Oung Lin Chaun-Hui & Ors v K Group Holdings Inc & Ors
2nd April 2020
The Upper Tribunal considered the status of service charges recovered by a manager appointed under section 24 of the Landlord and Tenant Act 1987.
This matter concerned the ongoing litigation relating to Aldford House, Park Lane, London. The parties were in dispute about whether relevant costs incurred by a statutorily appointed manager were recoverable by the maintenance trustee under a tripartite lease following the termination of the management order and an assignment of the right to recover the arrears to the maintenance trustee by the Tribunal appointed manager.
The lessees contended firstly that once the management order had expired, the manager had no further power to deal with payments or arrears unless the management order so provided. Secondly, sums paid by lessees during the course of a management order are not “service charges” within the meaning of section 18 of the Landlord and Tenant Act 1985.
The FTT did not permit the lessees to raise the above points at first instance on the grounds that they had not been fully pleaded.
Decision [on appeal]
The Upper Tribunal rejected the lessees’ submissions and found that sums paid by tenants to a Tribunal appointed manager were service charges properly so called. The sums are paid under the lease and a management order does not displace the lease covenants, which remain binding on the lessees. It would be “verging on the absurd” if the lessees, by seeking the appointment of a manager, rendered themselves unable to rely on the protections contained in sections 18 – 30 of the 1985 Act.
The Upper Tribunal accepted that this decision was potentially in conflict with the decision in Kol v Bowring, where HHJ Gerald held that monies paid under a management order were not paid as service charges. However, the point was not fully argued in Kol, and the correctness of the decision made by the Upper Tribunal was supported by its practicality as there would be continuity after the management order came to an end. In this case, the arrears accrued to the maintenance trustee on termination of the management order and there was no need for the deed of assignment.
However, as emphasised in Kol, attention must be given in the management order to what happens on termination – it would be helpful if the order terminated at the end of a service charge year. In a complex case, the manager should apply to the FTT for directions and approval of her actions.
As to the pleading point, the Upper Tribunal gave guidance as to the correct approach to parties raising new issues of law at the last minute. Where the parties are at final hearing, the Tribunal will be reluctant to allow a party to alter their position without notice. Further, where the issue is one of fact, the tribunal must take into account the importance of the change in position to the case overall, proportionality, prejudice to the other party and the reasons for the late change. However, if the issue is one of law, it ordinarily should be dealt with so long as the parties have sufficient opportunity to consider the point and seek advice.
Though the appeal related to the status of service charges demanded by a statutorily appointed manager, it is important to note the warning given by the Upper Tribunal as to the need for precision in the terms of a management order. The order must deal with the process on handover at the termination of the appointment. There ought to be an opening and closing sum recorded and a timetable to produce final accounts ordered, and it would be simpler if the management order terminated at the end of a service charge year. The appointed manager remains accountable to the Tribunal even after the appointment ends.
Further, the comments as to late changes in position will be of general procedural importance to litigants in the FTT.