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Service Charges & Estate Management Update – March 2015

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2nd March 2015

Caddick v Whitsand Bay Holiday Park Ltd [2015] UKUT 0063 (LC)

The FTT had not erred in striking out a s.27A application made by successors in title to determine an issue which had already been determined under the same lease in earlier proceedings to which they were not party for being an abuse of process.

Facts

A number of tenants of lodges applied to the Rent Assessment Committee for their association to be recognised as a tenants’ association. The application was dismissed on the basis that: (i) the lodges were not “dwellings” because they were not “buildings”; and (ii) the applicants were not “tenants” of the lodges but tenants only of the plots on which the lodges were sited. A number of the leaseholders subsequently applied for a determination of services charges payable pursuant to s.27A of the 1985 Act. The applicants sought to argue the same issues so as to satisfy the tribunal that it had jurisdiction to determine the s.27A application. The application was dismissed as an abuse of process. One of the s.27A applicants, who purchased his lodge after the decision dismissing the application to be recognised as a tenants’ association, appealed.

Issues

(1) The extent to which successors in title may raise issues before the FTT which have already been determined under the same lease in earlier proceedings to which they were not party; (2) whether the lodge was a “building” and thus a “dwelling” within s.38 and whether there was a tenancy of a dwelling within s.18 and thus whether the tribunal had jurisdiction under s.27A.

Decision on Appeal

Dismissing the appeal, the UT (HHJ Mole QC) held (applying Johnson v Gore-Wood & Co (No 1) [2002] 2 AC 1, HL) that it was necessary to take “a broad, merits-based judgement which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before”. The FTT was right to reject the proposition that the matter could be reopened “simply because it [the appellant] is a successor in title” to the earlier party who brought the original action: “The fact that the defendants to the original action and to this action are different is a powerful factor in the application of the broad-merits-based judgement; it does not operate as a bar to the application of the principle” (Price v Nunn [2013] EWCA Civ 1002 per Thomas LJ). The FTT did not make an error of law in its decision on abuse of process. On the second issue, the UT held (obiter) that the lodge was a mobile home, not a building.

Waaler v Hounslow LBC [2015] UKUT 17 (LC)

There was insufficient evidence to justify a finding that costs totalling more than £55,000 per leaseholder for the replacement of windows and cladding were reasonable or reasonably incurred.

Facts

The IvyBridge Estate consists of 4 tower blocks, 23 four and five storey blocks of flats, 13 houses and a block of sheltered accommodation. It was built in the late 1960s on a landfill site. In 2004, the council served a notice of intention to carry out major works to 10 of the blocks. It was stated that the total estimated rechargeable cost was £8,326,139.48 with the appellant lessee’s estimated charges being £61,134.01. The works were completed in May 2006. In March 2012 a demand was issued to the appellant in the sum of £55,195.95. The FTT held that the costs of the works were reasonably incurred. On appeal, the lessee argued: (i) the lease did not entitle the council to recover the cost of improvements; and (ii) the costs were not reasonable in that they ought to have been spread over a number of service charge years.

Decision on Appeal

Allowing the appeal in part, The UT (Siobhan McGrath, FTT Chamber President) held the costs of the works were recoverable pursuant to the terms of the leases. There was, however, no evidence before the FTT that the council had explored alterative and less expensive solutions to replacing the windows and cladding. Further, the financial impact on the lessees of replacing both the windows and the cladding may be relevant to the question of whether the costs of works (which went beyond repair) were reasonably incurred and there was no evidence that any consideration had been given to this issue. The case was remitted to the FTT to consider by how much the service charge must be reduced.

Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd [2015] EWCA Civ 282

The right to manage cannot be exercised by a single RTM company in respect of more than one self-contained building or part of a building.

Philip Rainey QC of Tanfield Chambers acted for the successful appellants.

Facts

The appellant landlords appealed against a decision that a RTM company could acquire the management of more than one set of premises under Part 2, Chapter 1 of the 2002 Act. The Upper Tribunal decided that an RTM company could do so as long as all the qualifying conditions were met in relation to each set of premises respectively. The UT found that the main objective of the provisions was to enable long leaseholders to take over management of their building and that, where a number of self-contained buildings were managed together and shared appurtenant property, that could only be achieved by adopting a purposive construction. It held that the provisions of s.72 of the Act did not limit the number of self-contained buildings or parts of buildings to which the right applied. Neither the decision nor its reasoning imported any requirement confining that conclusion to premises belonging to the same freeholder or freeholders, or to the same estate or geographical area.

Decision on Appeal

The Court of Appeal (Patten LJ, Gloster LJ, Sir David Keene) allowed the appeal. Section 71 of the Act made it clear that Chapter 1 made provision for the acquisition of the right to manage only in relation to “premises to which this Chapter applies”, and only by a company “which, in accordance with this Chapter may acquire and exercise those rights”. Section 72(1) provided that Chapter 1 only applied to premises if they satisfied the three separate conditions set out in 72(1)(a) to (c). Importantly, s.72(1)(a) imposed the condition that the premises “consist of a self-contained building or part of the building”. That made it clear that the acquisition and exercise of rights to manage applied not to a number of blocks of self-contained buildings in an estate, but to a single self-contained building or part of a building. However, that in itself did not determine the question of whether one RTM company could acquire the right to manage more than one set of premises. Section 74 defined the persons entitled to be members of an RTM company. The RTM Companies (Model Articles) (England) Regulations 2009 and the model articles of association of the RTM company also made it clear that a single building was intended. If a company was an RTM company in relation to premises A, only qualifying tenants and relevant landlords of premises A were entitled to be members of that RTM company. If that were not the case, then the voting mechanism of members under the articles would be ‘undermined’. Other provisions of the 2002 Act supported that conclusion. Accordingly, it was not possible for an RTM company to acquire the right to manage more than one self-contained building or part of a building

Comment

This is a landmark case on the right to manage. It means that a majority of tenants in premises A cannot dictate who are appointed as directors of the RTM company and outvote the qualifying tenants of premises B in relation to decisions that affect premises B. Where a number of self-contained buildings have been managed together and share appurtenant property there is nothing to prevent two or more RTM companies, which are established in relation to separate blocks on the same estate, from entering into an agreement to delegate management to one of the RTM companies, or indeed a third party manager, to act on behalf of both or all. The court failed to give any guidance as to how any conflict between parties that both have the right to manage the same appurtenant property should be resolved.

Zambra Investments Limited v Ellis [2015] UKUT 0031 (LC)

The FTT had erred in finding that the cost of insurance was unreasonable because it had failed to have regard to whether the lessee’s quotation was comparable to the insurance obtained by the landlord.

Facts

The lessee owned one of 12 maisonettes within a row of properties. Seven of the maisonettes were let on long leases. The landlord directly owned the remaining five. The lessee applied to the FTT for a determination as to the reasonableness of insurance premiums. The insurance premium charged for 2013–2014 was £4,557.99 of which the lessee’s share was £651.14. The insurance premium charged for 2014–2015 was £4,881.03 of which the lessee’s share was £697.29. The lessee’s share was arrived at by dividing the total insurance premium by seven.

At First Instance

The lessee obtained quotes for insuring all twelve maisonettes albeit for the same reinstatement cost as that insured by the appellant for seven maisonettes. One of those quotes was from AXA Insurance UK Plc, the same insurer used by the appellant, which estimated the cost as being £3,072.41 or £256.03 per lessee. (The figure of £256.03 was arrived at by dividing the total of £3,072.41 by twelve.) The FTT held that, based on a quotation obtained by the lessee, the insurance for all of the buildings could be purchased at a figure less than the premiums being charged by the landlord to the lessees in respect of their seven units.

On appeal, the landlord argued that the lessee’s AXA quotation was not comparable because the premium did not include coverage for the reinstatement cost of twelve maisonettes, only seven, albeit that the quotation referred to twelve flats.

Decision on Appeal

The UT (HHJ Alice Robinson) held that the FTT failed to have regard to whether the lessee’s AXA quotation was comparable to the insurance obtained by the landlord having regard to the fact that the sums the landlord’s insurance covered only seven maisonettes whereas the lessee’s AXA quotation covered twelve maisonettes. The case was remitted to the FTT for re-hearing.

Norwich City Council v Simon & Susanne Redford [2015] UKUT 0030 (LC)

The council was not entitled to recover a proportion of lightning maintenance costs incurred under a city-wide contract where the costs varied depending upon the number of call-outs and there was no evidence as to what extent, if at all, the costs related to the estate on which the subject property was located.

Facts

The Council claimed service charges from the lessees for, amongst other things, communal lighting. The Council have a city-wide contract for the maintenance of communal lighting in all of its blocks of flats not just the estate on which the lessees’ flats are situated. The sums claimed for communal lighting were calculated by apportioning a cost to the estate based on the rateable value of the estate and the rest of the blocks the subject of the contract. The lessees argued that the apportionment of costs by rateable value did not reflect the costs actually incurred by the Council on communal lighting to the estate and it was not possible to tell precisely what the Council’s expenditure on communal lighting to the estate was because the Council failed to provide accounts, receipts or other documents.

Decision at First Instance: The FTT held that the lease referred to charging proportionately for certain costs by block or by estate. There was no reference to paying a proportion of Norwich’s city-wide costs for its entire residential property portfolio. Accordingly, the Council was not entitled to recover the charges.

Decision on Appeal

Dismissing the appeal, the UT (HHJ Alice Robinson) held that, on the proper construction of the lease, the costs must be referable to estate. Given the nature of the city-wide contract and the limited information available as to its charging structure, if the lessees’ assertion that the estate has a simple lighting system compared to others and little vandalism is correct, the likelihood was that the Council’s method of determining the estate cost (apportionment by rateable value) does not result in a figure which reflects ‘the reasonable expenditure of the Council in complying with its obligation to provide communal lighting on the Estate’ as required by the lease.

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