UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2012] UKUT 317 (LC)

UTLC Case Number: LRX/177/2011

 

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

 

LANDLORD AND TENANT – service charges – application under section 27A(3) of Landlord and Tenant Act 1985 – whether adequate specification of proposed works – tender process – whether proposed works reasonable – whether consultation requirements satisfied – appeal allowed

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON

RENT ASSESSMENT PANEL

 

 

BETWEEN DEALMORE LIMITED Appellant

 

and

 

DWAINE ANTONIO EZRA JONES Respondent

 

 

Re: Kenyon Mansions,

278 Coldharbour Lane,

London SW9 8SE

 

 

Before: The President and A J Trott FRICS

 

Sitting at: 43-45 Bedford Square, London WC1B 3AS

On 12 September 2012

 

Mr Steven Newman, solicitor, D&S Property Management, on behalf of the appellant

The respondent did not appear and was not represented

 

Sitting at:

© CROWN COPYRIGHT 2012

 

The following case is referred to in this decision:

Fluor Daniel Properties Ltd and others v Shortlands Investments Ltd [2001] 2 EGLR 104

The following further cases were referred to in argument:

Post Office v Aquarius Properties Ltd [1985] 2 EGLR 105

Irvine v Moran [1991] 1 EGLR 261

Brew Brothers Ltd v Snax (Ross) Ltd [1970] 1 QB 612

Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716

Sheffield City Council v Hazel St Clare Oliver (2008) LRX/146/2007

Marlborough Park Services Ltd v Rowe [2006] EWCA Civ 436

Wandsworth London Borough Council v Griffin [2000] 26 EG 147

Manor House Drive Ltd v Shahbazian (1965) 195 EG 283 (CA)

Minja Properties v Cussins (1998) 30 EG 114

McDougall v Easington District Council (1989) 58 P&CR 201

Reston Ltd v Hudson [1990] 2 EGLR 51

British Telecommunications plc v Sun Life Assurance Society plc [1995] 2 EGLR 44

Broomleigh Housing Association Ltd v Hughes (1999) EGCS 134

Smedley v Chumley and Hawke Ltd.  Warrell (the third party) (1982) 44 P&CR 50

Southend-On-Sea Borough Council v Skiggs and others (2006) LRX/110/2005

Parkside Knightsbridge Ltd v Horwitz [1983] 2 EGLR 42

Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47

Southall Court (Residents) Ltd v Tiwari [2011] UKUT 218 (LC)

 

 

 

DECISION

Introduction

1.               This is an appeal by Dealmore Limited, the freehold owner of a block of flats known as Kenyon Mansions, 278 Coldharbour Lane, London SW9 8SE, against a decision of the Leasehold Valuation Tribunal of the London Rent Assessment Panel dated 14 October 2011 in which the LVT declined “to make a declaration” under section 27A of the Landlord and Tenant Act 1985 that a service charge would be payable were the freeholder to incur costs for specified works that it proposed to undertake.

2.               Kenyon Mansions comprises a purpose-built block of eight flats.  The appellant freeholder retains ownership of four of the flats, Nos. 1, 2, 4 and 7.  The remaining four flats, Nos. 3, 5, 6 and 8, are subject to similar 99 year leases granted in 1987 and 1988.  Flats 3 and 5 are leased to Ms Merle Joseph, Flat 6 is leased to Ms E Coughlan and Flat 8 is leased to Mr Dwaine Jones.

3.               On 25 March 2011 Dealmore served a notice on the leaseholders of Flats 3, 5, 6 and 8 under section 20 of the Landlord and Tenant Act 1985 and The Service Charges (Consultation Requirements) (England) Regulations 2003 (“the consultation regulations”) informing them of its intention to carry out qualifying works.  Attached to the notice was a schedule summarising the proposed works.  Both Ms Joseph and Ms Coughlan made observations on the proposals and Ms Joseph nominated a contractor from whom Dealmore should try and obtain an estimate for the works in accordance with the consultation regulations. 

4.               On 27 May 2011 Dealmore sent a statement to the leaseholders under paragraph 4(5)(b) of part 2 of Schedule 4 to the consultation regulations setting out the amounts specified in the estimates for the proposed works obtained from three contractors.  Dealmore also invited Ms Joseph’s nominated contractor to submit an estimate but it declined to do so.  On the same day Dealmore gave notification to the leaseholders under paragraph 4(10) stating that copies of all of the estimates would be provided upon request and inviting observations on them.

5.           On 14 June 2011 Dealmore applied to the LVT under section 27A of the 1985 Act.  A statement of case appended to the application form set out what it was that the application was for.  It said:

“The Applicant seeks a declaration from the Tribunal under Section 27A of the Landlord and Tenant Act 1985 as to the following:

a.    The Applicants compliance with the Section 20 Consultation Procedures.

b.   The Applicants obligation to undertake the works set out in the tender provided by Right Angle Limited copy attached hereto and marked Exhibit E.

c.    Whether or not the price tendered by Right Angle Limited for the specified works is reasonable under the terms of the lease and the Section 20 Consultation.

d.   The Respondents liability to pay for the works specified in the Right Angle Limited Tender and the 10% management under the terms of the Lease and the Section 20 Consultation following the said sums being incurred by the tenant.”

6.           On 6 July 2011 Dealmore wrote to the leaseholders and provided “a more comprehensive summary of the observations received from the leaseholders within the block.”

7.           The LVT heard the application on 10 October 2011.  At the hearing Dealmore explained that agreement about the proposed works had been reached with Ms Joseph, the leaseholder of Flats 3 and 5. This was confirmed in writing to the LVT by Ms Joseph’s solicitor and therefore its decision was said not to “concern or affect” Ms Joseph.  Ms Coughlan did not appear before the LVT and was not represented.  Neither Dealmore nor the LVT had been able to contact Mr Jones and the LVT accepted that Dealmore had made all reasonable attempts to notify him of the proceedings.

The LVT’s decision

8.           On 14 October 2011 the LVT issued its decision which stated:

“The Tribunal declines to make a declaration under s 27A Landlord and Tenant Act 1985 as to the reasonableness of the proposed service charges in this matter.”

The LVT gave its reasons in paragraphs 22 and 23 of its decision:

“22. Compliance with the s 20 procedures entails more than just a paper exercise.  The object of the procedure is to provide the tenants with sufficient information to be able to understand what works are to be done to the property and to be able to assess the merits or otherwise of each proposal.  

23. In the instant case the information supplied by the Applicant [Dealmore] was insufficiently clear to enable the Tribunal to find that the requirements of the section had been satisfied.  Even if the Tribunal is wrong on this point it is unable to declare that the proposed costs are potentially reasonable because of lack of clarity as to what works are to be carried out for the not inconsiderable cost to be charged to the Respondents (approximately £25,000 each).”

The LVT’s decision was apparently based upon what it considered to be an inadequate description of the proposed works and criticisms of the tender process rather than upon any procedural irregularity in the service of the requisite notices under the consultation regulations. 

9.           The LVT described the schedule of the proposed works that was submitted to the contractors as being:

“inadequately detailed to enable the Applicant to obtain estimates/tenders from which a valid comparison of figures could be made.”

The schedule had been prepared by Mr Newman, the in-house solicitor of the applicant’s managing agents, D&S Property Management, without the benefit of a surveyor having inspected the property and providing an opinion on the required works.  The applicant subsequently instructed Mr David Connolly FRICS to give:

“my opinion as to the legitimacy of proposed works to be carried out at Kenyon Mansions … and to give my opinion as to the likely costs in order to compare with contractor’s estimates being obtained.”

The LVT said that Mr Connolly’s evidence could not be relied upon as corroboration of Mr Newman’s schedule or used to compare with the estimates received from contractors because he (a) had not taken any measurements when inspecting the property; (b) had not obtained any estimates or quotations for the proposed works; and (c) lacked experience in contracts of this size.

10.        The LVT said that the schedule that had been prepared by Mr Newman did not contain sufficient information to enable a contractor to provide an accurate estimate of costs or for the applicant or leaseholders to be able to make an accurate comparison between the estimates received.  The LVT cited a number of examples from the schedule which either gave options for the required work or which gave the contractors scope to determine for themselves the extent of such work.  The limits for compliance with the schedule were set so wide as to make a meaningful comparison between estimates impossible. 

11.        The LVT said that its inspection of the property revealed items of repair for which no allowance had been made in the proposed works, some of which were in more urgent need of attention than items included on the applicant’s schedule.  It was “particularly concerned” that some of the terms of the contract to be offered to the contractors did not conform with the JCT (Minor Works) contract with respect to the retention period (six months) and in having no provision for staged payments.

12.        The LVT found that the applicant had failed to follow a competitive tender process.  It said that two of the contractors that had been asked to bid were given more time to do so than the third contractor chosen by the applicant and both of the contractors nominated by the leaseholders.  Indeed there was no evidence about the identity of the nominated contractors or whether they had been sent the invitation to tender.

13.        The applicant had failed to disclose to the leaseholders that its preferred contractor, Right Angle Ltd, was “a company associated with the Applicant … Mr Newman told the Tribunal that a Director of Right Angle Ltd was a cousin of a Director of the Applicant.”

14.        The LVT also commented on whether certain items of the proposed works were the landlord’s responsibility under the lease.  It said that it:

“would normally regard the windows as forming part of the structure of the building and since the leases in this case do not specifically demise the windows to the tenants, would suggest that they do not form part of the retained land.”

Adopting the assumption that the windows were not part of the demised premises the LVT went on to say that it considered that all of the works proposed (except the replacement of the front door of each flat) would fall within the landlord’s repairing obligation and therefore the cost of those works would fall within the service charge provisions of the lease.

15.         At the end of its decision the LVT commented upon the costs of management of the works.  It said:

“Any management charge made to the tenants should however include the costs of any surveyor who is engaged to oversee the works.  Since Mr Newman is employed in house by the management company it would be inappropriate for any charge, additional to the management charge, to be made in relation to legal services.”

16.        The LVT refused the applicant permission to appeal against its decision on 14 November 2011 and the applicant then applied to this Tribunal for such permission on 21 November 2011.  In granting permission the President said:

“There is a realistic prospect of success in respect of matters raised in the grounds of appeal.  In view of the matters raised, the potential relevance of evidence on which the appellant wishes to rely and the absence of a respondent, the proportionate method of disposal is by way of rehearing.”

17.        Mr Steven Newman, solicitor of D&S Property Management, the trading name of D&S Management Services Limited, appeared for the appellant.  The respondent did not appear and was not represented.

The statutory provisions

18.        The application did not state under which subsection of section 27A of the 1985 Act it was made, but, since it clearly related to prospective works, the relevant subsection could only be (3), which provides as follows:

“(3) An application may also be made to a leasehold valuation tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to—

(a) the person by whom it would be payable,

(b) the person to whom it would be payable,

(c) the amount which would be payable,

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

(e) the manner in which it would be payable.”

The approach to making a determination under section 27A(3)

19.        An LVT should ask a series of sequential questions when considering an application under section 27A(3):

(i) What are the services and the works of repair and maintenance etc to which the application relates?

(ii) Would the tenant be liable under his lease to pay a service charge in respect of the cost of such services and works?

(iii) What would be the cost of the services and works?

(iv) How much of those costs, if any, would it be reasonable to incur (section 19)? In particular:

(a) Which of the proposed works would it be reasonable to carry out?

(b) Would the cost of those works be reasonable?

(v) Do the consultation regulations apply (section 20)?

(vi) If so, have the consultation requirements been complied with?

(vii)  Given the answers to the previous questions, would a service charge be payable and, if so, what should be determined as to the matters set out in section 27A(3)(a) to (e)?

20.        The LVT in the present appeal did not deal with the application by addressing these questions sequentially.  It expressed views in relation to some, but not all, of them and also considered matters that plainly did not arise for decision; for instance whether there were works other than those in respect of which the application was made that ought to be carried out.  It made a declaration which under section 27A it had no power to make.

21.        The issue in this appeal, which is by way of a rehearing, is whether, in the light of the evidence before us, and by answering the questions set out above, the LVT’s decision was wrong; and, if it is, how the section 27A application should be determined.  We were told by Mr Newman that, following the LVT hearing, the landlord had put in hand some of the works in respect of which the application had been made and that, as the date of the hearing before us, some 60% of the works had been completed.  This does not, in our view, affect what falls to be determined under the application.  The application is to be determined as an application in respect of prospective works, ignoring, therefore, the fact that since the LVT hearing some of them have been carried out.

(i) The proposed works

22.        The proposed works that were considered by the LVT were set out in a schedule that accompanied the notice of intention sent to the leaseholders in accordance with the consultation regulations on 25 March 2011. This schedule was prepared by Mr Newman and comprised a two page document summarising the work into three parts: internal common parts; front elevation - external; rear elevation - external. Each part contained headings for the respective items of work.  The schedule of proposed works that was sent to the contractors apparently differed from that enclosed with the notice sent to leaseholders.  Firstly, it contained details of eight preliminary works that were not referred to in the notice and, secondly, there were minor differences in two of the items contained in that part dealing with the rear elevation.

23.        The schedule of proposed works was amended following observations made by the lessees and after the receipt of estimates from the three contractors that submitted bids.  The overall effect of the variations was to reduce the scope of the works regarding risk assessment, electrical testing, replacement of doors, chemical damp proofing, rendering of the external boundary wall and the installation of a water pressure pump and tank.

24.        The appellant informed the LVT of the variation to the works at the hearing but the LVT declined to admit it as evidence on the ground that, apart from Ms Joseph, the respondents had not had the opportunity to consider the revised works schedule.  But the LVT noted the deletion of some of the items, particularly the damp proofing works which it regarded “as both urgent and essential”.

25.        The risk assessment items were deleted from the revised schedule of works because the appellant decided to commission fire and asbestos risk assessments from Health and Safety at Work Limited.  Those assessments were completed in September 2011 and copies were provided to the respondent in this appeal (Mr Jones) on 13 September 2011.  The fire risk assessment did not recommend the replacement of any of the flat doors and so this item was also removed from the schedule of works. 

26.        The three contractors that had submitted estimates based upon the original schedule of works were invited to submit further estimates based upon the revised schedule.  Further bids were received from all three contractors in November 2011, copies of which were sent to Mr Jones on 21 November 2011.  On the same day the appellant sent to Mr Jones a copy of two reports dated 11 and 14 November 2011 from Fulcher Edwards Limited who had been instructed by the appellant to conduct an electrical test and inspection.  Fulcher Edwards were selected from a list of three experts provided by the surveyor acting for Ms Joseph.  The reports identified the estimated cost of (i) installing a fire alarm and emergency lighting to the common parts; and (ii) remedying existing electrical defects and deficiencies.

27.        The appellant also commissioned a report on the damp problems at Kenyon Mansions and their associated remedial works from Mr Ralph Burkinshaw FRICS, who had been selected by the appellant from a list of three experts provided by Ms Joseph’s surveyor.  Mr Burkinshaw submitted his report on 30 November 2011 and a copy was sent by the appellant to Mr Jones on 2 December 2011.

28.        Finally, the appellant instructed Drain Clear to undertake a camera survey report of the drains at Kenyon Mansions.  Drain Clear submitted their results and recommendations on 22 March 2012.  A copy of their report was sent to Mr Jones on 26 March 2012.

29.        In the light of these reports the appellant further amended its specification of works and invited its, by then, preferred contractor, Right Angle Limited, to provide an estimate.  (The two other contractors that were previously asked to bid were apparently not invited to tender in respect of these second variations to the works.)  The preferred contractor submitted a further estimate in early May 2012 and a copy was sent to Mr Jones on 11 May 2012.

30.        At the hearing before us Mr Newman explained that the specification for repointing external brickwork and replacing bricks had been revised from an area of 50 m² and 50 bricks to 17 m² and 39 bricks.  He also explained that the appellant had appointed Right Angle Limited and that, as we have noted above, at the date of the hearing approximately 60% of the works had been completed.

Conclusion

31.        The LVT said that the appellant’s description of the works was inadequate and would make it “extremely difficult” for a contractor to prepare an accurate estimate.  Since the LVT hearing the appellant has twice revised the schedule of works and has addressed many of the specific concerns of the LVT.  Thus in the section headed “internal common parts” the appellant revised item 1.05 so as to specify the provision of a new intercom system, clarified the redecoration requirements, specified the need to make good wall plaster (and replace where necessary), deleted items 1.10 (“box-in all pipe work”) and 1.11 (“undertake all other necessary repairs and redecoration”).  In the sections headed “front [rear] elevation external” the reference to “take down and rebuild parapet wall” was replaced by a full description of the proposed works.  The problem of damp at the property was addressed in the second variation to the schedule of works following a specialist survey.  The courtyard surface is to be replaced and the proposal to render the rear boundary wall has been deleted.

32.        In our opinion the revised specifications of works that were provided to the contractors and which formed part of the evidence at the present rehearing, together with the opportunity that each contractor was given to inspect the property, was sufficient for them to submit fully considered bids and for the appellant to make an informed choice between them.

(ii) The terms of the lease

33.         The respondent’s covenant to pay a service charge, being one eighth of the total, is contained in clause 4(2) of his lease.  The costs, expenses, outgoings and other matters for which he is responsible are set out in the Fourth Schedule of the lease.  These comprise the costs and expenses incurred by the landlord in fulfilling its obligations under clause 5(4), (5) and (6); rates taxes and outgoings for which it is responsible in respect of the common parts and its cost of managing the estate.

34.        The LVT had to determine whether the proposed works fell within the Fourth Schedule.  It concluded:

“Assuming that the windows are within the landlord’s retained land, the Tribunal considers that all of the works proposed (except the replacement of individual front doors) would fall within the landlord’s repairing obligation and similarly within the tenants’ service charge covenant under the lease.”

The LVT, having considered the authorities referred to by Mr Newman, stated that:

“The Tribunal would normally regard the windows as forming part of the structure of the building, and since the leases in this case do not specifically demise the windows to the tenants, would suggest that they do form part of the landlord’s retained land.  A similar logic could be applied to the rear courtyard area which is not specifically demised to any flat and shows clearly on the lease plan as being part of the retained land.”

We are satisfied that the LVT was entitled to reach this conclusion, which, in any event, is not disputed by the respondent.  (The exception identified by the LVT is no longer relevant because the appellant no longer proposes to replace the front doors of each flat.)

(iii) The cost of the works

35.        Three contractors, chosen by the appellant, submitted estimates for the original specification of works and for the first variation.  Only the appellant’s preferred contractor, Right Angle Limited, was invited to revise its bid on the basis of the second set of variations to the scope of the works.  Ms Joseph nominated a contractor, Martin Charles & Co., from whom the appellant tried unsuccessfully to obtain an estimate.

36.        The estimates received on the basis of the original specification were:

(i) Right Angle Limited £166,020.00 plus VAT

(ii) LC&P Construction Limited £174,330.00 plus VAT

(iii) Clane Limited  £198,320.00 plus VAT

37.        The estimates received on the basis of the first variation to the original specification were:

(i) Right Angle Limited £127,870.00 plus VAT

(ii) LC&P Construction Limited £135,315.00 plus VAT

(iii) Clane Limited £151,645.00 plus VAT

38.        The estimate received in respect of the second variation to the original specification was:

(i) Right Angle Limited £25,843.33 plus VAT

This estimate was in respect of damp and electrical work.  This amount should be added to the figure for the first variation (£127,870) to give the revised total of £153,713.33 plus VAT.  (This total does not reflect the reduced specification in respect of repointing and replacement bricks that was subsequently agreed with the contractor; see paragraph 30 above.)

39.        The appellant also proposed to charge a fee of 10% in respect of the costs of its managing agent, D&S Property Management, in managing the works on its behalf.

(iv) How much of the costs, if any, would it be reasonable to incur?

40.        Under section 19(1) of the 1985 Act relevant costs are to be taken into account in determining the amount of a service charge only to the extent that they are reasonably incurred.  Thus, on an application under section 27A, the LVT would need to determine whether, if particular costs were to be incurred, it would be reasonable to incur them.

(iv)(a) Which of the proposed works would it be reasonable to carry out?

41.        In its decision the LVT said that all of the proposed works fell within the landlord’s repairing obligation and within the tenants’ service charge covenant (see paragraph 34 above).  It also considered three other types of work: (a) works not specified by the appellant but which, in the opinion of the LVT, should be carried out (repairs to the plinth and railings at the front of the property, the front path and step, the mastic asphalt on the roof); (b) works specified by the appellant which, in the opinion of the LVT, were not necessary (removing and rebuilding the front parapet); and (c) works specified by the appellant but which, the LVT implied, might subsequently be redundant (straightening the curve of the front parapet would be ineffective unless the bowing of the front façade was also addressed).

Type (a) works

42.        An application under section 27(A)(3) requires the determination by the LVT of whether, if costs were incurred for services etc of a specified description, a service charge would be payable.  It is for the applicant to specify the nature and extent of those works.  The fact that the LVT considers that other works should take precedence is not relevant; it has no power to extend the scope of the application of its own volition and it must confine itself to determining the application by reference to the works that have been specified by the applicant. The respondent has a remedy under the terms of his lease if he considers that the landlord is in breach of its repairing covenants with respect to works that are not so specified.

Type (b) works

43.        The obligation to repair and maintain the main structure of the building rests with the landlord under clause 5 of the lease.  It is not disputed that the front parapet is in disrepair; the LVT refer to the parapet and the railings as being “in need of some repair”.  The landlord sought advice about its proposed works from Mr David Connolly FRICS.  He said the following about the condition of the front parapet wall which he inspected on 2 June 2011:

“This wall is not straight, has much cracked and loose structure to the top, with missing and loose tile creasing and buddleia growth.  The iron railings are rusting and leaning and all in all this wall needs reconstruction above roof level.”

Before the LVT only Ms Coughlan made any observation about the proposed works to the front and rear parapets.  She did so in the context of what she said was the landlord’s proposal to construct a dormer extension on the roof, saying that she did not wish to “make any contributions to the landlord’s proposed extension”.  Ms Coughlan is not a respondent in the present appeal having reached an agreement about the proposed works with the appellant. 

44.        In Fluor Daniel Properties Ltd and others v Shortlands Investments Ltd [2001] 2 EGLR 104 Blackburne J said at 110L to 111B:

“Like the repairing obligations in Plough Investments, the landlord’s obligations under the scheme of provision that I have to consider are also, in a sense, a right; they could not, in my opinion, be released by the tenants.

That being so, I see no reason why the principle identified by Scott J in Plough Investments should not apply.  The obligations have been cast upon the landlord.  It is for the landlord to decide how to discharge them.  Provided it acts reasonably, it is for the landlord to decide how to go about the matter.  The tenants cannot complain simply because the landlord could have adopted another and cheaper method of doing so.

Where I agree with Mr Dowding is in his questioning of the standard of work that, acting reasonably, the landlord should be free to carry out at the tenants’ expense.  In the passage from his judgment referred to above, Scott J accepted as the appropriate standard ‘proposed works of repair…such as an owner who had to bear the cost himself might reasonably decide upon’.  In Holding & Management, Nicholls LJ, in rejecting a particular scheme of works as going beyond what was sensibly needed to cure certain physical defects in the leased premises in that case, said at p 69A:

‘A prudent building owner bearing the costs himself might well have decided to adopt such a scheme, despite its expense.  But what is in question is whether owners of a 75-year lease in the building could fairly be expected to pay for such a scheme under an obligation to ‘repair’.’

In short, the works - ie the standard to be adopted - must be such as the tenants, given the length of their leases, could fairly be expected to pay for.  The landlord cannot, because he has an interest in the matter, overlook the limited interest of the tenants who are having to pay by carrying out works that are calculated to serve an interest extending beyond that of the tenants.  If the landlord wished to carry out repairs that go beyond those for which the tenants, given their more limited interest, can fairly be expected to pay, then, subject always to the terms of the lease or leases, the landlord must bear the additional cost himself.”

45.        In our opinion the appellant acted reasonably in deciding that it was necessary to effect repairs by rebuilding both the front and the rear parapet walls.  It is not necessary for the parapets to fail before being replaced.  The proposed works are such that the appellant, if it had to bear the cost itself, might reasonably decide upon.  The respondent lessee has an unexpired term of 75 years and in our opinion it would be fair to expect him to pay his contribution to those works by way of service charge.

Type (c) works

46.         There is no evidence about the structural condition of the front wall of Kenyon Mansions and whether it requires repair or straightening.  The LVT asserted that the proposed work to the front parapet would “not be effective unless the problem with the façade of the building is also addressed.”  That problem was identified by the LVT as “slight bowing to the entire façade of one side of the property”.  The appellant does not propose to undertake any works to that façade other than the replacement of windows and cills, repointing and the replacement of bricks and general redecoration.  We are not satisfied that the LVT’s comment that there is a problem with the façade, unsupported as it is by survey evidence and not being the subject of any observations by the lessees, adequately supports the implication (although not expressed in terms by the LVT) that the proposed costs of rebuilding the parapet would be unreasonably incurred, presumably on the grounds that such costs would be rendered nugatory in the event that the front façade needs to be rebuilt or straightened at some unspecified future date.

(iv)(b) Would the cost of the works be reasonable?

47.        The LVT considered that the tender process was not transparent and fair because the appellant had “failed properly to follow a competitive tendering/estimate process”.  There appear to be four reasons for the LVT’s conclusion:

(i) Two of the contractors, Right Angle Ltd and Clane Ltd, were given longer to prepare their bids than either LC&P Construction Ltd or the lessees’ nominated contractors.

(ii) There was no evidence that the lessees’ nominated contractors (whom the appellant had not identified) had even been asked to bid.

(iii) There was no evidence of the date upon which the tenders were received and no evidence of any document that contained the signature of the contractors offering to undertake the work for the fixed price submitted.

(iv) Right Angle Ltd was “a company associated with the Applicant” and the fact that one of its directors was a cousin of a director of the appellant company was not disclosed to the respondent lessees.

We consider each of these reasons in turn.

48.        The apparent difference in the time that L&CP Construction Ltd were given to submit its estimate was due to the fact that the person originally invited to bid, a local builder called Mr Cadden, said that he would prefer to do so in the capacity of a limited company.  But he was invited to bid at the same time as the other two contractors and we are satisfied that there was no discrimination against L&CP in terms of the amount of time that was available to it to submit a bid and that it had a reasonable opportunity to formulate a fully considered estimate.

49.        Mr Newman adduced evidence to us that the two nominated contractors had been asked to submit estimates.  Ms Joseph nominated Martin Charles & Co.  The other contractor, MJB Builders, had been nominated by a lessee of nearby Loughborough Mansions, also owned by the appellant, and the appellant decided to invite them to bid.  It is clear from this evidence, which was not before the LVT, that the appellant tried to obtain an estimate from the nominated person in accordance with the consultation regulations.

50.        Mr Newman adduced evidence to us, which was not available to the LVT, from which we are satisfied that the three contractors that the appellant asked to bid did so in accordance with the history of the bidding process that we have outlined in paragraphs 22 to 30 above.  The amounts that were estimated by those contractors are summarised in paragraphs 35 to 39 above.

51.        In his submissions Mr Newman states:

“…it is acknowledged by the Applicant that Right Angle Limited are connected to the Landlord, as one of the Directors of Right Angle Limited is the cousin of the one [sic] of the Directors of the Applicant company…”

There is no evidence of any other connection between the appellant and Right Angle Limited that supports the LVT’s conclusion that Right Angle Ltd is “a company associated with the Applicant”.  Regulation 4(7) of Schedule 4 Part 2 of the consultation regulations defines the circumstances under which it is to be assumed that there is a connection between a person invited to provide an estimate and the landlord.  Paragraph 4(7)(c) states:

“(c) where both the landlord and the person are companies, if any director or manager of one company is, or is to be, a director or manager of the other company…”

In this appeal both the appellant landlord and Right Angle Ltd (the person invited to provide an estimate) are companies.  There is no evidence that any of the directors of one company is, or is to be, a director of the other.  The “connection” between the two companies appears to be the fact that a director of one company is a cousin of a director of the other.  That relationship does not establish a connection between the companies for the purposes of the consultation regulations, despite the appellant’s concession to the contrary.

52.        Regulation 4(6) of Schedule 4 Part 2 states that “at least one of the estimates must be that of a person wholly unconnected with the landlord”.  There is no connection between the appellant landlord and either Clane Ltd or L&CP Construction Ltd and so, even if there were a connection between the appellant and Right Angle Ltd (which we think is not the case), the appellant satisfied the requirements of the consultation regulations in any event.

53.        The LVT raised two further points.  Firstly, it said that the terms of the contract to be offered to the contractors did not comply with the standard JCT (Minor Works) contract.  There is no requirement that it should so comply.  Mr Newman explained that the contract as varied did not provide for stage payments because the contract period was only eight weeks with a lead in period of two weeks.  The other variation was in respect of a 10% retention for a period of six months.  This variation was accepted by all of the bidders and we see no basis for the LVT’s criticism of it.  The LVT did not explain how these variations vitiated the consultation process or undermined the reasonableness of the cost of the proposed works.  We do not consider that they have such an effect.

54.        Secondly, the LVT said the following about the proposed management charge of 10%:

“Any management charge made to the tenants should however include the costs of any surveyor who is engaged to oversee the works.  Since Mr Newman is employed in house by the management company [D&S Property Management] it would also be inappropriate for any charge, additional to the management charge, to be made in relation to legal services.”

The proposed 10% charge is in respect of the cost of managing and overseeing the proposed works.  That figure was supported in the hearing before us by evidence of the charges levied by other firms of managing agents.  We are satisfied that it is a reasonable amount.  The letter of appointment of D&S Property Management dated 24 February 2011 states:

“With regard to the management fees as agreed these will include the cost of undertaking initial survey of the building, preparation and service of all required section 20 notices, obtaining tenders with regard to the required works, appointment of contract administrator, liaising with leaseholder and supervision of the works.

It is further agreed that any legal work undertaken by your in-house solicitor with regard to any referrals to the LVT or the County Court will be charged at £225.00 per hour.”

In his submissions to this Tribunal Mr Newman said:

“With regard to the legal work this is completely distinct from the management of the works and cannot be expected to be covered by the 10% Management.  It has entailed drafting the original application to LVT, complying with all LVT directions including reviewing Respondents Statement of Case and Experts reports, drafting statements and preparing the trial bundle, negotiating with the Leaseholders instructed solicitors and barristers, attending the original hearing, drafting the application for leave to appeal, drafting this statement of case and eventually attending the rehearing at the Upper Tribunal.”

We accept that the scope of the management and legal work is separate and distinct.

55.        In our opinion the cost of the proposed works are reasonable and were established after a proper tendering process in accordance with the requirements of the consultation procedures.

(v) Do the consultation regulations apply?

56.        Under section 20 of the 1985 Act, if the works to which the costs relate are qualifying works as defined, the relevant contributions of tenants are limited as prescribed by the consultation regulations unless the consultation requirements contained in those regulations are either complied with or dispensed with under section 20ZA.  It would therefore be relevant on an application under section 27A(3) in respect of the costs of qualifying works for the LVT to determine, in the absence of any dispensation from the requirements, whether there had been compliance with the regulations.

57.        The relevant contribution of each tenant for the purposes of section 20 of the 1985 Act is one eighth of the relevant costs.  Under section 18(2) the relevant costs are “the costs or estimated costs incurred or to be incurred by or on behalf of the landlord…in connection with the matters for which the service charge is payable”. The section 20 consultation requirements apply to qualifying works (meaning “works on a building…”) if the relevant costs incurred on carrying out the works exceed an “appropriate amount”.  The appropriate amount is defined under regulation 6 of the consultation regulations as “an amount which results in the relevant contribution of any tenant being more than £250”.  Therefore in the present appeal the relevant costs must be £2,000 before the consultation regulations apply.  A significant number of the items on the schedule of proposed works had estimates less than this amount.  But in our opinion it is the cost of the proposed works as a whole that should be considered when determining whether the consultation regulations apply.  That being so the appropriate amount was exceeded and the consultation regulations applied.

(vi) Have the consultation requirements been complied with?

58.        The LVT determined that the consultation requirements had not been complied with because the information supplied by the applicant was insufficiently clear.  The LVT was satisfied that the applicant did serve on the respondents a notice of intention to carry out works and a “paragraph (b) statement” under regulation 4 of Part 2 of Schedule 4 of the consultation regulations.  The LVT therefore found that the failure to comply with the consultation regulations was due to the inadequate content of the schedule of works rather than any procedural fault in the service of the relevant notices.  We do not accept the LVT’s conclusion that the tenants were given inadequate information about the proposed works.  For the reasons that we have given above we consider, based upon the evidence that was adduced before us, some of which was not available to the LVT, that the appellant complied with the consultation regulations.

(vii) Amount of the service charge

59.        The amount of the service charge that would be payable by the respondent is £21,135.59 plus VAT, being one eighth of the final estimate of the preferred contractor, Right Angle Ltd; see paragraph 38 above.  This is inclusive of the landlord’s 10% management charge but is subject to an adjustment in respect of the reduced specification for repointing and replacement brickwork; see paragraph 30 above. 

Conclusion

60.        In our opinion the decision of the LVT was wrong in the respects set out in paragraphs 31 to 32, 41 to 55 and 58 above, and we allow the appeal.  We determine that a service charge would payable by the respondent in respect of costs if they were incurred in respect of the specified works (as amended: see paragraphs 22 to 32 above).  The amount of the respondent’s relevant contribution would be £21,135.59 plus VAT, subject to adjustment in respect of the reduced brickwork specification; see paragraph 30 above.  There is no requirement for any determination under section 27A(3)(b), (d) or (e) since there is apparently no dispute about these matters for which provision is made under the leases.

Dated 16 October 2012

 

 

 

 

George Bartlett QC, President

 

 

 

 

A J Trott FRICS