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Haveli Ltd v Glass [2006] EWLands LRX_22_2005 (16 January 2006)

LRX/22/2005

LANDS TRIBUNAL ACT 1949

SERVICE CHARGES – Certification - recoverability – validity of and costs relating to service of s.146 Notice – Appeal allowed in part – Commonhold and Leasehold Reform Act 2002 s.158 and Schedule11.

IN THE MATTER of an APPEAL AGAINST A DECISION OF A LEASEHOLD

VALUATION TRIBUNAL OF THE LONDON RENT ASSESSMENT PANEL

BETWEEN HAVELI LIMITED Appellant

and

AMANDA D GLASS Respondent

Re: Ground Floor Flat, 17 Chandler Avenue, London, E16 4AA

Before: P R Francis FRICS

Sitting at: Procession House, 110 New Bridge Street, London, EC4V 6JL

on

4 January 2006

The following cases are referred to in the decision:

Fox v Jolly [1916] 1 AC 1

Martindale Developments Limited (2005) LT Ref: LRX/90/2004 (Unreported)

The following further cases were referred to in argument:

Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206

Re: Railway and Electric Appliances Co (1888) 38 ChD 597

Ajay Arora, director of the appellant company with permission of the Tribunal

Lorraine Scott, Legal Support Manager of BLR Property Management, for the respondent, with permission of the Tribunal

© CROWN COPYRIGHT 2006

DECISION

This is an appeal by Haveli Limited, the long lessee of Ground Floor Flat, 17 Chandler Avenue, London, E16 4AA ("the appeal property") against aspects of a decision of the Leasehold Valuation Tribunal of the London Rent Assessment Panel ("the LVT") dated 14 December 2004. That decision followed an application by Amanda Glass (the freehold owner of the appeal property, and the respondent in this case) to assess the proper service charge payable in each of the service charge years, 2001/02 and 2002/03. Permission to appeal from that decision having been refused by the LVT on 4 February 2005, it was granted by the President of the Lands Tribunal on 18 April 2005 on the grounds that "there appears to be a realistic prospect of success in relation to paras 3.3.2 and 3.3.9 of the LVT's decision". The two issues related firstly to the question of whether all the purported management fees claimed were covered under the terms of the lease, and whether the landlord was entitled to collect any service charges that had not been certified, and secondly to the recovery of costs associated with the service of a Notice under section 146 of the Law of Property Act 1925 on 29 September 2003. The appellant's other grounds of appeal were refused.

In its grounds of appeal where they related to the two points in issue, the appellant said that the LVT had wrongly interpreted or wrongly applied the relevant law, had failed to take account of relevant evidence, there had been procedural defects and the points were of potentially wide implication.

In the part of its decision relating to management fees the LVT stated (at para 3.3.1) that in considering the matter it had taken note of the terms of the lease, and in particular clause 1(b)(iii)(a), and continued:

"3.3.2. Although the precise words 'management fee' or 'administration costs' are not explicitly used, it is implicit in this clause that such reasonable sums are recoverable from the tenant. It was noted also that, in the proviso to this clause, that all such sums should from time to time be properly certified on behalf of the landlord, no such certification was presented in relation to the two years in question".

Having then considered the parties' evidence and submissions, the LVT concluded (at paras 3.3.6 and 3.3.7) that the extent of management and administration provided was within the terms of the lease, that the 13 hours charged for was reasonable and that the rate of £30 per hour was also reasonable and reasonably incurred. No further comment was made upon the certification aspect.

Regarding the s.146 Notice, the LVT said:

"3.3.9. With regard to the cost of serving a section 146 Notice on 29 September 2003. The tribunal accepted the fact that this was served by the management company BLR on behalf of the landlord and they were entitled to recover their reasonable costs incurred in connection with the service of this notice. The tribunal determined that the fee of £211.60 was in the circumstances reasonable and reasonably incurred".

Both the appellant and respondent are successors in title to a lease of the appeal property dated 4 April 1984 which was granted for a term of 99 years from 24 June 1983, and the relevant parts of clause 1 state:

"1.(b) There shall also be paid by the tenant the percentage specified in paragraph 8 of the Particulars such sum or sums to be assessed in manner referred to in this clause which the landlord may from time to time expend and as may lawfully and reasonably be required by the Landlord on account of anticipated expenditure (including [interest])

(a) in performing the landlord's obligations as to repair maintenance and insurance hereinafter contained

(b) in payment of the proper fees of the surveyor or agent appointed by the Landlord in connection with the carrying out or prospective carrying out of any of the repairs and maintenance herein referred to and the apportionment of the cost of such repairs maintenance and collection between the several parties liable to reimburse the Landlord for the same and such fees for collection of the rents hereby reserved and the other payments to be paid by the Tenant under this clause

(c) in payment of rents rates taxes water gas electricity and other services charges or outgoings whatsoever in respect of any part of the Building not included or intended to be included in this demise or

(d) in providing after giving reasonable written prior notice to the Tenant such reasonable services facilities and amenities or in carrying out works or otherwise incurring expenditure as shall be reasonably necessary for the general benefit of the Building and its tenants whether or not the Landlord has covenanted to incur such expenditure or carry out such works

(e) in complying with any of the covenants entered into by the Landlord or with any obligations imposed by operation of law which are not covered by the preceding sub-clauses

PROVIDED THAT all such sums shall from time to time be properly certified on behalf of the Landlord which certified amount shall be final and binding upon the Tenant and such sums shall be paid by the Tenant within 28 days of being demanded"

Section 18 of the Landlord and Tenant Act 1985 provides as follows:

"(1) In the following provisions of this Act 'service charge' means an amount payable by a tenant of a dwelling as part of or in addition to the rent –

(a) which is payable, directly or indirectly, for services, repairs, maintenance or insurance or the landlord's costs of management, and

(b) the whole or part of which varies or may vary according to the relevant costs.

(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.

(3) For this purpose –

(a) 'costs' includes overheads, and

(b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period."

Section 19 provides as follows:

"(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period –

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

and the amount payable shall be limited accordingly.

(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.

(2A) A tenant by whom, or a landlord to whom, a service charge is alleged to be payable may apply to a leasehold valuation tribunal for a determination –

(a) whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred,

(b) whether services or works for which costs were incurred are of a reasonable standard, or

(c) whether an amount payable before costs are incurred is reasonable.

(2B) An application may also be made to a leasehold valuation tribunal by a tenant by whom, or landlord to whom, a service charge may be payable for a determination –

(a) whether if costs were incurred for services, repairs, maintenance, insurance or management of any specified description they would be reasonable,

(b) whether services provided or works carried out to a particular specification would be of a reasonable standard, or

(c) what amount payable before costs are incurred would be reasonable.

(2C) No application under subsection (2A) or (2B) may be made in respect of a matter which –

(a) has been agreed or admitted by the tenant,

(b) under an arbitration agreement to which the tenant is a party is to be referred to arbitration, or

(c) has been the subject of determination by a court or arbitral tribunal.]

(3) An agreement by the tenant of a dwelling (other than an arbitration agreement is void in so far as it purports to provide for a determination in a particular manner, or on particular evidence, of any question –

(a) whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred,

(b) whether services or works for which costs were incurred are of a reasonable standard, or

(c) whether an amount payable before costs are incurred is reasonable."

The two questions I have to determine are:

1. What charges was the landlord, under the terms of the lease, entitled to demand for the years in question and, whether or not all or any of the said charges were recoverable under the lease, did the lack of certification affect the landlord's ability to collect them when they were demanded?

2. Was the section 146 Notice valid?

Appellant's Case

In respect of the first issue, Mr Arora said that in its decision the LVT implied a clause into the lease that imposed an obligation upon the tenant to pay management fees and further decided that despite a provision that any service charges demanded should be certified, they were still payable even though no such certification had been provided. It was acknowledged and accepted that clause 1(b) of the lease permits reimbursement from the tenant of a percentage (in this case 50%) of the proper fees of a surveyor or agent for carrying out works and collection of monies for the landlord, provided that such sums are properly certified. However, that clause does not expressly permit charging for 'management fees'. Money collection is only one aspect of management, and that is all the landlord could claim for, along with fees associated with the undertaking of works of repair or maintenance. Mr Arora said that in the service charge years 2001/02 and 2001/03, no works had been carried out to the property (for which a surveyor might charge a fee), nor, to the best of his knowledge had any monitoring been carried out, or visits to the property by the managing agents. Also, no budgeting for future repairs or maintenance had been undertaken.

It was not possible, he said, for the landlord's agent to have spent 13 hours per annum, as claimed by them, in sending out rent and service charge demands and in providing unconstructive and unhelpful responses to queries raised by the tenant. The time sheet provided by the landlord in justification of the claimed 13 hours spent on the property did not relate entirely to that specific property and in any event contained items that were not, as he had said, covered under the lease. Charges for time spent carrying out "desk top" management such as typing letters, taking and making phone calls and undertaking other office based duties were not permissible under the express provisions of the lease.

Mr Arora said that it is recognised that in addition to terms which parties may have expressly adopted in a lease, there may be other terms logically implied from them – generally known as 'implied terms'. The question of whether a term can be logically implied from the express terms in a lease is a matter of construing the intention of the parties. The mere fact of a silence consistent with such an implied provision is not sufficient for its implication. Whether a term will be implied is a question of law for a court, and a court has no discretion to create a new lease. There was, he said, no evidence that the LVT followed this legal principal. Quoting from a number of authorities, Mr Arora said a term will not be implied if it gives efficacy to the contract merely because it would have been reasonable for the parties to have included it; and there has been a strong judicial warning given against the over-ready application of the principle to justify the implication of terms – see Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227. If there is any reasonable doubt whether the parties did intend to enter into such a lease as is sought to be enforced, the lease should be looked at and all the surrounding circumstances considered and, if the lease is silent and there is no bad faith on the part of the lessee, the court 'ought to be extremely careful' how it implies a term – see Re: Railway and Electric Appliances Co (1888) 38 ChD 597 at 608.

As to the non-certification of the service charge demands, Mr Arora said the issue is not one of who has certified the demands, but the absence of any certification. The lease specifically provides for sums claimed to be certified, and as they were not, the LVT was wrong to determine that the charges were payable. The fact that the landlord has now admitted that the demands were not certified, and has now provided the requisite certification was appreciated, but it still did not create liability to pay all that had been demanded, for the reasons he had already given over the limitations set out in clause 1 of the lease. It was, he said, clear from the lease that not only payments for specifically allowed services previously rendered that had to be certified, but also demands for on-account payments. There had been no reasoning given in respect of demands for payments in advance, and whilst it was accepted that they could not be 'certified' as such, it was reasonable to expect that any such requests should be supported by explanations. The certification now provided undoubtedly created a liability to pay those charges that were permissible under the lease, but the late correction of the situation meant that any charges relating, for instance, to interest or the costs of preparing and serving the section 146 Notice in September 2003 were now irrelevant.

In respect of the section 146 Notice, Mr Arora said that the LVT accepted without question that the cost of serving it was reasonable, and was payable by the tenant. However, pursuant to section 158 and Part 1 of Schedule 11 of the Commonhold and Leasehold Reform Act 2002 ("the 2002 Act") specified wording must be included within the Notice, in the absence of which such costs could be withheld. The costs of the Notice are administration charges within the meaning of the 2002 Act and such notices must contain a summary of the tenant's rights and obligations (Sch 11, Part 1, para 4(1)). The tenant is entitled to withhold payment if the mandatory summary does not accompany the Notice (para 4(4)), and in this instance it had not. This point had been an issue in a Birmingham LVT case in 2004 (Ward v A H Field (Developers) Ltd – (Bir/47UB/LAC/2003/0001)) where it had been held that "the section 146 Notice served on 7 October 2003…was invalid so far as the provisions of Schedule 11 are concerned, and that the applicants are entitled to withhold payment of the costs arising from the preparation and service of that Notice…"

Furthermore, Mr Arora said the Notice was also invalid for the reason that the incorrect amount [of outstanding charges] was claimed - £820.84 being shown as due in the statement dated 27 September 2003 that accompanied it. According to the application for payment made in a summons dated 2 December 2003, the amount outstanding at 27 September was £789.59. That sum was also referred to in a further s.146 Notice that was served in January 2004. It will not, he said, be possible for the landlord to re-serve the section 146 Notice prior to the Tribunal's final decision (see s.168 of the 2002 Act).

Mr Arora responded to the landlord's contention that the service of the Notice on 29 September 2003 does not fall within the provisions of s.158 and Schedule 11 of the 2002 Act because (a) the costs of preparing and serving the Notice are actual expenditure incurred, and not variable administration charges under the Act and (b) the requirement to serve the summary of rights and obligations was not in force on 29 September 2003. The Notice was served at the appellant's business address, which was accepted as correct. As to (a), he said they were a variable administration charge, and in respect of (b), he referred to clause 8 of the lease which says:

"8. Any demand for payment notice or other documents required or authorised to be given to the Tenant shall well and sufficiently be given if sent by the Landlord or the Landlord's agent through the post by registered or recorded delivery letter addressed to the Tenant by name or the general description of "the Tenant" or left for the Tenant at the flat. Any demand notice or other document required or authorised to be given by the Tenant shall be well and sufficiently given if left or sent through the post by registered or recorded delivery letter addressed to the Landlord at the last known address of the Landlord and any demand notice or other document sent by post shall be deemed to have been served twenty-four hours after such posting".

Twenty-four hours from 29 September brought the matter within the provisions of Schedule 11 and, for the avoidance of doubt, Mr Arora said, his argument must be right as the tenant could not be expected to be aware of precisely what was being demanded in the Notice until such time as it had been physically served – in this case, 30 September 2003.

In all the circumstances it was, the appellant contended, beyond question that the Notice was invalid, and the LVT's decision on that aspect should be overturned. Mr Arora finished by saying that whilst he acknowledged that the sums in issue were not great, the matter was of wide implication as his company managed a large number of properties where the lease terms were similar, and the decision of this Tribunal could, therefore, have a significant knock-on effect.

Respondent's Case

Miss Scott said that the duties the managing agents perform, and for which management fees were demanded as part of the service charges are all duties that the tenant has covenanted to pay for under the terms of the lease, and are thus properly recoverable. It was, she said, the intention of the LVT, in para 3.3.2 of its decision, not to imply a new term in the lease, but to clarify in the absence of specific reference to management fees or administration charges that the duties undertaken under the provisions of clause 1 of the lease constituted management. Clause 1(b)(iii)(a) is clear in its meaning, Miss Scott said, in stating that the tenant must pay such sums as the landlord may expend in performing his obligations as to repair, maintenance and insurance. That included payment for a managing agent who was appointed by the landlord to undertake those obligations. An actual description of all the tasks that the managing agent undertakes is not necessary in order for the agent's reasonable fees to be recoverable. The appellant's arguments that charges for "desk-top" work relating to the management of the property were unsustainable. Also, the fact that no repairs have actually taken place during the charging period is, Miss Scott said, nothing to the point. In any event, it is not the reasonableness of the charges that is before this Tribunal, and the appellant should not be allowed a "second bite at the cherry" in that regard – the LVT already having made its determination on that point, and it not being one for which permission to appeal was granted.

The question of recoverability, which is the issue before this Tribunal, is, as she had said, clear from the terms of the lease, as is the landlord's obligation to repair and to monitor the state of the property (clause 5). It is reasonable, and permitted, for the landlord to appoint an agent (under lease clause 1(b)(iii)(b)) to organise these repairs as and when they become necessary. The agents have billed interim service charge demands with budgeted sums for anticipated maintenance and repairs and in respect of the question of certification, that cannot logically apply to such demands, but must be in relation to balancing amounts. Whilst admitting that no certification of the year end accounts for 2001/02 and 2002/03 had been presented to the tenant at the time of the LVT hearing, that had now been rectified, and the claimed sums were therefore now payable. There was no time limit specified for certification – only "from time to time", and there was no provision specifying who should certify the accounts. Notwithstanding balancing charges, the lease clearly permits the collection of on-account payments, and the appellant's arguments as to why they should not be recoverable were not accepted. In summary, therefore, the landlord contends that whilst the lease does clearly provide for certification of the accounts, the sums claimed are still properly due, due to the provisions permitting the collection of monies in advance of anticipated expenditure.

Miss Scott said, in connection with the issue of the section 146 Notice, that the LVT had been correct and the fees (of £211.50 not, as incorrectly stated by them, £211.60) were payable by the tenant. In her submission, the fee does not come within the provisions of Schedule 11 because they relate to actual expenditure incurred by the landlord, and clearly provided for under the terms of the lease rather than a variable administration charge as defined under Schedule 11. The inclusion of the mandatory summary of the tenant's rights and obligations is only required in respect of a variable administration charge. Even if the Tribunal finds that it was a variable administration charge, and thus covered under the 2002 Act, it was the landlord's contention that the provisions referred to did not come into force until 30 September 2003. The Notice was served on 29 September, and that was the relevant date for these purposes. The tenant's argument that he would only be aware of what would be demanded in the s.146 Notice carried no weight as he was already well aware of the arrears, having previously received demands for payment. The fees relating to the preparation and service of the s.146 Notice were in any event incurred prior to 29 September, and are thus due to be paid – see The Commonhold and Leasehold Reform Act 2002 (Commencement No.2 and Savings) (England) Order 2003 (SI 2003/1986 (C.82). Schedule 2 (8) states "Paragraphs 2 to 5 of Schedule 11 shall not apply to an administration charge that was payable before the first commencement date [30 September 2003]." The date by which the notice is deemed to be served is thus not relevant.

Whatever this Tribunal should decide in respect of this matter, Miss Scott said that subsection 4(3) of Schedule 11 only allows the tenant to withhold payment until the provisions of subsection 4(1) are complied with. Accordingly, the tenant had now been provided with the requisite summary, and the Tribunal is thus requested to determine that the sum demanded is now payable by the tenant. As to the allegation that the wrong amount was demanded in the schedule attached to the s.146 Notice, Miss Scott said there is no provision that it has to be served in a prescribed form, and thus differing figures do not invalidate it. In any event, by the time the summons was served in December 2003, figures could have changed due to payments that had been recorded as received or balancing charges that had been added.

CONCLUSIONS

I deal firstly with the question of what can be recovered under the terms of the lease. Clause 1(b)(iii)(b) provides not only for "payment of the proper fees of the surveyor or agent"… "in connection with the carrying out or prospective carrying out of repairs and maintenance".. but also "and apportionment of costs and collection thereof, and collection of rents" … "and other payments to be paid by the Tenant under this clause". In my judgment the costs claimed by the landlord fall fairly within the provisions of this clause, so long as they are reasonable. If professional fees associated with the duties covered under this clause are charged on a time basis, it is logical and acceptable in my view that they include time spent within the office undertaking such tasks – described by Mr Arora as "desk-top management". The landlord's obligations are clearly set out in clause 5(1) to (5) of the lease. As Miss Scott rightly pointed out, it is not reasonableness that is in issue here, and I therefore make no comment on the question of whether 13 hours was a reasonable time to spend on the management of the property, or whether £30 per hour was reasonable as a fee.

The LVT was not, I think, implying a new term into the lease, but was simply, as it set out in para 3.3.2 of its decision, saying that in the absence of specific words to that effect, such reasonable sums as are associated with the duties of the "surveyor or agent appointed" were included and thus recoverable under the lease.

As to certification, the lease clearly provides for certification of "all such sums" (included in clause 1(b)(iii)(a) to (e)). Mr Arora acknowledged that, in reality, it was not practicable to formally certify sums payable in advance of anticipated expenditure, but that any demands for such should be supported by some form of explanation. He accepted that the demands for the years in question had now been certified by the landlord and that those amounts claimed that were recoverable under the express provisions of the lease were now due. In that regard I have to conclude that amounts formerly claimed in advance are now, due to the effluxion of time, balancing sums, but that in itself does not answer the question. In my judgment, it stands to reason that any reference to certification must relate to retrospective accounts which, in general, will be prepared at year-end. It has been accepted by the appellant that it is not possible to certify on-account payments, and this must logically be right. Thus, the lack of "certification" cannot serve to prevent payments demanded in advance of anticipated expenditure being recoverable. Miss Scott accepted that the demands for the service charges for the two years in question had not been certified at all, but that had now been rectified and thus all the outstanding sums were now payable. In any event, she said that the fact that payments in advance were permitted under the provisions of the lease meant that they were payable whether certified or not. This is, in my view, correct. The requirement is for certification "from time to time" and whilst it is obviously sensible business practice for balancing charges or year-end accounts to be calculated and certified as soon as possible after the relevant period, there is no stipulation in the lease requiring that to be done within any specific time frame. I have no difficulty therefore in concluding that any outstanding arrears relating to repairs, maintenance, insurance and other charges covered under the relevant clause of the lease are payable (other than those costs relating to the preparation and service of the s.146 Notice, to which I shall now turn).

It seems to me that the appellant is contending that the amount of administration charge relating to the s.146 Notice was unreasonable for 3 reasons:

(a) because the Notice was invalid as it did not comply with s.146(1)(a)

(b) because the amount to which it related need not have been paid by the tenant as the Notice did not comply with Sch 11(4)(1)

(c) because it could not have been served by reason of s.168

As to point (a), Mr Arora said that the statement that was attached to the notice formed part of it, and as it was inaccurate as to sums allegedly owed, it was defective. Miss Scott said that there was no requirement for the Notice to be served in a prescribed form, and thus differing figures do not invalidate it.

Section 146(1) of the Law of Property Act 1925 states:

"(1) A right of re-entry or forfeiture under any proviso or stipulations in a lease for breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice –

(a) specifying the particular breach complained of; and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in any case, requiring the lessee to make compensation in money for the breach;

and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach."

The question of what constitutes a good notice is considered in Woodfall on Landlord and Tenant Vol 1 at 17.130. There it states that the first statutory requirement of a s.146 Notice is that it should specify the particular breach complained of. Whilst it is not necessary that the notice should state exactly what it is that the tenant is required to do, and that it is sufficient if it indicates the matter complained of and the matter to be put right, it ought to be such as will enable the tenant to understand, with reasonable certainty, what it is that he is required to do. It should be sufficiently distinct as to direct the attention of the tenant to the particular things of which the landlord complains, in order that the tenant may have an opportunity of remedying them before an action for forfeiture against him. In a leading case on the point, Fox v Jolly [1916] 1 AC 1 (decided under the equivalent provision in the 1881 Conveyancing Act), Parmoor LJ said (at 22):

"My Lords, in my opinion a notice is sufficient to comply with s.14 if it specifies to the lessee the breach complained of, with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money. To determine whether a notice complies with this test depends on the information which the notice, as a whole, may be fairly said to give. A notice does not become insufficient because it may contain wider requirements than can be substantiated in the action, or because it is open to criticism on a meticulous examination of some of the phrases employed. The risk that the notice does not sufficiently specify some particular breach falls upon the lessor, who cannot enforce his rights of re-entry or forfeiture for the breach of any covenant or condition of the lease, unless in respect of such covenant or condition he has specified the particular breach of which he is making complaint".

The relevant paragraphs in the s.146 Notice served by the landlord on 29 September 2003 state:

"2. In breach of covenants contained in the lease of the above flat, you have not paid rent and/or service charges and interest thereon due from you under your lease of the above flat. Details of the sums due are given in the attached statement, which also states your landlord's name and an address at which notices, including notices in proceedings, may be served on your landlord.

3. Your landlord requires you to remedy your breaches of covenant by paying the sums due forthwith.

4. Under this lease you are liable to pay the landlord's costs of the preparation and service of a notice under section 146 of the Law of Property Act 1925. The costs of preparation and service of this notice were £211.50 (including VAT). Your landlord requires you to pay that sum forthwith in addition to the sums shown due in the attached statement."

The evidence I received as to which charges had been claimed as due included copies of two summary applications dated 10 December 2002 (from previous managing agents) and 2 December 2003 from BLR Property Management (Mr Haveli's bundle items 115 and 116). They showed that interim service charges were claimed half yearly in advance in January and July, with a balancing charge showing as at 31 December. It is clear from these summary invoices that a number of on-account payments had been made by the tenant during the two years, but that there were some arrears. At 31 December 2002 these were only £200.72, a number of on-account payments having been made during the year. However, no payments were made during the first half of 2003 and by the time the second interim demand had been served on 3 July, the arrears had increased to £914.99. This was reduced on 3 September 2003 by a payment of £336.90 to £578.09. If the administration charge for the preparation and service of the s.146 Notice of £211.20 is added, the figure due at 29 September 2003 was £789.29. That was the figure shown in the Schedule dated 2 December attached to the summons, but was not the figure stated to be owing in the Schedule that accompanied the s.146 Notice, dated 27 September 2003, which was £820.84 (bundle 105).

As far as I can see, the differences appear to relate to discrepancies in the amount of excess service charge claimed at the end of 2002, and I am persuaded the figure of £789.29 was more likely to be correct, as that figure, according to Mr Arora, was also included within the statement accompanying the later, February 2004, s.146 Notice. Paragraph 2 says that details of the sums due are given in the attached statement and, in my judgment, if that statement was incorrect, it must invalidate the Notice as it does not fairly tell the tenant what he needs to do to remedy the breach. This is particularly so as the arrears were over-stated, and the tenant was thus being required to pay more than was actually due. I conclude therefore that the s.146 Notice did not fairly or correctly state what the tenant was required to do to remedy the breach. The Notice was therefore invalid in that respect.

Turning to (b), Schedule 11, so far as material, provides:

"Meaning of 'administration charge'

1. (1) In this Part of this Schedule 'administration charge' means an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly –

(a) for or in connection with the grant of approvals under his lease, or applications for such approvals ….

(d) in connection with a breach (or alleged breach) of a covenant or condition in his lease …

(2). But an amount payable by the tenant of a dwelling the rent of which is registered under Part 4 of the Rent Act 1977 (c42) is not an administration charge, unless the amount registered is entered as a variable amount in pursuance of section 71(4) of that Act.

(3) In this Part of this Schedule 'variable administration charge' means an administration charge payable by a tenant which is neither –

(a) specified in his lease, nor

(b) calculated in accordance with a formula specified in his lease …

Reasonableness of administration charges

2. A variable administration charge is payable only to the extent that the amount of the charge is reasonable.

Notice in connection with demands for administration charges

4. (1) A demand for the payment of an administration charge must be accompanied by a summary of the rights and obligations of tenants of dwellings in relation to administration charges.

(2) The appropriate national authority may make regulations prescribing requirements as to the form and content of such summaries of rights and obligations.

(3) A tenant may withhold payment of an administration charge which has been demanded from him if sub-paragraph (1) is not complied with in relation to the demand…

Liability to pay administration charges

5. (1) An application may be made to a leasehold valuation tribunal for a determination whether an administration charge is payable and, if it is, as to –

(a) the person by whom it is payable,

(b) the person to whom it is payable,

(c) the amount which is payable,

(d) the date at or by which it is payable, and

(e) the manner in which it is payable.

(2) Sub-paragraph (1) applies whether or not any payment has been made.

(3) The jurisdiction conferred on a leasehold valuation tribunal in respect of any matter by virtue of sub-paragraph (1) is in addition to any jurisdiction of a court in respect of the matter.

(4) No application under sub-paragraph (1) may be made in respect of a matter which –

(a) has been agreed or admitted by the tenant,

(b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party,

(c) has been the subject of determination by a court, or

(d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement.

(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment…"

Mr Arora said that Schedule 11 applies because despite the notice being served on 29 September 2003, clause 8 of the lease provides that it is deemed to be served 24 hours after posting, and that brings it within the statutory provision. Thus, the notice required the inclusion of a summary of the tenant's statutory rights and obligations. Miss Scott submitted that the fact the notice was served on 29 September 2003 took it outside the requirements of Sch.11. This is a question that I find I cannot determine conclusively as no evidence was given as to the method by which service was effected. If the notice was delivered by hand and served upon the appellant personally on 29 September, I would have to conclude that that was the date of service for the purposes of deciding whether or not it was covered by Sch.11. In that case it would not. However, if (as I suspect was the case) the notice was served by post, then I find that Sch.11 would apply due to the express provision set out in clause 8 of the lease.

If that was the case, the notice was invalid as the summary of tenants rights and obligations, as required under para 4(1) was not complied with, hence there is no obligation upon the tenant to pay the claimed administration charge of £211.50. However, there is nothing in statute to prevent a corrected Notice being served at any time, and the landlord advised that this has now been done. As the President of the Lands Tribunal said recently in Martindale Developments Limited (2005) LT Ref: LRX/90/2004 (Unreported) where the same question was in issue, at para 13:

"…The fact that the tenant is entitled to withhold payment because the requirement of sub-paragraph (1) was not complied with when a demand was made does not mean that the administration charge which was the subject of the demand can never be payable. If a further demand were to be made and it was accompanied by the required summary, I can see no reason why the charge, if it was contractually due, should not be payable".

I now look at the question of whether the fees for preparation and service of the Notice are fixed by the lease, or are a variable administration charge (Sch.11,1(3)). In my view they are a clearly variable administration charge, and not fixed under the terms of the lease – nor is a formula for their calculation given.

Finally, I can deal with Mr Arora's contention that, come what may, the notice could not have been served by reason of s.168 of the 2002 Act, very shortly. Section 168 says:

(1) A landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (c20) (restriction on forfeiture) in respect of a breach of covenant or condition in the lease unless subsection (2) is satisfied.

(2) This subsection is satisfied if --

(a) it has been finally determined on an application under subsection (4) that the breach has occurred,

(b) the tenant has admitted the breach, or

(c) a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.

(3) But a notice may not be served by virtue of subsection 2(a) or (c) until after the end of the period of 14 days beginning with the day after that on which the final determination is made.

(4) A landlord under a long lease of a dwelling may make an application to a leasehold valuation tribunal for a determination that a breach of a covenant or condition in the lease has occurred.

(5) But a landlord may not make an application under subsection (4) in respect of a matter which –

(a) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which a tenant is a party,

(b) has been the subject of a determination by the court, or

(c) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement."

This part of the Act did not come into force until 28 February 2005 (The Commonhold and Leasehold Reform Act 2002 (Commencement No.5 and Saving and Transitional Provision) Order 2004) (S.I. 2004/3056 (C.127)) and does not therefore apply in this case.

The appeal therefore succeeds in part. Whilst I have determined that the costs and charges claimed by the landlord are covered under the express provisions of the lease, and the appeal therefore fails on the first issue, the appeal succeeds in respect of the s.146 notice. I determine that the sum of £211.50 relating to the costs of serving the s.146 Notice was not reasonably incurred.

DATED 16 January 2006

Signed P R Francis FRICS