Chiswick Village Residents Ltd v Southey  UKUT 148 (LC)
27th June 2019
The UT held that it was a breach of natural justice when the FTT determined a question which was not before it and upon which no opportunity to adduce evidence had been given.
The Appellant is the freeholder of Chiswick Village (“the Property”). The Property is comprised of, inter alia, 280 self-contained flats held on long leases in standard form. The Respondent is one such long leaseholder.
The Respondent brought a 27A application against
the Appellant in relation to four separate issues, only two of which formed the
subject of the appeal.
First, the Respondent challenged professional
fees incurred by the Appellant in the sum of £64,962 in connection with two
applications for planning permission made by Dandy Properties Ltd, which has a
lease of the roof space of the Property.
The Appellant opposed both planning applications and put their costs of
doing so through the service charge. The
Respondent contended that such expenses could not properly be put through the
service charge. Significantly however,
the 27A application as drafted by the Respondent only questioned the recoverability
of the sums expended in principle, not the reasonableness of the sum claimed.
Second, the Respondent questioned whether
expenses incurred by the Appellant in procuring liability insurance for its
directors and officers, in organising its own AGMs and hiring premises for that
purpose, and in taking advice on the conduct of meetings in the sum of £7,605
could properly be put through the service charge.
The relevant clauses of the leases were as
By Clause 4 of the lease, the lessee covenants
to pay a “Maintenance Contribution” equal to a specified proportion
of the aggregate annual maintenance provision for the whole of the Lessor’s
Property computed in accordance with the Fourth Schedule. The specified
proportion in the case of the Respondent’s lease is 0.3602%.
Part 2 of the Fourth Schedule 4 identifies the expenses incurred by the Appellant which may be recovered through the Maintenance Contribution. These include expenses incurred in the performance of the obligations under clause 6A of the Lease, one of which requires the Appellant to keep the Building insured against all the usual risks.
By paragraph 4 of Part 2 they also include the
insurance against the liability of the Lessor to third parties and against such
other risks and in such amount as the Lessor shall think fit (but not against
the liability of individual tenants as occupiers of the flats in the Building).”
Two other categories of expenditure mentioned in
Part 2 of the Fourth Schedule are relevant.
Paragraph 7 comprises:
legal and other costs incurred by the Lessor including those relating to the
recovery of maintenance contribution and other sums due from the Lessee:
(a) in the
running and management of the Building and in the enforcement of the covenants
conditions and regulations contained in the leases granted of the flats in the
Paragraph 8 comprises:
“All costs incurred by the Lessor (not hereinbefore specifically referred to) relating or incidental to the general administration and management of the Lessor’s Property including any interest paid on any money borrowed by the Lessor to defray any expenses incurred by it.”
Pursuant to Paragraph 19 of its decision, the FTT held that, in relation to the first issue, the cost of taking professional advice in relation to the planning applications could be put through the service charge pursuant to Paragraph 8 of Part 2 of the Fourth Schedule set out above, but considered that only £10,000 of the sum claimed was reasonable. The FTT seemingly drew a distinction between sums expended in taking advice upon the planning applications and sums expended in resisting them.
The Appellant asked for permission to appeal
on the basis that the FTT had determined an issue which was not before it, i.e.
the reasonableness of the sum claimed, as opposed to its conceptual
The FTT requested the Respondent’s views on
the Appellant’s application. However,
the request never reached the Respondent and the FTT reviewed its decision and
set aside Paragraph 19. In its review,
the FTT conceded that it had, “erred in law in
determining an issue that was not in dispute between the parties”
When the Respondent discovered the outcome
of the FTT’s review, he applied to have it set aside and, rather than undertake
a further review of its decision, the FTT granted the Appellant permission to
As to the second
issue and the recoverability of the directors’ insurance, the FTT’s
decision was that paragraph 4 of Part 2 of the Fourth Schedule to the lease did
not permit the recovery of directors’ and officers’ insurance premiums because
the directors and officers were separate persons from the Appellant itself and
insurance taken out for their benefit was not, “insurance
against the liability of the Lessor”. As for corporate
expenses, the FTT found that these were not within paragraph 8.
Further, it was held that they were not
“service charges” within the section 18(1), Landlord and Tenant Act
1985 , which refers to an amount payable by a tenant of a dwelling “directly or indirectly, for services, repairs, maintenance,
improvements or insurance or the landlord’s costs of management”.
As to corporate expenses, the FTT held that
the cost of running the AGMs and of taking advice on the exclusion of
particular persons did not fall within Paragraph 8 of Part 2 and was therefore
- Was the FTT entitled to determine the reasonableness of the fees incurred in the absence of any challenge by the Respondent?
- Was the landlord entitled to put its directors’ insurance and corporate expenses through the service charge?
Decision on appeal
Counsel for the Respondent argued that the FTT
was not simply addressing reasonableness in the impugned Paragraph 19 but was
drawing a distinction between the recoverability of fees incurred in taking
advice on the planning applications and fees incurred in opposing them.
This submission was accepted. However, the UT did not accept that this was
a distinction that the FTT was entitled to draw given the way in which the
application before it had been framed.
The appeal on the first issue was allowed.
As to the second issue, regarding insurance, the
UT concluded that, in light of the passage in Paragraph 4 of Part 2 set out
above, particularly the phrase in brackets, rendered it clear that it was
envisaged that the Appellant would obtain insurance covering the liabilities of
persons other than itself. The cost of
the insurance of the Appellant’s directors was therefore recoverable.
It was also held that the fact that the leases
were granted by a leaseholder owned and managed company with no other assets or
interests, rendered it manifestly appropriate to insure company directors.
As to corporate expenses, the UT was referred to
the authority of Solar Beta Management
Company Limited v Akindele  UKUT 0416 (LC) in which the convergence
between managing a building and managing a company which manages the building
Akindele was followed in the instant matter. It was emphasised that the management of the Property could not take place if the Appellant were not managed. Further, in circumstances where the Appellant was intended to have no income producing assets and was to be owned by the leaseholders themselves, it was held to be unlikely that the lease would have intended any clear distinction between the management of the company and the management of the estate. The second limb therefore succeeded on appeal.
case serves to remind us that the Tribunal ought only to consider matters which
have been put before it. It was
considered particularly regrettable by the Upper Tribunal that the FTT
determined a matter which was not raised in the tenant’s application, upon
which the FTT had expressed no previous interest had not and upon which the
parties were not afforded an opportunity to adduce evidence.
In relation to the management costs, Akindele was followed. The Upper Tribunal emphasised that distinctions between the costs of managing tenant run companies and the estate itself are likely to be illusory; the latter cannot be achieved without the former.
Nicholas Isaac QC of Tanfield Chambers appeared for the successful Appellant.
Team: Nicholas Isaac KC
Expertise: Service Charges
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