UT Neutral citation number: [2013] UKUT 96 (LC)

Case Number LRX/49/2012

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – service charge – proposed works – reasonableness - issue of affordability  – whether raised - whether determined by LVT – s20C costs

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF

THE LEASEHOLD VALUATION TRIBUNAL OF THE

LONDON RENT ASSESSMENT PANEL

BETWEEN HILLFINCH PROPERTIES LIMITED Appellant

and

THE LESSEES OF SOUTHBOURNE COURT  Respondents

Re: Flats 1 – 28, Southbourne Court,

 The Hyde, Colindale,

 London, DT4 0UF

Before: His Honour Judge Mole QC

Sitting at: The Upper Tribunal (Lands Chamber), 45 Bedford Square,

London, WC1B 3DN

on 1 February 2013

Counsel for the Appellant: Mr Stan Gallagher instructed by Comptons Solicitors LLP.

The Respondents did not appear and were not represented.

The following cases are referred to in this decision:

London Borough of Havering v Macdonald [2012] UKUT 154 (LC)

Garside v RFYC Ltd & Maunder Taylor [2011] UKUT 367 (LC)

DECISION

Introduction

1.           The appellant company is the freeholder and landlord of Southbourne Court, the property in question.  Southbourne Court is a purpose-built three-storey block of 28 flats.  The respondents are the 28 lessees of those flats.  The appellant made an application to the LVT under section 27A (3) of the Landlord and Tenant Act 1985 for a determination as to the reasonableness of the costs of proposed major works to the property.  The works were described in the appellant's notice under section 20 to the lessees, dated 16 May 2011, as "external repairs and redecorations including (but not exclusively) works to the flat roofs, soffits, rendering, pointing, waste pipes, gullies, trains, rear access road, drainage and pest control."  What was not mentioned in the notice was any works to repair or replace the balconies to the rear of the flats.  This was due to some uncertainty as to whether the liability for those balconies fell upon the appellant landlord or upon the lessees.  After the service of the section 20 notices the appellant came to the view firstly that the liability for repairs or replacement of the balconies rested upon the lessees and secondly that the balconies needed to be replaced at a substantial extra cost.

The LVT Decision

2.           The LVT recorded (paragraph 10) the issues it was asked to determine as being –

"(a) Are the costs of replacing the balconies recoverable as relevant service charge expenditure under the terms of the lease?

(b) If so, is the total estimated cost of replacing the balconies and other major works included in the specification ... reasonably incurred?

(c) Are the overall costs reasonable?"

3.           The LVT concluded that the appellant is obliged to do the work to the balconies and the cost is, in principle, recoverable by way of service charge contribution.  There is no challenge to that conclusion. The LVT continued (at paragraph 22)

"However, Mr Taylor (the chartered surveyor representing the appellant) accepted that the proposed balcony works had not formed part of the consultation process undertaken by the (appellant) so far.  Consequently, the (appellant) must either consult separately in relation to this work or recommence the consultation process altogether to include the entire specified works.  Until this occurs, the Tribunal is unable to make a determination as to whether the scope and cost of the proposed works are reasonable."

4.           Under the heading of "The Other Major Works - Reasonableness "the LVT briefly recorded the arguments.  In paragraph 24 it said

"None of the Respondents had contended that the proposed works were unnecessary or that the scope was excessive.  Equally, none of the respondents had contended that the estimated cost was unreasonable.  The only concern expressed by Mr and Mrs Marfil, along with some of the other lessees, was one of affordability."

5.           Then (in paragraph 25) the LVT "found that the scope of the proposed major works and the estimated cost to be reasonable" (sic) and explained why.  It continued, in paragraph 26 –

"It is perhaps important to note that the Tribunal's finding in relation to the proposed works does not mean that it also finds that the actual scope of the (if varied) costs (sic - I assume 'works' was meant) and the final costs are also reasonable.  If necessary, the lessees may later bring a separate application to challenge any of these matters.  The Respondents had voiced their general concerns about their ability to afford the cost of the proposed works and this was dismissed by the (appellant) as not being a statutory criteria of what amounted to reasonableness under section 19 of the Act.  However, in the light of the recent Upper Tribunal judgment in Garside & Anor v B R Maunder Taylor (LRX/54/2010)[1] it seems that it is now open to a Tribunal to make a finding of unreasonableness under section 19 in the event that a landlord fails to take into account the issue of affordability on the part of lessees in relation to the phrasing and timing of proposed major works."

6.           The LVT then noted that the respondents had made an oral application at the hearing for an order under section 20C that the appellant be prevented from recovering any costs it had incurred in the proceedings through the service charge account.  Paragraphs 28 and 29 of the decision read as follows –

"28.  The Respondents submitted that the application was premature and that it could have been made, if needed, once the proposed works had been completed.  Therefore, the costs of these proceedings should be irrecoverable.  In reply, Mr Taylor argued that the (appellant) could not be criticised for seeking to protect its position by making this application to obtain greater certainty in relation to the proposed works.

29.  It was beyond doubt that the substantive issue that gave rise to this application was the uncertainty on the part of the (Appellant) about the Respondents' service charge liability regarding the balconies.  Mr Taylor candidly admitted that the (appellant) had received conflicting legal advice about this matter.  That uncertainty had been created by the terms of the leases granted by the (appellant).  The leases were documents proffered by the (appellant).  Therefore, the costs incurred in proceedings such as these to put matters right which ought to have been made express and clear by the (appellant) at the time the leases were granted should not be borne by the lessees.  Accordingly, the Tribunal makes an order preventing the (appellant) from recovering any of the costs it has incurred in these proceedings through the service charge.  For the same reasons, the Tribunal also makes no order requiring the Respondents to reimburse the (appellant) the fees it has paid to have this application issued and heard."

7.           The appellant sought leave to appeal from the LVT on two grounds: whether the LVT did or should have taken into account the question of affordability and whether it erred in law in its decision on costs.  The LVT refused permission saying –

"The grounds of appeal disclose no basis on which the Tribunal's findings set out in paragraphs 25 and 26 of the decision are contradictory and/or mutually exclusive.  The substantive finding upon which the decision is made is set out in paragraph 25.  Paragraph 26 is not a finding made by the Tribunal and upon which the decision is based.  What is said in paragraph 26 is clearly obiter dicta.  As such, it was not necessary for the Tribunal to decide the Garside point.  In any event, this was not properly raised or argued by either party at the hearing and it would be improper for the Tribunal to decide the point in this way."

8.           On the 8th of June 2012 the President of the Lands Chamber gave permission to appeal by way of review limited to those two grounds.

Submissions

9.           At the hearing before me I gave Mr Gallagher, counsel for the appellant,  permission to amend the statement of case to assert, supported by the witness statement of Mr Taylor, that the factual position was that Mr Taylor had been asked by the LVT whether the Garside case was relevant and he had submitted that it was not as, unlike the factual position in Garside, the Southbourne Court works were all external and could not realistically be split into separate contracts and phased so as to spread the costs.

10.        Mr. Gallagher submitted that it was not clear from the decision whether the LVT had decided the Garside v RFYC Ltd & Maunder Taylor [2011] UKUT 367 (LC) point or not.  Either it had done so, in which case it had gone wrong in law in relying on affordability as a material, alternatively a decisive, consideration against the appellant as it was not open to it on the facts to do so.  Or, if the LVT had not decided the Garside point, it should have done so.

Consideration and Conclusion

11.        It seems to me that the first question is to decide what the LVT actually did.  The finding at paragraph 25 of the decision is clear: the scope and cost of the proposed major works, excluding the balconies, would be reasonable.  True, there might be some opportunity for confusion in that the phrase "the proposed works" in paragraph 22 means the proposed works to the balconies, while in paragraph 26 the phrase "the proposed works" must mean the proposed works, excluding the works to the balconies, but that is made tolerably clear by the words "the Other Major Works - Reasonableness", the heading over paragraph 23.  (Underlining added.)

12.        Paragraph 26 does introduce a somewhat uncertain note in the first and second sentences but the most natural reading of them is that the LVT is doing no more than making the obvious and correct point that if the proposed works are varied and the actual costs of the varied works turn out to be different, then the determination the LVT made in paragraph 25 will not stand in the way of a further challenge by the lessees. This reinforces the point that the LVT regarded itself as having reached a concluded decision in paragraph 25 on the scope and cost of the proposed works excluding the balconies.

13.        It is the next passage in paragraph 26, where the LVT turned to the issue of affordability, that does cause a genuine problem. In the reasons for refusal the LVT say that what follows is obiter dicta; it was not necessary to decide the Garside point and the LVT did not regard it as open to it to decide it.

14.        If the decision had been silent on the point and the LVT had not sought to explain it further in its refusal of permission it would have been tempting to conclude that the LVT must have determined the point and done so in the appellant's favour. Otherwise it is difficult to see how paragraph 25 could make sense. This is because the issue of affordability may go to whether the costs were reasonably incurred under section 19. The LVT expressly decided that the estimated cost was reasonably incurred. As the LVT recorded in paragraph 24, none of the respondents had contended that the cost was unreasonable. The only concern expressed was affordability. Mr Taylor is recorded by the LVT as dismissing affordability as a statutory criterion and adds in his witness statement that he also gave a brief factual explanation as to why the works could not realistically be split or phased. So there were brief arguments on both sides about affordability but no other challenge to reasonableness. The LVT had looked at Garside. Against that factual background, the compelling inference would have been that the LVT considered the affordability point in considering reasonableness and decided it in favour of the appellant. Otherwise they could not have reached the conclusion that the other proposed works were reasonably incurred.

15.        However, it does not seem to me that the LVT's additional explanation set out in the refusal of permission can simply be ignored. In the London Borough of Havering v Macdonald [2012] UKUT 154 (LC) Her Honour Judge Walden-Smith expressed the view (in paragraph 36) that it should be open to the LVT to expand upon its reasons later if it was suggested that the reasons were inadequate. To a limited degree that might be appropriate and helpful. On the other hand, in paragraph 37, Judge Walden-Smith referred to the authorities that make it plain that in general it is not open to a court or tribunal that is obliged to give proper reasons for its decision, to respond to a challenge of inadequacy by amplifying its reasons later. The difficulties that can cause are illustrated by this case. The additional explanation may make it clearer that the tribunal in question has not erred in law: but it may also make it appear more likely that it has.

The Non-Determination of the Affordability point

16.        The LVT says that it did not decide the Garside point. Was it necessary for it to do so? It seems to me that it was. The LVT were aware of the Garside case. Affordability was the "only concern" raised by the lessees. It was answered by Mr Taylor. Neither submission on the issue needed to be long. In my judgement the parties are entitled to a determination of the only live issue between them on a particular point.

17.        The Appellant succeeds on the point that the LVT went wrong in law in failing to determine the affordability issue and this matter must be remitted back to the LVT for determination. It may be that the issue could be dealt with by written submissions, but that is a matter for the LVT and the parties.

18.        It might be useful to add that what is said by the LVT in paragraph 26 about the decision in Garside v RFYC Ltd & Maunder Taylor [2011] UKUT 367 (LC) suggests to me that it would be wise to give the judgement of H.H. Judge Robinson (particularly paragraphs 13 to 20) careful consideration before applying it to the facts of this case.  I am concerned that the last sentence of paragraph, as it stands, is an incomplete statement of the law that could be misleading. However I fully appreciate that the LVT say that these remarks were obiter so I do not think it is necessary or appropriate to say more about it.

The Costs point.

19.        The LVT's decision on costs has been set out above so far as material. It is open to the LVT to make such order in respect of costs "as it considers just and equitable in the circumstances." This is an exercise of its discretion with which this Tribunal will not interfere unless the LVT has gone wrong in law by, for example taking into account a matter that it ought not to have taken into account or which no properly directed tribunal could take into account.

20.        It appears that the arguments presented in paragraph 28 failed to persuade the LVT. That is not surprising. In general it is likely to be reasonable and helpful for landlords to come to the LVT under section 27 to receive advance approval of the scope and cost of proposed works, particularly where the proposed works are substantial. It is also likely to be of advantage to the tenants. No doubt Parliament had that in mind when section 27A of the act was enacted. 

21.        The only reason the LVT gave for its decision on costs is to be found in paragraph 29. It was not said by the LVT that it decided to refuse the appellant costs because it thought the appellant had wasted the time of the tribunal and the lessees unreasonably by seeking to have the issue of construction resolved.

22.        The essence of the decision seems to be that the main issue turned on the meaning of the leases. The appellant had" proffered" the leases. If the leases were not clear that was the appellant's fault and the cost of obtaining clarity should not fall on the tenants. Matters "ought to have been made express and clear at the time the leases were granted." (It would seem that the LVT might have had in mind the contra proferentem principle of interpretation in cases of ambiguity.)

23.        There are many points that might be made about such an approach. It would be difficult to see how a landlord could ever succeed in adding the costs of proceedings to a service charge in any case where a question of construction of the lease arose, since usually the lease could be said to be the landlord’s document.

24.        The insuperable difficulty that LVT’s reasoning faces in this case is that in fact there was no ambiguity or lack of clarity in the leases. Earlier in the decision (in paragraphs 16 to 22) the LVT had dealt effectively with the interpretation of the leases so far as they related to the balconies. The LVT did not find the leases difficult to understand. On the contrary the provisions were clear, unambiguous and 'beyond doubt'. In those circumstances it does not seem to me that the LVT could properly take into account against the landlord, as a reason for refusing to allow it to add the costs to the service charge, a failure to make the provisions of the leases clear at the time the leases were granted.

25.        I therefore allow the appeal on this ground as well and remit the question of costs back to the LVT.

Dated 26 February 2013

His Honour Judge David Mole QC