UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2014] UKUT 0134 (LC)
   UTLC Case Number: HA/10/2012

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT - SERVICE CHARGES – first-tier tribunal’s reliance on its knowledge and experience - adequacy of reasons – appeal allowed

IN THE MATTER OF AN APPEAL AGAINST A DECISION
OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE
EASTERN RENT ASSESSMENT PANEL

BETWEEN:

		RED KITE COMMUNITY HOUSING LIMITED             Appellants
and
                                           MS JENNIFER ROBERTSON                         Respondent

Re:    21, Mahoney Court, 
Oakridge Road, 
High Wycombe,
Buckinghamshire.

Before: Siobhan McGrath, Chamber President – First-tier Tribunal (Property Chamber) sitting as a Judge of the Upper Tribunal (Lands Chamber)

Sitting at: 45 Bedford Square, London WC1B 3DN
on 
7 January 2014

Mr Malz (counsel) for the Applicants
The Respondent did not appear and was not represented

© CROWN COPYRIGHT 2014
The following cases are referred to in this decision:
Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39
Wales & West Housing Association Ltd v Paine [2012] UKUT 372
Southern Land Securities Ltd v Hodge [2013] UKUT 0480 
Bristol City Council v Aldford Two LLP [2011] UKUT 130
Decision
Introduction
1.	This is an appeal from a decision of the Leasehold Valuation Tribunal (LVT and now the First-tier Tribunal (Property Chamber)) dated 29th March 2013. The appellant is the landlord of premises at flat 21, Mahoney Court, Oakridge Road, High Wycombe, Buckinghamshire. The respondent is Ms Jennifer Robertson who holds a long lease of the premises.
2.	Mahoney Court was originally owned by Wycombe District Council but was transferred to Red Kite Community Housing Limited as part of a large scale voluntary stock transfer in December 2011. Red Kite is a not-for-profit registered provider of social housing. It manages approximately 6,700 homes in and around High Wycombe, Princes Risborough and Marlow. Mahoney Court has 41 flats 8 of which are held on long leases and the remainder are let under periodic assured tenancies. 
3.	In October 2012, Ms Robertson made an application to the LVT for the determination of the payability of service charges for the years 2007-2008; 2008-2009; 2009-2010; 2010-2011; 2011-2012 and 2012-2013. Red Kite was the landlord of the property only for the years ending 2012 (from December 2011) and 2013 and Wycombe District Council were respondents to the application for the earlier years.
4.	In its decision the Tribunal found, so far as is relevant to this appeal, that all of the service charges incurred in the years 2007 to 2012 and those incurred and to be incurred in 2013 were reasonable and payable save in one respect, that being the costs of “cleaning/estate charges” for the years 2011-12 and 2012-13 which it reduced from £321.14 per annum to £225.00 per annum. 
5.	In August 2013, the Deputy President of the Upper Tribunal (Lands Chamber) granted Red Kite permission to appeal on two bases: firstly that the applicant had a reasonable prospect of persuading the Tribunal that the LVT failed adequately to explain its reasons for its decision that the reasonable cost of providing a cleaning service of the standard delivered by the applicant was substantially less than the cost explained in detail in the applicant’s evidence; secondly, he considered that it was also arguable that the LVT placed too much reliance on its own knowledge and experience of cleaning costs without explaining whether that knowledge was general or specific and, in the event that the LVT relied on specific examples of cleaning costs, it did so without providing details of the evidence it had in mind in order to allow the applicant to comment on it and, if appropriate, to provide additional evidence of its own to rebut it.
6.	It was directed that the appeal be dealt with as a review and a hearing was convened on 17th February 2014. At the hearing Red Kite was represented by Mr Maltz of counsel. Ms Robertson had written to the Tribunal on 14th February to explain that she would be unable to attend the Tribunal hearing due to ill health and indicating that she was content for the matter to proceed in her absence.
The LVT Determination
7.	Ms Robertson applied to the LVT on 4th October 2012 and a hearing of her application took place on 21st January 2013 with an inspection of the external common parts of Mahoney Court on the same day. The Tribunal detailed its observations on inspection as follows:
“9. The premises are a two storey block of flats built in 1970, in a complex which includes two storey houses, and a bungalow, with communal grounds and car parks. There are multiple entry and exit points giving pedestrian access, and two entrances/exits for cars.
10. The common parts were in a reasonable decorative order and reasonably clean, although the fittings and finishing materials are dated. The parties agreed that the state of cleanliness and repair to the common parts and grounds seen on the day of inspection was reasonably representative of the usual cleanliness and repair, though the Applicant asked the Tribunal to note that there had been recent removal of graffiti, rubbish, and overgrown vegetation; this was not challenged by the First Respondent”
8.	The Tribunal described the evidence given at the hearing as follows:
“14. The Tribunal heard oral evidence from the Applicant and Mr Vickery (flat 17), both of whom were cross-examined by both Respondents. The Tribunal read the witness statements of these two witnesses, and that of Mr Chapman (flat 26), who was unable to attend the hearing.
15. The First Respondent filed a witness statement from Mr Radcliffe and Mr Mullins, which the Tribunal also read and considered. All parties filed statements of case, and there were some statements in reply, all of which the Tribunal has read.”
9.	The Tribunal’s findings of fact are divided into two parts. The first relates to the period when Wycombe District Council were the landlords for the property. The Tribunal said as follows:
“2007 to December 2011 (during the Second Respondent’s management)
20. The Tribunal heard detailed evidence from the Applicant and Mr Vickery as to historic complaints made in 2005 concerning cleanliness and general lack of maintenance. There was photographic evidence showing graffiti, household items dumped in communal areas, and overgrown vegetation. There were concerns over fire extinguishers missing which were not replaced.

21. The Tribunal finds that during the period that the Second Respondent was the lessor (up to 11th December 2011) the cleaning and estate management was sometimes to a reasonable standard and sometimes not. There were periods when the building was neglected but during other periods the standard of work was reasonable.
22. However, the question is whether the costs were reasonable during this period, ranging from £177 in 2008 to £192 in 2011.
23. The point has to be made that the costs are on the low side, in the light of the size of the common parts which require cleaning and the type of user. There are several long corridors of at least 60 feet each, and at least 4 staircases. There is quite a high degree of people traffic (and bicycles) through the common parts. The development is quite open with at least 5 ways that the public can walk through it, and dump rubbish for collection. The fittings are dated, and the dirt is now ingrained, which could reasonably be expected after 30 years heavy user. The standard of cleanliness seen on the day of inspection was said to be a fair reflection of the usual standard, and whilst the floor surfaces were reasonably clean there were marked walls, dirty lights, and dirt in the gaps between the floor tiles. The Tribunal regards this as a fair standard for the costs charged to the lessees throughout this period, from £177 to £192 per year, which is £3-4 per week.
24. Whilst it was asserted by the Respondents that these were not the real costs, and that the Second Respondent was in some way subsidising this, there was no adequate evidence adduced to show that this was so.
25. The Tribunal finds that the service charges from 2007 to December 2011 were reasonable.”
10.	The second part of the decision relates to the period when the appellant was the landlord:
“December 2011 to date (during the First Respondent’s management)
26. The costs of estate management have increased dramatically since the First Respondent became the lessor (from £192.92 to £321.14 pa) and its seems that this increase has triggered the dispute. It is said that a review had taken place and that the Second Respondent had been undercharging; further, that the lessees were now being charged the true costs. However, there is inadequate evidence for the Tribunal to conclude that the lessees were being undercharged then or charged a reasonable amount now.
27. The Tribunal finds that the service provided by the First Respondent is not to a reasonable standard for the costs charged. The standard of works is noted in paragraph 23 above. Whilst the Applicant did not produce comparable quotes from cleaning companies, in light of (i) the Tribunal’s finding of reasonableness for the period 2007 to 2011, and (ii) the Tribunal’s knowledge and experience as an expert Tribunal, the Tribunal finds that the sum of £225 for 2011/12 and 2012/13 is a reasonable sum for cleaning/estate charges for the standard provided.”

The Submissions
11.	Mr Maltz submissions fall under two main headings: adequacy of reasons and the reliance by the Tribunal on its own knowledge and experience.
Adequacy of Reasons
12.	Mr Maltz contended that the Tribunal’s reasons simply failed to convey why the Tribunal considered that “that the service provided by the First Respondent is not to a reasonable standard for the costs charged.” The decision, he said, left the appellants not knowing whether the Tribunal considered that the service provided was adequate, but too expensive or whether the service provided was inadequate and therefore too expensive.
13.	He said that the LVT was presented with a substantial body of evidence as to the basis of Red Kite’s estate management charges. This, he said, included its statement in reply together with 200 pages of supporting documentation detailing the full range of services covered by the charges; the breakdown of the costs incurred and the rigorous checks and monitoring that Red Kite undertakes in order to deliver a good standard of service. Additionally the Tribunal had the witness statement of Jonathan Radcliffe, project manager at Red Kite and a witness statement from David Mullins, estate services coordinator at Red Kite. However, he submitted, apart from some cursory comments in the decision that the LVT had read the evidence and statement of case, nowhere was it explained whether any weight had been attached to the evidence or part of the evidence and no explanation was given as to whether the evidence or part of it had been rejected and if so why.
14.	Secondly he contended that the Tribunal erroneously considered the estate management charges as merely “the costs of cleaning” rather than the full range of services and sundry expenses covered by the charges. He argued that in its reasons the Tribunal should clearly have specified the services under consideration and that it ought to have accurately identified the relevant lease terms. During the course of its decision the Tribunal variously referred to “the costs of cleaning (more recently entitled “estate management”)”; “cleaning and estate management”, “estate management” and “cleaning/estate charges” and although the LVT summarised the lease terms, that summary was not sufficiently specific or accurate. Again therefore, he submitted, it was not possible to say whether the Tribunal considered the full range of the services provided nor was it possible for Red Kite to ascertain which part of the service provided was defective or too costly.
15.	Thirdly, he submitted that it appeared that the LVT had relied on the charges previously levied by Wycombe from 2007 to 2011 but had failed to explain this reliance except to say “there was no adequate evidence” to show undercharging. In Mr Maltz’ submission, if this was a pivotal consideration, the Tribunal ought to have explained its treatment of any such evidence more clearly.
Reliance on Knowledge and Experience
16.	Mr Malz contended that the correct approach in this regard had been clarified by the Upper Tribunal decision in Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 at paragraph 23 as follows:
“23. It is entirely appropriate that, as an expert tribunal, an LVT should use its knowledge and experience to test, and if necessary to reject evidence that is before it. But there are three inescapable requirements. First, as a tribunal deciding issues between the parties, it must reach its decision on the basis of evidence that is before it. Secondly, it must not reach a conclusion of the basis of evidence that has not been exposed to the parties for comment. Thirdly, it must give reasons for its decision….to support a valid decision the reasons must enable the parties to understand why it was that the tribunal reached the conclusion that it did rather than some other conclusion, so as to show that the conclusion was one to which the tribunal was entitled to come on the basis of the evidence before it.”
17.	In this case, he submitted, the tribunal placed reliance on its own knowledge and experience without explaining whether that knowledge was general or specific and furthermore during the hearing, the LVT did not indicate any intention to rely on its own knowledge or experience as to reasonable costs of estate management charges, either generally or specifically. Even if the knowledge and experience relied upon was simply general, then he said, the parties were entitled to know that the Tribunal were minded to apply that general knowledge and experience in order to reduce the recoverable costs so that if appropriate, further comparable evidence could be produced. This was particularly so where, as here, the lessee had not produced any comparable evidence of the level of management charges herself. Mr Malz accepted that the need to give the parties an indication of the Tribunal’s thinking maybe a matter of proportionality. In this matter he said that the reasoning of the Tribunal was extremely important to his client since it might impact on the recoverability of estate management costs for this block in the future and may also affect the recoverability of estate management costs for other leasehold blocks within Red Kite’s ownership.
18.	Mr Maltz referred to two further authorities on this point. The first is Wales & West Housing Association Ltd v Paine [2012] UKUT 372, a case concerning management charges where the President allowed an appeal against the decision of an LVT and commented at paragraph 20 that:
“20. In the present case the LVT had no evidence before it on the reasonableness of the management charge. It said that it reached its decision by applying its own knowledge, but none of that knowledge had been put to the parties. And the mere statement that it had applied its own knowledge did not explain why £292 was not reasonable and £200 was reasonable. The decision thus failed to meet any of the three inescapable requirements identified in Arrowdell.” 

The second case is Southern Land Securities Ltd v Hodge [2013] UKUT 0480 where HHJ Gerald observed at paragraph 24:
“24. The LVT appeared to reach the perhaps not unreasonable conclusion that the £7,700.00 odd being sought for the relatively modest amount of work was unreasonable and therefore on the basis of the very limited information before it, they did the best they could based upon their own knowledge and expertise but without first ventilating what their own knowledge was for comment by the parties. In other words, they reached a decision which was unsupported by the evidence before it and was procedurally unfair because the parties had not been told and given an opportunity to make observations upon what knowledge or information the LVT were actually basing it on.”
19.	At the hearing I asked Mr Malz to consider another decision made by the President, namely Bristol City Council v Aldford Two LLP [2011] UKUT 130. Although the case deals with the proceedings of a Residential Property Tribunal rather than the LVT, Mr Matz agreed that the applicable principles are the same. The case concerned an appeal against a decision of the RPT on a notice served under the Housing Health and Safety Rating System. At paragraph 47, George Bartlett QC said as follows:
“47 The way in which the RPT relied on its knowledge and experience in the present case does not in my judgment amount to a procedural error that substantially prejudiced the council. Whether there is a procedural error in relation to the use by a tribunal of its knowledge and experience, and whether substantial prejudice has been suffered as a result, will necessarily depend on the matter under consideration and the nature of the tribunal’s reliance on its knowledge and experience….The RPT said that, based on its members’ knowledge and experience of many similar premises, the heating system provided ought to be perfectly adequate and was not abnormal for such types of premises. In so concluding what the tribunal was doing, in my view, was to reach a conclusion on a matter that had been the subject of conflicting evidence by bringing to bear its own general knowledge and experience. It was fully entitled to do this. There was no particular evidence that it needed, for reasons of fairness, to disclose to the parties. To have provided a full list of the many similar premises and their heating systems, even if this had been possible, would have been inappropriate, since an examination of the facts relating to them would have been disproportionate and the results inconclusive.”

Mr Malz submitted that the difference between the Alford case and this case was that the Tribunal had the benefit of evidence from both parties and having heard that evidence was entitled to rely on its knowledge and experience to weigh the respective cases and to make a decision.

Consideration
20.	The LVT, and now the First-tier Tribunal (Property Chamber), is an expert Tribunal. The knowledge and experience of an expert Tribunal inform its decision making. It is wholly appropriate that an expert Tribunal measure the evidence and submissions before it when reaching its determinations. The fact that it is an expert Tribunal that is considering a case of itself enhances that decision making. However, the question in this case is whether the Tribunal either erred in adopting an over-reliance on its knowledge and experience or alternatively whether it failed to give sufficient reasons explaining its decision and in particular whether it failed to explain the extent of its reliance on its own knowledge and experience.
21.	Ultimately this is a question of fairness. The scope of an expert Tribunal’s ability to rely on its own knowledge and experience will vary from case to case. It is not possible to say exactly how an expert Tribunal should approach every type of case, as the possible variations of circumstance are too numerous. However, the guidance given by the President in Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 is a good starting point. Therefore if a Tribunal is making a decision on the basis of either factual or expert evidence, it must make its determination on the basis of the evidence given by the parties. If the Tribunal is aware of other specific evidence which conflicts with what has been put to it by the parties, then the Tribunal must tell the parties about that evidence and ask for their comments. This is a different matter from the application of the Tribunal’s knowledge and experience to the task of weighing the evidence before it.
22.	If the Tribunal receives evidence but decides to reject that evidence because in its knowledge and experience, the evidence is out of line from the norm, then it must decide whether, as a matter of fairness and natural justice, the parties are entitled to be informed of its view and to be given an opportunity to comment or to provide further evidence. This is so whether the Tribunal has evidence from both of the parties or just one of the parties. It is so whether the parties are represented or not. In considering how to achieve fairness and whether or not to seek comments from the parties before proceeding to apply its knowledge and experience, there are a number of factors a Tribunal should take into account:
(a)	The quality of the evidence before it. If comprehensive and cogent evidence is provided then it will be more difficult for a Tribunal to depart from that evidence without first airing its concerns with the parties.
(b)	The extent of the difference between the evidence presented and the Tribunal’s view. Therefore if, for example, the Tribunal considered that a management fee was excessive and was minded to cut it down by a large percentage, then the obligation to notify the parties of its view would be more onerous than if any reduction was minimal.
(c)	Whether both parties have produced evidence and/or made representations. In some cases before the Tribunal, both parties will have presented evidence and have had an opportunity to test their opponent’s evidence in cross-examination. In many other cases either only one party might present evidence or only one party might appear. In many cases there will be an inequality of representation. All of these factors may have an impact on how the Tribunal relies on its knowledge and experience. Where there is an evenness between the parties, the Tribunal can be more confident in applying its general knowledge and experience (as occurred in the Alford case above). However, even then, a Tribunal would not be entitled to make a significant departure from the ambit of the evidence received without first giving the parties an opportunity to comment. Where there is an unevenness between the parties, the Tribunal has to be even more careful and must ensure that in applying its knowledge and experience that it is not acting in any way unfairly.
(d)	Finally, the procedural rules that now govern the procedure of the First-tier Tribunal are theTribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. In conducting its case the Tribunal must give effect to the overriding objective set out in rule 3 which provides:
“3(1) The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.
(2) Dealing with a case fairly and justly includes –
(a) dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties and of the Tribunal;
(b) avoiding unnecessary formality and seeking flexibility in the proceedings;
(c) ensuring, so far as is practicable, that the parties are able to fully participate in the proceedings;
(d) using any special expertise of the Tribunal effectively;
(e) avoiding delay, so far as compatible with the proper consideration of the issues
…………..”
23.	Focusing on rule 3(2)(a) it is clear that the way in which a Tribunal deals with a case fairly and justly requires it to make proportionate decisions on the conduct of a case; to have regard to cost and to have regard to the resources of the parties and the resources of the Tribunal itself. In many cases, where a Tribunal seeks to rely on its own knowledge and experience, the need to seek the parties’ views may be quickly and easily satisfied at the hearing itself by simple questions and answers. In other cases it may be necessary for the Tribunal to adjourn a hearing and/or to seek further representations.
24.	In this case the Tribunal determined that despite receiving comprehensive evidence from Red Kite, it was not satisfied that the estate costs had been reasonably incurred. No comparable evidence had been produced by Ms Robertson and it seems that the Tribunal relied on a comparison with the charges levied by the second respondents and on its own knowledge and experience. However, before reaching its conclusion, the Tribunal did not indicate to the second respondent that it intended to rely on either specific evidence within its knowledge and experience or on its general knowledge and experience.
25.	In some cases such an indication would not have be necessary to fulfil the requirement of dealing with the case fairly but in this case the issue was of particular importance to Red Kite because it might set a precedent for estate charges for the future management of the block and possibly for other blocks within its management. It may be that the Tribunal were unaware of this fact and it may well have proceeded on the basis that the sums in dispute were not great and that to seek submissions or further responses would be disproportionate. If that is so, it is unfortunate. However, having regard not only to the importance of the issue to the appellants but also having regard to the comprehensive evidence produced, I consider that in this case the Tribunal was in error in failing to afford the parties an opportunity to comment on its view of the estate charge based on its knowledge and experience.
26.	I also consider that the reasons given by the Tribunal for its decision did not deal adequately with the evidence presented by Red Kite. I accept Mr Metz’ submission that his client was left not knowing whether the service provided was adequate, but too expensive or whether the service provided was inadequate and therefore too expensive. It would have been helpful for the Tribunal to have been clear about the extent of the lease obligations to which they had regard in deciding that the costs were not reasonable. The Tribunal also ought to have articulated its view of the evidence produced by Red Kite and have explained its reasons for rejecting that evidence if indeed it did so.
27.	During the course of the hearing, Mr Malz also made reference to a ground of appeal that asserted the Tribunal had erred in its understanding of section 19(1)(a) of the Landlord and Tenant Act 1985, in that they had considered whether the costs were “reasonable” rather than having been “reasonably incurred”. However, this point was not pursued and it was accepted that whether costs are reasonable informs the question of whether they are reasonably incurred.
28.	For the reasons given I therefore allow this appeal and remit it to the same Tribunal for reconsideration of the limited issue of the payability of the service charge costs claimed by Red Kite Community Housing Limited for estate costs for the period December 2011 to April 2013.

						Dated:  21  MARCH 2014

Siobhan McGrath
Chamber President – First-tier Tribunal (Property Chamber) sitting as a Judge of the Upper Tribunal (Lands Chamber)