge and expertise it must, as a matter of fairness and natural justice, inform both parties of its intention to do so and give either party an opportunity to comment or give further evidence. Whether this will require an adjournment or simply the opportunity to comment in the proceedings will depend on the circumstances of each case. As a general rule, the Tribunal should not use its own knowledge or expertise to determine an issue where both parties have adduced comprehensive and cogent evidence on the subject. However, in the absence of such evidence, and where there is an evenness between the parties, the Tribunal may step in if it furthers the overriding objective in r.3, Tribunal Procedure (First-tier) Tribunal (Property Chamber) Rules 2013. In any event, the Tribunal had fallen into error by failing to give reasons for its decision. Red Kite did not know if the charge was unreasonable because the cost was too high or because the work had not been carried out to a reasonable standard.

See also: London Borough of Havering v MacDonald [2012] UKUT 154 (LC).

Proxima GR Properties v McGhee [2014] UKUT 59 (LC)

Where a tenant requires consent from the landlord to underlet (and such consent is according to the lease not to be unreasonably withheld), whilst the relevant lease provision did not expressly refer to the landlord being able to charge for such consent, section 19(1) of the Landlord and Tenant Act 1927 applied so as to enable the landlord to charge a reasonable sum.

Facts

The appellant landlord charged the respondent tenant £95 for granting its consent to the tenant to underlet a flat on an assured shorthold tenancy. A further sum of £95 was charged for registration of the grant of the underlease. The landlord relied on provisions within the lease which obliged the tenant to obtain prior written consent for underletting and the payment of a fee for registration of the same. The tenant tendered only £95 and applied to the LVT for a determination as to his liability to pay the sums demanded, under paragraph 5 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002.

First Instance

The LVT decided the following:

1. No sum was payable in respect of the landlord’s consideration of the tenant’s application for consent to underlet, because there was no provision entitling the landlord to payment within the lease. Section 19(1)(a) of the 1927 Act – which subjects all leases which permit underletting to a proviso that consent may not be unreasonably withheld and the landlord is not precluded from requiring payment of a reasonable sum in respect of legal or other expenses – did not apply.
2. The LVT had no jurisdiction to determine the reasonableness of the sum demanded for registration of the grant, because this fee did not fall within paragraph 1(1)(a) of Schedule 11 to the 2002 Act or within any other category of administration charges.
3. An order under section 20C of the Landlord and Tenant Act 1985 was appropriate.

On Appeal

The UT (Martin Rodger QC, Deputy President) reversed the LVT and decided the following:

1. The LVT was mistaken in its approach to the application of section 19(1)(a) of the 1927 Act. That section did apply to long leases which included a covenant against underletting. If consent is requested but unreasonably refused or delayed, then a tenant is released from the covenant in relation to that particular underletting for which request was sought. The £95 charge was in the category of a variable administration charge. It is necessary to consider the individual facts of a case when determining whether the charge was reasonable. In this case, the fact that the tenant sought consent retrospectively and demanded an explanation of the charges meant that this was not a routine consent (for which the £95 charge would likely not be reasonable) so the sum of £95 was reasonable.
2. Whilst the tenant had not cross–appealed this point, the LVT was correct to conclude that it had no jurisdiction to determine the reasonableness of the registration fee, because this was not a variable administration charge. The written notice required to be given by the tenant under the lease was not a request for approval, nor was the charge one for the grant of an approval.
3. It was just and equitable to set aside the LVT’s decision on section 20C of the 1985 Act, and to refuse a section 20C application in respect of the proceedings before the LVT and the appeal to the UT.

Comment

This case provides guidance on the application of section 19(1)(a) of the 1927 Act and the question of the reasonableness of fees that are may be charged for consents. Charges for consent should be justified. Requests for consent “may not be used as a source of profit for landlords or their managing agents”. A subsequent request for consent, involving the renewal of an existing sub–tenancy, might only command “a very modest fee”, since the landlord is likely to have already undertaken investigations in respect of the initial request for consent. The Upper Tribunal declined to determine whether a “global licence” fee of £330 over 5 years – the effect of which was to release the tenant from the covenant against underletting for a defined period – was an administration charge. This point remains open.

Christoforou v Standard Apartments [2013] UKUT 586 (LC)

A landlord’s contractual entitlement to costs against a tenant is an administration charge which is not caught by paragraph 10(4) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002 – which after 1 July 2013 no longer applies in England – or by any rule in the Tribunal Procedure (First–tier Tribunal) (Property Chamber) Rules 2013.

Facts

The appellant tenants failed to pay service charges to the respondent landlord who applied to the LVT under section 27A of the Landlord and Tenant Act 1985 in 2009. Subject to some minor reductions, the LVT found that the charges demanded by the landlord were reasonable. County court judgments were obtained against the tenants and the landlord sought its costs of the 2009 proceedings, which had amounted to almost £21,000. The landlord sought to recover costs under clause 3.22 of the leases in which the tenants covenanted:

“To be responsible for and to keep the Landlord fully indemnified against all damage, damages, losses, costs, expenses, actions, demands, proceedings, claims and liabilities made against or suffered or incurred by the Landlord arising directly or indirectly out of –

3.22.1 Any act, omission or negligence of the Tenant or any persons at the Premises expressly or impliedly with the Tenant’s authority or

3.22.2 Any breach or non-observance by the Tenant of the covenants conditions or other provisions of this lease or any of the matters to which this demise is subject.”

The landlord applied for a determination under paragraph 5 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002.

First Instance

The LVT decided the following:

1. The costs were a variable administration charge within the scope of Schedule 11 to the 2002 Act.
2. The amount and apportionment of those costs was reasonable, proportionate, and fair.

On Appeal

The UT (Martin Rodger QC, Deputy President) held:

1. The costs were incurred in proceedings which arose directly as a result of the tenants’ breach of covenant (i.e. failure to pay service charges). Perhaps it was the case that costs could not be recovered as administration charges in all proceedings under section 27A of the 1985 Act, but this was not true in this case.
2. The costs were administration charges. Paragraph 1(1) of Schedule 11 to the 2002 Act is wide enough to encompass costs payable by a tenant to indemnify a landlord against costs of proceedings or costs incurred as a result of a breach of covenant.
3. The amount of the costs was reasonable. The LVT was not obliged to address in its reasons each and every point made to it in argument. Whilst the LVT’s decision did not directly address the proportionality of the costs, the LVT had proportionality in mind. One could not, however, go so far as to say that proportionality had nothing to do with the reasonableness test, or that the costs did not also need to be proportionate in the context of the case.
4. Paragraph 10(4) of Schedule 12 to the 2002 Act was a rule of procedure. It limited the LVT’s jurisdiction in making a costs order but did not interfere with a landlord’s contractual right to add the costs of the proceedings to the service charge if provided by the lease.

Comment

This case confirms that, in most cases, costs of proceedings following a determination under section 27A will be recoverable as administration charges if those proceedings were brought as a result of a tenant’s breach of covenant. It is important to ensure that such costs are reasonable (and proportionate) or these costs may be subject to challenge. Further, the contractual indemnities in a lease are not limited by paragraph 10(4) of Schedule 12 to the 2002 Act (in LVT proceedings) or in the FTT at all.

Carl Fain of Tanfield Chambers appeared for the successful Respondent.

Many thanks to Niraj Modha of Tanfield Chambers for summarising McGhee and Christoforou.

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