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UPPER TRIBUNAL
(LANDS CHAMBER)
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UT Neutral citation number: [2011] UKUT 311 (LC)
UTLC
Case Number: LRX/63/2010
TRIBUNALS,
COURTS AND ENFORCEMENT ACT 2007
LANDLORD AND TENANT –
service charges – apportionment of costs between tenants – method of apportionment
– variation of leases – appeal dismissed – Landlord and Tenant Act 1985 s 27A,
Landlord and Tenant Act 1987, s 35
IN
THE MATTER OF AN APPEAL AGAINST A DECISION OF
THE
LEASEHOLD VALUATION TRIBUNAL FOR
THE
LONDON RENT ASSESSMENT PANEL
BETWEEN ROHAN
MEHRA Appellant
and
(1) CITYWEST HOMES LIMITED Respondents
and
(2)
ANDREW MORLEY
Re:
3-5 Orsett Terrace
London W2 6AJ
Before:
The President
Sitting
at: 43-45 Bedford Square, London WC1B 3AS
on
4 August 2011
The appellant
in person
Sebastian Kokelaar
instructed by Judge & Priestley, solicitors of Bromley, for the first
respondent
The second respondent did not
appear and was not represented
No cases referred
to
DECISION
1.
The appellant in this case is the long leaseholder of a flat (flat 5C)
in a building, 3-5 Orsett Place, London W2 6AJ, that consists of two houses
converted into nine flats. Three of the flats are let to secure tenants and
the remaining six are let on long leases. The freeholder is the City of Westminster, and the first respondent is the arms length management organisation that
manages the property. The second respondent is the only one of the other
leaseholders to respond to the appeal
2.
The appellant’s flat is the largest one in the building, occupying the first
floor of both houses. He holds it under a lease dated 17 September 1997 from
the City of Westminster. The flat originally had three bedrooms. On 14
October 2008 the council granted the appellant a licence to carry out certain
works to the flat, which included the removal of the wall between the living
room and one of the bedrooms. As a result of the works carried out pursuant to
this licence the flat in its present configuration has only two bedrooms.
3.
Clause 3(c) of the lease of flat 3(C) provided that the lessee will pay
“such annual sum…as representing a fair and reasonable proportion of the
reasonably estimated amount” required to cover the service charge expenditure
incurred by the landlord. Prior to the decision of the leasehold valuation tribunal
that is the subject of this appeal the remaining five long leases in the
building provided that the tenant was liable to pay “such annual sum…as
representing the due proportion of the reasonably estimated amount” required to
cover the service charge expenditure incurred by the landlord; and in each case
the “due proportion” was defined as a fixed percentage. The percentages had
been defined by reference to the number of bed spaces in each flat, on the
basis that there were 20 bed spaces in the building. All the flats other than
flat 5C had either one bed space or two bed spaces, and the percentages fixed
for these was therefore either 5% or 10%. The appellant had been charged 30%
of the expenditure, although, unlike the other flats, this was not a percentage
fixed by his lease.
4.
More recently, following representations from the appellant, Citywest decided
to revise the total number of bed spaces in the building down to 19, with the
number allocated to the appellant’s flat being reduced from 6 to 5, and his
contribution being reduced from 30% to 5/19ths or 26.316% of the total. The
effect of this reduction would be that the total of the service charge
contributions made by all the flats was only 96.316% of the expenditure. In
view of this Citywest made two applications to the LVT, seeking to bring the
total contributions up to 100%. It proposed to do this by increasing the fixed
percentage of the flats with one bed space to 5.263% and that of those with two
bed spaces to 10.526%. The first application was expressed to be made under
section 27A(1) and (2) of the Landlord and Tenant Act 1985 and sought a
determination that “in respect of service charges demanded and to be demanded”
a calculation in relation to flat 5C was fair and reasonable if calculated on
the basis that the service charge represented 5/19ths of the total expenditure
on the building. The second application was made under section 35 of the Landlord
and Tenant Act 1987 and sought variations of the leases of the other five long
leasehold flats by substituting fixed percentages of, as appropriate, 5.263% or
10.526%.
5.
The appellant appeared at the LVT hearing to oppose both applications,
and two of the other long leaseholders did so too, objecting to the proposed
increases in their contributions. The appellant’s case was that the bed space
method of apportionment was wrong. He argued that it was impossible to
differentiate between a bedroom and a living room as people could configure
their flats in different ways. His flat was less than a quarter of the
building and yet it was proposed to charge him 26.316% of the total
expenditure. The cut-off point between single bedroom and a double bedroom
(110 sq ft) was arbitrary, and there were anomalies where a studio was used as
both living and sleeping accommodation. He pointed out that, following the
alterations that had been made to it, his flat had two bedrooms and thus 4 bed
spaces rather than 5. His proposal was that the contributions should be based
on the total living space of each flat.
6.
In its decision the LVT considered first the application expressed to
have been made under section 27A in relation to the appellant’s flat. It said:
“26…It is accepted by the Tribunal that there is more than
one method of apportioning service charges but whatever method is used, it must
provide a fair and reasonable apportionment. It is for the landlord to select
the methodology, as it is the landlord who has the obligation to manage a
building and provide the services in accordance with the obligations in the
lease…
29. The Tribunal finds that the method adopted falls
within the parameters of a fair and reasonable method of apportionment, even
though it may not be the only one. The tribunal can see no reason to alter a
method that it considers to be fair and has been used throughout Westminster for many years…”
The LVT rejected the arguments that the appellant had
advanced. It is to be noted that in dealing with a submission from another
leaseholder that the basement flats should not be asked to contribute to major
works to the internal common parts, the LVT said (at paragraph 32) that in its
view there was considerable merit in the argument that the cost should be
divided between the 15 bed spaces allocated to the flats excluding the basement
flats, with the external work being allocated on a 19 bed basis. It appears,
therefore, to have accepted the fairness not only of the method of
apportionment but also the attribution of 5/19ths to the appellant’s flat.
7.
On the application to vary the leases under section 35 of the 1987 Act
the LVT said:
37 The Tribunal can see no logic in altering the
percentage in all the leases with the exception of Flat 5C, where there has
been a dispute about the amount attributable. The proposal as it stands could
create uncertainty in the years to come. In the Tribunal’s view this
uncertainty can be avoided by making all the leases consistent in providing for
each of the long leaseholders to be asked to pay a fair and reasonable
proportion and the Applicants actually demanding the appropriate service
charge, calculated consistently with their whole portfolio.
38. This would allow for any
re-configuration of the Building, as suggested by the Fifth Respondent as being
a possibility, when any changes could be reflected in the actual service charge
collected. Although there would not be the certainty of percentages, this
exercise would fail if the Lease of Flat 5C were not consistent with the
remaining leases...”
8.
The LVT accordingly determined that each of the five leases should be varied
so as to provide that the service charge payable should be “a fair and
reasonable proportion (as determined by the lessor)” of the total expenditure
on the building. Because the effect of its decision was to increase the amount
payable by each of the five leaseholders it went on to award compensation to
them to reflect the additional amount that they would have to pay.
9.
The appellant sought permission to appeal against this decision, raising
a number of points, including the contentions that had been expressly rejected
by the LVT. The LVT refused permission, but I granted permission, limiting it just
one of the grounds advanced: whether the LVT had failed to take account of the
fact that, following the physical alterations, the appellant’s flat contained
two bedrooms and not three, so that the number of bed spaces attributable to
his flat should have been four. There is an agreed statement of facts that
records the following matters:
(a)
The appellant, under licence from the landlord dated 14th
October 2008 reconfigured his property so that it is a 2-bedroom flat with a
bed space weighting of 4.
(b)
The appellant’s flat from the commencement of the lease until 14th
October 2008 was a 3-bedroom flat with a bed space weighting of 5.
(c) For the purpose of the
service charge computation the landlord has at all times and continues to
apportion a bed space weighting of 5 for the appellant’s flat.
10.
On the basis of these facts, the appellant argues that the LVT ought to
have concluded that his contribution should be 4/18ths. He points out that in
paragraph 38 it expressly envisaged a recalculation if the building were to be
reconfigured. For Citywest Mr Sebastian Kokelaar submits that it is fair and
reasonable that the appellant’s contribution should continue to be calculated
on the basis that it has five bed spaces since, as the LVT observed in its
decision Westminster’s aim is to assess the potential occupancy level of the
flats in the building and the appellant’s flat still has the potential to
accommodate up to five people. Any reduction in the appellant’s contribution
would mean an increase in the contributions of the other tenants, and there was
no reason why they should have to pay more simply because the appellant has
increased the size of his living room.
11.
Importantly Mr Kokelaar draws attention to the following provisions in
the licence granted to the appellant for the alterations to his flat:
“4. Nothing herein contained shall be deemed to authorise
any other or further alterations or works to the Premises or any part thereof
or in any way affect the liability of the Lessee to the Corporation under the
terms of the Lease
6. As and when the Works shall
have been completed all the Lessee’s covenants conditions and agreements
contained in the Lease as varied by the provisions of Clause 2 hereof shall be
applicable to the Premises in the same manner and as fully and extensively as
if the Premises had continued in the same state as the same were in prior to
the carrying out of the Works”
12.
Mr Kokelaar submits that the effect of these provisions is that the
council is free to ignore the works carried out pursuant to the licence in
calculating the fair and reasonable proportion of the annual service charge
expenditure that is payable by the appellant pursuant to clause 3(C) of the
lease. I agree with this. Indeed the effect of the provisions is in my view
that the council must determine the “fair and reasonable proportion” that the
appellant is required to pay by reference to the state that the flat was in
prior to the carrying out of the works. And that necessarily provides the
complete answer to the appellant’s contention on the point on which permission
to appeal was granted.
13.
On the face of it this would suggest that the appeal must simply be
dismissed. There is, however, a further matter that I should deal with. I
have referred to the first application as having been “expressed to be made”
under section 27A. The reason for so putting it is this. Under section 27A(1)
application may be made to an LVT “for a determination whether a service charge
is payable”; and section 18 defines “service charge” is to mean “an amount
payable by a tenant…” Thus an application under section 27A(1) can only be
made in respect of an amount of money. Under section 27A(3) an application may
be made to an LVT for a determination whether “if costs were incurred for
services…a service charge would be payable for the costs”. So an application
under subsection (3) can only be made in relation to costs and for the purpose
of gaining a determination as to whether a service charge would be payable for
those costs. The purported section 27A application in the present case,
however, does not relate to an amount of money payable as a service charge;
nor does it relate to costs for which a service charge might be payable. What
the application sought was a determination that “in respect of service charges
demanded and to be demanded” a calculation in relation to flat 5C was fair and
reasonable if calculated on the basis that the service charge represented
5/19ths of the total expenditure on the building. And the decision of the LVT
was expressed as a determination that the method of assessing the service
charges by applying an allocation of bed spaces was fair and reasonable and
that the method resulted in a proper and fair allocation of the service charges
between the respondents. (paragraph 31).
14.
It is clear in the light of this that the decision can have no effect
for the purposes of section 27A since it does not determine anything that the
LVT had power to determine under that section. However, its conclusion that
the method of apportionment adopted by the council was a fair and reasonable
one undoubtedly underlay its decision to vary the lease of the other five long
leasehold flats, so that its reasoning on the purported section 27A application
was material to its decision. In the circumstances there is nothing
procedurally that needs to be done other than to dismiss the appeal.
Dated
8 August 2011
George
Bartlett QC, President
