UPPER TRIBUNAL (LANDS CHAMBER)

`

UT Neutral citation number: [2013] UKUT 0361 (LC)

LT Case Number: LRX/68/2012

 

                            TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charges – whether on account payments demanded in accordance with terms of the lease – whether LVT correctly limited its decision to only some of the period which the lessee contended was relevant – non-participation by lessor at hearing before LVT and Upper Tribunal

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

LONDON RENT ASSESSMENT PANEL

 

 

BETWEEN                                      MRS N G BHOJWANI                                     Appellant

                                                                           and

                                               12-18 HILL STREET INVESTMENTS LTD        Respondent

                                               (Subject to the note below)

 

Re: Flat 1, 12-18 Hill Street,

London W1J 5NH

                                                                    

                                               Before: His Honour Judge Huskinson

 

                                    Sitting at: 45 Bedford Square, London WC1B 3DN

on 15 July 2013

 

Desmond  Kilcoyne, counsel on behalf of the appellant

The respondent did not appear and was not represented

 

[Note: The respondent elected not to serve any respondent’s notice under Rule 25 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 as a result of which the respondent ceased to be a respondent to the appeal.  The respondent’s counsel Stan Gallagher was present at the hearing before the Upper Tribunal having been instructed on a watching brief on behalf of the respondent].

 

The are no cases referred to in this decision

 

© CROWN COPYRIGHT 2013

 

                                                                    DECISION

Introduction

1.           This is an appeal from the decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”) dated 2 February 2012 whereby the LVT decided certain matters as to the amount of service charges payable by the appellant as lessee to the respondent as lessor during various service charge years in respect of Flat 1, 12-18 Hill Street, London W1J 5NH.

2.           At all material times the appellant has held Flat 1 from the respondent upon the terms of a lease dated 4 November 1980 whereby the flat was demised by the respondent’s predecessor in title to the appellant’s predecessor in title for a term of 70 years from 29 September 1980 at the rents and subject to the terms and conditions therein contained.

3.           So far as is presently relevant the lease contained the following provisions in clauses 4 and 5 in respect of the payment of service charge by the lessee:

         “4. THE TENANT HEREBY COVENANTS with the Company and as a separate covenant with the Lessor that the Tenant will during the said term pay to the Company an annual amount equal to 8.82 per centum of the expenses and outgoings more particularly set out in the Fifth Schedule hereto reasonably and properly incurred by the Company in connection with the performance and observance during each and every year of the term hereby granted of the covenants on the part of the Company contained in Clause 3 hereof such payments to be calculated and paid in the manner hereinafter set out the first payment being a proportionate amount for the period from the date hereof to the next half yearly date for payment as hereinafter provided.

5(a) THE COMPANY shall on or before the Twenty Fifth day of March and the Twenty Ninth day of September (or as soon thereafter as is practicable) in each year determine the estimated amount required by the Company from the Tenant for the purpose of meeting the cost of the expenses outgoings and matters set out in the Fifth Schedule hereto for the ensuing half year and the amount of the estimate shall be based (with suitable modification in respect of any cost reasonably to be foreseen and for the amounts representing allowances for the replacement of capital equipment structural repairs carpet replacement and internal and external decorations) upon the amounts expended by the Company in the course of the Company’s financial year immediately preceding the half year for which provision is to be made such financial year commencing on the First day of January in each year or such other date to which the annual accounts of the Company shall be made up;

(b) The Company shall on or after the First day of January (or as soon thereafter as is practicable) in each year determine the actual amount laid out by the Company (and required by the Company from the Tenant) in meeting the cost of the expenses outgoings and matters set out in the said Fifth Schedule hereto in the preceding financial year as aforesaid of the Company;

(c) The Company shall notify the Tenant of the amounts calculated in accordance with sub-clauses (a) and (b) of this Clause and the Tenant shall pay the percentage of such amounts within Twenty one days of the demand but in the event that the payment made on account exceeds the actual amount subsequently ascertained as aforesaid (other than the amounts reserved for costs reasonably foreseen or for the replacement of capital equipment structural repairs carpet replacement and internal and external decorations) the balance shall be credited to the Tenant PROVIDED ALWAYS ….”

There then followed three provisos to the effect (i) an auditor’s certificate was to be conclusive and binding; (ii) as to what was to happen in the event of damage by fire; and (iii) providing that monies paid effectively towards a sinking fund were to be held on trust.  The Fifth Schedule made provision regarding the expenses and outgoings and other heads of expenditure in respect of which the tenant was to pay a proportionate part by way of service charge, which included in paragraph (4):

         “The cost of employing maintaining and providing a porter or porters (including the cost of accommodation and services in the Main Building or elsewhere) and the provision of uniform and boiler suits and other protective clothing.”

4.           The building in question comprises I was told 14 flats and a further flat used by the resident porter.

5.           Originally two separate matters came before the LVT, namely:

(1)        A matter that was transferred to the LVT by order of the Central London County court, being an order made in a claim in the county court in which the respondent was the claimant and the appellant was the defendant whereby the respondent sought the recovery of certain money alleged to be payable by the appellant pursuant to the provisions of the lease regarding service charge; and

(2)        An application made by the appellant to the LVT under section 27A of the Landlord and Tenant Act 1985 whereby the appellant applied to the LVT for a determination as to the amount of service charge payable by the appellant to the respondent for various service charge years.

6.           I was told that a hearing of these applications before the LVT was set for July 2012, but that on that occasion there were discussions between the parties and by consent the matter was adjourned.  The matter came back before the LVT on December 12 2011.  By that date the respondent had withdrawn its county court claim, as a result of which the matter which had been transferred from the county court for decision by the LVT had ceased to be a live matter before the LVT.  However the appellant’s application before the LVT remained to be decided.  Also by 12 December 2011 the respondent had decided not to participate in the hearing before the LVT.  As a result of this there was no appearance on behalf of the respondent before the LVT.  However the respondent’s counsel Mr Stan Gallagher was present as an observer with a watching brief (which is the role which he also performed at the hearing before the Upper Tribunal).

7.           Before the LVT there was a preliminary matter for decision namely whether the LVT had jurisdiction to hear the appellant’s application bearing in mind the status of the respondent under the lease.  It had apparently been suggested on behalf of the respondent that although the respondent was the appellant’s immediate landlord the respondent was not obliged to perform any of the covenants and, in effect, was the wrong party to be a respondent in this application under section 27A.  The LVT decided this point in favour of the appellant (finding that it did have jurisdiction to consider the appellant’s application) and there has been no appeal against that decision.  In summary the LVT concluded, on the basis of a deed of variation, that the respondent was not merely the appellant’s immediate landlord but was also the party responsible for the provision of services and the party entitled to receive the service charge.  As a result of this conclusion it follows that, when considering the effect of clauses 4 and 5 of the lease, references to “the Company” are, for all purposes relevant to the present case, to be taken as references to the respondent.

8.           The appellant’s application to the LVT was made in respect of the then current service charge year, namely 2010-2011 and also in respect of certain past service charge years, namely all years from 2003-2004 to 2009-2010.  It should be noted that in the county court proceedings, which were transferred to the LVT for determination of certain matters, there was in issue the question of whether service charge could properly be charged in respect of a rent for the porters’ flat for a period prior to the commencement of the 2003-2004 service charge year i.e. (prior to 25 March 2003), in that the respondent’s claim included a claim for rent in respect of the porters’ flat for a period commencing on 9 July 2002.

9.           In summary the appellant’s application raised matters under the following topic headings for decision by the LVT:

(1)  Whether all the service charge demands throughout the period under consideration were demands which failed to comply with section 47 of the Landlord and Tenant Act 1987 such that the amounts claimed in these demands were in any event not due from the appellant to the respondent until an appropriate notice was given by the respondent to the appellant.

(2)    Whether the quarterly demands for service charge payments on account in advance were valid demands having regard to the terms of the lease.

(3)     Whether the final demands issued by the respondent for additional payments by way of end of year deficit were demands for sums which were irrecoverable by reason of section 20B of the Landlord and Tenant Act 1985.

(4)     Whether the demands failed to comply with section 21B of the Landlord and Tenant Act 1985.

(5)     Whether the respondent was entitled to include, as an element of the costs going to make up the service charge, an element for rent in respect of the flat occupied by the porter.

(6)     Whether management fees were properly recoverable in the sums claimed as part of the service charge.

(7)     Whether certain professional fees were properly recoverable in the sums claimed as part of the service charge.

(8)     Whether certain accountancy/auditors fees were properly recoverable in the sums claimed as part of the service charge.

(9)     Whether various charges for electricity/water/gas etc were properly recoverable in the sums claimed as part of the service charge.

LVT’s Decision

10.        I have already recorded that the LVT decided the preliminary issue (namely jurisdiction) in favour of the appellant, see paragraph 7 above.

11.        The LVT decided that:

         “The application, as clarified at the hearing, does not cover any service charge year prior to 2003/04 nor any service charge year after 2008/09.  Therefore the payability of the Licence cost for 2010/11 and of the porter’s flat refurbishment costs for 2011/12 does not fall to be determined by this Tribunal.”

As a result of this conclusion the LVT decided that there were various matters which the appellant had raised before the LVT which the LVT could not or should not decide because the matters fell later than 24 March 2009 (the last day of the 2008/09 service charge year) or earlier than 25 March 2003 (the commencement of the 2003/04 service charge year).  The understanding of the LVT (which the appellant says was a misunderstanding) as to how the ambit of the appellant’s application was limited in this manner appears to have derived from the considerations set out in paragraph 16 of the LVT’s decision which is in the following terms:

            “16. At the hearing it was stated on behalf of the Applicant that no service charge accounts had yet been received in respect of the years 2009/10 or 2010/11, despite several requests for this information.  The Applicant was therefore unable to challenge the individual service charge items for these years in detail and, as a result, was not challenging these years as part of this application (and wished to ‘reserve her rights’ in relation to these years for a later stage).  Therefore, and notwithstanding the contents of the table of challenged items supplied by Counsel for the Applicant after the hearing, the Tribunal is treating the application as being restricted to a challenge of service charge items in respect of the years up to and including 2008/09 only.  Equally there is a reference in the table supplied by Counsel for the Applicant to the porter’s rent for the period beginning 9 July 2002 but the application itself only relates to the service charge years 2003/04 onwards and therefore The Tribunal’s determination will not cover any period prior to the 2003/04 service charge year.

The reference by the LVT to “notwithstanding the contents of the table of challenged items” is a reference to a table which was supplied by the appellant’s counsel to the LVT after the hearing on or about 2 January 2012 in which the appellant itemised over eight pages 49 numbered items which were the subject of challenge, including in item 1 the question of porter’s rent for the period commencing 9 July 2002 – 24 March 2004 (and therefore including a period of porter’s rent prior to 25 March 2003).  Also the table made clear that various items falling within service charge year 2009/10 and 2010/11 were the subject of challenge, including rent for the porter’s flat and a charge by way of fee for a licence.  The table also stated that a matter was the subject of challenge for the year ending March 2012, namely the charge for decoration of the porter’s flat.  The table was introduced by some text including:

         “As yet, the audited accounts for years ending March 2010 and 2011 (surprisingly) have not been served on the Applicant.  Accordingly the Applicant reserves the right to challenge (in any subsequent application to the LVT) any specific items identified in those accounts.  The Applicant respectively invites the Tribunal to expressly acknowledge this reservation in their determination.”

12.        Having decided upon the extent of the time period which was the subject of the LVT’s determination, the LVT then gave decisions upon the various matters in issue.  In summary the LVT’s decisions on these issues were as follows:

(1)                 The LVT noted that four demands, namely those dated 24 June 2004, 9 September 2004, 26 November 2004 and 15 September 2008 all stated the landlord to be 12-18 Hill Street Management Company, which was not the landlord.  The LVT concluded therefore that section 47 was not complied with in relation to those invoices.  The LVT observed that the appellant had not produced any invoices between November 2004 and September 2008 and the LVT further observed there was some evidence that the respondent had been inconsistent in the way it had expressed its demands. The LVT in consequence concluded there was insufficient evidence to justify generally extrapolating from the few copy demands supplied to conclude that the respondent was in breach of section 47 from 24 June 2004 onwards  The LVT therefore limited is conclusion that the demands did not comply with section 47 to the four specific demands mentioned above.

(2)                 As regards the question of whether the demands for a payment of service charge on account sufficiently complied with the terms of the lease, the LVT noted the appellant’s argument that she had been receiving quarterly (not half-yearly) demands in advance.  The LVT noted that it was argued that therefore the estimated service charge had not been demanded in accordance with the terms of the lease and that none of the estimated service charge demands had been valid.  The LVT rejected this argument stating that the appellant’s interpretation of the lease was unreasonably harsh; that there was no evidence that the appellant had been prejudiced by receiving quarterly demands; and that the wording of the clause is not particularly prescriptive.  The LVT concluded that the sending out of quarterly (as opposed to half-yearly) demands did not itself render those demands invalid.

(3)                 As regards section 20B of the 1985 Act the LVT concluded that certain demands for the end of the year deficit were irrecoverable, or partly irrecoverable, for failure to be demanded within the relevant period for the purposes of section 20B.

(4)                 The LVT concluded there had been proper compliance with the requirements of section 21B. 

(5)        As regards the element of service charge representing rent for the porter’s flat the LVT examined certain authorities referred to by Mr Kilcoyne on behalf of the appellant.  The LVT concluded that what had been included within the service charge was not some actual rent being money which had been expended by the respondent upon rent for a flat for the porter, but was instead a sum representing a notional rent which the respondent could have received from a third party had the respondent not made the flat in the building available for the porter.  The LVT concluded that the lease was not wide enough to allow the respondent to include a notional rent within the service charge and that therefore the porter’s rent was not recoverable as part of the service charge for the years to which the LVT was limiting its consideration.

(6)        As regards certain items which the appellant challenged on the basis of evidence from her surveyor, Mr Faulkner the LVT concluded:

                                (a)        A minor amendment should be made by way of reduction to management fees;

                                (b)     As regards the accountancy/auditing fees, the LVT noted the evidence from Mr Faulkner and the quotation he had obtained from a firm of accountants to the effect that £2,500 per annum plus VAT would be a reasonable charge for the accountancy/auditing work for a building such as this.  The amounts which had in fact been charged had varied from £2,233 in one year to £13,340 in another year.  As regards this the LVT stated in paragraph 40:

“40. The Tribunal accepts that this quotation is of some evidential value.  However, it is clear from the information provided that the actual charges relate solely to the basic preparation and signing off of service charge accounts in each year.  It is true that the Respondent has not provided much information, but equally the Applicant’s challenge to these fees in its statement of case is not a sharp or detailed one and therefore arguably it is hard to respond to in a meaningful way.  Equally, whilst there is mention of book-keeping errors such as invoices allegedly being paid twice, no evidence has been provided to demonstrate that any errors were systematic or very common or ultimately caused lasting prejudice to leaseholders.  In the circumstances, whilst it is possible that the accountancy/auditor’s fees are higher than is reasonable and notwithstanding Mr Faulkner’s evidence the Tribunal does not feel that it has sufficient information to determine that this is the case.  Accordingly the Tribunal determines that the accountancy/auditor’s fees in respect of the years in dispute are properly payable in full.”

                                (c)        As regards certain professional fees which had been included for the year 2008/09 the LVT concluded these should be disallowed in their entirety.

                                (d)                As regards various electricity costs/water costs/gas costs for various years the LVT concluded that these were properly to be included in full within the service charge calculation.

                                (e)                As regards certain roof works in 2006/07 the LVT concluded that these were properly included in full within the relevant service charge calculation.

(7)    As regards the refurbishment to the porter’s flat in the year 2011/12 the LVT stated that, although with the benefit of hindsight this may not have been what the appellant intended, the LVT had been told at the hearing that the challenge was in the years up to and including 2008/09.  The LVT therefore concluded that this point regarding refurbishment of the porter’s flat did not fall to be determined by the LVT.

(8)    As regards the costs of a licence in the year 2010/11 for approval for the appellant carrying out works, it was noted that this was more appropriately considered as an administrative charge rather than a service charge.  However the LVT once again observed that, although with a benefit of hindsight this may not have been what was intended, this item fell beyond the service charge 2008/09 and therefore did not fall to be determined by the LVT.

(9)    As regards certain matters regarding water treatment and heating, maintenance, window cleaning and external repairs the LVT concluded that the full amount of these charges were all properly included within the service charge calculation.

(10) The LVT made an order under section 20C of the 1985 Act.

13.        Permission to appeal to the Upper Tribunal was sought upon four grounds:

(1)     Ground 1: That the LVT had wrongly confined itself to a restricted time period as being relevant to its determination, namely the LVT restricted itself to considering only the periods from 2003/04 to 2008/09.  It was submitted that this was a clear misunderstanding by the LVT; that the appellant had not so limited her application; and that the LVT could and should have considered (and should have decided in the appellant’s favour) certain matters which the LVT declined to consider namely:

(a)     the question of porter’s rent for the period 8 July 2002 – 24 March 2003 and also for the two years 2009/10 and 2010/11;

(b)     the licence fee (in substance an administration charge) which arose in the year 2010/11; and

(c)     the refurbishment of the porter’s flat which arose in the year 2011/12.

(2)     Ground 2:That the LVT had wrongly confined its decision (in favour of the appellant) upon section 47 of the 1987 Act to four specific demands.  It was argued that the LVT had overlooked the extent of the invoice documentation before it and had overlooked the appellant’s evidence that she had not received any service charge demands giving a name for the landlord other than 12-18 Hill Street Management Company – which was the wrong name.

(3)     Ground 3: That the manner in which the respondent had demanded quarterly payments in advance on account of service charge were not demands made in accordance with the contractual terms of the lease and therefore were not payable by the appellant.

(4)     Ground 4: That the LVT’s decision upon the accountancy/auditing fees was wrong.  It was said that, bearing in mind the evidence from the appellant’s expert as to the unreasonableness of these fees and the absence of any evidence from the respondents, it was not properly open for the LVT to reach the conclusion it did.

14.        Permission to appeal to the Upper Tribunal was granted in the following terms:

         “The grounds of appeal each reveal reasonable grounds for contending that the LVT’s decision was wrong.  The appeal will proceed initially by way of review, but with a view to a re-hearing in the following sense.  The Applicant does not seek to appeal the whole of the LVT’s decision merely certain parts of it.  It will be for the Applicant to persuade the Tribunal in respect, separately, of the points raised in the four grounds of appeal that the LVT’s decision cannot stand upon the point challenged in the ground of appeal in question.  If in respect of any ground of appeal the Applicant succeeds in showing this, then the parties should each be ready to place before the Tribunal such further evidence (if any) as they seek to rely upon for the purpose of persuading the Tribunal to reach the conclusion contended for by them upon the relevant point.  Thus if invited to do so by the Tribunal, the parties should at the hearing be ready to proceed in this manner without the need for an adjournment.”

Hearing before the Upper Tribunal

15.        As already noted above, the respondent did not serve any respondent’s notice or seek to participate as a respondent in this appeal.  Having regard to Rule 25 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 the respondent ceased to be a respondent by virtue of having not served a respondent’s notice.  It may be observed that this omission to serve a respondent’s notice was a deliberate and considered decision, see the respondent’s solicitors’ letter of 8 October 2012.  However the respondent did send its counsel Mr Stan Gallagher to act as an observer with a watching brief at the hearing.  Mr Gallagher did not seek to suggest that he had any right to address me or any desire to address me upon the substance of the matters in the appeal.

16.        On behalf of the appellant Mr Kilcoyne dealt first with Ground 2 of the grounds of appeal.  He argued that the LVT had erred in reaching its conclusion that it must limit its finding that section 47 had not been complied with to four specific service charge demands.  The reason the LVT had erred was:

(1)        The LVT recorded that only four invoices had been provided.  However there were before the LVT various further invoices, all of them with the wrong landlord’s name, being invoices included within appendix 4 and appendix 5 to the appellant’s statement of case to the LVT.

(2)        Further, at the hearing before the LVT a complete bundle of invoices was provided all of which showed the wrong landlord’s name.

(3)        Also the appellant had given evidence confirming that all of the service charge demands stated that the name of the landlord was 12-18 Hill Street Management Co.

In the light of the foregoing Mr Kilcoyne argued that the only proper conclusion the LVT could have come to was that all of the relevant service charge demands bore the wrong landlord’s name and therefore did not comply with section 47.

17.        As regards Ground 1 of the grounds of appeal Mr Kilcoyne argued that the LVT had misunderstood the appellant’s position and had wrongly recorded her application “as clarified at the hearing” as not covering any service charge year prior to 2003/04 or after 2008/09.  He submitted that the appellant’s position was made perfectly clear and was not as understood by the LVT.  He further pointed out that the LVT appears to have had some doubt as to the correctness of its understanding when it states on several occasions (e.g.. in paragraph 62 in relation to the costs of the licence)

         “However, although with the benefit of hindsight this may not be what the Applicant intended the Tribunal was told at the hearing that the Applicant was only challenging service charge items in the years to and including 2008/09….”

Mr Kilcoyne argued that if, as appears to be the case, the LVT were concerned that there may have been a misunderstanding as to what was intended, the LVT should have checked with the appellant’s advisers.  He further drew attention to the table sent in at the LVT’s request after the hearing, and long before the issuing of the written decision, which expressly stated that various matters were the subject of specific challenge, including items which the LVT concluded were no longer part of the challenged items to be decided upon.  He argued that paragraph 3 of the covering text with the table (see at the end of paragraph 11 above) made clear what the appellant’s position was, which was that so far as concerns the years ending March 2010 and March 2011 the audited accounts (and therefore final demands by way of any balancing charge) had not been served – all that had been served for these years were the demands for quarterly payments on account.  This was in distinction to the earlier years where the final accounts and final balancing charges had been demanded.  The appellant was continuing her challenge in respect of, for instance, the inclusion of an element for the rent of the porter’s flat in the on account demands in advance for the service charge years ending March 2010 and March 2011.  What the appellant was reserving was her right to challenge the final accounts and final demand for balancing charge for these years in the event that, when the relevant material was eventually available, it appeared there was some inappropriate element of those accounts and that final demand.

18.        I raised with Mr Kilcoyne how his argument could extend to complaining that the LVT had omitted to give decisions upon elements of the service charge demands in advance on account for the year 2011/12, bearing in mind that that year was not part of the appellant’s application to the LVT.  Mr Kilcoyne realistically accepted that it was difficult for him to press objection upon this point.  However so far as concerns the question of porter’s rent payable for periods prior to 25 March 2003, Mr Kilcoyne argued that the LVT could and should have reached a decision upon this point.  The question of porter’s rent as an element of service charge for this period had been expressly a matter in issue before the LVT pursuant to the respondent’s county court claim against the appellant which had been transferred to the LVT.  True that application had become withdrawn upon the respondent withdrawing its county court proceedings.  However it was plain that this was a matter of contention between the parties which had validly been raised before the LVT in the matter transferred from the county court.  Also there could be no possible logic in the appellant limiting the point regarding porter’s rent to the period after 25 March 2003.  If the point was a good one it was equally good in respect of the period before 25 March 2003.  Also, and in any event, the respondent’s actual demand for payment of porter’s rent for the period 9 July 2002 to 24 March 2003 (and indeed beyond that date) was only sent on 28 November 2003, i.e. on a date within the 2003/04 service charge year.

19.        Mr Kilcoyne next addressed me as to what the position would be supposing that I concluded that his argument on Ground 2 was correct and that the LVT had erred in wrongly limiting the time frame of its consideration of service charges to the period 2003/04 to 2008/09.  This involved the consideration of the position regarding the three specific items which the appellant argued the LVT should have considered outside this time frame but wrongly failed to consider, namely porter’s rent, licence fee (licence granted during 2010/11), and the refurbishment costs of the porter’s flat (incurred during 2011/12).

20.        Dealing first with the question of the refurbishment of the porter’s flat, this was not a matter which arose during any of the service charge years which had been the subject of the appellant’s application to the LVT as originally made.  It fell within the service charge year 2011/12, i.e. beyond 24 March 2011.  However Mr Kilcoyne pointed out that this issue had been raised by the appellant in her statement of case and no procedural objection had been raised by the respondent (while still active in the proceedings) or by the LVT to the effect that this topic was in any event outwith the ambit of the appellant’s application.  The matter was expressly mentioned as a live issue (item 42) on the table sent to the LVT after the hearing at the LVT’s invitation.  The point should have been decided.  Mr Kilcoyne argued, so far as concerns the merits of this point regarding the refurbishment of the porter’s flat, that these sums could only be properly included if there had been compliance with the consultation provisions in section 20 of the Landlord and Tenant Act 1985 as amended and that there had been no such compliance.  He accepted that there had not (as yet) been any application by the respondent for dispensation from compliance with the consultation requirements under section 20ZA, but he pointed out that the respondent could have made such an application if it wished.  He accepted that the appellant has no evidence that the refurbishment work to the porter’s flat was actually done.  He stated that the appellant has sought in correspondence to see if a charge has been taken from her service charge account (or from her share of the reserve fund) in respect of this item but she has not had a response.  He invited the Upper Tribunal to make what he described as a conditional determination, namely to the effect that if any sum has been taken from the appellant’s service charge reserve account in relation to the proposed works of refurbishment of the porter’s flat then such amount is irrecoverable by reasons of failure to comply with section 20 in so far as it exceeds £250.

21.        As regards the licence fee, this strictly was an administration charge rather than a service charge, but no objection was taken upon that technicality.  It was within a relevant period which was before the LVT (namely 2010/11 service charge year).  It was expressly raised in the appellant’s statement of case.  In paragraph 130 of that document (vouched for by her statement of truth) it was pointed out that she was being asked to pay £1,603.88 for a licence to connect to the communal services (the licence being at page 289 of the main bundle); that this document appears to be have been a necessary document for all of the tenants to execute so as to give each of them separately permission to connect to the new system of communal facilities; that presumably one precedent licence could have been obtained and used (with any appropriate alterations) for all of the tenants; but that she believes that only she has been required to execute this document and that she considers she has been victimised in this respect.  It was pointed out that if all of the 14 leaseholders had been treated equally then the fee for the licence documentation would have been 14 times £1,603.88 which would come to over £22,000.  It was submitted that prima facie that was clearly excessive for the work involved.  It was further pointed out that there was no evidence submitted on behalf of the respondent to the LVT justifying the charge of £1,603.88 or answering the points made in the appellant’s statement of case.  In consequence the Upper Tribunal was invited to conclude, doing the best it could, that £800 (i.e. just under half what was charged) was the appropriate amount.

22.        So far as concerns the question of the inclusion of porter’s rent in the service charges for the time periods which the LVT declined to deal with Mr Kilcoyne advanced the following arguments.  He pointed out that the LVT (correctly he submitted) found that the respondent was not entitled to include within the service charge a sum representing notional loss of rent on the porter’s flat.  The LVT had made this finding and had applied it to the service charge years 2003/04 to 2008/09.  There was no cross appeal by the respondent against that finding.  Accordingly that finding stands.  The only point challenged by the appellant goes to the limitation (a wrongful limitation it is submitted) of the consequences of that finding to the time period 2003/04 to 2008/09.  If the Upper Tribunal agrees that the LVT erred in limiting the points it decided to that time frame then the proper course for the Upper Tribunal is to leave in place the LVT’s decision upon the principle regarding whether porter’s rent (or more precisely notional loss of rent in respect of the porter’s flat) could be included within the service charge (the finding being that it could not be included) and to leave in place the LVT’s decision excluding porter’s rent from the calculation of service charge for the years 2003/04 to 2008/09, but merely to put right the LVT’s decision by extending this finding that porter’s rent must be excluded in the calculation of service charge to the period (a) from 8 July 2002 to 24 March 2003, and (b) to the two service charge years 2009/10 and 2010/11.  It was not necessary or appropriate for the Upper Tribunal to consider the proper construction of the lease upon this topic and to consider whether the LVT was correct in its decision (on which Mr Kilcoyne submitted it plainly was) in concluding that notional rent could not be included as an element in the calculation of the service charge.  In case however I took a different view and concluded it was necessary to examine the correctness of the LVT’s decision that notional loss of rent in respect of the porter’s flat could not properly be included, Mr Kilcoyne indicated it would put in written submissions within 48 hours (which he duly did).

23.        As regards Ground 3 of the grounds of appeal Mr Kilcoyne argued that the LVT had erred in allowing the question of lack of prejudice to the appellant to obscure the proper consideration of the construction of the lease.  He also submitted that the LVT was wrong in describing the clause as being not particularly prescriptive.  He drew attention to clause 4 and the obligation to make certain payments to the respondent “such payments to be calculated and paid in the manner hereinafter set out”.  It was therefore necessary to see whether what was being asked of the appellant was that she should pay in the manner set out a sum calculated in the manner set out.  Mr Kilcoyne submitted there was a three-step process, namely:

(1)        first the respondent must (on or before 25 March or 29 September or as soon thereafter as is practicable) in each year determine the estimated amount required by the respondent from the appellant for the purpose of meeting the costs of the expenses and outgoings and matters set out in the Fifth Schedule for the ensuing half year (there being a stipulation as to what this estimate shall be based upon);

(2)        next the respondent must notify the appellant of the amount that has been calculated as her percentage of this estimated amount;

(3)        next there must be a demand for payment, being one demand for each half yearly period, and the appellant is required to pay within 21 days of such a demand.

Mr Kilcoyne argued that there was no evidence of any proper process of estimation by the respondent in accordance with the provisions of clause 5(a) of the lease.  The respondent did not participate in the hearing before the LVT.  The respondent had put in witness statements from certain witnesses (who were not called at the hearing to give evidence or be cross examined) but in any event these statements did not show that the respondent followed the estimating process laid down in clause 5(a).  The only documents which were sent out which could give an indication regarding the making of any estimates are the service charge demands themselves, which merely state (for instance – see page 919 of the bundle):

            “29/09/2005 Service Charges – Quarterly in Advance 29/09/2005 – 24/12/2005 £3257.79.”

Accordingly Mr Kilcoyne submitted there is no evidence that the respondent followed the procedure for the making of an estimate each half year on the basis required in clause 5(a) – indeed there is evidence that the respondent failed to do so because for instance in each year the amount demanded in advance on each quarter day (not half yearly as provided for in the lease) was the same amount throughout the year. In other words it appears there was no fresh making of an estimate for each half year, unless by chance the making of the second estimate in September came out with exactly the same figure as the making of the first estimate in March – as to which there was no evidence that this was the case.  The fact that the respondent chose to demand the service charge quarterly in advance rather than half yearly in advance was merely further evidence that the respondent was not following the procedure in the lease.  The appellant had made clear in her statement of case and throughout the proceedings that she contended that the service charges were not being properly demanded in accordance with the provisions of the lease.  The respondent chose not to participate in the hearing before the LVT or to call any evidence on the point.  The Upper Tribunal should proceed on the basis that the demands were not made in accordance with the lease.

24.        On this point Mr Kilcoyne suggested (and I agreed) that the appellant should be called to give short sworn evidence as to whether she ever received any document constituting the notification of an estimate in accordance with subclauses 5(a) and (c) of the lease.  The appellant was sworn and did give evidence to the effect that she had received the quarterly service charge demands in advance but had not received any document reporting to be a notification of an estimate prepared on a six monthly basis in accordance with clause 5(a).

25.        As regards Ground 4 of the grounds of appeal Mr Kilcoyne drew attention to the large sums included within the service charge accounts for auditors’ fees namely varying from £2,233.00 to £13,340.00 (page 677 of the bundle).  He drew attention to the fact that before the LVT a Chartered Surveyor, Mr Nicholas Faulkner BSc Hons FRICS MIRPM gave evidence on behalf of the appellant.  He exhibited a letter from an experienced chartered certified accountant (his exhibit 3) namely Wheeler and Associates Limited dated 22 June 2011.  This letter stated that, assuming that the bookkeeping on the site is reconciled and that there are no issues in respect of incorrect serving of service charge demands nor authorising of expenditure within the budget, that for a property such as the present (14 units with a total annual service charge demand of £190,000) he would not expect the accountancy fee to be more than £2,500 plus VAT.  Mr Faulkner in his statement drew attention to the fact that there did not appear to be any costs of audit for the respondent and related companies (within their respective profit and loss account).  He suggested that this may provide an explanation why the service charge accounts bear such a high audit fee.  He pointed out that the lease schedule did not allow the costs of other audit other than the service charge account to be recovered from the leaseholders.  Mr Kilcoyne relied upon this evidence from Mr Faulkner and on the absence of any evidence from the respondent to the contrary and on the decision by the respondent not to participate in the hearing (the respondent could have challenged Mr Faulkner’s evidence had it wished to do so but it did not do so).  In these circumstances he submitted that the LVT was wrong to dismiss this challenge to the accountancy fees in the way it did in paragraph 40 of its decision (see paragraph 12(6) above).  He submitted that there was a burden on the respondent to justify the fees which the respondent had failed to discharge.

Discussion

26.        In this case the appellant does not seek to challenge the entirety of the LVT’s decision.  As regards some aspects of the decision, involving points upon which the appellant lost, the appellant has not sought to appeal.  Upon some aspects of the decision, upon which she won, she clearly does not appeal against the LVT’s decision in her favour on the points in question – she merely appeals against the LVT’s limitation of the effect of that decision to a time frame more constrained than the time frame that the appellant says was in fact in issue before the LVT.

27.        The appeal has been ordered to proceed by way of review but with a view to a re-hearing as set out in paragraph 14 above.  I proceed accordingly.

28.        By way of summary I say that, apart from certain points involving service charges or refurbishment of the porter’s flat falling after 24 March 2011, I agree that the appeal should be allowed.  My reasons for so concluding are substantially those advanced in argument by Mr Kilcoyne.  I express them in my own words as follows.  I deal with the grounds of appeal in the same order as did Mr Kilcoyne in his submissions.

29.        As regards Ground 2 I conclude with respect that the LVT erred in limiting its finding that the demands had failed to comply with section 47 of the Landlord and Tenant Act 1987 to a finding which dealt only with four specified service charge demands.  The reasons why the LVT erred are as follows:

(1)        The LVT directed itself that only four demands were before it (paragraph 19 of the decision) whereas in fact significantly more demands (all of them failing to comply with section 47) were before it as being annexed to the appellant’s statement of case. Also all of the relevant demands were, so I accept, given to the LVT at the hearing.

(2)        The LVT received evidence, which was not challenged, from the appellant stating that from 24 June 2004 onwards all of the service charge demands had given the name of the landlord as 12-18 Hill Street Management Co (who was not the landlord).

In the light of this evidence the only conclusion to which the LVT could properly have come was that all of the service charge demands from 24 June 2004 onwards failed to comply with section 47.  This finding extends to the demands for service charge expressly so called and the demands for payments towards the reserve fund (which could only be charged under the lease as part of the service charge).  Accordingly nothing was payable pursuant to those demands and the amount so demanded is to be treated as not being due from the appellant to the respondent at any time before the relevant information is furnished by the respondent by a notice given to the appellants (see section 47(2)(b)).

30.        As regards Ground 1 of the grounds of appeal, I accept Mr Kilcoyne’s argument that the LVT has misunderstood what was stated to it by or on behalf of the appellant at the hearing.  I accept that it would have made no sense for the appellant to withdraw her application in respect of the on account service charges demanded for the years 2009/10 and 2010/11.  It would make perfectly good sense for the appellant to continue with her challenges to these demands for on account service charge, but to put down a marker that she was reserving her position to challenge the final service charges for these years by way of a further challenge if anything emerged in the final demands which she was advised merited a challenge.  It is this which, in my judgment, she did – and she made it clear that this is what she was doing in the introductory paragraphs to the table submitted in early January 2012 to the LVT at the LVT’s request.  This table was submitted after the hearing but before the decision, and is expressly referred to in the decision in paragraph 16.  Unfortunately there has been a misunderstanding by the LVT as to the appellant’s position.  Also I accept Mr Kilcoyne’s argument that it appears the LVT itself was doubtful as to whether what it believed the appellant had done (namely withdraw certain periods from the LVT’s consideration) was what she intended to do.  In fact this was not what she had intended to do nor was it what she had in fact done.  Accordingly I conclude that the LVT’s decision to exclude from consideration the service charge years 2009/10 and 2010/11 cannot stand and must be quashed.  So far as concerns the period for porter’s rent from 8 July 2002 to 24 March 2003 (i.e. for a period before the commencement of the service charge year 2003/04), it is true that this period was never part of the appellant’s express application to the LVT.  However it was a point which was live before the LVT by reason of the proceedings transferred to the LVT from the county court which stemmed from the respondent’s claim against the appellant in the county court for payment of money including service charge for this period which included a charge for porter’s rent.  Also there could be no logic in the appellant withdrawing that period regarding porter’s rent from the LVT’s consideration.  Further, the relevant demand for payment seems not to have been made until September 2003, i.e. within the service charge year 2003/04.  Accordingly I consider the LVT was wrong not to extend the effect of its decision regarding porter’s rent to this period from 8 July 2002 to 24 March 2003.  However the position is different so far as concerns the LVT’s decision not to treat as before it the costs of refurbishment of the porter’s flat, which would fall within the year 2011/12.  The appellant had not included this year in her application to the LVT.  Also it appears the facts were unclear as to whether any such refurbishment had taken place and whether any charge for such works had been made to the appellant’s service charge fund.  The respondent chose not to participate in the hearing before the LVT.  It would be wrong to treat this point as a live point before the LVT, especially as there is the possibility the respondent might wish to seek dispensation (if needed) under section 20ZA.

31.        The LVT decided that upon the proper construction of the lease the respondent was not entitled to include within the calculation of the service charge an element to reflect the non-receipt of  notional rent for the flat occupied by the porter.  This decision is not the subject of any cross appeal by the respondent.  Obviously the appellant does not appeal against it because it was a decision accepting the correctness of her own counsel’s submissions.  In these circumstances I do not consider it necessary or appropriate, especially in a case in which there is no participation by the respondent, to give any detailed examination to the question of whether the LVT was correct in its conclusion that upon the proper construction of this lease this notional loss of rent for the porter’s flat could not included within the service charge.  In saying this I am not to be taken as indicating doubt regarding the LVT’s decision on the point – I can entirely understand why the LVT decided the point in the way it did.  However the point is not before me for decision.  The appellant has the LVT’s decision in her favour on the point in respect of all the service charge years 2003/04 to 2008/09.  I conclude that the LVT was wrong in omitting to extend the effect of this decision (which is not subject to challenge) to a period 8 July 2002 – 24 March 2003 and to the service charge years 2009/10 and 2010/11.

32.        The charge for the licence to connect up to the newly installed services was a charge made within the time frame which was before the LVT, namely during the service charge year 2010/11.  It is true that strictly it should be viewed as an administration charge under the Commonhold and Leasehold Reform Act 2002 schedule 11 rather than a service charge, but the LVT has jurisdiction under schedule 11 to make a ruling as to the amount of an administration charge – a variable administration charge is payable only to the extent that the amount of the charge is reasonable.  No point was raised that this challenge to the licence fee (which was raised in the appellant’s statement of case to the LVT) was outside the ambit of the LVT’s consideration having regard to the fact that it was an administration charge and that no separate application had been expressly made to the LVT in respect of an administration charge.  The only reason the LVT did not consider this licence fee was because the LVT considered the appellant had withdrawn her application as regards the years 2009/10 and 2010/11.  I have already held that the LVT was wrong to do so.  Accordingly the question of the licence fee becomes a point for me to decide upon the material before me. 

33.        In her statement of case to the LVT the appellant in effect made clear that either all of the lessees, including her, were being treated equally (in which case the separate fee for each lessee should have been about £1,603.88) or she was being singled out and victimised.  Assuming the latter was not the case, a fee of over £22,000 (i.e. 14 times £1603.88) for preparing this licence for 14 lessees appears excessive.  It is notable that despite this point being expressly raised by the appellant in her statement of case the respondent chose not to participate in the hearing before the LVT or to seek to answer this point by evidence.  The respondent could have called evidence seeking to justify what work was involved in this licence (or licenses for all the lessees) but did not do so.  It was made clear in the grant of permission to appeal to the Upper Tribunal that if the challenge to such parts of the LVT’s decision as were challenged should succeed, then the Upper Tribunal would expect to go on and decide the point and that the parties should be ready to place such further evidence (if any) as they sought to rely upon the point.  Not only has the respondent not sought to put in the evidence before the Upper Tribunal, but the respondent has not participated and not served a respondent’s notice.  In these circumstances I conclude that there is substance in the appellant’s complaint.  I conclude there is no sufficient evidence before me to justify a conclusion that this licence was a one-off document specifically and only for the appellant, rather than a document that would be used for all the other lessees on an equal basis; nor to indicate what work was involved in the preparation of the licence; nor to justify a fee of £1603.88.  I conclude that the sum charged was not a reasonable sum.  Doing the best I can I accept that an overall fee of £800 (inclusive of VAT) would be reasonable for this licence.  The respondent is limited to recovering this sum by way of administration charge for this licence.

34.        As regards the refurbishment of the porter’s flat I have concluded that the LVT was not in error in declining to make a decision upon that matter.  Accordingly I do not make any decision upon that matter beyond upholding the LVT’s conclusion that that question was not a matter which the LVT was required to decide upon.

35.        As regards Ground 3 of the grounds of appeal this involves an argument by the appellant that all of the demands for on account service charge in advance were demands which were not made in accordance with clause 4 and clause 5(a) of the lease and accordingly were not payable.  It was the appellant’s case before the LVT that these on account demands (which were demanded quarterly not half-yearly) were demands which had not been properly made in accordance with the terms of the lease.  There was no adequate evidence placed before the LVT by the respondent (who did not participate in the hearing) that the respondent had followed the procedure laid down in the lease being the procedure which entitled the respondent to seek on account payments half yearly in advance (i.e. in advance of the final settling up after the end of the relevant year).  Such evidence as there was before the LVT pointed away from rather than towards the respondent having followed the provisions of the lease.  There was no sufficient evidence that the respondent had determined an estimated amount as required by clause 5(a) and had done so on the basis there set forth.  Indeed there was evidence to suggest that the respondent had not done so because the amounts being notified to the appellant were being notified by way of quarterly rather than half-yearly demands and were being notified in a sum which remained the same throughout the year rather than indicating any fresh making of an estimate (as required by the lease) not only prior to 25 March but also prior to 29 September.  The fact that the service charges were demanded in advance on a quarterly rather than a half-yearly basis is evidence which I find reinforces my conclusion that the respondent was not following the provisions of the lease by determining an estimated amount (under clause 5(a)) and then by notifying the appellant of the amount calculated in accordance with this estimate (as provided for in clause 5(c)).  The lease laid down a procedure which the respondent could follow for the purpose for making enforceable demands for on account payments.  I conclude, with respect, that the LVT was wrong in its decision that the demands were in accordance with the terms of the lease.  In defence of the LVT it would appear that the argument may have concentrated more upon the fact that the demands were made quarterly (rather than half-yearly) rather than on the question of whether the demands were made after a proper following of the procedure in clause 5(a) and (c) – i.e. a determination of an estimated amount for a half yearly period on a specified basis and then the notification of the amount so calculated.  However the appellant’s case was that the demands had not been made in accordance with the lease.  In my judgment the LVT erred in concluding that the demands had been made in accordance with the lease.  In the result I allow the appeal upon this point and find that all of the service charges demanded by way of quarterly service charge demands in advance  between 25 March 2003 and December 2010 were not payable because the respondent had failed to comply with the provisions of clauses 4 and 5 of the lease.

36.        As regards Ground 4 of the grounds of appeal, this challenges the accountancy/auditing fees for the years 2003/04 to 2008/09 (these fees were not in issue for 2009/10 and 2010/11 – presumably because no end of the year accounts had been prepared for these years and so no final balancing charge including such fees had been demanded).

37.        I have set out the LVT’s reasoning upon this point in paragraph 12(6) above.  The LVT observed that it is possible the accountancy/auditor fees are higher than is reasonable, but concluded that, notwithstanding Mr Faulkner’s evidence, it did not feel it had sufficient information to determine that that was the case.  In my judgment the LVT erred in its approach to this matter.  The appellant could not have known from her own information of all of the work that the accountants had done during each relevant year.  All she could do was to draw attention to the large (and widely differing) amounts charged for accountancy during the relevant years, coupled with her calling a professional witness to give opinion evidence to the effect that these were unreasonably high and that a figure in the order of £2,500 plus VAT would be reasonable.  That being the case presented by the appellant, it seems to me that it was for the respondent to call some sufficient evidence to justify the accountancy fees charged.  However no such sufficient evidence was called.  Once again there is the conspicuous fact that the respondent, despite knowing what the nature of the challenge by the appellant was, decided not to participate in the hearing before the LVT or in the hearing before the Upper Tribunal.  I conclude that in the light of the evidence and argument laid before the LVT by the appellant and in light of the absence of any (or any sufficient) evidence or argument in response from the respondent, the only proper conclusion is that the amounts included in various relevant years was unreasonably high and accordingly was not reasonably incurred and to the extent it was not reasonably incurred should not be included.  I notice the assumptions upon which Wheeler and Associates Ltd gave their estimate which Mr Faulkner put in evidence (see paragraph 25) namely that the book keeping on the site was reconciled and that there were no issues in respect of incorrect serving of service charge demands nor authorising of expenditure within the budget.  There is no evidence as to whether these assumptions are well founded.  Doing the best I can I conclude that a sum of no more than £3,250 + VAT should be included for accountancy/auditing during the relevant service charge years.  This will not disturb the earliest two years at page 677 of the bundle because less than this was in any event included.

Conclusions

38.        The appellant only seeks to appeal against certain parts of the LVT’s decision.  For the reasons given above I allow the appellant’s appeal to the following extent – but save as stated below the LVT’s decision remains in force:

(1)        I allow the appellant’s appeal against paragraphs 19 and 20 of the LVT’s decision.  I decide that all service charge demands (including demands for reserve fund payment) served on the appellant between June 2004 and March 2011 did not comply with section 47 of the Landlord and Tenant Act 1987.  Accordingly the amounts so demanded are to be treated as not being due from the appellant to the respondent at any time before the relevant information has been furnished by the respondent by a notice given to the appellant.

(2)        I allow the appellant’s appeal against paragraph 16 of the LVT’s decision to the extent explained in paragraph 30 above.  In consequence –

                                                (a)     the respondent was not entitled to include within the calculation of the service charge an element to reflect the non-receipt of a notional rent for the porter’s flat not merely during the periods so decided by the LVT but also during the further periods referred to in paragraph 31 above; and

                                               (b)     the respondent is limited in the service charge year 2010/11 to including only £800 (inclusive of VAT) for the licence.

(3)        I allow the appellant’s appeal against paragraph 22 of the LVT’s decision.   I decide that all of the service charges demanded by way of quarterly service charges in advance in respect of service charge years 2003-4 to 2010-11 were not payable because the respondent had failed to comply with clauses 4 and 5 of the lease.

(4)        I allow the appellant’s appeal against paragraph 40 of the LVT’s decision.  I decide that a sum of no more than £3250 + VAT should be included for accountancy/auditing during the relevant service charge years.

 

 

Costs

39.        The appellant made an application under section 20C of the Landlord and Tenant Act 1985.  The appellant has been substantially successful upon her appeal.  I order that all of the costs incurred by the respondent in connection with these proceedings before the Upper Tribunal are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the appellant.

 

                                                            Dated 30 July 2013

                                                                                                              

 

                                                            His Honour Judge Huskinson