United Kingdom Upper Tribunal (Lands Chamber)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT  0377 (LC)

LT Case Number: LRX/19/2012

LT Case Number: LRX/47/2013

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

 

LANDLORD AND TENANT – service charges – construction of lease – services provided by landlord through an arms length management organisation – quantification of service charge

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

NORTHERN RENT ASSESSMENT PANEL

 

 

BETWEEN (1) BLACKPOOL BOROUGH COUNCIL Appellants

(2) BLACKPOOL COASTAL HOUSING LIMITED

and

ALAN CARGILL

Respondent

Re: 119 Spencer Court,

 Blackpool,

 FY1 3TP

 

and

 

AND BETWEEN (1) BLACKPOOL BOROUGH COUNCIL Appellants

(2) BLACKPOOL COASTAL HOUSING LIMITED

and

IAN MORRIS Respondent

 

Re: Flat 42, Molyneux Drive,

Blackpool

 FY4 3JJ

 

 

CROWN COPYRIGHT 2013

Before: His Honour Judge Huskinson

Sitting at: Blackpool SSCA, Prudential House, 3^rd Floor, 2-10 Topping Street, Blackpool FY1 3AX

on 2 July 2013

 

Sebastian J B Clegg instructed by Christine Baines (Head of Legal Services) on behalf of the appellant

The respondents appeared in person.

 

The following cases are referred to in this decision:

Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896.

BCC1 v Ali [2001] 1 AC 251, 259

Multi-Link Leisure Developments Ltd v Lanarkshire Council [2011] 1 All ER 175

Re Strand Music Hall Co Ltd (1865) 35 Beav 153

 

 

 

 

DECISION

Introduction

1.          This case involves two conjoined appeals against two separate decisions made by the Leasehold Valuation Tribunal for the Northern Rent Assessment Panel (“the LVT”) dated respectively 7 December 2011 (in the case where Mr Cargill was the original applicant) and 1 February 2013 (in the case where Mr Morris was the original applicant).  In each case the LVT was concerned to decide the amount properly recoverable by the first appellant, namely Blackpool Borough Council (hereafter “the Council”) by way of service charge from, respectively, Mr Cargill and Mr Morris, who each hold a residential flat as lessee from the Council upon a long lease at a low rent.  Both Mr Cargill and Mr Morris acquired their leases pursuant to the right to buy provisions.  In each case the LVT was only concerned with one particular element in the relevant service charge, namely the element in respect of management.  In Mr Cargill’s case the LVT was only concerned with the amount of the management charges contained within the on account estimated service charge demand for the accounting year commencing 1 April 2011.  In Mr Morris’s case the LVT was concerned with these self-same management charges for that year, but the LVT was also concerned with the management charges included within Mr Morris’s service charges for all years from 2002-2003 onwards.  The LVT decided that in the year relevant to Mr Cargill, namely the year commencing 1 April 2011, and in all of the years relevant to Mr Morris the total amount properly chargeable by the Council for management charges was £50.  It is against this conclusion that the first appellant appeals.

2.          The second appellant is a party to the proceedings because it is an arms length management organisation (“ALMO”), being a non-profit making organisation wholly owned by the Council, which is responsible for the management of the Council’s housing stock, including all of the properties held by lessees on long leases at low rents, pursuant to a management agreement entered into in 2007.

3.          The Council as a local housing authority is the freehold owner of extensive residential properties, including properties on various estates, some of which are held by secure tenants paying a weekly or monthly rent and some of which have been enfranchised pursuant to the right to buy legislation and are held by lessees upon long leases at low rents (e.g. £10 per annum).  I hereafter use the word “lessees” to refer to those persons who hold a property upon a long lease at a low rent and I use the word “tenants” to refer to those other tenants who hold otherwise than on a long lease at a low rent (most of these tenants are presumably secure tenants).  There is evidence that as at the time that the Council was assessing the amount to demand for the service charge (including management charge) for the year commencing 1 April 2011 there existed 401 lessees holding properties on long leases at low rents.  There is no firm evidence as to precisely how many tenants there existed at the same date, but I was given evidence that they numbered approximately 5,500.  Accordingly the Council is the freeholder of almost 6,000 residential properties.  The Council decided to carry out its functions as landlord of this housing estate through an ALMO.  In consequence the second respondent (“BCH”) was formed.  In January 2007 an agreement was entered into between the Council and BCH being an agreement for housing management and other services.  It is a lengthy and detailed document.  For present purposes it is merely necessary to note that the Council delegated the powers and duties of managing all its residential properties to BCH in return for the payment to BCH of a management fee.

4.          For many years prior to BCH becoming involved in the management of the housing stock and for certain years after it became involved the amount charged through the service charge for management was set at a figure which appears to have been an historical amount (the original basis for which is unclear) which was increased each year having regard among other matters to the retail price index.  Each lessee was charged the same by way of management charge, rather than a separate management charge being calculated for each separate lessee (or for the lessees in each separate property).  The amounts charged have been as follows:

2002-2003: £50.50

2003-2004: £52.39

2004-2005: £54.54

2005-2006: £55.78

2006-2007: £56.43

2007-2008: £59.84

2008-2009: £62.60

2009-2010: £64.16

2010-2011 £65.64

5.          In 2010 a survey by an officer of BCH, namely Ms Olley, was carried out to assess whether the amount being charged by way of management charge was an appropriate amount.  There was concern that too little was being charged to the lessees through their service charges for management work carried out by BCH.  If this was so then the result would be that the lessees would be being subsidised by the tenants, because the housing revenue account within the Council is ring-fenced so that a short fall in one aspect of the account must be made good by a surplus within the remainder of the account.  Ms Olley’s survey concluded that the amount charged by way of management charge to the lessees was indeed substantially too little.  She made various recommendations.  The lessees were notified of the Council’s intention to raise the amount of the management charge.  There were various meetings at which the lessees were able to make their representations.  The matter in due course was reported to the Council which duly considered the matter and formally decided that the management charge must indeed be increased.  As a result the service charge demands sent out for payment in advance for the year 1 April 2011 included a demand in respect of management charge of £194.78 i.e. almost three times what it had been for the previous year.  This is what led the present respondents to apply to the LVT for a decision under section 27A of the Landlord and Tenant Act 1985 as amended as to the amount properly recoverable by way of service charge by the Council.

6.          Mr Cargill made his application first in time.  The LVT gave its decision dated 7 December 2011.  This decision is considered in more detail below, but in summary the LVT decided that the management charge sought to include costs which were not recoverable from the lessees under the terms of the lease; that the management charge was therefore unreasonable; that it was preferable for a management charge to be fixed by reference to a fixed fee; and that management charge for services of the nature provided were generally in the order of £50 per annum.  Accordingly the LVT decided that £50 was the fair and reasonable amount recoverable by the Council by way of management charge.  The LVT observed that it was not open to the Council unilaterally to decide to provide a service not contemplated by the lease and to seek a charge for that service under the lease. 

7.          Subsequently Mr Morris made his application to the LVT.  He put in issue not merely the year commencing 1 April 2011 but also the earlier years going back to 2002-2003, for which the management charge element of his service charge had been as set out in paragraph 4 above.  The matter came before the LVT constituted by the same members as had heard Mr Cargill’s case.  Understandably the LVT followed its previous decision in Mr Cargill’s case and decided that £50 was properly recoverable by way of management charge for the year commencing 1 April 2011.  However in Mr Morris’s case the LVT went further and decided that £50 was also the appropriate management charge for all of the previous years starting from 2002-2003.

8.          The principal matter raised in the present appeal is whether the LVT was correct in its conclusion that only £50 could properly be charged by way of management charge for the year commencing 1 April 2011.  However the Council also appeals against the LVT’s decision that only £50 was properly payable by way of management charge in respect of all the previous years from 2002-2003 onwards.  It was pointed out that if the LVT’s decision upon this point in Mr Morris’s case stands then, pursuant to the obligation the Council perceives itself to have to treat all its lessees equally, the Council will have to refund the difference between the amounts actually charged for these previous years (see paragraph 4 above) and £50 not only to Mr Morris but also to all the previous lessees who have held a leasehold property during those years.  As regards these earlier years the Council does not seek to contend for a figure higher than the amount actually charged in these earlier years, although the Council’s case is that it could in fact, had it chosen to do so, have justified a higher charge for each of these years.  In summary for these earlier years the Council’s case is that the LVT was wrong and that a management charge of at least the amount which the Council in fact charged was properly chargeable, such that nothing is repayable either to Mr Morris or anyone else in respect of these earlier years.  In respect of the year commencing 1 April 2011 the Council contends that the LVT was wrong and that the Council was entitled to charge the full amount actually charged of £194.78.

9.          The LVT granted permission in each case to the appellants to appeal to the Upper Tribunal.  The appellants in their notice of appeal indicated that they wished the appeal to proceed by way of review with a view to rehearing.  I consider this is therefore the appropriate way to proceed.  I explained to the parties at the hearing that I would proceed in the following manner, namely that I would consider the arguments as to whether the LVT’s decisions were wrong (and therefore should be quashed) or whether the decisions should be upheld.  This exercise would be performed by reference to the evidence which was before the LVT and the arguments adduced to me.  If the decisions were to be upheld that would be the end of the case.  If however the decisions were wrong and had to be quashed, then it would be for me to reach my own decision (so far as I could do so) upon the evidence as to what amount was properly chargeable by way of management charge for the year commencing 1 April 2011 and whether an amount equal to at least that which the Council had in fact charged was properly chargeable for the earlier years.  I heard evidence at the hearing from Gail Moyle, Business Support Manager for BCH; Hamida Master, Social Housing and Development Co-ordinator for the Council; and Jackie Smith, Capital and Value for Money Accountant at BCH.  I propose first to consider the review stage and to decide whether the LVT’s decisions can stand.  At this review stage it is not necessary to refer in any substantial detail to the evidence of the witnesses.  It is at the later stage once I have decided (as I do for the reasons set out below) that the LVT’s decisions cannot stand that it is necessary for me to examine this evidence in more detail. I should however at this stage note that the evidence before the LVT (and before me) showed the extent of the activities performed by BCH (on behalf of Council) in relation to the Council's estate of leasehold properties. It is these activities which the Council says constitute relevant services or management the costs (or some of the costs) of which the Council claims it can include in the calculation of the service charge to be paid by the lessees. The activities are set out in more detail in paragraph 32 below, but in summary include the employment of certain staff whose time is mainly dedicated to dealing with enquiries from lessees and with matters arising in relation to the leasehold estate; a repairs hotline for emergency repairs; the dissemination of relevant information and advice to the lessees through a newsletter and through meetings; the calculation and collection of monies due from the lessees; the enforcing of lease conditions; the dealing with applications for consent for improvements or sublettings; and the managing of the provision of repairs and maintenance programmes.

Terms of the Leases

10.       Mr Cargill’s lease and Mr Morris’s lease are in effectively the same form,  although of course they refer to different demised flats (and they are on different estates).  I therefore make reference only to Mr Cargill’s lease which is dated 19 May 1997 between the Council and Mr Cargill.  The following terms are relevant:

(1)       The expression “The Estate” and “The Property” and “The Reserved Property” are of significance.  They are defined respectively in the First Schedule the Second Schedule and the Third Schedule as follows.

(2)       The Estate means all that area of land in Blackpool comprising land, dwelling houses, flats, maisonettes, garages, gardens and premises known as “The Talbot Road Estate”.

(3)       The Property is defined as all that plot or parcel of land being part of the Talbot Road Estate, together with the two-storey building erected thereon and divided into eight self-contained flats all of which land and building “are for the purpose of identification only shown coloured red on the Plan numbered 1 annexed hereto.”

(4)       The Reserved Property is defined as comprising four separate constituent parts, being in summary first the gardens, grounds etc and other parts of the Property used in common by the owners or occupiers of any of the flats forming part of the Property; second the main structural parts of the Property etc and various other matters; thirdly any flat comprised in the Property for the time being not sold or let on a long lease for a term exceeding 21 years; and fourthly, “all parts of the Estate other than the Property.”

(5)       It can therefore be seen that the Reserved Property as defined is very extensive, comprising all parts of the Talbot Road Estate, i.e. it seems all the land and buildings and flats (whether subject to tenancies or long leases) and grounds etc on the Talbot Road Estate, save for the Property itself which is more specifically dealt with within the definition as to how much of the Property is and how much is not part of the Reserved Property.

(6)       The lease reserved a rent of £10 per annum and further rent in respect of insurance premium and a further rent by way of the monies due to the Council pursuant to the provisions of clause 3.

(7)       By clause 2 Mr Cargill covenanted with the Council to observe and perform the covenants contained in the Seventh Schedule.

(8)       Clause 3 is in the following terms:

“3. The Lessee hereby further covenants with the Council as follows:-

(i)    Subject to the provisions of Sections 18 to 30 of the Landlord and Tenant Act 1985 to pay a proportionate amount to the Council being the reasonable expenses and outgoings incurred or to be incurred by the Council.

(a)   in respect of the repairing and maintaining renewing and cleansing as the case may be of any of the parts of the Reserved Property firstly and secondly described in the Third Schedule hereto.

(b)  in respect of the provision by the Council of the services mentioned in the Eighth Schedule hereto

(c)   in respect of the rebuilding or reinstatement of the Property or in insuring against such rebuilding or reinstatement

(d)  in respect of the management costs involved in sub-paragraphs (a) (b) and (c) above and also in collection of the rent and the computation and collection of other monies due from the Lessee hereunder

PROVIDED ALWAYS that the amount payable under this sub-clause shall be reviewed annually by the Council during the term hereby created by reference to its financial year and the amount or reasonably estimated amount shall become due in advance on the First day of April in any year (the first of such payments or a proportionate part thereof to be made on the date hereof) and shall be payable in manner aforesaid PROVIDED ALSO that if any adjustments to such amount or reasonable estimated amount as the case may be should become necessary upon annual review or otherwise the method of effecting such adjustments as become necessary shall be in the discretion of the council within the extent of Section 47(2) of the Act

(ii) To pay such improvement contribution as defined in Section 187 of the Act as the Council may reasonably demand in respect of improvements carried out to the Property during the term hereby created.”

(9)       Paragraph 14 of the Seventh Schedule is in the following terms:

“The Lessee shall comply with and observe any reasonable regulations which the Council may consistent with the provisions of this Deed make to govern the use of the Flats and Reserved Property  Such regulations may be restrictive of acts done on the Property detrimental to its character or amenities  Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them.”

(10)    The Eighth Schedule contains covenants on the part of the Council.  Paragraphs 2, 3 and 5 thereof are in the following terms:

“2. The Council shall keep the Reserved Property and all fixtures and fittings therein and additions thereto including drains gutters and external pipes serving the Property in a good and tenantable state of repair decoration and condition including the renewal and replacement of all worn or  damaged parts PROVIDED that nothing herein contained shall prejudice the right of the Council to recover from the Lessee or any other person the amount or value of any loss or damage suffered by or caused to the Council or the Reserved Property by the negligence or other wrongful act or default of the Lessee or such other person.

3. The Council shall provide the following additional services in respect of the Premises:-

(1) The cutting and maintenance of the grassed area comprised in the Reserved Property

(2) Rediffusion Service as detailed in the Agreement mentioned in the Tenth Schedule hereto so long as such Agreement remains operative.

5. The Council shall employ and engage such servants agents and contractors as it considers necessary or desirable for the performance of its obligations under this Lease and shall pay their wages commissions fees and charges.”

The LVT’s decision

11.       The outcome of the LVT’s decision has already been summarised above.  The principal aspects of the LVT’s reasoning were as follows:

(1) The LVT (correctly) observed that any expenditure properly chargeable to a lessee through the service charge must be expenditure which is –

(a) properly recoverable from the lessee upon the true construction of the lease, and

(b) properly recoverable having regard to the limitations imposed by the requirements of reasonableness introduced by the Landlord and Tenant Act 1985 section 19 (end of paragraph 31 of the LVT’s decision).

(2) The LVT observed that the only provision in the Lease which referred to “management costs” is clause 3(i)(d) which is limited to management in connection with costs involved in clauses 3(i)(a), (b) and (c) and in the collection of the rent and computation and collection of other monies due to the Council (paragraph 15 of the decision).

(3) The LVT considered paragraph 14 of the Seventh Schedule and in particular the second half of that paragraph commencing “Any costs or expenses…”  The LVT dealt with this provision in paragraph 22 of the decision:

“22.  Mr Clegg submitted that the effect of the words referred to in paragraph 21 above was to give the Council (and the Respondent acting on the Council’s behalf) wider power under which to incur and recharge expenditure.  The Tribunal considers that such is not the case for these reasons.  First, the provision is a covenant by the Lessee, not the Lessor and should be construed on that basis: the words must be read in the context of the Lessee’s covenant.  Secondly, the words are intended to prevent challenges as to reasonableness rather than to introduce an additional basis for providing services or executing works.  Thirdly, the provision is inherently meaningless if construed in the way suggested.  It refers to obligations under the Eighth Schedule hereto but then adds ‘notwithstanding the absence of any specific covenant by the Council to incur them’.  The Council’s covenants are set out in Clause 4 of, and the Eighth Schedule to, the Lease.  Clause 4 contains a covenant ‘That the Council will perform and observe and carry out or cause to be carried out the covenants and obligations set out in the eighth Schedule hereto…; the Eighth Schedule is headed ‘Covenants on the part of the Council’.  The ‘absence of any specific covenant by the Council to incur them’ refers to the obligations in the Eighth Schedule and cannot possibly be read in any sensible or meaningful way having regard to the wording of Clause 4 and the Eighth Schedule.  The performance of the obligations set out in the Eighth Schedule are all expressly covenanted by these provisions.”

(4)  The LVT referred to evidence given by Ms Smith in the following terms in paragraph 28 of the decision:

“28. Reference is made to a ‘Leaseholder service’ and the management charge is calculated by including costs related to (a) direct staff costs, including senior staff on a significant percentage of their time, and, at lesser percentages, business support assistants, finance team, human resources team, information and technology team, anti-social behaviour team, customer involvement team and repairs hotline team; (b) homeownership service costs; (c) anti-social behaviour service costs; (d) customer involvement service costs; (e) Civica costs; and (f) desk costs.”

(5)  In paragraph 29 of the decision the LVT stated:

“The aspects of the management charge included on the basis of “Leaseholder Services” appear to relate to the discharge of the Council’s functions as a local housing authority rather than by reference to the contractual obligations of the Council and the Applicant under the Lease.”

(6)  The LVT drew attention to the fact that the Council’s powers and duties as a local housing authority are different in nature and scope to its contractual obligations as a lessor under the lease (decision paragraph 30).  The LVT in paragraph 32 stated as follows:

“32. Applying these principles to the challenged expenditure in the present case, it is evident that the management charge seeks to include costs which are not recoverable under the Lease.  That is inherently wrong and must be remedied.  On the evidence before the Tribunal, the only management costs which are recoverable are those contained in Clause 3(d) of the Lease which is limited to costs involved in sub-paragraph 3(a)(b) and (c) and in collection of the rent and computation and collection of other monies due to the Council.”

(7)  In consequence the LVT decided that the management charge claimed by the Council was not recoverable.  The LVT went on to address the question of a fair and reasonable calculation of the management charge.  The LVT had regard to the RICS Code of Practice “Service Charge Residential Management Code” (Second Edition) and concluded in the light of that publication, in particular paragraph 2.3 thereof, that a fixed fee for management would be appropriate rather than a percentage of outgoings or income, particularly as (so the LVT stated) the scope of the services were limited.  The LVT then stated:

“The Tribunal’s experience is that management charges for services of the nature provided in the present case (i.e. Insurance Building; Aerial Service; and Grounds Maintenance) are generally in the order of £50.00 and that such would be fair and reasonable and, therefore, appropriate in this case.”

(8)  The LVT at paragraph 37 observed that it was not open to the Council unilaterally to decide to provide a service not contemplated by the Lease and seek to charge for that service under the Lease.  The LVT added that, exemplary though the Council’s consultative arrangements might have been, that process does not bring the Leaseholder’s service within the terms of the Lease.

(9)  In the result therefore the LVT concluded that £50 was the sum recoverable by way of the management charge from Mr Cargill for the year commencing 1 April 2011. 

(10)    In the LVT’s later decision in Mr Morris’s case the LVT (understandably) adopted substantial passages of reasoning from its own decision in the case of Mr Cargill.  The Tribunal concluded not only that the management charge recoverable from Mr Morris for the year commencing 1 April 2011 was £50 but also that the management charges for the years from 2002-2010 should also be set at £50 for each year.

12.       The appellants applied to the LVT for permission to appeal to the Upper Tribunal.  The LVT granted such permission.

The review stage – whether the LVT decision can stand

13.       On behalf of the appellants Mr Clegg provided a skeleton argument which he developed further in oral submissions.  The principal points which he advanced were as follows:

(1)  He accepted that there was a two stage analysis that was required when deciding whether the management charge was properly payable by the lessees.  First it was necessary to consider the terms of the lease and whether as a matter of contract the charge was properly payable.  To the extent that the charge sought to be levied was not contractually payable it could not be recovered.  Secondly, if the charge was contractually payable, it was necessary to consider whether the extent to which it was recoverable was limited by the provisions of the Landlord and Tenant Act 1985 sections 18 and following.

(2)  Of central importance to the case is the proper meaning and effect of paragraph 14 of the Seventh Schedule, especially the second part of that paragraph. 

(3)  As regards the proper principles of interpretation to apply when considering the meaning of this provision Mr Clegg advanced arguments which are conveniently summarised in his skeleton argument in the following way.

(4)  He argued that the rules applicable to the interpretation of leases are the same as any other contractual document (save where terms of art apply and none are relevant here) and were set out by Lord Hoffmann in his speech in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E.  The principles were also summarised by Lord Bingham in paragraph 8 of his speech in BCC1 v Ali [2001] 1 AC 251, 259:

“To ascertain the intention of the parties the court reads the terms of the contact as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties.  To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified.”

The court may be assisted by the commercial purpose of the contract and must be cautious before concluding that a particular interpretation does not accord with commercial common sense but the court will give effect to the words of a contract where they are clear even if they have no discernible commercial purpose.

(5) He argued that individual clauses in a contract must not be considered in isolation but must be considered in the context of the whole document.  As Lord Hope stated in Multi-Link Leisure Developments Ltd v Lanarkshire Council [2011] 1 All ER 175:

“11 The court’s task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual context.  It must start with what it is given by the parties themselves when it is conducting this exercise.  Effect is to be given to every word, so far as possible, in the order in which they appear in the clause in question.  Words should not be added which are not there, and words which are there should not be changed, taken out or moved from the place in the clause where they have been put by the parties.  It may be necessary to do some of these things at a later stage to make sense of the language.  But this should not be done until it has become clear that the language the parties actually used creates an ambiguity which cannot be solved otherwise.”

In general terms, it may be stated that every part of a written instrument should be given effect. As Lord Romilly MR stated in Re Strand Music Hall Co Ltd (1865) 35 Beav 153:

“The proper mode of construing any written instrument is, to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it is impossible to reconcile it with another and more express clause in the same deed.”

(6) He contended that the LVT’s analysis of paragraph 14 of the Seventh Schedule resulted in the LVT concluding that paragraph 14, especially the second part thereof, did not give the Council any wider power under which to incur and recharge expenditure than was already provided for in clause 3 and the Eighth Schedule.  He argued that the LVT was wrong so to conclude and in particular the LVT was wrong to find that the provision was “inherently meaningless” and to omit to give any effect to it.

(7)  He argued that the reason why the second part of paragraph 14 appears in the Seventh Schedule is because it is intended to give the Council the power to provide services without subjecting it to a corresponding obligation to provide such services, as would be the case if the second part of paragraph 14 appeared in the Eighth Schedule, because to include this provision in the Eighth Schedule would be to include it as a covenant on the part of the Council.  However the reference in paragraph 14 to any costs or expenses incurred by the Council in (inter-alia) providing services being deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule, notwithstanding the absence of any specific covenant therein, brings the provision of such services (if such services are indeed provided) within the remit of clause 3(i)(b) of the lease and allows the Council to charge the lessees for such services provided that the expense is “reasonable”.  This is the meaning of the second part of paragraph 14.  It bears this meaning and is not “inherently meaningless”.

(8)  Even if the foregoing argument based upon the second part of paragraph 14 of the Seventh Schedule is wrong and if (contrary to his arguments) that provision has effectively no meaning or effect (as found by the LVT) then even in such a case the LVT’s decision is flawed.  This is because there was no justification under the terms of the lease for the LVT to assess the management charge in the way its adopted in paragraphs 33 and 34 of its decision, namely by relying upon its own experience as to management charges for services of the nature provided.  Instead it remained necessary for the exercise provided for in clause 3 of the lease to be followed, namely for a proportionate amount to be identified as being the reasonable expenses and outgoings to be incurred by the Council in the year commencing 1 April 2011 upon the matters referred to in sub-paragraphs (a)-(d) of clause 3(i).  The obligations of the Council under its covenants in the Eighth Schedule, especially paragraphs 2 and 3 (where it gives covenants regarding the repair etc of the Reserved Property) is wide, having regard to the extensive nature of the Reserved Property.  It is accepted that the actual cost incurred by the Council in repairing another building on the Talbot Road Estate and keeping clean and lighted other parts of the Talbot Road Estate (i.e. away from the Property containing Mr Cargill’s flat) could not properly be included within the service charge having regard to the limitation in clause 3(i)(a) which limits the costs to be recovered in respect of repairing and maintaining renewing and cleansing any parts of the Reserved Property to those parts of the Reserved Property which are firstly and secondly described in the Third Schedule.  However while the actual costs of such repairs etc cannot be included within the service charge, the responsibility for managing this overall maintenance of the entire Talbot Road Estate is an obligation of the Council under the Eighth Schedule and is a management cost a proportionate amount of which can properly be charged to a Lessee through the service charge.

14. On behalf of the respondents Mr Morris addressed me and gave evidence.  He relied upon his statement of case and the documents attached thereto, including advice from the Leasehold Advisory Service (which it may be noted did not refer to paragraph 14 of the Seventh Schedule) and also to advice given in the handbook issued to lessees.  He pointed out that the advice there given was to the effect that the Council was seeking to recover for numerous items of service for which there was no obligation to pay under the terms of his lease.  He relied upon the reasoning of the LVT.  He drew attention to the list of Management Administration Costs (as contained within the bundle in Mr Cargill’s case at both pages 109 and 211).  He drew attention to the very large increase in the amount claimed for management charges.  He argued that the LVT’s decision should be upheld.  Mr Cargill adopted the arguments of Mr Morris.

Discussion upon the review stage of the appeal

15.       I agree that it is necessary to consider the recoverability of the claimed management charge element of the service charge in two stages.  The first question is whether the claimed charges are contractually recoverable pursuant to the terms of the lease.  To the extent that they are not so recoverable then they cannot be recovered.  Once there has been identified the extent to which the charges are contractually recoverable it is necessary at the second stage to consider whether that recoverability is restricted by the provisions introduced by section 19 of the Landlord and Tenant Act 1985.

16.       The LVT was concerned with the estimated service charge demanded in advance on account for the year commencing 1 April 2011.  The LVT was not dealing with the concluded accounts for a completed year.  Accordingly the Council’s contractual entitlement was to require the lessee –

“… to pay a proportionate amount to the Council being the reasonable expenses and outgoings … to be incurred by the Council”

upon the matters referred to in sub paragraphs (a)-(d) of clause 3(i).  Any service charge (which can include an element regarding management costs) can only be recovered through clause 3.  This clause sets out the four sub paragraphs (a)-(d) which contain the heads of expenditure which can be included in the calculation of the service charge.  It is therefore necessary to examine these four sub-paragraphs (a) –(d).

17.       As regards paragraph (d) this extends to costs involved in the collection of the rent and computation and collection of other monies due from the lessee, but apart from that it extends only to reasonable expenses and outgoings to be incurred by the council in respect of the management costs involved in sub-paragraphs (a), (b) and (c).  Accordingly for the Council to be able to include in the calculation the reasonable expenses and outgoings to be incurred by the Council in the provision of what I will for convenience call the discretionary leasehold services it is necessary that the Council can justify these services as falling within either paragraphs (a), (b) or (c).

18.       As regards paragraph (a) this deals with the expenses and outgoings in respect of the repairing etc of the firstly and secondly described parts of the Reserved Property which in essence comprise the common parts of the Property (i.e. the building and land containing the lessee’s flat) and the structural parts of that Property.  Clearly a certain amount of management will be required for the purposes of these repairs etc to the firstly and secondly described parts of the Reserved Property and these costs of management can be recovered through paragraph (d).  But paragraph (a) is limited to dealing with these reasonable expenses and outgoings to be incurred by the Council in respect of repairing etc the firstly and secondly described parts of the Reserved Property and accordingly paragraph (a) will not allow the Council to include the general costs of the discretionary leasehold services in the calculation of the service charge.  Similarly paragraph (c) is limited to the reasonable expenses and outgoings in respect of the re-building or reinstatement of the Property or in insuring against such rebuilding or reinstatement.  Some management will be required in respect of dealing with these matters in paragraph (c) and such management costs can be included under paragraph (d).  However the Council cannot under paragraph (c) include the general costs of providing the discretionary leasehold services.

19.       Accordingly if the costs of the discretionary leasehold services are properly to be included within the service charge calculation this can only be because either they fall within paragraph (b) or because they constitute management costs involved in providing matters which do fall within paragraph (b).  It follows therefore that paragraph (b) of clause 3(i) is of crucial importance.

20.       Paragraph (b) allows the inclusion of the reasonable expenses and outgoings incurred or to be incurred by the Council-

“(b) in respect of the provision by the Council of the services mentioned in the Eighth Schedule hereto.”

A question arises as to what this means.  As I understand the respondents they contend that when paragraph (b) refers to the provision by the Council of the services mentioned in the Eighth Schedule it is referring only to the two specific matters which are set out in paragraph 3 of the Eighth Schedule, i.e. the cutting etc of certain grassed areas and the provision of the re-diffusion service.

21. I am unable to accept that paragraph (b) is limited in this manner.  In summary there are three reasons for my so concluding:

(1) If paragraph (b) was intended to be limited to the cost of provision of these two services expressly mentioned in paragraph 3 of the Eighth Schedule then paragraph (b) could easily have expressly so provided, but it has not done so.  It has used the more general expression referring to “the services mentioned in the Eighth Schedule hereto”.

(2) Also paragraph 3 of the Eighth Schedule refers to the Council providing “the following additional services” namely the grass cutting etc and the re-diffusion service.  The use of the word “additional” in my judgment carries the necessary inference that the other obligations of the Council contained in the Eighth Schedule are to be treated as also being services provided by the Council.

(3) Also if paragraph (b) is read in the limited manner contended for by the respondents and apparently adopted by the LVT this would in my judgment have the result that the second part of paragraph 14 of the Seventh Schedule (hereafter referred to as “paragraph 14 part 2”) would be rendered ineffective.

Points (1) and (2) above do not require further elaboration.  I consider point (3) further below.

22.       I accept and adopt the principles of construction advanced in argument by Mr Clegg.  I remind myself that I should read the lease as a whole and that I should give effect to every part of the lease if this is possible.

23.       Paragraph 14 part 2 provides that certain costs and expenses incurred by the Council in doing certain things –

“… shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by any Council to incur them.”

In my judgment the only possible purpose of this provision is to provide that such costs are costs which have a relevance by reason of being (through this deeming provision) properly incurred by the Council in pursuance of its obligations under the Eighth Schedule.  It would make no sense for these costs to be deemed to be properly incurred by the Council in pursuance of its obligations under the Eighth Schedule if the result of such a deeming was merely that the lessee could say: under clause 3(i)(b) it is only the cost of the services specifically mentioned in the Eighth Schedule which can be included in the calculation of the service charge, namely the cost of the two “additional services” referred to in paragraph 3 of Eighth Schedule, such that it makes no difference to the calculation of the service charge whether or not the cost of these matters under paragraph 14 part 2 are to be deemed as properly incurred by the Council in pursuance of its obligations under the Eighth Schedule.

24.       Reading paragraph (b) together with paragraph 14 part 2 and with the Eighth Schedule, in my judgment the only proper construction, if effect is to be given to both provisions, is that paragraph (b) is not intended to refer merely to the “additional services” mentioned in paragraph 3 of the Eighth Schedule regarding grass cutting etc and re- diffusion.  Paragraph (b) is instead intended to refer to expenses and outgoings in respect of not only these specific “additional services” in paragraph 3 of the Eighth Schedule but also of the other services referred to in the Eighth Schedule together with such services as the Council provides under paragraph 14 part 2 being services the costs of which are deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule.

25.       Quite apart from the foregoing argument based upon paragraph 14 part 2, there is a separate reason why in my judgment paragraph (b) of clause 3(i) extends to services substantially wider that merely the “additional services” referred to in paragraph 3 of the Eighth Schedule.  I repeat subparagraphs (1) and (2) of paragraph 21 above.  In addition to those considerations there is the following point.  Paragraph 2 of the Eighth Schedule requires the Council to keep the Reserved Property and all fixtures and fittings etc in good and tenantable state of repair etc.  This covenant by the Council extends to the whole of the Reserved Property (which is very extensive) – it is not limited to the firstly and secondly described parts of the Reserved Property.  It is true that the lessee only has to contribute through paragraph (a) of clause 3(i) to the cost of repairing, maintaining, renewing and cleansing the firstly and secondly described parts of the Reserved Property.  Thus the actual costs of repairing etc another building on the Estate or keeping the grounds of that other building in good condition does not form part of the calculation of a lessee’s service charge – these costs are charged to the lessees of the building in question.  However the obligation of the Council is to keep effectively the whole of the Estate in good repair and condition.  This is a service specifically provided for in the Eighth Schedule.  A substantial amount of management will be required from the Council in performing this obligation and thereby providing this service.

26.       I accept that the construction of the lease is not without difficulty.  I have however, with respect to the LVT, come to a conclusion different from that which it reached.  I cannot accept the LVT analysis in paragraph 22 of its decision where it concluded, inter alia, that paragraph 14 part 2 was “inherently meaningless”.  I conclude that it does have a meaning and effect as explained above.  In my view the LVT erred in failing to give effect to paragraph 14 part 2 and in apparently concluding that the only services within clause 3(i)(b) which could be charged for (and the management costs of providing which could be included) were the services expressly referred to as additional services in paragraph 3 of the Eighth Schedule.  As shown above, even leaving aside paragraph 14 part 2, the lease through the Eighth Schedule imposes substantial obligations on the Council the fulfilment of which can in my judgement properly be described as the provision of services to the lessee.  Accordingly management costs involved in the provision of these services (and in particular management costs in ensuring that the whole of the Reserved Property is kept in good and tenantable repair and condition) can be included as part of the service charge calculation by reason of clause 3(i)(d).

27.       I therefore conclude that the LVT’s decision that £50 was an appropriate management charge cannot stand as it was based upon too restrictive an interpretation of the lease.  Also this assessment of £50 cannot stand because the LVT assessed this merely by reference to its general experience of management charges for services of the nature which is understood were provided, rather than by applying the words of clause 3 and seeking to establish in accordance with that clause what was the proportionate amount which should be paid to the Council based upon reasonable expenses and outgoings to be incurred by the Council upon certain matters.

28.       It would appear that a substantial part of the expenses and outgoings of providing the discretionary leasehold services are properly to be included within the calculation of the service charge by virtue of clause 3(i)(b) (which deals with the cost of services) rather than clause 3(i)(d) (which deals with management costs).  However the recoverability of an ingredient which is properly to be included within the service charge calculation cannot in my view depend upon the label which has been put upon it.  Thus the fact that the Council has chosen to describe the costs of the discretionary leasehold services as part of the management charge rather than as part of the cost of the services does not in my view mean that these costs cannot properly be included in the calculation of the service charge, especially as the nature of these services can properly be described as services in the nature of management.

29.       Quite apart from any questions arising under sections 18 and following of the Landlord and Tenant Act 1985, there remains the express contractual requirement in clause 3 that the service charge is to be calculated as a proportionate amount being the “reasonable” expenses and outgoings to be incurred by the Council upon the matters mentioned in paragraphs (a) to (d) of clause 3(i).  The Council cannot provide any service it chooses to provide and then demand of the lessees that they contribute towards the costs of that service through the service charge.  It is necessary that the costs of the service in question are reasonable.  It will also be necessary that the costs of the service are reasonably incurred and that the services are of a reasonable standard (see section 19 of the Act).

Conclusion upon review stage

30.       For the foregoing reasons I conclude that the LVT’s decision limiting the management charge element of the service charge to £50 cannot stand and must be quashed.  I therefore pass on to consideration of the evidence which was placed before me at the hearing. 

Evidence

31.       The evidence relied upon before me by the appellant was substantially the same evidence as was placed before the LVT.  There were written witness statements in the same form as were before the LVT from Gail Moyle, Business Support Manager at BCH; Jackie Smith, Capital and Value for Money Accountant at BCH; and Hamida Master, Social Housing and Development Co-ordinator at the Council.  The witnesses were sworn, gave evidence confirming their written statements, and then added certain further evidence and explanations orally and were cross-examined by Mr Morris.

32.       Mrs Moyle confirmed that BCH is an ALMO which is wholly funded by the Council through payment of a management fee pursuant to a management agreement.  The duty of BCH is to carry out management under the agreement.  BCH has no shareholders and does not make a profit.  It is owned by the Council.  It manages all of the Council’s tenanted properties, namely properties occupied by tenants and properties occupied by lessees, as well as certain other properties not presently relevant.  Mrs Moyle gave evidence by reference to page 269 of the bundle and explained how the management charge of £194.78 had been calculated.  What had been done was that the estimated on account payment for the year commencing 1 April 2011 had been calculated by reference to the actual costs incurred in the year ended 31 March 2010, which was the latest completed year at the date that the estimated charge was calculated.  She explained that the leasehold estate (as opposed to the tenanted estate) is managed by BCH through the work of three officers, namely the Business Support Manager (which was herself – she having overall responsibility for various matters including the Home Ownership Manager); the Home Ownership Manager; and a Home Ownership Officer.  The total employment costs incurred by BCH for these officers was identified.  It was then necessary to recognise that only a part of their work was directed towards running the leasehold estate.  75% of the Home Ownership Manager’s employment costs were included; 80% of the Home Ownership Officer’s employment costs were included; and 10% of her own employment costs (as Business Support Manager) were included.  She explained that the management costs incurred by BCH (and therefore reimbursed to BCH by the Council) in relation to the leasehold properties comprised the following activities as set out at page 211 (also page 109).  I set out this list below but for convenience I have introduced numbering to each item as opposed to merely a bullet point:

“Management Administration Costs

Homeownership

What is paid for through this element of the Service Charges

1.     A dedicated specialist Homeownership Officer & Manager as a first contact point for dealing with Leaseholder enquiries.

2.     Quarterly forums/annual conference

3.     Twice yearly specialist newsletter

4.     Collating and inputting charges onto Leasehold Accounts

5.     Issuing Invoices and associated information twice a year

6.     Collecting payments

7.     Arrears actions as necessary

8.     Updating Leasehold records and change of details

9.     Dealing with pre sale Solicitor enquiries

10.  Gas safety for Leaseholders

11.  Advising on payment methods and making acceptable payment arrangements

12.  Twice yearly statements of account

13.  Statutory consultation under the Commonhold & Leasehold Reform Act 2002

14.  Leaseholders Handbook

15.  Leasehold Service Standards

16.  Leaseholders pages on BCH website

17.  Advising Leaseholders as to their rights and obligations under the terms in the Lease

18.  Enforcing lease conditions and granting consents to improvements, subletting etc

19.  Liaison with wider BCH services

20.  Monitoring and reporting on accounts to Leaseholders, Accountants

21.  Reviewing service to ensure all legal and Government legislation is being met, improvements as suggested by Leaseholders are implemented, best practice from benchmarking is introduced.

22.  Providing information at Inspections

23.  Face to face interviews on request, home visits.

24.  Homeownership is part of the Business Support Team and a % of the Business Support Manager, other Accounts Officers and Administration Assistants time is spent supporting the work of Homeownership.

In addition to the dedicated Homeownership service Leaseholders are included in the following services:

25.  Major improvements, repairs and maintenance programmes & planned work contracts

26.  Customer Involvement

27.  Estate Management & ASB Services

28.  Repairs Hot Line for responsive and emergency repairs

29.  Support Services such as Finance and IT.”

33.       Mrs Moyle then explained that there were other staff costs in support of the homeownership team and that, although the proportion of lessees was about 7% of the total housing stock, not all of the support costs were deemed to be relevant to the lessees and therefore 2% had been used to identify an element of these costs properly attributable to the leaseholder estate, namely 2% of the costs of two Business Support Assistants; 2% of the costs of the Finance Team; 2% of the costs of the Human Resources Team; 2% of the costs of the Information and Technology Team; and 2% of the Anti-Social Behaviour Team.  These costs are shown on page 269.  7% of the total staffing costs of the Customer Involvement Team were included.  0.81% of the total staffing costs of the Repairs Hotline Team were included (this percentage being based on the ratio of lessees’ repairs to tenants’ repairs in previous years).  Costs were then identified for certain aspects of running the home ownership team and service such as printing and stationery and conference expenses and refreshments (e.g. tea and biscuits) for meetings with lessees and legal costs.  There was also included 2% of the general non-staffing costs relating to anti-social behaviour matters and 2% of certain further (minor) costs.  There was then included 7% of the costs of running the Customer Involvement Service, the largest item for which was 7% of £22,568 in respect of the tenants’ newsletter.  It should be noted that there had already been included in the home ownership service costs the cost of the lessees’ newsletter (which is separate from the tenants’ newsletter) which involved a cost of £1663.00.  The 7% share of the tenant newsletter was a further £1579.76. 

34.       As regards how the percentage proportion of time spent by the homeownership manager or the homeownership officer was calculated (75% and 80% referred to above) Mrs Moyle said that there had not been any time or motion study but that the general feel was that this was the appropriate amount.  These were figures given by those officers themselves of their appraisal of the amount of time they spent on leaseholder matters as opposed to other matters.  Neither of these officers gave evidence, but their views as to the relevant proportion of their time was reported to me by Mrs Moyle.  There was no written instructions to them as to how they should assess the relevant proportion of their time.

35.       Mrs Moyle gave evidence regarding various of the particular items which I have numbered in the list set out at paragraph 32 above.  The forums and the annual conference were useful to convey information to and receive representations from lessees.  The newsletter was a useful and economic way for the Council to give information to lessees, including contact details and information regarding forthcoming external works and regarding gas servicing and other information which the Council thought the lessees should know.  As regards item (7) this referred to management costs in pursuing through action monies due from lessees – but the actual court costs would only be charged to the individual lessee.  As regards item (9) this referred to dealing with pre-sale inquiries etc from solicitors in respect of proposed assignments of leases.  Mrs Moyle explained that this is part of the home ownership officer’s work and is included within the management charge.  She said that BCH were investigating the possibility of charging individual lessees who want to assign their leases for this work but that had not yet occurred.  She said that there might be as many as 10% of the lessees in any one year who were seeking to sell their leases.  As regards item (10) regarding gas safety Mrs Moyle explained that the Council gave information regarding necessary or advisable steps to be taken to get appropriate certificates and that the Council provided an inspection service if lessees wish to avail themselves of it.  As regards item 13 this was a reference to statutory consultation in respect of major works.  The cost of any major works would be charged through the service charge to the lessees in the relevant building where the major works were carried out, but the general management costs of dealing with such matters were charged as part of the overall management costs across all the lessees.

36.       Mrs Moyle said that the services provided as part of the management charge were available to all lessees and that the way in which these services were charged for was by working out the total cost properly referable to the lessees and then by dividing by the number of lessees – in other words each lessee paid the same amount in respect of these management charges.  Mrs Moyle said that this was a more reasonable and cost effective approach and any kind of time management exercise seeking to identify the specific cost of the management services provided at individual buildings would itself create work and a layer of administration that would be unworkable on a day to day basis (with approximately 400 lessees to deal with) and would be more costly than the current calculation.  It should be observed that the lease in clause 3 permits as one of the heads of charge the recovery of the expenses and outgoings incurred in the computation and collection of other monies due from the lessee.

37.       Mrs Moyle said that a benchmarking exercise had been performed to compare the management and administration costs claimed by the Council with amounts claimed by other authorities for such matters.  She accepted that the amounts referred to by her were amounts that she had merely been informed about by the relevant authorities – she did not know whether there had been any reference to a Leasehold Valuation Tribunal in respect of them or whether any such challenge was outstanding.  She referred in paragraph 17 of her statement to seven separate authorities where the management charge ranged from £135 to £180 – the average was just under £150.  She was asked why the amount claimed by the Council, namely £194.78 was so much more than this figure.  She said that the amount claimed by the Council was based on the true costs of the service provided.

38.       Jackie Smith gave evidence.  She confirmed her written statement which in fact contained the calculations which Mrs Moyle had dealt with in her evidence.  She stated that the Council and BCH had not carried out any year end adjustments regarding the amounts claimed by way of service charge.  All of the amounts that have been claimed have been claimed by way of estimated on account payments.

39.       Hamida Master gave evidence.  She explained the contractual arrangement between the Council and BCH and she produced the management agreement.  She said that the amount to be paid to BCH by the Council for its management in each accounting year is based upon the costs of the previous year with an inflation uplift but also a reduction to reflect the expected efficiency savings. 

40.       Mr Morris gave evidence.  He referred to his statement of case  and the documents which he had produced (which I have already referred to above).  He said he entirely agreed with the LVT’s analysis.  He said that it was as clear as day what he had to pay for and he did not have to pay for the extensive services for which the Council was claiming.

Discussion

41.       In my view the proper approach to assessing the appropriate amount recoverable by the Council through the service charge provisions in respect of the items they seek to charge for (under the heading of management costs) is as follows:

1.     First it is necessary to consider whether the items are items the expenses and outgoings for which are properly recoverable under clause 3.  As regards items claimed for by the Council under clause 3(i)(b) by reliance upon the combination of paragraph 14 part 2 of the Seventh Schedule and the Eighth Schedule, for the expenses and outgoings for such items to be properly included in the calculation they must be expenses and outgoings to be incurred in respect of “services” which are either actually incurred in pursuance of an obligation in the Eighth Schedule or are deemed to be so incurred.  Thus if reliance is placed on clause 3(i)(b) the item charged for must be properly be described as a service provided for the lessee. 

2.     Also such a service must be one reasonably provided for the lessees by the Council – otherwise the relevant expenses and outgoings would not be within the words “reasonable expenses and outgoings… to be incurred…”  It is therefore necessary to consider whether the services claimed for are reasonably provided.  As regards such items as can properly be charged for through clause 3, it is next necessary to consider whether  the amount of “the reasonable expenses and outgoings…. to be incurred” has been properly identified.

3.     It is necessary to consider whether what the lessees are being asked to pay can properly be described as “a proportionate amount” within clause 3(i).

4.     It is necessary to consider whether section 19 and following of the Landlord and Tenant Act 1985 limits the recoverability of the amount claimed.

42.       I consider first point (1) from paragraph 41 above.  I turn to the 29 numbered items in paragraph 32:

1.     BCH was entitled to provide the various services and other clause 3 items through a Homeownership Officer and Manager.  The question of how much of their employment costs should be allowed for is a matter I return to below.

2.     I conclude that the following numbered items constitute reasonable services provided by the Council through its manager BCH namely items (2), (3), (10), (14), (15), (16), (17), (19), (20), (21), (23), (27) (anyhow  so far as concerns anti-social behaviour services directed towards keeping the various estates clean etc and in the condition contemplated in paragraph 2 of the Eighth Schedule), and (28).

3.     Items (4), (5), (6), (11) and (12) involve expenditure in the collection of the rent and the computation and collection of other monies due from the lessee and are therefore claimable under clause 3(i)(d).

4.     Items (13) and (25) appear to be the management costs of dealing with major works on the various estates.  I conclude that this is a reasonable service which is properly chargeable for by the Council.

5.     I was told that item (22) is no longer of any relevance and generates no costs.  Item (29) appears not to be a separate service but merely an element of the costs of providing the other services.

6.     Accordingly I conclude that the items mentioned above are items which are reasonably provided by the Council and the expenses and outgoings to be incurred in respect of these items constitute expenses and outgoings which can properly form an ingredient in the calculation of the service charge.

7.     I take a different view regarding items (7), (8), (9) and (18).  Clause 3(i)(d) allows the inclusion of the management costs in the collection and calculation of certain monies due from the lessee.  No doubt the same or similar expenses will be incurred for each lessee in making such a calculation.  The costs of doing this is already allowed for in the items mentioned in sub-paragraph (3) above.  However costs (including management costs) involved in taking proceedings against defaulting lessees do not constitute costs spent on a service provided to the lessees.  Similarly I do not see that the enforcing of lease conditions or granting consents to improvements/subletting or the updating of leasehold records and changing details is a service provided to the lessees.  Also the fact that the Council (or BCH) may find itself required to respond to inquiries before contract from solicitors acting on behalf of prospective purchasers of leaseholds does not in my view constitute the provision of services to the lessees.  These are particular expenses, which, if they are to be recovered, should be recovered from the lessee who is seeking to assign the lease.

8.     Items (24) and (26) do not appear to be separate self standing items.

43.       As regards the items in respect of which the expenses and outgoings to be incurred in their provision can properly be included in the calculation of the service charge, the next question is whether these expenses and outgoings have been properly assessed.  A major element in the calculation as shown at page 269 is the allocation of a proportion of the employment costs of three officers.  The evidence as to the justification for the 75% and 80% figure is unconvincing.  The officers in question made the assessment regarding how much of their time they spent, but they have not given evidence to me.  I was told that these officers were not given any detailed instructions as to what items to include and what not to include within the time allocated to lessees.  It seems however that they would have included time spent on the items which I have found not properly to be recoverable as described in paragraph 42(7) above.  The evidence was that there were numerous applications to assign leases each year and it would seem likely that a significant amount of time would be spent on such matters.  Also there is nothing to indicate that merely an insignificant amount of time would be spent upon items (7), (8) and (18).  Also Mrs Moyle’s evidence was that the percentage figures had been decided upon because the “general feel” was that the figures of 75% and 80% were correct.

44.       Upon this point Mr Clegg submitted that even if I were to find the evidence unsatisfactory it was the only evidence before the Tribunal and that therefore I should adopt the 75% and 80% figures.  I am unable to accept that argument.  Bearing in mind that the percentage estimates appear to have included time spent upon items which should not be included and bearing in mind the “general feel” element of sophistication of the assessment, I am not persuaded on the balance of probabilities (which is the relevant test) that the 75% figure and the 80% figure properly represent the relevant element of the reasonable expenses and outgoings to be incurred by the Council in the year commencing 1 April 2011 upon the costs of these officer’s work upon properly claimable items.  Doing the best I can on the material before me, I conclude on the balance of probabilities that a percentage of 60% for the homeownership manager and 65% for the homeownership officer does properly represent reasonable expenses and outgoings to be incurred by the Council in relation to properly claimable matters.  This results in £21,798.60 being substituted for £27,248.25 and £12,613.90 being substituted for £15,524.08.  As regards the figures included in respect of “customer involvement team” for which £8,061.48 was included it was unclear to me what this involved.  Mrs Moyle was recalled to explain and she said that this team monitors ground maintenance and forms a scrutiny committee and arranges meetings and agendas for the forums.  I was not persuaded that there was a justification for applying the 7% figure to the total costs for these items rather than a 2% figure as was applied for various other expenditure.  Also it is pointed out at page 285 that a figure £107,410 should have been used instead of the figure actually used at £109,410.  Making this correction and applying a 2% figure, a figure of £2,263.28 should be included rather than £8061.48.  Also I note that the lessees are charged the entire cost of their own newsletter but are also charged separately a 7% proportion for the tenants’ newsletter.  I conclude that it is not the provision of a reasonable service for the lessees to be provided with the tenants’ newsletter as well as their own newsletter.  I conclude therefore that £1579.76 should be deducted from the total.  The total deductions to be made therefore from the £78106.26 total on page 269 are £5449.65 (namely £27248.25 minus £21798.60) and £2910.18 (namely £15524.08 minus £12613.90) and £5798.20 (namely £8061.48 minus £2263.28) together with £1579.76.  The resultant figure is £62368.47, which when divided by 401 gives £155.53.

45.       It will be remembered that the service charge bill which is under challenge in these proceedings is the bill sent in by the Council as a demand in advance on account based on estimates of the reasonable expenses and outgoings to be incurred in the relevant service charge year on certain items.  I conclude that the reasonable expenses and outgoings to be incurred should be assessed upon the basis set out above.  If it turns out that in fact the reasonable expenses and outgoings are identified after the end of the year as more or less than the amount so assessed, then an appropriate adjustment can be made as contemplated in clause 3 (although I was told that the Council does not in fact choose to make any year end adjustments one way or the other).

46.       As regards the question of whether what Mr Cargill and Mr Morris as lessees are being asked to pay for the year commencing 1 April 2011 can properly be described as “a proportionate amount” I consider the answer to be as follows.  The lease does not lay down, as many service charge provisions do, that the lessee is to pay a stipulated percentage e.g. X% of a total amount.  Instead what is to be paid is “a proportionate amount” of certain reasonable expenses and outgoings to be incurred.  The Council pays BCH a global management fee for all BCH’s work of management.  The Council does not pay identifiable separate amounts for the management of particular buildings.  Subject to the criticisms made above (for which I have made deductions) the Council and BCH have performed a reasonable apportionment of BCH’s global costs over the entire housing stock so as to obtain an assessment of the “reasonable expenses and outgoings… to be incurred by the Council” upon the matters listed in clause 3.  I conclude that it is sensible to divide the costs of providing these management services for the leaseholders by apportioning them equally to each leaseholder, rather than seeking some (unobtainable) precision by seeking to extract an estimate of the reasonable expenses and outgoings to be incurred by the Council in respect of individual buildings. Any attempts to get such precision would be likely to be unsuccessful and would increase the work required in calculating the service charge being work for which the lessees could be further charged under clause 3(i)(d).

47.       Section 19(2) of the 1985 Act provides:

“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 adjustments shall be made by repayment, reduction of subsequent charges or otherwise.”

I conclude that, subject to the adjustments referred to above, the amount claimed under the heading of “management charge”, for the year commencing 1 April 2011 was reasonable.

Conclusion

48.       In the result I conclude that for the year commencing 1 April 2011 the service charge for both Mr Cargill and Mr Morris should have included for management charge the figure of £155 instead of the figure of £194.78.  £155 was properly recoverable as the in advance on account payment in respect of management charge (to include the discretionary leasehold services provided under part 2 of paragraph 14 of the Seventh Schedule) for that year.

49.       As regards the LVT’s decision that £50 was payable by Mr Morris for all of the service charge years from 2002-2003 onwards, I conclude that this finding also is wrong and must be quashed.  Upon the evidence before me I accept the Council’s argument that the amount properly chargeable by way of management charge for each of those years was at least the amount in fact charged by the Council, such that nothing is repayable to Mr Morris for any of these years.

50.       The appellants’ appeals are allowed.

Costs

51.       Mr Clegg informed me at the conclusion of the hearing that the appellants did not seek to disturb the LVT’s orders regarding the reimbursement of fees.

52.       An application under section 20C of the Landlord and Tenant Act 1985 was made to me orally at the hearing by the respondents.  While the appellants have succeeded on their appeal they have not succeeded to the full extent sought.  Also the need for these proceedings has stemmed from the way in which the leases were drafted.  I order that all of the cost incurred by the appellants in connection with these proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the respondents.

 

27 August 2013

 

His Honour Judge Huskinson