UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 117 (LC)

LT Case Number: LRX/158/2013

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charges - apportionment by rateable value – whether Tribunal had jurisdiction to consider question of construction of lease after agreement reached on quantum of service charge payable – para. 3, Sch. 12, Commonhold and Leasehold Reform Act 2002 - s.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:

 

PETER CAIN

Appellant

and

LONDON BOROUGH OF ISLINGTON

Respondent

Re: 46 Thornhill Houses,

Islington,

London N1

 

Before: Martin Rodger QC, Deputy President

 

 

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

on

12 March 2015

 

The Appellant, in person

Mr Ranjit Bhose QC for the Respondents

 

© CROWN COPYRIGHT 2015

 

 

The following cases are referred to in this decision:

 

Lennon v Ground Rent (Regisport) Ltd [2011] UKUT 330 (LC)

Staunton v Taylor LRX/87/2009

 

 

DECISION

1.             Where, in proceedings over a disputed service charge which have been transferred from the county court to the First-tier Tribunal, the parties reach agreement on the amount of the service charges payable, does the tribunal retain sufficient jurisdiction to enable it to rule on the meaning of the lease under which the agreed charges are payable? 

2.             That question arises on this appeal from a decision of the First-tier Tribunal (Property Chamber) (“the F-tT”) made on 2 October 2013 in which it considered a claim by the London Borough of Islington (“the Council”) concerning a service charge said to be payable by Mr Peter Cain.  The charge totalled £1,060.54 and was an apportioned part of the cost of installing a new door entry system at a building known as Thornhill Houses, Thornhill Road, London N1 (“the Building”).  Mr Cain is the long lessee of Flat 46 in the Building, which he holds under a lease granted on 30 September 1985 pursuant to the right to buy provisions of the Housing Act 1980.

3.             The proceedings had been transferred to the F-tT by the Lambeth County Court under paragraph 3 of Schedule 12 to the Commonhold and Leasehold Reform Act 2002.

4.             In paragraph 10 of its decision the F-tT recorded the issues which the parties agreed were to be determined.  The first issue was:

“Whether the charges claimed in respect of the replacement of the door entry system were recoverable under the Respondent’s lease.”

Four other issues were also identified: whether the Council had correctly apportioned the costs under the terms of the lease; whether there had been proper consultation; whether the cost of the works was reasonable; and whether an administration charge of £20 was payable. 

5.             The second issue related to apportionment.  The lease was granted on 30 September 1985, when the system of domestic rating was in use.  It provides for the tenant to contribute to the costs incurred by the Council in undertaking work to the Building in the same proportions as the rateable value of the demised premises bears to the rateable value of all the dwellings and other rateable parts of the Building, using the rateable values in force at the end of each year of assessment. 

6.             The contractual machinery for calculating the service charge is contained in clause 5 of the lease, with the provisions for apportionment by rateable value being found in clause 5(2)(f).  In Mr Cain’s lease these provisions are subject to two provisos, the meaning and effect of which is in dispute.  The provisos are in these terms:

 

“PROVIDED ALWAYS:

(A)   That the Council shall have the right at any time to fairly and reasonably substitute a more detailed method of calculating the Service Charge attributable to the dwellings in the Building and

(B)    That in the event of the abolition or disuse of rateable values for property the reference herein to the rateable value shall be substituted by a reference to the floor areas of all the dwellings in the Building and on the Estate (excluding any areas and lifts (if any) used in common) and calculated accordingly.”

These provisos appear in a modified form in most (possibly all) other leases of flats in the building, in which the reference in proviso (A) to “a more detailed method” of calculating the service charge is replaced by “a different method”.

7.             When domestic rating was abolished on 1 April 1990 the Council adopted a method of apportioning service charges related to the number of bed spaces in each dwelling and in the Building as a whole.  It claims to have been entitled to do so under the power of substitution granted to it by proviso (A) above.  Mr Cain objects and contends that, following the abolition of domestic rating, proviso (B) requires that service charges be apportioned by reference to the floor areas of all the dwellings in the Building and on the Estate.  An alternative to the Council interpretation of the two provisos would be that proviso (A) allows for a more detailed attribution or apportionment of particular costs to individual dwellings, but proviso (B) represents the parties’ agreed alternative to apportionment by rateable value.

8.             In paragraph 11 of its decision the F-tT explained the course which the hearing took.  Evidence had been heard on various issues from which it became apparent that the parties might benefit from a short recess in order to try to reach agreement.  The F-tT allowed them that opportunity and recorded the outcome:

“The parties returned and confirmed that [Mr Cain] had agreed to pay 50% of the service charge amount in issue (50% of £1,060.54) and so all the issues apart from the issue as to the method of apportionment had fallen away.”

9.             The F-tT then proceeded to consider whether the method of apportionment adopted by the Council was permissible under provisos (A) and (B) of clause 5(2)(f).  In paragraphs 38 to 41 of its decision it identified the issue as being whether the bed-space method of apportionment employed by the Council was a “more detailed method of calculating the service charge” when compared to a service charge calculated by reference to rateable values or floor areas, and concluded that it was.  In paragraph 44, having considered the expense and inconvenience which would be involved in switching to an apportionment by reference to floor area, the F-tT concluded that the method preferred by the Council was also “reasonable and fair”. 

10.         Mr Cain sought permission to appeal the F-tT’s decision on apportionment and was granted it by the Tribunal.

11.         In his skeleton argument for the hearing Mr Ranjit Bhose QC drew attention to a question of jurisdiction which had not previously been raised by the Council, either before the F-tT or in response to the appeal.  As Mr Bhose pointed out, the only issues before the F-tT had been the liability of Mr Cain to pay the service charge claimed for the new door entry system and the £20 administration charge.  Mr Cain had agreed in the course of the hearing to pay 50% of the sum demanded.  Notwithstanding that agreement the F-tT had gone on to consider the method of apportionment.  In his skeleton argument Mr Bhose did not argue that the F-tT’s decision on apportionment had been made without jurisdiction although the parties’ agreement appeared to have removed it as an issue.  Mr Bhose coyly submitted that the Tribunal would, nevertheless, wish to satisfy itself on the issue of its jurisdiction.

12.         In his oral submissions Mr Bhose was less diffident and acknowledged that the Council could not remain agnostic on the question of whether the F-tT had had jurisdiction to make the decision which the Council sought to uphold on the appeal.  He submitted instead that, by reason of the agreement on the quantum of the service charge payable, the F-tT had been deprived of jurisdiction to make any determination capable of binding the parties on the issue of apportionment.

13.         In his submissions Mr Cain explained that his principal interest in the proceedings before the F-tT had been to obtain a determination on the issue of apportionment; he was much less concerned about the cost of the door entry system itself.  He would not have reached agreement with the Council to pay 50% of the service charge demanded, or any other sum, if he had thought that the F-tT would then be unable to make a ruling on the proper method of apportionment which could then be applied to other service charges.

14.           The preliminary question in this appeal is whether the F-tT had jurisdiction to make any determination on the issue of apportionment after agreement had been reached on the quantum of the service charge payable by Mr Cain.  Because the issue concerns jurisdiction, it was entirely proper of Mr Bhose to raise it, even at a late stage, and it is necessary that I determine it before considering the substantive issues in the appeal. 

15.           The jurisdiction exercised by the F-tT is statutory.  It has no inherent power to determine any question. In this case its relevant jurisdiction is conferred as a result of a transfer of proceedings from the County Court under paragraph 3 of Schedule 12 to the 2002 Act.  Where  in any proceedings before a court there falls for determination a question falling within the jurisdiction of the First-tier Tribunal (or the leasehold valuation tribunal in Wales), the court is empowered by paragraph 3 to transfer to the appropriate tribunal so much of the proceedings as relate to the determination of that question,  

16.           The Council had commenced proceedings for the recovery of the disputed service charge in October 2012 and on 3 January 2013 a District Judge of the Lambeth County Court ordered that “the matter be referred to the leasehold valuation tribunal … to determine the reasonableness of the service charges demanded”. 

17.           The order transferring the proceedings referred only to a determination of the reasonableness of the service charge demanded.  As the Tribunal has explained in Lennon v Ground Rent (Regisport) Ltd [2011] UKUT 330 (LC) and in Staunton v Taylor LRX/87/2009, the jurisdiction of the F-tT in a case transferred to it from the County Court is confined to the question transferred and all issues comprehended within that question.  I would suggest, however, that that principle ought to be applied in a practical manner, with proper recognition of the expertise of the F-tT in relation to residential service charges.  When trying to identify which subsidiary issues ought properly to be treated as being included within the scope of the questions transferred it is not appropriate to be too pedantic, especially where an order transferring proceedings is couched in general terms and where there is no suggestion that the court intended to reserve for itself any particular question.  It is not uncommon for orders for transfer to be expressed rather generally, and in practice the tribunals of the Property Chamber sensibly recognise that it would be a disservice to the parties (and to the transferring court) for them to adopt an over-scrupulous approach to their jurisdiction.

18.           This case provides a good example.  Although the issue transferred was “the reasonableness of the service charges demanded”, Mr Bhose did not suggest that, at the beginning of the F-tT hearing at least, those issues did not include the subsidiary question of apportionment.  Before determining the statutory question under section 19 of the Landlord and Tenant Act 1985 concerning, in short hand, the reasonableness of the service charge, it was necessary for the F-tT to consider the prior contractual question of how much Mr Cain was obliged to pay under the terms of his lease.  Until that sum was quantified, it would not be possible to determine whether it was reasonable, except in rather abstract terms.  Construing the order for transfer with appropriate generosity, it can therefore be seen that subsumed within the jurisdiction which it conferred was the power to rule on any question of interpretation of the lease on which the quantification of the service charge depended.  At the commencement of the proceedings before it, the F-tT therefore had jurisdiction to determine the question whether the Council was entitled to apportion service charges by reference to the number of bed-spaces in the Building.  It was necessary for it to do so in order to determine the sum payable by Mr Cain, which itself was a precondition of determining the reasonableness of that sum.

19.         In my judgment the position changed when the sum payable by Mr Cain was agreed.  The effect of their compromise is stated succinctly at paragraph 6-01 of The Law and Practice of Compromise by Sir David Foskett (7^th edition, 2010) as follows:

“An unimpeached compromise represents the end of the dispute or disputes from which it arose.  Such issues of fact or law as may have formed the subject matter of the original disputation are buried beneath the surface of the compromise.”

20.         At the point of their agreement the issue of apportionment fell away as a matter properly open for consideration by the F-tT.  The question of apportionment was subsidiary to the quantification of Mr Cain’s service charge and consideration of whether it was reasonable; once those matters had been agreed, as they were in the time allowed by the F-tT for the parties to discuss a compromise, the subsidiary issue necessarily fell away too.  I do not suggest that the parties reached any specific agreement on apportionment; clearly they did not, but by their agreement on the sum which Mr Cain would pay the task which the F-tT had been invited to undertake by the County Court was complete. Thereafter the F-tT lacked jurisdiction to consider any other issue. 

21.      The same conclusion will be reached if the effect of the compromise is considered by reference to s. 27A(1) of the Landlord and Tenant Act 1985.  The section as a whole is headed “Liability to pay service charges: jurisdiction” and it is the source of the jurisdiction invoked by the County Court when it made its order transferring the dispute to the F-tT.  So far as is material it is in the following very familiar terms:

(1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to—

(a) the person by whom it is payable,

(b) the person to whom it is payable,

(c) the amount which is payable,

(d) the date at or by which it is payable, and

(e) the manner in which it 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) – (d) …

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

22.           An application may therefore be made under section 27A(1) to determine the amount of a service charge which is payable, 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)).  In this case there was an agreement of the amount which is payable.  It would not thereafter have been possible for the parties to apply to the F-tT for a determination of the manner in which the agreed charge for the door entry system ought to have been apportioned.  Nor after the agreement was reached did the F-tT retain any jurisdiction in the transferred proceedings to reach a conclusion on the question of apportionment.

23.           The conclusion I have reached is that the appeal must be allowed, and that the decision of the F-tT must be set aside, not because of the merits of the arguments over the effect of provisos (A) and (B), but because the F-tT’s decision on those arguments was beyond its jurisdiction.   

24.           I have considered whether to express any view on the issue of apportionment itself, but I have concluded that it would be inappropriate for me to do so.  The issue is not live in these proceedings and, although I heard argument and have formed a clear view, any thoughts I expressed on the subject would be of no consequence and could not bind a tribunal before whom the issue arises in the future (as it seems it inevitably will).  All I would say is that it seems to me that the better way of putting the argument in favour of Mr Cain’s preferred construction is as I have mentioned in the final sentence of paragraph 7 above.

25.           I therefore allow the appeal.  The dispute having been compromised there is nothing which need be remitted to the F-tT.  The appeal having succeeded I consider it to be just and equitable to make an order under section 20C, Landlord and Tenant Act 1985, as requested by Mr Cain, that no part of the costs incurred by the Council in connection with the proceedings before this Tribunal are to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by Mr Cain. 

26.           Given that the appeal has proved abortive on the basis of a point taken at the last minute, Mr Cain has requested that the application fee which he has paid, (and presumably also any hearing fee payable by him as appellant) should be reimbursed by the Council.  I have received no submissions on that application from the Respondent, and if the parties are unable to reach agreement I direct that any observations which the respondent wishes to make should be received by the Tribunal within 21 days of the date of this decision.

 

Martin Rodger QC

Deputy President

 

26 March 2015