UK Social Security and Child Support Commissioners' Decisions

[2000] UKSSCSC CIS_1974_1998 (31 March 2000)

AL-D/SH/CW/3

THE SOCIAL SECURITY COMMISSIONERS

Commissioner's Case No: CIS/1974/1998

SOCIAL SECURITY ADMINISTRATION ACT 1992

SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992

APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW

DECISION OF THE SOCIAL SECURITY COMMISSIONER

MR COMMISSIONER A LLOYD-DAVIES

Claimant :

Tribunal :

Tribunal Case No :


 


1. My decision is that the decision of the social security appeal held on 12 February 1998 is erroneous in law. I set it aside. Since I consider it expedient to do so, I substitute my own decision to the effect that the service charge element of the claimant's housing costs, in respect of the service charge year 1 April 1992 to 31 March 1993, should be calculated in accordance with the directions given in paragraph 13 of this decision.
2. The claimant, a married man who lives with his wife and who suffers from a number of disabilities, has been in receipt of income support, and before that, supplementary benefit. His income support includes sums in respect of housing costs. This appeal concerns what the claimant is entitled to in respect of service charges forming part of his housing costs.
3. The claimant and his wife own a long leasehold flat, subject to a mortgage, in a building known as the Mansion House. The Mansion House and its associated buildings are situated in a not insubstantial private park or estate. The Mansion House is divided into 16 units of accommodation. There is another building on the estate known as the Clock Tower which is divided into 12 units of accommodation. For the purposes of the present appeal it is accepted that for the service charge year ending 31 March 1993 the claimant and his wife were liable, under the terms of their then lease, to pay to a management company 6.44% of two-thirds of the total service charges payable in respect of the estate and the buildings on it. The questions that arise in this appeal are whether, and to what extent, elements of the service charge levied on the claimant and his wife can properly be treated as housing costs for which income support is payable. The details of the actual expenditure by the management company for the year ended 31 March 1993 are to be found in the second column of figures on page 3 of the papers: that expenditure totalled £88,909.93 against a budgeted figure (to be found in the first column) of £51,600.
4. On 2 June 1993 (page 193) the claimant wrote to his local office:

(a) stating that the service charge payable in respect of his flat for the year beginning 1 April 1993 would be £217 per month. This he had calculated by reference to the budget figures set out in the final column on page 2);

(b) asking that the amount he had to pay in respect of insurance premiums should be reimbursed by way of housing costs for as far back as possible; and

(c) stating, by reference to enclosures, that there had been an overspend on repairs in the service charge year ended 31 March 1993 mainly on repairs and maintenance in the sum of £37,309.93, that £27,000 of this was to be recouped by three annual amounts of £9,000 in the service charge years 1993/4, 1994/5 and 1995/6 and that the balance of rather over £10,000 had been met by the various occupants of the estate by means of a levy raised in 1992, of which the claimant's share was £670.15.

There was further reference to certain service charge costs in relation to a swimming pool and tennis court on the estate, which had been disallowed by a tribunal in 1992. It is accepted on all sides for the purposes of this appeal that costs referable to those two items are not recoverable by the claimant as part of his housing costs.

5. By a letter dated 20 August 1993 (page 4) a decision was given on behalf of the Benefits Agency to the effect that the instalments for the overspend on service charges could not be allowed because the repairs concerned amounted to major repairs and hence were excluded by virtue of paragraph 9(2)(c) and paragraph 8(3) of Schedule 3 to the Income Support (General) Regulations 1987. That letter also dealt with the question of the insurance premium, which was allowed, subject to a limitation on the amount of backdating. No question arises in this appeal on the question of the insurance premium.
6. By a letter dated 8 September 1993 (page 9) the claimant appealed against the disallowance of housing costs attributable to his part of the budget overspend on the grounds that the repairs concerned were not major repairs or improvements: in that letter he stated that the levy which he had had to pay in 1992/3 was £694.55 (as opposed to the sum of £670.15 referred to in his letter of 2 June 1993). Other matters were raised by his letter of 8 September 1993, but he expressed himself to be satisfied with the answers he had received on those matters in a letter dated 29 October 1993 (page 11).
7. The letter of 8 September 1993 from the claimant was treated as an appeal. Two social security appeal tribunals concerned with the appeal adjourned. Prior to the first substantive hearing of the claimant's appeal a local officer visited the claimant at his home on 20 July 1994 in order to try to agree the amount of additional housing costs to which the claimant was entitled. That local officer produced a submission (pages 82-4) to the first substantive tribunal which in summary submitted that the claimant's share of the overspend for 1992/3 to be admitted as housing costs was £284.04 and that the claimant's normal allowable service charges for the service charge year ended 31 March 1993 should be £1,618.87. In calculating this last figure the local officer disallowed some items of service charge expenditure for the year in question: these items related to depreciation, audit fees, legal fees and certain contingency and miscellaneous matters. A social security appeal tribunal ("the 1994 tribunal") was held on 17 October 1994. The claimant's appeal was disallowed: it is noteworthy that at page 150 it is recited that the claimant conceded that the sum of £284.04 was the correct amount to be allowed to the claimant in respect of the 1992/3 budget overspend. Indeed, it appears from page 174 that the claimant was paid this amount by the local office of the Benefits Agency on or about 13 January 1995.
8. The claimant appealed the decision of the 1994 tribunal with the leave of the Commissioner. The appeal was supported. The Commissioner (whose decision is to be found at pages 225-226) allowed the claimant's appeal on the grounds:

(i) that the tribunal had not identified whether payment of the service charges was imposed on the claimant under the terms of the lease by which he occupied his home (having regard to R(IS) 3/91 and 4/91);

(ii) That the tribunal failed to give adequate reasons why it considered that the repairs which occasioned the budget overspend were major repairs or improvements; and

(iii)the tribunal failed to apply the test of whether the various service charge items before it were "connected with the provision of adequate accommodation" within paragraph 1(g) of Schedule 1 to the Housing Benefit (General) Regulations 1987, a test imported by paragraph 9(2)(b) of Schedule 3 to the Income Support (General) Regulations 1987.

The Commissioner further directed that the new tribunal to which he remitted the matter should consider whether the claimant's housing costs should be restricted pursuant to paragraph 10 of Schedule 3 to the Income Support (General) Regulations 1987. The new tribunal ("the 1998 tribunal") was held on 12 February 1998. It decided (at pages 241-2):

(a) that the claimant was not entitled to an increased payment in respect of service charges inasmuch as the £284.04 already paid to the claimant was in full and final settlement of the service charges relating to the overspend which occurred in the year ending 31 March 1993;

(b) that the repairs done to the Clock Tower and the associated scaffolding charges were not allowable in the claimant's service charges since repairs to the Clock Tower did not go to the provision of adequate accommodation for the claimant (who lived in the Mansion House);

(c) that the item in respect of depreciation should be disallowed because it was in respect of a capital item;

(d) that the audit fees should be disallowed because they did not go to the provision of adequate accommodation;

(e) that the legal fees should be disallowed because they concerned the defence of a civil claim by a former leaseholder and the purchase of the freehold by the leaseholders;

(f) that the items respectively called contingency and miscellaneous should be disallowed with exception of fire precaution payments in the sum of £620 since these items did not go to the provision of adequate accommodation for the claimant and his family; and

(g) that the claimant's housing costs should not be restricted under paragraph 10(3) of Schedule 3, not least because the local office was at all times aware of the nature and size of the claimant's accommodation and no grounds for review of its previous decisions relating to housing costs could be shown.

These findings by the tribunal were amplified in a very full and carefully prepared statement to be found at pages 247-9.

9. The claimant appealed the decision of the 1998 tribunal, leave to appeal having been granted by the Commissioner. I held an oral hearing of this appeal in Maidstone because, in view of the claimant's disabilities, it seemed appropriate that a hearing should be held at a local venue. The claimant appeared in person at that hearing, assisted by a local representative, and the adjudication officer (whose functions have now been succeeded to by the Secretary of State) was represented by Mr Scoon of the Office of the Solicitor to the Department of Social Security. I am grateful to both the claimant and Mr Scoon for their submissions. Following the hearing the claimant made a further written submission to me by a letter dated 18 October 1999. I directed that the Secretary of State should make observations on that further submission by the claimant, which principally concerned the treatment of the £27,000 to be levied in three instalments in the service charge years ended 31 March 1994, 1995 and 1996. The Secretary of State made his observations (to be found at pages 311-14) on 7 December 1999. Unfortunately those observations were not placed before me until the end of January 2000, when I granted an extension of time to validate those observations. The claimant has since subsequently sent faxes to the Commissioners' Office to the effect that the Secretary of State's observations were out of time. Because of my ruling validating those submissions (to be found at page 315) I am satisfied that there is nothing in the points as to time taken by the claimant in those faxes.
10. At the oral hearing before me it was conceded on behalf of the adjudication officer (i) that it would not be contended that the works giving rise to the budget overspend were major works of repair and improvement (ii) that the obligation to meet the service charges arose under the claimant's lease and (iii) that the question of restriction of the claimant's housing costs no longer could be pursued. Accordingly, the sole issue that remained to be determined was whether the 1998 tribunal had erred in law in disallowing certain housing costs because they were not connected with the provision of adequate accommodation for the claimant within paragraph 1(g) of Schedule 1 to the Housing Benefit Regulations. I conclude that the tribunal did err in law in the following respects.
11. First, in disallowing costs attributable to repairs to the Clock Tower (which disallowance had been made in July 1994 by the local officer when calculating the payment of £284.04) the tribunal did so because, essentially, the claimant and his wife did not live in the Clock Tower and hence the repairs to that building could not have been maintained in connection with the provision of adequate accommodation for the claimant. If the service charges payable in respect of the estate had been levied in respect of individual buildings I could not have found fault with the tribunal's decision. However, under the regime in force in 1992/3 the service charge costs were dealt with globally in respect of all buildings and the whole of the estate and then apportioned as to two-thirds between the occupants of the Mansion House and as to one-third between the occupants of the Clock Tower. In my judgment this method of apportionment of the service charges means that all service charges in respect of all repairs and upkeep wheresoever they were required were to be borne  rateably amongst each owner of a unit on the estate. The situation is analogous to that where a flat owner is liable to pay a fixed percentage of the cost of repairs to a block of flats, which percentage is leviable even if the repairs concern the common parts leading to a flat several floors above his own. I do not think it could be sensibly contended that in such a case the lower flat owner should be deprived of the allowance of service charge costs on the grounds that they were not connected with the provision of adequate accommodation. In any system of fractional or percentage apportionment of costs there must be an element of swings and roundabouts in which in one year one service charge payer will directly benefit more than the other service charge payers. This method of fractional or percentage apportionment is commonplace in leasehold conveyancing. To attribute to each flat owner the costs of repairs and upkeep actually attributable to his own particular flat would lead to an administrative nightmare inasmuch as every single contract for works would have to be dissected by reference to each relevant parcel of property affected by the works. I therefore hold that the disallowance of the costs attributable to the work done to the Clock Tower in 1992/3 and forming part of the budget overspend was erroneous.
12. Secondly, in my judgment the tribunal fell into error in relation to some of the other items disallowed.

(a) As regards the charge for depreciation which was in respect of a mini-tractor bought on hire purchase. The tribunal in its statement said:

"The tribunal took the view that this was a capital item and even taking into account the character of the accommodation and the personal needs of [the claimant and his wife] they could not, without in their opinion distorting the everyday meaning of 'adequate' and 'accommodation' hold that a capital item of this nature was connected with the adequacy of the accommodation."

In my judgment the tribunal fell into error since it was either stating that depreciation in respect of item of plant could never be allowed as a service charge (which is not the law); or, as Mr Scoon submitted, it was merely stating that a capital item of this nature could not be allowed: in this event the tribunal did not explain why. I therefore find that the tribunal fell into error of law. I took evidence from the claimant at the hearing in which he explained that the principal function of the mini-tractor was to collect the rubbish bins or bags left outside the various properties and to place them in a central collection point. I consider that this function is connected with the adequacy of the claimant's accommodation and hence that the charges for depreciation can form part of the figure for the computation of the claimant's service charges.

(b) As regards the item relating to legal fees, the tribunal found that these arose in relation to litigation and also were occasioned when the leaseholders acquired the freehold. On the evidence before me, especially page 73, it would appear that these fees were in fact incurred wholly in connection with litigation brought against the service company by a contractor on contracts which had been purportedly entered into by a former flat owner in the name of the service company. The claimant urged on me that the disposal of this litigation gave his wife and himself peace of mind so that the legal fees incurred were connected with the adequacy of his accommodation. I consider that the tribunal were correct on this item. In my judgment the test of whether or not a service charge has been incurred 'in connection with the adequacy of the accommodation' has to have a relatively close direct connection with the physical adequacy of the accommodation and these particular legal fees do not have that connection: other legal fees, however, might.

(c) The next items to be considered are those under the headings "contingency" and "miscellaneous". It appears from page 74 that the contingency items were property advertising (in the sum of £805), fire prevention (in the sum of £620) and sundry expenses (in the sum of £100). I am prepared to accept that the items in respect of fire prevention and sundry expenses were incurred in connection with the provision of adequate accommodation. However the item in respect of property advertising appears (from page 146) to be the property advertising in respect of sales by tenants of units of accommodation: this cannot, in my judgment, be considered to have been incurred in connection with the provision of adequate accommodation. The item for miscellaneous included interest on loans incurred and corporation tax in the sum of £1,032. I am prepared to assume that the interest incurred was incurred for the purposes of the provision of services by the service company and was principally associated with the borrowing of £27,000 necessary for the budget overspend. However, the corporation tax in the sum of £1,032 can only have been incurred either as a result of income from investments, capital gains from disposals or balancing charges for capital allowances. I do not consider that this tax charge can properly be considered to have been incurred in connection with the provision of adequate accommodation.

(d) Finally there is the question of audit fees which were disallowed by the tribunal as not being in connection with the provision of adequate accommodation. In my judgment audit fees are capable of being incurred in connection with the provision of adequate accommodation where they are incurred for the purposes of verifying various amounts by reference to which service charges are to be levied on leaseholders. Without proper financial checks, regardless of the requirements of company law or of the lease itself, the leaseholders would not know whether or not the charges were being properly incurred. Therefore, to the extent that audit costs are referable to otherwise eligible expenditure, I can see no reason why they should not be allowed in the computation of housing costs. At the hearing I suggested that possibly the best way of dealing with this was to apportion the audit fees rateably by reference to the proportion of the other items which were eligible as housing costs. Since, however, the broad effect of my decision is that only approximately 10% of the expenditure in the year ended 31 March 1993 will be ineligible, I consider that this proportion is de minimis and such as not to justify an apportionment.

13. My substituted decision is that the claimant's allowable housing costs in respect of service charges on the flat for the year ended 31 March 1993 should be calculated as follows:-

(a) From the figure of £88,909.93 should be deducted the sum of £27,000, being the sum to be recouped by three levies in the subsequent three years. This leaves £61,909.93.

(b) From the figure of £61,909.93 there should be deducted the sums, shown on page 3, of £954.72 in respect of the swimming pool, £300 in respect of the tennis court, £6,134.60 in respect of legal fees, £805 of the sum of £1,525 allowed for contingency and £1,032 of the sum of £3,502.67 of the item relating to miscellaneous. These disallowances amount in total to the £9,226.32.

(c) That means that £52,683.61 represents the figure for the service charge expenditure for the year ended 31 March 1993 by reference to which the claimant's housing costs for service charges is to be calculated.

(d) Using the agreed formula of two-thirds and 6.44% for the year in question I come to the figure of £2,261.45.

Against that figure of £2,261.45 should be set the housing costs relating to service charges actually paid to the claimant for the year ended 31 March 1993, including, of course, the sum of £284.04 paid to him in January 1995.

14. In reaching this conclusion I have assumed, in favour of the claimant, that the figure of £6,777.76 in respect of surveyors fees shown on page 3 was in fact paid in the year ended 31 March 1993. There is reference at the bottom of that page to those fees being compensated by a grant in the sum of £6,709. I have assumed that this was paid after the relevant year end and should be taken into account in the year ended 31 March 1994. If this point cannot be agreed between the claimant and the Secretary of State, then the matter must be remitted to me (or another Commissioner) for further consideration. Further, in his submissions to the 1994 tribunal (at page 181) the claimant included in his computation of what he was owed an item in respect of repairs to another flat in the Mansion House "required to put right damage caused by negligence and management Company, which allowed water to enter the floors and walls" in the sum of £5,453.83. The 1998 tribunal dismissed his claim in respect of this item because the flat in question was in a different part of the Mansion House. At the oral hearing I had no specific submissions on this point. I do, however, note that this item does not appear in the itemised expenditure of the service company for the year ended 31 March 1993 on page 3; and my provisional conclusion, not least since the matter appears not to have been raised by the claimant until 29 September 1994 (at page 147), is that these costs were not incurred until after the service charge year with which I am concerned. Further, it seems to me (although I have not had submissions on the point) that repairs to one particular flat would not be within the purview of a service charge regime which was concerned with the maintenance of common parts, notwithstanding that those repairs may have been caused by the negligence of the service company contractors. Again, if these questions cannot be resolved by agreement between the Secretary of State and the claimant, the matter will have to be referred to me for determination.
15. Both at the oral hearing and in his letter of 18 October the claimant has expressed considerable concern that the three annual levies of £9,000 for 1993/4, 1994/5 and 1995/6 will not have been taken into account in calculating his housing costs because he never made any claim in respect of these. In his submission at page 312-4 the Secretary of State remarks that if this be the case then there may well be a question of an ex gratia payment: such a question is outside my jurisdiction. I should, however, point out that the claimant claimed for these levies in his letter of 8 September 1993. Further, I note from page 84 that the provisional figures used by the local officer for the year ended 31 March 1994 commenced with the base figure of £60,100 which, as can be seen from page 3, in fact included the levy of £9,000. In these circumstances it would seem unlikely that the levies have not been taken into account in the calculation of the claimant's housing costs.
16. The claimant has also requested interest. It is not within my jurisdiction to grant interest. Again, this is a matter for approach to the Secretary of State who might make an ex gratia payment of interest if he should consider it appropriate.
17. I have not dealt specifically with service charge years subsequent to 1992/3, since (i) this appeal covered the disallowance of £694.55 for 1992/3 and (ii) I have no details of what the service charges were or the basis of apportionment. I hope however that this decision will give some guidance as to their proper computation.

(Signed) A Lloyd-Davies

Commissioner

(Date) 31 March 2000