United Kingdom Upper Tribunal (Lands Chamber)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 232 (LC)

LT Case Number: LRX/34/2014

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charges – sufficiency of reasons - whether charges agreed or admitted – section 27A(4) Landlord and Tenant Act 1985 – appeal allowed

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

FIRST TIER TRIBUNAL (PROPERTY CHAMBER)

 

BETWEEN:

TINTERN ABBEY RESIDENTS ASSOCIATION LTD

Appellant

and

(1) MR DAVID OWEN

(2) MRS ANNE OWEN

Respondents

Re: 22 Tintern Avenue,

Astley,

Tyldesley,

Manchester M29

 

Before: Martin Rodger QC, Deputy President

 

Sitting at: Manchester Civil Justice Centre

on

8 May 2015

 

Mr Dean represented the Appellant

Mrs Owen represented the Respondents

 

No cases are referred to in this decision

 

© CROWN COPYRIGHT 2015

 

Introduction

1.             This appeal is brought by Tintern Abbey Residents Association Ltd, the landlord of an estate of 88 flats know as the New Hall Estate at Astley in Greater Manchester (“the Estate”), against a decision of the First-tier Tribunal (“the FTT”) given on 6 January 2014 following an application made under section 27A of the Landlord and Tenant Act 1985 by Mr and Mrs Owen, the long leaseholders of 22 Tintern Avenue, one of the flats on the Estate. 

2.             The FTT made determinations concerning management charges payable by Mr and Mrs Owen in the four years ending on 30 June 2009 and management, insurance, gardening, accountancy and routine maintenance costs in the service charge years from 2010 to 2013.  The FTT also ruled on electricity charges from 2005 to 2013, on the sum recoverable for the replacement of soffits and fascias in 2010, on deficiencies in the form of service charge demands, and on the £260 in fees associated with the application (which it ordered the appellant to reimburse to Mr and Mrs Owen).

3.             The service charges considered by the FTT for the period from 14 July 2009 onwards had all been paid by Mr and Mrs Owen when they were first invoiced.  Moreover, they had made clear in their application to the FTT that they did not challenge the charges levied by the appellant in respect of the period after that date, on which the appellant had acquired its freehold interest in the Estate.  Mr and Mrs Owen’s original challenge had been limited to the appellant’s demand that they pay sums which the appellant believed, wrongly, were owed to the previous landlord and in arrear when the appellant acquired the Estate.  The scope of their challenge was later expanded in written material, before being curtailed at a case management hearing, then subsequently expanded again before largely being declared to be “in abeyance” before the final hearing.  Despite these fluctuations the FTT considered a period of more than 8 years straddling the change of ownership of the freehold in 2009.

The appeal

4.             The Tribunal granted permission to appeal on three grounds.  First on the adequacy of the FTT’s reasons, because although it had clearly recorded its determination on the issues which it had considered, and had provided a narrative of the arguments put to it at the hearing, it had provided no reasoned explanation for its decision.  Secondly, to allow the appellant to argue that it had been treated unfairly as it had understood that (with one exception) there was no issue before the FTT in relation to charges levied for the period after it acquired the Estate, and that it had prepared for the hearing before the FTT on that assumption.  Thirdly, because the FTT’s decision in relation to costs and fees may require to be reconsidered if the Tribunal were to allow the appeal on the first and second issues. 

5.             At the hearing of the appeal Mr Dean, whose wife owns one of the flats on the Estate, spoke for the appellant while Mrs Owen spoke for herself and her husband.  Despite the restricted scope of the issues for which permission to appeal was granted both sides submitted substantial written material concerning the details of services provided and charges made, as well as considerable background information.  I do not intend to refer to that material in detail in this decision, nor to the oral submissions covering similar ground, except to the extent that they are relevant to the issues for which permission to appeal was given.

The facts

6.             The appellant is a limited company whose shareholders are the long leaseholders of more than half of the flats on the Estate.  Most of them were formerly members of a  residents’ association by the same name which was incorporated and in July 2009 acquired the freehold of the Estate.  There had been a history of poor relations between the leaseholders and the previous owners of the Estate which had resulted on proceedings before the Leasehold Valuation Tribunal in 2003 and again in 2007.  In the second of those proceedings the LVT had reduced the annual management fee of £188 per flat charged by the previous managing agent to a figure of £50 per flat on the grounds that a reasonable fee for a good service would be £80 but that the service actually provided had been poor. 

7.             Mr and Mrs Owen did not become shareholders in the appellant when it acquired the freehold of the Estate in 2009, nor had they participated in the 2007 LVT proceedings.  Their service charge account was in credit in the year ending 30 June 2008, the last year for which final year figures were supplied before the appellant took over in July 2009.

8.             In order to reduce the charges payable by all leaseholders the appellant decided not to engage a professional managing agent but to rely on its own members to organise the provision of services and collection of service charges.  Mr Dean, for example, provided advice on essential repairs (he is a chartered civil engineer), while Mrs May, who for this purpose styled herself “DEM Management”, undertook the role of managing agent, for which she was paid a fee by the appellant.

9.             One of the first steps taken by the appellant was to seek to recoup part of the cost of acquisition of the Estate by collecting arrears of service charges.  A completion statement provided by the previous freeholder showed that, in addition to a premium for each of the blocks on the Estate, the appellant had discharged arrears totalling £2,173 owed by 7 leaseholders.  Mr and Mrs Owen were not among the leaseholders who had been in arrears. The appellant nonetheless took the view that as Mr and Mrs Owen had not participated in the 2007 application to the LVT which had resulted in a reduction in the management charges levied by the previous management agent, they should not be entitled to the benefit of that determination.  To reflect that decision the appellant drew up a new service charge statement purporting to show a debit balance on 14 July 2009 of £641.98.  The statement included management charges pre-dating the appellant’s acquisition of the Estate charged at the rate of £188 a year for 2007 to 2009 (although the LVT had ruled that a reasonable charge for the service received was only £50).  The statement also included arrears of electricity charges going back to 2005 totalling £41.23 which had never previously been demanded. 

10.         The debit balance of £641.98 which the appellant had recalculated seems first to have been demanded in November 2009 but was strenuously disputed by Mrs Owen.  Despite her continuing protests the same balance was incorporated into service charge demands delivered for the half year ending 31 December 2010. The estimated service charges for that half year also included a provision of £200 for the proposed replacement of UPVC soffits and fascias.  A further provision for the same work was made in the next half year’s statement, this time of £185.  Mr and Mrs Owen paid these sums, but not the arrears of £641.98 which they continued to challenge.

11.         There followed a futile correspondence in which the appellant continued to assert that the arrears pre-dating July 2009 remained due and Mr and Mrs Owen denied them.  I have been shown only a selection of that correspondence which continued until after the application under s. 27A was made by Mr and Mrs Owen on 10 May 2013.  The letters which I have seen include one of 19 September 2010 in which payment for charges to 31 December 2010 was made.  This payment was described as being made “without prejudice” and I was told by Mrs Owen that the other half yearly payments were made on the same basis.  The only matter which is disputed in the correspondence is the appellant’s entitlement to the alleged arrears of £641.98.

The application

12.         The form of application under s. 27A of the 1985 Act which Mrs Owen completed on 10 May 2013 required her to identify in section 7 those past service charge years, and any current or future years, which the tribunal was being asked to consider.  A further sheet was then to be completed for each service charge year providing details of the items of service charges in question. 

13.         As completed by Mrs Owen the application listed each year from 2004/5 to 2008/9 as being in issue; Mrs Owen completed a single page covering all of those years explaining that her challenge was to the recalculated statement purporting to show the state of her account on 30 June 2009 and which she had first received in November of that year.  A further sheet for 2007/08 asked the tribunal to confirm that Mr and Mrs Owen’s account had been in credit as at 30 June 2008.

14.         In section 7 of the application Mrs Owen also dealt with the three completed years of the appellant’s management.  These were included as a single composite entry as follows:

“2009/10-2011/12 insofar as include alleged “arrears” b/f”. 

An explanatory page was also completed by Mrs Owen for the same period; the standard form asks for a “list of the items of service charge that are in issue (or relevant) and their value” beneath which Mrs Owen wrote:

“All items requested have been paid on request save alleged arrears brought forward as stated above.”

The form next asks for a description of the questions the tribunal was asked to decide for the years in question; Mrs Owen wrote:

“Arrears brought forward to be removed from the statement as my previous account was in credit.”

15.         In respect of the years 2012/13 and 2013/14 Mrs Owen again stated that all charges requested had been paid and she requested only that the £50 levy which the appellant had threatened to add to her account whenever it sent a reminder letter should be determined to be unlawful.  Finally the application included a request for an order under s. 20C of the 1985 Act to prevent any costs of the proceedings being added to the Owens’ service charge account.

16.         The FTT decided that a pre-trial review was required and, in anticipation of that hearing, Mrs Owen submitted a further document dated 19 June 2013 seeking directions for the production of documents.  Although several of the documents requested were directly related to the alleged arrears at the date of the change of ownership in July 2009, Mrs Owen also sought documents of less obvious relevance to that issue.  She requested copies of electricity bills and service charge accounts for 2010 to 2012 in order to show how the management charge had increased; she also sought disclosure of correspondence relating to insurance, apparently to show “non-transparency, unreasonableness, discrimination … in turn supporting my claim for re-imbursement of fees, costs and my s. 20 claim”.

17.         The pre-trial review on 24 June 2013 was attended by Mr and Mrs Owen.  It is normal at such hearings for the scope of the issues to be discussed and for the FTT to record the matters which are truly in dispute.  In its directions issued after the hearing the FTT recorded that:

“[Mr and Mrs Owen] confirmed that there were no ongoing issues in respect of service charge following the service charge year ended 30 June 2009, save in respect of … a charge for the installation of UPVC windows” 

In fact the single additional issue for the years after the appellant assumed management concerned the provision in 2011-11 for UPVC soffits and fascias (rather than windows) but nothing turns on that.  It is apparent that, despite Mrs Owen’s request for disclosure of documents, the focus of her complaint remained the alleged arrears brought forward in July 2009.  Consistently with that being the scope of the dispute, the FTT ordered statements of case and documents to be exchanged dealing with charges up to 14 July 2009.

18.         At the hearing of the appeal Mrs Owen suggested that there had not been time for her to raise other issues at the pre-trial review and she referred to a letter dated 1 July 2013 which she had written when she received the FTT’s directions.  In that letter, for the first time, Mrs Owen requested “that my application in relation to 2010/11, 2011/12 and 2012/13 be extended to challenge the reasonableness of the annual service charges”.  That letter is also consistent with the dispute having been confined up to that time to the alleged historic charges added to her account in 2009.  There is no record of a reply from the FTT or from the appellant to that letter, but it was followed on 11 July by a further letter in which Mrs Owen enclosed her statement of case dealing with the period to 30 June 2009 but stating that, due to time constraints, “my application for directions in relation to the service charges for the period 2010/11, 2011/12 and 2012/13 is currently in abeyance”.

19.         Notwithstanding the scope of the original application, the clarification of the issues at the pre-trial review, and the letter of 11 July declaring the later years to be “in abeyance”, the hearing before the FTT on 18 November 2013 addressed both the historic arrears and all of the charges in the 3 years from July 2009.  In paragraph 4 of its decision the FTT recorded that at the pre-trial review Mrs Owen had confirmed that there were no issues following 30 June 2009, but that she had subsequently confirmed that she and her husband wished to dispute the subsequent years as well.  No reference was made to the letter of 11 July.  The FTT went on to make the determinations I have referred to in paragraph 3 above.

Issue 1:  absence of reasons

20.         Rule 36(2) of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 requires the FTT to provide written reasons for its decision.  Those reasons need not be elaborate. They should identify the issues for decision, and provide a summary of the tribunal’s basic factual conclusions.  They need not to recite the evidence in detail but they must briefly explain why the tribunal has arrived at its conclusions. 

21.         In this case the FTT’s decision begins by recording each of the determinations which it made.  These are clear and concise and some determinations are expressed in terms which provide an explanation of why they have been made.  For example, in paragraph 1.8 the FTT decided:

“that the copies of the service charge demands made available to the Tribunal are not in the form required under section 47 of the Landlord and Tenant Act 1987 entitling the applicant to withhold payment unless and until compliance is made.”

In other respects the statement of the FTT’s conclusions lacks any such explanation.  For example, in paragraph 1.1 it decided:

“that for the service charge year 1 July 2009 – 30 June 2010 the following costs have been reasonably incurred (1) management fees: £50; (2) gardening: £59.29; (3) accountancy fees: £7.35; (4) buildings insurance: £86.86; (5) routine maintenance: £43.24”

The same format was followed in paragraphs 1.1 to 1.5 for each year to 30 June 2013.  The result is that the parties (and this Tribunal) know what has been decided, but do not know why.

22.         The remainder of the FTT’s decision comprised an account of the procedures which had led to the hearing, a description of the Estate, details of the terms of the lease, and a record of the submissions made by the parties at the hearing.  The FTT noted where documents were not available or did not correspond with the charges claimed.  When that narrative of submissions is completed the decision simply ends, without further comment.

23.         I am satisfied that the decision falls below the minimum standard required by rule 36(2).  It comprehensively records the determinations made and the submissions received but it makes no connection between them.  No facts are found.  No conflicts of evidence are addressed.  The quality of services for which charges were made is not considered.  Nor is it obvious, even to the parties who were present, how the FTT has reached conclusions.  Did it limit the management charge to £50 because it thought that was a reasonable charge for a service performed to a reasonable standard, or because it was critical of the standard achieved by DEM Management?  Why did it disallow electricity charges (which were not mentioned in the determination paragraphs)? 

24.         The necessary connection between what the parties argued and what the FTT decided need not have been lengthy or complicated.  A very few additional sentences are likely to have been sufficient for the purpose, but they are missing and without them the Tribunal is not in a position to understand the FTT’s thinking or determine whether the appellant has justifiable grounds of complaint. 

25.         If this were the only issue in the appeal I would remit it to the FTT with a direction that it provide additional reasons for its decision.

Issue 2: procedural fairness

26.         The appellant’s major complaint when they sought permission to appeal was that they had been at a disadvantage at the hearing because they had understood that the FTT would not consider the years after 2009 but only those pre-dating the appellant’s ownership of the Estate.  The appellant thought that because Mrs Owen had described her challenge in relation to the later years as being “in abeyance”.  The appellant had not provided the FTT with copies of all of the invoices for services which it says it could have done if it had appreciated the scope of the issues which would be considered. 

27.         In response to that complaint Mrs Owen submitted that the FTT had decided at the final hearing that it would consider the later years as well, rather than leaving them over for a separate application.  Both parties had been equally disadvantaged and neither had objected.  Since the onus was on the appellant to provide evidence of the charges it sought to recover, and as the absence of evidence was noted by the FTT in relation to a number of items (both before and after 2009) this does not seem to me to be a compelling answer to the appellant’s complaint of procedural unfairness.

28.         There appear to me to have been reasonable grounds for the appellant’s expectation that the matters under investigation would not include charges after 2009, except for the UPVC soffits and fascias (where the issue was an absence of consultation).  The “in abeyance” letter of 11 July 2013 was a clear signal that Mrs Owen did not intend to pursue the later years at the forthcoming hearing.  I have seen nothing which would alert the appellant to the need to prepare for a hearing on broader issues.  Whether the appellant was in fact significantly disadvantaged, or whether the outcome would have been the same had proper notice been given, is not possible for me to assess (in part because of the absence of reasons for the FTT’s decision).  Once again, if this were the only issue in the appeal, I would remit the matter to the FTT for reconsideration.

29.              The sums involved in this appeal are very small and it has been prosecuted with disproportionate vigour by both parties because, as Mr Dean and Mrs Owen made clear to me at the hearing, each side regards the dispute as “an issue of principle”.  Neither explained what the principle was but, as was amply demonstrated at the hearing of the appeal, relations between the parties are rancorous and uncompromising.  In my view for the parties and the FTT to devote yet more time, effort and expense to vindicating those principles, whatever they may be, would be an unconscionable waste. 

Jurisdiction

30.              Fortunately I am satisfied that it is neither necessary, nor even permissible, for these proceedings to be sent back to the FTT for further consideration for the simple reason that the FTT lacks jurisdiction to determine the service charges payable in the years ending 30 June 2010 to 2012 which are the only years in respect of which permission to appeal has been granted.

31.         When the amount of a service charge payable by tenants to their landlord has been agreed or admitted by the tenants, the FTT has no jurisdiction to make any determination concerning that service charge under section 27A of the 1985 Act.  The policy of the Act is that there should be finality in these issues.  The fact that a service charge has been paid is not sufficient in itself to amount to an admission or agreement for this purpose, but payment is one factor which may justifies the conclusion that a charge has been agreed or admitted.

32.         So far as is relevant to this aspect of the appeal, s.27A of the 1985 Act provides as follows:

27. Liability to pay service charges: jurisdiction

(1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable …

(2) Subsection (1) applies whether or not any payment has been made.

(3) …

(4) No application under subsection (1) or (3) may be made in respect of a matter which—

(a) has been agreed or admitted by the tenant,

(b) has been or is to be referred to arbitration …

(c) has been the subject of determination by a court; or

(d) has been the subject of a determination by an arbitral tribunal …

(5) But the tenant is not to be taken to have agreed or admitted any matter by reason only of having made any payment.” 

33.         An application may therefore be made under section 27A(1) to determine the amount of a service charge whether or not the sum in issue has already been paid, but may not be made in respect of a matter which has been agreed or admitted by the tenant (ss. (4)(a)).

34.         In this case Mr and Mrs Owen promptly paid each of the periodic service charges in response to the demands made by the appellant but, more importantly, they made it clear in their s. 27A application to the FTT that they made no challenge to those charges, except to the extent that they included the sum carried forward from the year ending 30 June 2009.  When asked in the form of application to make a “list of the items of service charge that are in issue” they responded that “all items requested have been paid on request save alleged arrears brought forward as stated above.”  When asked to state the question which they wanted the FTT to decide they said: “arrears brought forward to be removed from the statement as my previous account was in credit.”  Those answers made it clear that the application was limited to the sum brought forward.  In my judgment, having already paid the other sums demanded (as they emphasised) the answers amounted to an admission that the other sums had been properly claimed and were payable. 

35.         Two further questions remain to be considered.  First, whether Mr and Mrs Owen’s description of the payments (when making them) as “without prejudice” has any effect on their entitlement later to dispute them, and secondly, whether it is open to Mr and Mrs Owen to withdraw their agreement and challenge the charges.

36.         Where liability for a sum is in dispute and a payment of part of the sum is made without prejudice to that dispute the payment cannot amount to an admission of liability for the unpaid balance.  The paying party’s right to contest its liability to make the rest of the payment is expressly preserved.  In this case, therefore, the periodic payments of service charges which Mr and Mrs Owen made expressly without prejudice were not admissions of their liability to pay the full amount demanded. 

37.         The only matter in dispute at the time the payments were made was Mr and Mrs Owen’s liability to pay the sum carried forward from before 30 June 2009.  Although in the correspondence which I have seen Mrs Owen did not spell out what right it was that the payments were being made without prejudice to, it is obvious that they were without prejudice to the dispute over the historic arrears, and not the current charges.  In relation to the current charges, which were paid, I do not think that the description of the payments as without prejudice added anything to the effect of s. 27A(5).  Thereafter, when the s. 27A application was made by Mr and Mrs Owen and the matters in dispute were identified in terms which clearly demonstrated that the current charges were not challenged, I do not think that the without prejudice label previously attached to the payment of those sums detracted from the admission which was then being made.  If no payment at all had been made the s. 27A application would still have amounted to an admission that only the arrears carried forward were in dispute.

38.         The final question is whether it was possible for Mr and Mrs Owen, having paid and admitted the continuing service charges, later to withdraw their admission and challenge their liability for electricity bills, management charges and other matters raised for the first time in Mrs Owen’s document of 19 June 2013.  I do not think such a change of position is permissible in proceedings under s. 27A for the simple reason that s. 27A(4) prevents an application from being made at all in respect of a matter which has been agreed or admitted.   In the case of a decision of a court or tribunal there can be no doubt that, subject to any appeal, a prior determination is definitive of the parties’ rights, but the same is true of an agreement or admission (at least as far as any questioning of those rights before the FTT is concerned).  It follows that where an application to the FTT includes an admission, it would be inconsistent with s. 27A(4) for the FTT to permit the application to be amended to challenge any service charge which fell within the admission.

Disposal

39.         For these reasons I allow the appeal and set aside the FTT’s decision in relation to the service charges for the years ending 30 June 2011, 2012 and 2013.  There was no appeal in relation to the year 2010.  Permission to appeal was refused in relation to the FTT’s decision to limit to £250 the contribution required in 2011 to the replacement of UPVC soffits and fascias, and that decision remains binding.  I do not substitute any alternative decision in relation to the liability of Mr and Mrs Wood for 2011, 2012 and 2013; they have paid and admitted all that was demanded of them for those years and there is therefore no reason (nor any power) to remit the application to the FTT for it to give further reasons for its decision in relation to those years.

40.         The FTT made an order in favour of Mr and Mrs Wood requiring the appellant to reimburse application and hearing fees totalling £260.  The appellant asks that that order be set aside, but I decline to interfere with it.  It was only by bringing their application that Mr and Mrs Wood succeeded in establishing that they were not liable for the debit balance of £641.98 which the appellant had added to their service charge bill for no good reason.  They also succeeded in securing the same reduction in the costs of management for the years before 2009 which the other leaseholders had secured from the LVT in 2007.  If there was any winner before the FTT it was Mr and Mrs Owen and the FTT was entitled to order reimbursement of the fees they incurred.

41.         The appellant also asked for an order that Mr and Mrs Owen should reimburse the fees which it has had to pay to bring the appeal.  I decline to make that order.  The sums involved in this appeal are petty and it was pursued on a point of principle.  The appellant must have believed that the principle was worth the Tribunal fee, so liability for that fee can remain with the appellant.

Martin Rodger QC

Deputy President

19 May 2015