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Chiswick Village Residents Ltd v Southey [2019] UKUT 148 (LC)

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27th June 2019

Summary

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.

Facts

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 follows:

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 expenses of:

“Effecting 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:

“All 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 building …“

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.”

First instance

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 recoverability.

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 appeal.

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 not recoverable.

Issues

1. Was the FTT entitled to determine the reasonableness of the fees incurred in the absence of any challenge by the Respondent?
2. 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 [2014] UKUT 0416 (LC) in which the convergence between managing a building and managing a company which manages the building was emphasised.

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.

Comment

This 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.

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