UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 0349(LC)

LT Case Number: LRX/122/2013

 

                                                                             

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – appointment of manager – application dismissed by First-tier Tribunal – whether Tribunal gave adequate reasons for its decision

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

FIRST-TIER TRIBUNAL (PROPERTY CHAMBER)

 

 

BETWEEN:

                                                 (1) RAYMOND ALLEN HILL                                    

(2) PATRICIA HEATHER HILL

(3) LOUISA ALTON                                                     Appellants

and

                              SORRENTO MANAGEMENT ASSOCIATION LIMITED

                                                                AND OTHERS                                              Respondents

                                                                             

 

 

 

Re: Sorrento

       Middle Warberry Road

       Torquay

       Devon TQ1 1SH

 

 

Martin Rodger QC, Deputy President

 

 

Determination based on written representations

 

 

© CROWN COPYRIGHT 2014

 

                                                                    DECISION

Introduction

1.             This is an appeal by Mr Raymond Hill, Mrs Patricia Hill and Ms Louisa Aiton, against a decision of the First-tier Tribunal (Property Chamber) (“the F-tT”), dismissing their application under section 24 of the Landlord and Tenant Act 1987 (“the 1987 Act”) for the appointment of a manager of Sorrento, a purpose built block of 31 flats in Torquay.  Mr and Mrs Hill and Ms Aiton are leaseholders of flats 15, 22 and 3 Sorrento respectively.

2.             The F-tT gave its decision on 17 July 2013.  On 3 December 2013 I granted permission to appeal, limited to the adequacy of the F-tT’s reasons for refusing the appointment of a manager.  I directed that the appeal be by way of review and that, unless the landlord, Sorrento Management Association Ltd (“SMA”) and the individual leaseholders who were respondents to the application objected, it would be dealt with by written representations with a view to the application being remitted to the F-tT for reconsideration (in the event that the appeal was unsuccessful).

3.             In addition to SMA, 16 leaseholders responded to the appeal.  The appellants suggested that one leaseholder, Mr Keith McFarlane of flat 19, could not be a respondent since he did not own his flat at the time of the F-tT hearing.  I do not pursue that contention, as it is not relevant to the determination of the appeal.  Neither SMA nor any of the respondent leaseholders objected to the appeal proceeding on the basis of their written representations.

The application for the appointment of a manager

4.             The jurisdiction under section 24 of the 1987 Act to appoint a manager to carry out such management functions as the tribunal may direct arises only if the tribunal is satisfied that conditions set out in section 24(2) are satisfied; in brief summary these require that there must have been a breach of the obligations owed to the tenant under his tenancy, or unreasonable service charges or administration charges must have been made, or other breaches of duty committed, and in all cases the tribunal must be satisfied that it is just and convenient to make the order requested.  No application may be made for the appointment of a manager unless a preliminary notice under section 22 has been given by the tenant to the person responsible to the tenant for management of the premises.  The notice is required, amongst other things, to specify the grounds on which the tenant proposes to apply to the tribunal and the matters on which it is intended to rely, and to allow an opportunity for those matters to be remedied if that is possible.

5.             On 28 August 2012 Mr and Mrs Hill made an application under section 27A, Landlord and Tenant Act 1985 for the determination of the reasonableness of service charges claimed by SMA.    On 7 September 2012 the appellants served notice on SMA under section 22 informing it of their intention to apply for the appointment of a manager, pursuant to.  The grounds of the application were set out in the Second Schedule, as follows:

“The Landlord, the Board of Directors of Sorrento Management Association Ltd, elected by their fellow leaseholders, have, since 2007, have proved themselves to be entirely unqualified and incapable of managing the block in a fair, just, and sensible manner in accordance with the Lease, the Law and the Code:

1. Breaches of the Lease

2. Failure to comply with the findings of the 2007 LVT with regard to unreasonable service charge expenditure.

Section 19 of the Landlord and Tenant Act 1985 provides that service charges are payable only to the extent that they are reasonably incurred.  The Landlord was found by the Leasehold Valuation Tribunal of 2007 to be in breach of the Act by demanding unreasonable and therefore irrecoverable service charges at that time.  The Association has, during the years 2007 to 2011 inclusive, continued to be in breach of the Act for similar reasons, and is in breach of the Act in proposing unreasonable service charges for 2012.

3. The Landlord has committed and is currently committing breaches of the law and of the RICS Service Charge Residential Management Code of Practice approved by the Secretary of State under Section 87 of the Leasehold Reform, Housing and Urban Development Act 1983.

4. Landlord’s refusal to take responsibility for expenditure.”

6.             The Third Schedule to the notice provided details of the matters complained of in the Second Schedule.  SMA’s numerous alleged defaults were said to include the following (which I summarise):

a)                 Imposing rules for the management of the estate, which were contrary to its obligations to the leaseholders.

b)                  Enforce unreasonable parking rules at great expense.

c)                  Failing to recoup legal costs from leaseholders, despite being directed to do so by the LVT in 2007.

d)                 Circumventing the law on tendering procedures, and failing to take account of representations received as part of statutory consultation exercises.

e)                  Appointing an unqualified and expensive firm of managing agents who were connected to SMA.

f)                   Failing to comply with the LVT’s recommendation not to spend more than £200 per annum in respect of parking.

g)                  Continuing to create “unreasonable legalistic difficulties” over changes to allocated parking spaces.

h)                  Incurring considerable legal fees in drawing up a contract for a car park with unreasonable conditions attached, and victimising one leaseholder who had complained about an unuseable parking space.

i)                    Disregarding the LVT’s findings on photocopying, postage, administration and other costs.

j)                    Demanding an audit fee deemed unreasonable by the LVT, including from leaseholders who had been specifically exempted from such costs by the LVT.

k)                  Failing to comply with the RICS Management Code of Practice by paying solicitors engaged in connection with the 2007 LVT proceedings out of maintenance funds.

l)                    Retaining solicitors without complying with statutory consultation procedures.

m)                Demanding unreasonable service charges for the production of unnecessary new Articles of Association, Deed of Variation and a new parking plan.

n)                  Unreasonably incurring £55,772 in legal fees between 2007 and 2011, in addition to the £7,050 for the 2007 LVT hearing, including in connection with a complaint against it to the Information Commissioner following the giving of false information about leaseholders to their mortgagees.

o)                  Failing to monitoring the cost-effectiveness of services and proposing to pay excessive and unnecessary architects’, surveyors’ and accountants’ fees.

p)                  Circulating agendas and minutes in which dissenting leaseholders were blamed for the board’s previous legal expenditure.

7.             On 10 September 2012 the appellants made a formal application for the appointment of a manager in accordance with section 24 of the 1987 Act, relying on the grounds which had been set out in the preliminary notice.

8.             The manager application and the service charges application were considered together by the LVT Proceedings.

The F-tT’s decision

9.             The F-tT’s decision began with the following summary:

“1. The Tribunal determines that:

a.       The majority of the services charges questioned by the Applicants for the years to which the Service Charge Applications relate are reasonable.

b.      It was unreasonable for the 2011 service charge to include a sum paid to a professional witness.

c.       The legal fees incurred in years 2008/9, 2009, 2011 and 2012 are not reasonable and the Respondent may only recover part of those fees from the Applicants.

4. That it will not appoint a manager:-

i    as it is not satisfied that there has been any material breach of the Landlord’s obligations in respect of the management of the Property and

ii   none of the evidence submitted to it in writing or at the hearing has persuaded it that it would in any event be just and convenient to make such an appointment at the present time.

2. The reasons for its decision are set out below.”

Notwithstanding the latter statement, the LVT did not give any reasons for its refusal to appoint a manager other than those in sub-paras 1.d.i and 1.d.ii quoted above.  The decision explained that the background to the application was the appellant’s dissatisfaction over the allocation of a parking space to flat 22, which had prompted them to look in detail at the service charge demands they had received.  They were said also to be dissatisfied with the implementation of a previous LVT decision.  The decision contained no further consideration of the allegations made in the preliminary notice (although some of these were touched on in the context of considering the service charge application).  Reference was made to evidence received in relation to the service charges, but no detailed finding of facts were made concerning the allegations of breach of obligation and no assessment was undertaken of how the facts found related to the criteria for appointment of a manager, although it was said that .  The reasons for the two applications were said to be “multiple and complex” and some criticisms were made of the managing agents engaged by SMA and of the extent to which legal costs were incurred.  The legal costs which could be recovered through the service charge were restricted (by more than £8,000 in 2011 and by lesser amounts in earlier years) but other professional fees were allowed as being reasonable.

Submissions

10.         Although both parties have submitted detailed bundles of documents relating to the various matters which were in issue at the original LVT hearing, in general they did not address the only issue for which permission to appeal was given, namely the sufficiency of the F-tT’s reasons for its refusal of the application to appoint a manager. 

 

 

Discussion

11.         Although the F-tT concluded that the majority of the service charge items in dispute were reasonable, it did disallow certain items.  In doing so, it made certain criticisms of SAM’s management approach, and in particular the following:

“89. It does not appear to the Tribunal that the managing agents ever advised the Association on management issues.  Following Mr Ashton’s death the Association, instead of relying upon its managing agent, turned to its appointed solicitors for both legal advice and advice on issues that could and perhaps should have been referred to APA [the managing agent] for resolution.  As a result of regular and often frequent referrals to Ashfords, increasingly large legal costs were incurred during the majority of the disputed years.

90. The Respondents have provided a breakdown of the costs over the majority of these years (excluding 2012).  That is not intrinsically helpful in enabling the Tribunal to conclude if the costs were reasonable.  What it does highlight is that the advice of solicitors was sought often frequently, and that the cost of such consultation was high.  It is the Tribunal’s view that such costs should not have been incurred without the Association first consulting with and seeking advice from its experienced managing agents…

93. The Tribunal would caution the Association incurring any future legal costs without first seeking advice from its managing agent as to alternative ways of addressing any issues arising and carefully considering the cost benefit to all leaseholders before incurring the costs.  Certainly it cannot have been reasonable for all lessees to have incurred the costs, later wasted, in preparing a deed of variation of one lessee’s parking space…”

12.         In view of these conclusions it is not clear why the F-tT felt able to conclude in paragraph 1d that there had not been “any material breach of the landlord’s obligations in respect of the management of the Property.”  Nor is it apparent from the F-tT’s decision why it concluded that, notwithstanding its criticism of certain activities by the respondents, it would not be just and convenient to appoint a manager.  These matters clearly called out for clear findings of fact and a reasoned assessment.

13.         The minimum requirement of a lawful judicial decision is that it explains to the unsuccessful party why they have been unsuccessful.  Both the disappointed applicant and the appellate tribunal ought to be able to understand what matters have been taken into account in the exercise of a discretion, since otherwise the right of appeal may be incapable of being exercised.  I am satisfied that, on a fair reading of the LVT’s decision as a whole, it cannot be said why it reached the conclusions recorded in paragraph 1.d.  In particular it is impossible to reconcile its conclusion that there had been no material breach of the landlord’s management obligations with its conclusion that substantial legal costs, sought to be recovered through the service charge, had been unreasonably incurred.  It is equally impossible to discern the considerations taken into account in reaching the conclusion that it would not be just and convenient to appoint a manager.

Result

14.         The appeal is allowed and the decision is set aside so far as it relates to the application to appoint a manager only.  The application under section 24 of the 1987 Act is remitted to the First-tier Tribunal (Property Chamber) for reconsideration.  It will be for the First-tier Tribunal to consider the appropriate constitution of the tribunal which rehears the application. 

 

 

 

Martin Rodger QC

Deputy President

 

Dated: 31 July 2014