UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 103 (LC)

LT Case Number: LRX/62/2014

 

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – SERVICE CHARGES – evidence required to prove expenditure incurred – whether costs of previous tribunal proceedings recoverable as “any other costs and expenses reasonably and properly incurred”  – appeal allowed in part

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

LONDON RENT ASSESSMENT PANEL

 

BETWEEN                                                        

(1) UNION PENSION TRUSTEES LIMITED

(2) PAUL BLISS

Appellants

and

MRS MAUREEN SLAVIN

Respondent

 

Re: Flat 1, 10 South Parade,

Weston-Super-Mare,

North Somerset

BS23 1JN

 

Before: Martin Rodger QC, Deputy President

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL

4 March 2015

 

Mr Matthew Brown, instructed by Powells, solicitors, for the appellants

The respondent, in person

© CROWN COPYRIGHT 2015

 

The following cases are referred to in this decision:

Arnold v Britton [2013] EWCA Civ 902

Francis v Philips [2014] EWCA Civ 1395

Assethold Ltd v Watts [2014] UKUT 537

Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47

Conway v Jam Factory Freehold Ltd [2014] 1 EGLR 111

 

 

Introduction

1.            This is an appeal against a decision of the First-tier Tribunal (Property Chamber) (“the FTT”) given on 12 February 2014 in a service charge dispute.  It raises two substantive issues.  The first concerns the quality of the evidence required to prove that a landlord has incurred costs, where no contractor’s invoice is produced, while the second requires the Tribunal to decide whether the language of a particular lease permits legal costs incurred in tribunal proceedings to be recovered from leaseholders as part of a service charge.

2.            In its decision the FTT disallowed a sum of £38,016.19 said to have been incurred by the appellants in connection with major works on the grounds that it was not supported by a proper invoice.  It also disallowed a contribution towards legal costs of £6,374 incurred in connection with previous tribunal proceedings.

3.            At the hearing of the appeal the appellants were represented by Mr Matthew Brown of counsel, while the respondent made oral and written submissions on her own behalf.  I am grateful to them both for their assistance.

The facts

4.            The parties agreed a short statement of facts and provided a bundle of documents.  From that material and the decision of the FTT I take the following facts as the basis of my consideration of this appeal.

5.            10 South Parade, Weston-super-Mare (“the Building”) is a four storey Victorian terraced building comprising a café on the ground floor and four long leasehold flats on the upper floors.  The appellants, Union Pension Trustees Ltd and Mr Paul Bliss, hold the freehold as trustees.  The respondent, Ms Maureen Slavin, is the registered proprietor of Flat 1, on the second floor (“the Flat”), which she has held since 2009 under a lease for a term of 999 years granted on 8 October 1981. 

The lease

6.            The lease of the Flat includes a covenant by the tenant at clause 4(4) to pay an interim charge and the Service Charge in the manner provided in the sixth schedule, both such charges “to be recoverable in default as rent in arrear.” 

7.            By clause 5(4) the landlord covenanted to undertake certain tasks including maintaining and keeping the main structure of the Building and the common parts in good and substantial repair and condition.  At clause 5(4) the following ancillary powers were conferred on the landlord:

“(g)(i)     to employ at the Landlord’s discretion a firm of Managing Agents to manage the Landlord’s property and discharge all proper fees, salaries, charges and expenses payable to such agents or such other person who may be managing the Landlord’s property.

(ii)     to employ all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Landlord’s Property.”

The expression “the Landlord’s Property” had been defined in clause 1(9) of the lease as meaning the Building.

8.            The provisions for calculating the Service Charge are contained in the sixth schedule which is in conventional terms.  By paragraph 1 the Service Charge for the Flat is 15% of the “Total Expenditure in any accountancy period” meaning the total expenditure incurred by the landlord in carrying out its obligations under clause 5(4), together with:

“… any other costs and expenses reasonably and properly incurred in connection with the Landlord’s Property including without prejudice to the generality of the forgoing (a) the cost of employing Managing Agents and (b) the cost of any Accountant or Surveyor employed to determine the Total Expenditure and the amount payable by the Tenant hereunder.”

The works

9.            In March 2010 the appellants’ architect, Mr Williams, prepared a detailed photographic schedule showing the condition of the common and external parts of the Building, which demonstrated that significant work of repair was required.  Tenders were invited for the programme of works, and two were received, the lower of which was submitted by Burnham Plastering and Dry Lining Ltd (“Burnham”).  Burnham is a company owned by Mr Spence who is the leaseholder of Flat 4 in the Building. 

10.        In 2011 the appellants applied to a leasehold valuation tribunal (“the LVT”) for a determination that an interim service charge which they had asked the leaseholder to pay on account of the costs of carrying out the programme of works was reasonable. The respondent was one of three respondents to that application who disputed the interim charge. 

11.        After inspecting the Building the LVT issued a decision dated 17 October 2011 in which it considered and approved as reasonable an estimate of £52,278.90, based on Burnham’s tender plus a 5% contingency.  The LVT was aware of the connection between Burnham and Mr Spence, to which the other leaseholders objected, but the LVT nonetheless considered that the appellants were entitled to appoint Burnham to carry out the work.

12.        The respondent subsequently paid £9,000 as an interim service charge, including a contribution towards the cost of the proposed work.

13.        The bulk of the work described in the schedule of condition was carried out by Burnham in 2011.  There was no written contract, and no fixed price.  The total cost is said to have been £40,491.65, of which £38,016.19 is said to have been paid to Burnham, with the remaining £1,395.46 being paid for materials and other incidental works. 

14.        On 12 September 2012 the appellants issued three service charge demands, being for the years ending on 31 December 2009 and 2010 and for the period of fifteen months ending on 31 March 2012. 

15.        For 2009 the service charge demanded of the respondent was £878.81, which included £172.50 as the respondent’s contribution to the architect’s fee for preparing the schedule of condition.

16.        For 2010 the sum demanded was £1,220.80 which included a further contribution towards the architect’s fees. 

17.        The 2012 demand was for £9,916.67 which included £6,073.75 in respect of repairs and renewals.  This represented the respondent’s 15% share of costs totalling £40,491.65 said to have been incurred in the 15 months to 31 March 2012, in carrying out the programme of remedial works.  

18.        The 2012 demand also included £2,124.67 in respect of legal expenses.  This figure represented one third of a bill of £6,374 tendered by the appellants’ solicitors in respect of the application to the LVT in 2011 to obtain approval of the on-account service charge. 

The proceedings before the First-tier Tribunal

19.        On 7 May 2013 the appellants sought a determination under s.27A, Landlord and Tenant Act 1985 of the service charges payable by the respondent for the periods covered by the three demands.  A second application in relation to the legal expenses was also made under Schedule 11 to the Commonhold and Leasehold Reform Act 2002, on the basis that they may be recoverable as administration charges (a contention which has not been pursued on appeal).

20.        Evidence was provided in support of the application in a witness statement of Mr Bliss who referred to copies of a large number of invoices.  The documents relied on in support of the cost of the major works included several prepared by Mr Bliss himself, one of which was headed “10 South Parade: statement of works to common parts and externals” which showed how an amount of £16,058.73 said to have been paid by cheque to Burnham had been calculated.  The document referred to a total contract price of £33,573.50 from which a retention of £1,893 had been made.  The addition of VAT to the resulting balance and the deduction of a sum of £15,712.40 said to have been previously paid left a net amount due of £22,303.79.  Credit was given against this sum in respect of the 28% service charge contribution due from Mr Spence, in his capacity as leaseholder of flat 4, leaving a balance of £16,058.73.  

21.        In her witness statement dated 17 September 2013 in response to the application the respondent disputed a number of charges on grounds which it is not now necessary to refer to.  In relation to the 2012 demand for repairs and renewals the respondent did not dispute that major works had been carried out and referred to what she described as a “certificate of practical completion” prepared by the appellants’ architect Mr Williams.  Her main challenges were that the work had not been done to a reasonable standard, that there were still problems of damp and leaks and that some items of work on the specification had not been undertaken at all.  She also pointed out that she had not seen a VAT invoice from Burnham.  In relation to legal expenses she suggested that the lease did not include any provision entitling the appellant to recoup costs incurred in tribunal proceedings through the service charge.

22.        The hearing before the FTT was attended by Mr Bliss and by Mr Brown of counsel on behalf of the appellants, and by the respondent.  Neither Mr Bliss nor Ms Slavin formally gave evidence or was cross examined but, as often occurs in this sort of case, the FTT went through each item in the service charge demands and asked its own direct questions of the parties and their representatives.

The First-tier Tribunal’s decision

23.        In its decision given on 12 February 2014 the FTT recorded that it had inspected the Building in advance of the hearing.  Amongst the matters it had noted were that the rendering to the front elevation appeared to have been renewed, but that damp was coming through on the entrance porch and certain floor tiles had not been replaced.  The front lobby had recently been decorated and the rear lobby tidied up, but further work was required to resolve problems created by the presence of pigeons.  On inspecting the interior of the Building the FTT noted signs of previous damp problems which had been attended to.

24.        The FTT noted that Mr Bliss had managed the building personally without employing an agent.  It was critical of the standard of management and found that it fell significantly short of what would be expected from a manager performing to a reasonable standard.  It disallowed the management charge of £350 a year which Mr Bliss had included in the service charge for each flat.

25.        The FTT made findings in relation to the disputed items of expenditure and held that the respondent’s service charge liability for 2009 was limited to £199.50, and for 2010 was £378.97.  Each of these figures included a contribution towards the fees of the appellants’ architect.  A separate charge by Mr Bliss for his own time spent “supervising works” was disallowed on the grounds that “the building works referred to come in the following year”. 

26.        The respondent’s service charge for the period to 31 March 2012 was limited by the FTT to £579.51.  Seven invoices for materials or individual items of work were allowed, but the payment said to have been made to Burnham was disallowed in its entirety. 

27.        On page 9 of its decision the FTT explained that it had been shown no invoice from Burnham and that Mr Bliss had relied on two documents, both of which he himself had prepared.  The first of these was the calculation which is referred to in paragraph 20 above (“the statement of works”).  Although the statement of works referred to a sum of £15,712.40 as having previously been paid there was no invoice for that payment either.  The second document was a variant of the statement of works, described by the FTT in the passage which I quote below.

28.        The FTT referred to the fact that in her statement the respondent has specifically challenged the absence of a Burnham invoice.  It explained how Mr Bliss had sought to meet that challenge:

“In her statement of case the Respondent raised the point about no invoices.  So, in the Applicant’s bundle of additional documents we find a purported invoice at page 117.  In fact, it is another copy of the Statement [of works] with some manuscript additions: top left, name and address of Shu Shu Executive Pension Trust; top right, name and address of the Building Company: centre, above the figures, “Invoice”; and bottom left a VAT no.  A date has not been written in.  Quite simply this is not a valid invoice and it is extraordinary that the Applicant tenders it as such. …. The RICS Code of Practice Part 12.10 requires contractors to issue appropriately detailed invoices for all works carried out, however minor, which state clearly what charges are for.  Now, here we have a major work in respect of which there are no invoices, let alone any which comply with the Code.  In those circumstances the Tribunal cannot possibly approve the inclusion of these amounts in the service charge.  This is more than a technicality, as the Tribunal has nothing to go on to consider whether the costs were reasonably incurred.  It should be added that Mr Bliss’s failing to realize the situation and, therefore, asking the contractor for complying invoices is another demonstration of his lack of management. We also acknowledge that the Respondent has submitted that some of the work is not to a reasonable standard; the Tribunal has decided not to consider this as the amounts are not payable in any event, for the reason given earlier in this paragraph.”

29.        The FTT also decided that the lease did not provide for the recovery of legal expenses.  On page 10 of its decision it directed itself that “to authorise the inclusion of legal costs in a service charge you must have clear and unambiguous wording” and found that such wording was missing in this case.

30.              Finally, the FTT made an order under s. 20C of the Landlord and Tenant Act 1985 that no part of the costs incurred by the appellants in connection with the proceedings before it should be included in any service charge.  It explained that it was making the order to avoid Mr Bliss seeking to include a charge for his own time spent on the application.

The appeal

31.        The appellants sought and obtained permission to appeal on three issues:

(1)               Whether the FTT had been entitled to exclude the recovery of any part of the cost of the major works paid to Burnham on the grounds that no invoice had been produced in evidence.

(2)               Whether the lease entitled the appellants to recover legal costs incurred in tribunal proceedings.

(3)               If the FTT’s conclusions on either of the first two issues was wrong, whether its order under s. 20C of the 1985 Act  ought to be reconsidered.

32.        The Tribunal directed that the appeal would be determined as a review of the FTT’s decision.

Issue 1: payments to Burnham

33.        Mr Brown acknowledged the inadequacy of the “invoice” on which Mr Bliss had relied in support of the recovery of the sum paid to Burnham.  He nonetheless submitted that in reaching its conclusion that it could not possibly approve any part of that sum for inclusion in the service charge, the FTT had overlooked important evidence.  Taken as a whole the evidence supported the appellants’ case that a substantial sum had been paid to Burnham and that the FTT’s suggestion that it had “nothing to go on to consider whether the costs were reasonably incurred” was simply wrong.

34.        Mr Brown said that the evidence clearly showed that work had been necessary, and that it had largely been carried out. The schedule of condition of March 2010 described the works which were required at that stage, and the LVT had inspected the Building in 2011 and found it to be in need of repair. The witness statements of Mr Bliss and of Ms Slavin were consistent only with a finding that major works had been carried out and completed in 2012 (subject to a few outstanding items). The respondent had not suggested that no works whatever had been carried out and the FTT made no finding to that effect.  The respondent’s main complaint in her statement had been  that ‘some of the work has not been done or completed to a reasonable standard’. 

35.        The FTT appears to have been satisfied that substantial works had been carried out. It described some of the works in its decision, and allowed the sum of £200 as an administration fee on the basis that Mr Bliss had spent some time supervising them.

36.        Mr Brown submitted that for those reasons the FTT ought expressly to have found that major works had been carried out to the building by Burnham, and that the dispute between the parties related instead to whether all of the proposed works had been completed and whether those works had been completed to a reasonable standard.

37.        Mr Brown next identified the evidence on which he said the FTT should have made findings of fact concerning the sums paid by the appellants to Burnham, despite the absence of  a proper invoice.  

38.        Mr Bliss had referred in his witness statement to a schedule which he exhibited and which contained his own calculation of the total sum paid, which had been £40,491.65.  The figures in his schedule tallied with the invoices produced for materials, architects fees and other specialist items, and also showed two payments as having been made to Burnham, the first of £15,712 and the second of £22,303.79.

39.        The first payment of £15,712 was corroborated not only by Mr Bliss’s reference to it in the documents which he had produced (it was shown in the statement of works as the sum previously paid) but also in a document headed ‘final account’.  This was on the letter head of Architecture Plus, the architectural consultancy for whom Mr Williams had prepared the schedule of condition and arranged the tendering exercise.  The document is dated 25 April 2012, identifies the pension fund as the client, and bears the name of Mr Williams (in print rather than a signature).   It was this document which the respondent described as a “certificate of practical completion” in her own witness statement.  It states that the final value of the contract had been agreed at a meeting with Mr K Milsom on 24 April 2012, at a price, including VAT of £38,016.19.  A retention of 2.5% had been made and work to the value of £16,115.28 had previously been certified, leaving an amount due of £21,900.91.  Deducting the 2.5% retention from the sum said previously to have been certified left a payable balance of £15,712.

40.        It was acknowledged by Mr Brown that it appeared from this final account that only the first payment of £15,712 had been made by 31 March 2012, the end of the relevant service charge period.  The second payment of £22,303.79 had been made in the subsequent service charge year which was not the subject of the application to the FTT.

41.        In its refusal of permission to appeal the FTT had said that “the central issue underpinning the whole of the Tribunal’s decision … is that the Tribunal does not regard Mr Bliss as a credible witness”.  Mr Brown submitted that no suggestion had been made to Mr Bliss in the course of the hearing before the FTT that he was not being truthful in his statement when he referred to the payments having been made to Burnham.  Mr Bliss had not suggested that the documents he had prepared, and to which the FTT had taken exception, were invoices from Burnham, and had always acknowledged that he had prepared them himself.  If the FTT had based its conclusion that the Burnham payments were not recoverable on a finding that Mr Bliss was not a credible witness then it had not explained that in its decision (but only in its refusal of permission to appeal) and it ought specifically to have put the allegation, whatever it amounted to, to Mr Bliss during the hearing, which it had not done.

42.        In reply Ms Slavin said that she had asked to see an invoice from Burnham because the sum claimed included VAT and without an invoice VAT could not be charged.  The document relied on by Mr Bliss was not an invoice, and was not from Burnham.  There were still issues concerning the quality of the work which had been carried out, and a number of individual items which had not been completed, none of which had yet been considered by the FTT. 

43.        I am satisfied that the appeal on issue 1 must be allowed and the issue remitted to the FTT for further consideration.

44.        I accept Mr Brown’s submission, summarised above, that the FTT had ample evidence on which it could have concluded that expenditure had been incurred by the appellants in the period to 31 March 2012.  There was no dispute that work had been carried out by Burnham and the LVT in its decision in 2011 had found that Burnham’s tender was reasonable.  Mr Bliss put before the FTT a  statement in which he said that payments of £15,712 and £22,303.79 had been made to Burnham.  The first of those payments was recorded in the final account prepared by Mr Williams, and the first question for the FTT was whether that expense had been incurred.  The absence of an invoice from the contractor was undoubtedly relevant in considering that question, but its significance had to be assessed in the context of the other evidence.  The FTT does not appear to have asked why there was no invoice from Burnham, nor whether the absence of an invoice led to the conclusion that nothing had been paid for the work, or that some lesser sum had been paid.  By its ruling that, in the absence of a valid invoice, it was not possible to find that costs had been reasonably incurred the FTT omitted to undertake a full consideration of the evidence. 

45.        It is also necessary to comment on the FTT’s statement when refusing permission to appeal that “the central issue underpinning the whole of the Tribunal’s decision … is that the Tribunal does not regard Mr Bliss as a credible witness”.  The FTT was justifiably critical of Mr Bliss’s efforts at property management, his arbitrary time recording and attribution of management fees, and his use of an employee to certify expenditure, but nowhere in its original decision did it question his honesty, as it appeared to do when refusing permission to appeal.  The only observation which the FTT did make about Mr Bliss’s intentions in relation to the documents he prepared is included in the passage reproduced at paragraph 25 above.  It considered that his “failing to realize the situation” and failure to ask the contractor for invoices was “another demonstration of his lack of management”.  That was a finding of incompetence, rather than dishonesty.  

46.        If, as it subsequently said, Mr Bliss’s credibility as a witness was central to its conclusions, the FTT ought to have made that clear in its decision.  Moreover, it ought to have made clear what assessment it had made of Mr Bliss’s evidence (much of which it accepted) and the basis on which it had reached its conclusion.  Most importantly of all, if the FTT thought that Mr Bliss was not telling the truth when he said that the payments had been made to Burnham, it was essential that that be put to him and that he be given the opportunity to respond directly to it.  On page 4 of its decision the FTT said that it had recorded what the parties had said in the course of the hearing “to the extent that it was relevant and affected the decision”, yet there is no record of any question being put to him, or answered, in relation to the invoice.

47.        The FTT ought to have made it clear whether it regarded Mr Bliss’s evidence in relation to the payments to Burnham as untruthful, or as insufficiently reliable to be accepted without further corroboration.  If their assessment was the latter it was necessary that the remaining evidence be considered carefully to see whether it supported Mr Bliss’s account.  The FTT did not undertake that exercise but instead took a short cut which deprived the appellants of payments for work which had undoubtedly been done and to which they appear to have had a strong claim.

48.        For these reasons I am satisfied that the application in relation to the cost of the work carried out in 2011 must be remitted to the FTT for reconsideration.  At any reconvened hearing the appellants will be entitled to adduce further evidence, including evidence from Burnham, to support its case that the relevant payments were made and that VAT was properly included.  The FTT ought also to consider the issues raised by the respondent concerning the standard of the work and their reasonable cost.

Issue 2: legal costs

49.        At the start of his submissions on the recoverability of legal costs as part of the 2012 service charge Mr Brown accepted that the basis on which the appellants had originally sought to recoup these was mistaken.  In the 2012 demand the total cost of £6,374 had been divided equally between the three leaseholders who had been respondents to the application before the LVT in 2011.  It was not now suggested that there was any provision of the lease which entitled the appellants to apportion that charge equally amongst only three of those who were liable to contribute through the service charge to the appellants’ expenditure on the Building.  If legal costs were recoverable at all it was as part of the service charge and the respondent’s contribution would be 15% of the total.

50.        Mr Brown submitted that the description of the landlord’s total expenditure in paragraph 1 of the sixth schedule to the lease is sufficiently wide to allow for the service charge to include legal costs incurred in tribunal proceedings.  The words relied upon were:

“… any other costs and expenses reasonably and properly incurred in connection with the landlord’s Property including without prejudice to the generality of the foregoing (a) the cost of employing Managing Agents and (b) the cost of any Accountant or Surveyor employed to determine the Total Expenditure and the amount payable by the Tenant hereunder.”

51.        No reliance was placed on clause 5(4)(g)(ii) which permits professionals to be employed “for the proper maintenance safety and administration of the Landlord’s Property”.

The appellants’ submissions

52.        Mr Brown submitted that although a lease or other document had to be construed according to its own terms, similar clauses should, in principle, be construed in a similar way.  If the FTT had thought that there were special rules for the construction of service charge provisions, it had been wrong, as two recent decision of the Court of Appeal in Arnold v Britton [2013] EWCA Civ 902 and Francis v Philips [2014] EWCA Civ 1395 demonstrated.  Nor was some express reference to legal costs or the costs of proceedings a precondition of their recovery through a service charge, (a proposition for which Mr Brown cited the Tribunal’s decision in Assethold Ltd v Watts [2014] UKUT 537).

53.        The parties must have anticipated the possibility of legal proceedings between them over the costs to be incurred by the landlord in performing its repairing and other obligations.  Unless those costs were collected through the service charge the condition of the Building would deteriorate, and there was therefore a direct connection between the costs of proceedings and the performance of the landlord’s obligations. In any such proceedings it was inevitable that expenses would be incurred and likely that lawyers would be engaged.  Therefore, Mr Brown suggested, it is to be expected that the recovery of the costs of proceedings would be something for which the lease made provision.

54.        Turning to the language used in paragraph 1 of the sixth schedule, Mr Brown placed particular emphasis on the inclusion of “any other costs and expenses reasonably and properly incurred in connection with the Landlord’s Property”.  This, he submitted, was intended to include any costs and expenses, whether or not they had been incurred in relation to the performance of the obligations in clause 5(4), so long as they were incurred in connection with the Building.  The words ‘without prejudice to the generality of the foregoing’ also served to demonstrate that the recoverable costs and expenses were not limited to those incurred in employing managing agents, accountants or surveyors.

55.        Mr Brown submitted that, given the length of the leases it was understandable that the parties did not seek to describe with precision the sort of costs and expenses which were to be recoverable through the service charge. Instead they used broad language referring to the purpose or object of the expenditure (namely that it should be “in connection with the Landlord’s Property”).  Such costs had to be reasonably and properly incurred.  Mr Brown also referred to similar provisions which had been held sufficient to permit the recovery of legal expenses in Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47, Conway v Jam Factory Freehold Ltd [2014] 1 EGLR 111 and Assethold Ltd v Watts [2014] UKUT 0537 (LC).

56.        The question to be asked in this case was therefore whether the costs which the appellants sought to recoup had been incurred ‘in connection with landlord’s Property’.  It was not necessary that the costs and expenses be incurred in work directly affecting the fabric of the Building.  Such a restriction would overlap with expenses falling directly within clause 5(4), and would be inconsistent with costs of an administrative nature which were specifically identified as being recoverable.  The legal fees in question had been incurred in proceedings to determine the amount of an interim service charge which the respondent and other leaseholders were liable to contribute towards the cost of repairs to the Building.  These, Mr Brown suggested, fell squarely within the charging provision.

The respondent’s submissions

57.        Ms Slavin pointed out that there was no reference to the recovery of legal expenses in the lease, which was in contrast to the treatment of other types of professional services.  The costs sought to be recovered were not “in connection with the landlord’s Property”

58.        She also submitted that although she had been party to proceedings resulting in a decision of the LVT on 22 October 2010 which concerned an interim service charges payable for 2009, on that occasion the LVT had made an order under s. 20C of the 1985 Act protecting her from liability to contribute to the costs of the proceedings through the service charge. She had also been party to the proceedings which resulted in the decision of 17 October 2011 concerning the 2011 interim service charge, which she had then paid.  Those proceedings had included an application by the appellants under s. 20ZA of the 1985 Act to dispense with the statutory consultation requirements in respect of the proposed works.

59.        Ms Slavin had challenged the reasonableness of some of the legal expenses included in the service charge in her witness statement to the FTT (for example a letter was said to have been written to her mortgage company when she did not have a mortgage) but these had not been investigated by the FTT because of the view it took on the issue of principle.

Discussion and conclusion     

60.        I cannot accept Mr Brown’s submissions on this aspect of the appeal. 

61.        Looking at the service charge provisions of the lease as a whole, the costs of managing and administering the Building and the employment of professionals is covered extensively in clause 5(4)(g).  Entirely absent from that clause is any reference to lawyers or the cost of proceedings.  While I agree that the absence of a specific reference to legal expenses is not fatal, provided there is other language apt to demonstrate a clear intention that such expenditure should be recoverable, when considering the scope of any general words relied on for that purpose it is necessary to have regard to other relevant provisions of the lease.  The terms of clause 5(4)(g) are in very marked contrast to those of clause 3(9) which is an express covenant by the tenant to pay to the landlord all costs, including solicitors’, counsels’ and surveyors’ costs and fees, incurred in a specific category of legal proceedings, namely those under ss. 146 and 147 of the Law of Property Act 1925.

62.        When the lease was granted in 1981, before residential property tribunals had jurisdiction to resolve service charge disputes in a largely costs-free environment, the parties would have anticipated that a dispute over the liability to contribute towards a service charge would be resolved in the County Court, and that by an order of the court the successful party would recover its costs from the unsuccessful party.  The idea that leaseholders should be collectively responsible through the service charge for litigation costs which had not been recovered from one or more of their number with whom the landlord had been in dispute would not have been at all obvious.  The expectation apparent from clause 3(9) was that the landlord’s costs would be recovered from a defaulting leaseholder, rather than through the service charge.  

63.        The explicit and noticeably contrasting language of clauses 3(9) and 5(4)(g) dealing with liability for professional fees immediately suggests that the parties cannot have intended the cost of legal proceedings in connection with the maintenance or administration of the Building to be included within the scope of clause 5(4)(g).  The language must then be compared to the entirely general and imprecise words on which Mr Brown relies to see if they displace that impression.  I do not think they do.  The parties cannot be taken to have slipped in, under general words, an obvious category of potential expenditure which their more specific provisions appear consciously to omit. 

64.        I do not think that any support is provided for Mr Brown’s argument by the presence of the words “without prejudice to the generality of the foregoing” which appear before the reference to the cost of employing managing agents, accountants or surveyors.  On one view those words are meaningless verbiage, since the categories of expenditure specifically identified are already referred to in clause 5(4)(g), but in the context of the service charge schedule itself they appear simply to provide emphasis that the cost of professional assistance in connection with quantifying the service charge is in itself a recoverable head of expenditure.

65.        Nor do I consider that the authorities on other forms of lease on which Mr Brown relied were of assistance.  In particular his reference to the Tribunal’s recent decisions in Conway v Jam Factory and Assethold v Watts paid too little attention to the specific language and very particular facts of those cases.  In Conway the landlord was entitled to recover the costs of engaging the services of “any appropriately qualified or experienced … advisers of whatever nature” in the management of the building to provide such services “as the landlord may reasonably require in the interests of good estate management”.  Those words were held sufficient to permit the recovery of the cost of proceedings in which the landlord resisted the attempts of a small group of leaseholders to replace the landlord’s preferred managing agents with a manager whom the LVT had found to be unsuitable.  In Assethold a provision permitting the recovery of the costs of such “works as in the reasonable discretion of the landlord may be considered necessary or desirable for the proper maintenance safety and amenity of the Development” was held to cover the cost of obtaining an injunction to prevent a neighbour from cutting into the foundations of the building without first obtaining a party wall award.  In neither case was the critical language couched in wholly general terms, and in neither case was there any tension with the remainder of the lease.  Those authorities illustrate the proposition that a reference to legal expenses is not a precondition of recovery, but they do not provide carte blanche for the recovery of such expenses in reliance on entirely general “any other costs” clause.

66.        I also question the weight placed by Mr Brown on the expression “in connection with the landlord’s property”.  The parties cannot seriously be taken to have intended that all legal or other professional expenses incurred by the landlord in connection with the Building should be recoverable from all leaseholders through the service charge.  For example, can it be suggested that the leaseholders would be liable for costs incurred by the appellants in contested proceedings under the Landlord and Tenant Act 1954 over the renewal of the lease of the café on the ground floor, or the costs of a contentious rent review arbitration?  Very clear language, absent from this lease, would be required to support such an improbable charge.

67.        In my judgment therefore the FTT was correct in its conclusion that the language of the lease does not permit the recovery of the costs of tribunal proceedings as part of the service charge.

Issue 3: Section 20C Landlord and Tenant Act 1985

68.              In view of my decision on issue 2, the final issue in the appeal does not strictly arise.  Had I been persuaded by Mr Brown’s submissions in relation to the recovery of the costs of tribunal proceedings I would have remitted the decision to make an order under s. 20C for further consideration by the FTT in light of its conclusions on issue 1.  In the circumstances, however, it is not necessary for such an order to be made.  

 

 

 

 

 

Martin Rodger QC

Deputy President

 

11 May 2015