United Kingdom Upper Tribunal (Lands Chamber)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 333 (LC)

UT Case Number: LRX/41/2014

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

 

LANDLORD AND TENANT – service charges – management company paying rent to landlord for gym and concierge office and fixed rental payments to provide CCTV equipment – whether rent or service charge – whether variable service charge – sufficiency of reasons for first-tier tribunal’s decision – appeal dismissed

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

FIRST TIER TRIBUNAL (PROPERTY CHAMBER)

 

BETWEEN:

THE GATEWAY (LEEDS) MANAGEMENT LIMITED

Appellant

and

(1)    MRS BAHAREH NAGHASH

(2)   MR IMAN SHAMSIZADEH

Respondents

Re: Flats 1004 and 1105,

The Gateway,

Leeds

 

 

Before: Martin Rodger QC, Deputy President

 

Sitting at: The Civil & Family Courts, 35 Vernon Street, Liverpool

on

11 June 2015

 

Justin Bates, instructed by Brethertons for the Appellant

David Partington, instructed by Chadwick Lawrence for the Respondents

 

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:

Bolton v Godwin-Austen [2014] EWCA Civ 27

Warwickshire Hamlets Limited v Gedden [2010] UKUT 75 (LC)

Lucie M v Worcestershire County Council and Evans [2002] EWHC 1292 (Admin)

London Borough of Havering v Macdonald [2012] UKUT 154 (LC)

Rossman v Crown Estate Commissioners [2015] UKUT 288 (LC)

Country Trade Limited v Noakes [2011] UKUT 407 (LC)

 

 

Introduction

1.             The Gateway is an 800,000 sq ft mixed use development close to the centre of Leeds which contains 640 residential apartments, a 218 room hotel, some office and commercial space and car parking for up to 500 vehicles.  On the tenth and eleventh floors of Block B, which forms part of the development, there are two flats let on long leases to the respondents to this appeal.  The appellant is party to those leases as the management company, obligated to provide services in return for the payment of a service charge.  The services include a gym, a concierge facility run from an office adjoining the gym, and a high specification CCTV system.  This appeal concerns the costs of providing the gym, the concierge office and the CCTV system in the period from 31 January 2011 to 20 June 2012.

2.             Although the respondents’ challenges to the service charges were in similar terms, and covered overlapping periods, they were considered at two separate hearings by the First-tier Tribunal (“the F-tT”).  In a decision given on 12 November 2013 in relation to Mrs Naghash, whose flat is No. 1004, the F-tT decided that the service charge payable for the gym should be reduced by 50%, and the charge for CCTV by 20%.  All other elements of the service charge for the period from 1 October 2011 to 20 June 2012 were confirmed as being payable by Mrs Naghash.

3.             In a second decision given on 13 December 2013 concerning No. 1105, Mr Shamsizadeh’s flat, the same F-tT made the same proportionate reductions in relation to the gym and the CCTV for the period from 31 January 2011 to 7 February 2012 and also reduced the service charge in respect of the rent of the concierge’s office by 50%. 

4.             Permission to appeal was granted by the Tribunal.  The primary ground of appeal was that the charges for the gym, concierge office and CCTV were not service charges within the meaning of section 18, Landlord and Tenant Act 1985, and that the F-tT had accordingly not had jurisdiction to consider the respondents’ challenges to them.  It was also argued that the F-tT had focussed its attention inappropriately on whether the charges for the gym, CCTV and concierge office were expensive, rather than whether the costs had been reasonably incurred.  Permission was also given to argue that the F-tT’s reasons for reducing the charges were insufficiently explained. 

5.             At the conclusion of the hearing I informed the parties that the appeal would be dismissed and that I would make an order under section 20C, Landlord and Tenant Act 1985 in respect of the respondent’s liability to contribute to towards the costs incurred by the appellant in the appeal.  I now provide the reasons for my decision. 

The facts

6.             The disputes now before the Tribunal originated in separate claims commenced by the appellant in the county court.  The first in time was a claim issued on 22 February 2012 for the recovery of £1,574.54 in service charges said to be due from Mr Shamsizadeh in his capacity as lessee of Flat 1105, together with £496 in solicitor’s costs claimed under the terms of the lease.  On 29 June 2012 proceedings were commenced in relation to the service charges payable by Mrs Naghash as lessee of Flat 1004.  The sum claimed was £1,464 of which only £395.80 represented service charges with the balance largely comprising £938 as costs incurred in enforcing the terms of the lease.  In due course both sets of proceedings were transferred to the F-tT. 

7.             It was common ground before the F-tT that the leases of the two flats were in the standard form used for all flats at The Gateway, and entitled the appellant to levy a charge for the provision of the gym, the concierge’s office and the CCTV.  In the case of the concierge office and the CCTV system the relevant costs were agreed to part of the costs of providing the security services listed in Part 4 of the Fifth Schedule to the lease which obliges the appellant:

“To carry out all such security and concierge services (including on-site offices) and make all payments necessary in respect of such security and concierge services in the interests of good estate management and as determined from time to time by the Company …”

The position in relation to the costs of the gym is now less clear.  Before the F-tT it was assumed that the standard form of lease included a specific reference to the cost of providing the gym as one of the Estate Services referred to in Part 2 of the Fifth Schedule.  It was subsequently pointed out by Mr Bates, who appeared for the appellant on the hearing of the appeal but who had not appeared below, that the relevant words which appeared in the leases of other Gateway buildings were missing from the leases of the respondents’ flats.  In the absence of specific language Mr Bates instead focussed on paragraph 5 of Part 2 of the Fifth Schedule, which obliges the appellant: 

“To carry out all such other services and to make all payments necessary in respect of the Estate Common Parts in the interest of good estate management and as determined from time to time by the Company ….”

8.             It was not disputed by Mr Partington, who appeared on behalf of the respondents at the hearing of the appeal, that the appellant was entitled to levy a charge under the Fifth Schedule in respect of the provision of the gym.

9.             The leases themselves are for terms of 150 years from 31 March 2006 and were granted to the respondents by The Gateway (Leeds) Limited, a company associated with the original developer.  The appellant was also a party to the leases and covenanted to provide the services in return for the service charge contributions payable by the respondents.  Those contributions consisted of four separate charges described as the Estate, the Block, the Reserve and the Security Service Charges, each recoverable in different proportions from the lessees.  Each lessee covenants in clause 3.1 to pay “the Rents”, an expression defined as including not only the ground rent and insurance rent but also each of the four service charges.

10.         Each of the respondents’ leases were granted in January 2007.  On 19 December 2007 the landlord granted the appellant the lease of a mezzanine unit in block A for use as a gym.  The evidence now indicates that the gym is approximately 1,340 sq ft in area.  The gym lease, which was for a term of 10 years from 19 December 2007, was at an initial rent of £32,000 a year which was subject to review on 1 April 2009 and annually thereafter.  The Fifth Schedule provided for the rent to be increased annually either by reference to the increase in the retail prices index or by 3%, whichever should prove to be the greater.

11.         On 7 January 2008 the landlord granted the lease of a second unit in Block A to the appellant for use as a concierge suite.  The concierge lease is for a term of 20 years from 7 January 2008 at a rent of £24,000 a year subject to annual review on the same basis as the gym lease.

12.         The Gateway’s CCTV system was provided under two agreements entered into by the original developer with an equipment leasing company.  No copy of those agreements is now available and the developer has gone into liquidation.  Nonetheless the evidence before the F-tT was that the appellant took over the CCTV system and the associated liability to pay £29,104.16 per annum under the first agreement and £14,122 under the second, in each case by fixed monthly instalments for a term of 5 years commencing on 23 June 2007.

The F-tT’s decisions

13.         In its decision of 12 November 2013 in relation to Flat 1004, the F-tT recorded the results of its inspection of The Gateway which it had found generally to be in a good state of repair.  It noted that the design of the buildings was such that repairs and maintenance would necessarily be relatively costly because of the quality of the materials used and issues of accessibility.

14.         In paragraph 11 the F-tT noted that it had not been provided with any accounts for the year ending March 2013 and explained that it was unable to assess precisely what sums had been charged to the respondent’s service charge account for the full period in question.  It therefore proposed to consider what (if any) percentage variation in the service charge sums was appropriate.

15.         As one of the grounds of appeal concerns the adequacy of the F-tT’s reasoning, it is necessary that I set out the relevant parts of the decision.  In relation to the gym these were paragraphs 12-17, which provided as follows:

“12. The Respondent argues that the service charge costs in relation to the residents’ gym are unreasonably high.  These costs were £49,231 for the entire premises for the year ended March 2012.  No accounts were produced in relation to the period ended March 2013 which would include the last three months of the period which the Tribunal is asked by the applicants to consider. 

13. The Tribunal heard that the freeholder of the property, ‘Scotfield’, leases the part of the building used as the gym for an annual payment of £39,000 which forms the majority of the service charge.  Mr Dean [the appellant’s managing agent] informed the Tribunal that it was payment of this rent which had led to the service charge for the gym being so high.  Other costs associated with the gym included monthly inspections, television licences, replacement of stolen televisions and a notional allocation for electricity.  Mr Dean argued that per apartment the cost of the gym was very low, being on average £73 per annum for each apartment.

14. Mr Dean informed the Tribunal that the management company had a binding agreement for lease with a term of 10-15 years.  Mr Dean was unable to inform the Tribunal whether or not there was a break clause in the lease.  He was also unable to confirm the identities of the parties to the lease and despite requests for the same no copy of this lease was provided for the Tribunal’s benefit.

15.  It was accepted by Mr Dean that the size of the gym was similar to that of a standard two-bedroom apartment within the block.  The Tribunal invited the applicant to comment on the respondent’s suggestion that a rent of £10,000-£15,000 would be more reasonable.  Mr Dean conceded that “superficially” it did seem to be expensive, and one would certainly rather be a landlord than a tenant.  Ms Phillipson for the Applicant argued that the Tribunal could not go behind the binding commercial agreement and that there was a potential cost of renegotiating any such agreement, although in the absence of the agreement no figures as to the actual costs of breaking the lease or renegotiating were forthcoming.  She stated that the Respondent had purchased the lease at a time when the gym was in situ and was therefore well aware of the obligations that came with it, and also had the benefit arising from it.

16.  The Tribunal does not agree with this analysis and notes that the role of the Tribunal is to consider whether service charges are in themselves reasonable.  Section 19 of the 1985 Act provides as follows:

“19. Limitation of service charges: reasonableness

(1)    Relevant costs shall be taken into account in determining the amount of a service charge payable for a period –

(a)    Only to the extent that there are reasonably incurred; and

(b)   Where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly.”

17.     The Tribunal finds that whilst the amount paid per apartment for the gym appears relatively small, the overall amount charged to the service charge account for the gym was unreasonably high for what was being obtained.  The Tribunal considered that the sum charged to the service charge account was approximately twice as high as was reasonable and therefore orders that it should be reduces by 50%.”

18.         In relation to the cost of the CCTV, the F-tT noted that no supporting invoices for the CCTV charges had been produced in support of the sum of £39,887 claimed.  The Tribunal reluctantly accepted that that was the sum which had been incurred.  It went on in paragraphs 22-24:

“22. The Tribunal requested Mr Dean to explain how this figure was made up and why this figure was reasonable.  Mr Dean informed the Tribunal that the Freeholder, Scotfield, had entered into a lease purchase agreement and that as a consequence the management company was obligated to make periodic payments.  It was described to the Tribunal as an inherited agreement which, as it was now approaching the end of its term, was intended by the management company to be left to expire whilst an audit process was undertaken and a future plan arrived at.  No copy of the agreement was provided to the Tribunal or details of the terms, parties or obligation and constraints in breaking the agreements.

23. Mr Dean explained the position to the Tribunal in the following terms: “Yes, the Tenants have been paying more than they should have been, but it is a way for the developer to defray their construction costs by passing these costs on to the tenants.”

24. Miss Phillipson argued that the hands of the applicant were tied in relation to this agreement and therefore the charge was not unreasonable and the Tribunal should not go behind it.  The agreement was not produced to the Tribunal.  The Tribunal does not accept this and has considered what would be a reasonable charge for the CCTV services being supplied.  The Tribunal noted that this is a substantial property with a system of 66 cameras which will require significant maintenance.  The Tribunal notes that no alternative quotations were provided by the Respondent despite the Respondent’s representatives stating that they have considerable experience in this sector.  It is concluded, based upon the evidence provided to the Tribunal, that the sum being charged to the service charge account was 20% higher than was reasonable and therefore orders that the Respondent’s service charge account for the relevant period be reduced by 20% in respect of CCTV.”

19.         The issue of the concierge office rent had not been raised by Mrs Naghash in the proceedings concerning her flat, but it was raised at the second hearing by Mr Shamsizadeh along with a number of other additional issues.  The F-tT dealt with the concierge office rent at paragraph 17 of its second decision:

“The respondents queried the rental charge being levied in respect of the concierge office which is being charged to the service charge account at £2,000 pm.  The Applicant argued that this is a facility of which all occupants have the benefit.  The Tribunal accepts that all residents benefit from the provision but the Tribunal is tasked with establishing whether the cost is reasonable.  The Tribunal was informed that the arrangement in respect of the office rent was similar to that in respect of the gym, but that once again no copy of the agreement, or detail as to its terms or parties could be provided.  The Tribunal concluded that the amount being charged to the service charge account by way of rent for this item was unreasonably high and concluded that it should be reduced by 50%.”

The Tribunal dealt with the charges to Mr Shamsizadeh for the gym and the CCTV by adopting the conclusions reached in its earlier decision without adding anything significant to the reasons.

20.                          At the conclusion of both decisions the F-tT considered applications under section 20C of the Landlord and Tenant Act 1985 for orders that the costs incurred by the appellant in the proceedings before it should not be added to the service charge account.  The F-tT had decided only a limited number of the many issues raised by the respondents in their favour, and as it considered that the appellant had been obliged to commence proceedings in order to obtain payment of any of the service charge, it declined to make an order.

The appeal

21.         Mr Bates, who appeared on behalf of the appellants, identified the issues on the appeal as follows:

                              (a)              whether the costs incurred by the appellant in renting the gym, the concierge office and the CCTV equipment for the benefit of the leaseholders gave rise to a variable or fixed service charge;

                             (b)              if the costs were a variable service charge, whether the F-tT had adequately reasoned the decisions it reached; and

                              (c)              again if the costs were a variable service charge, whether they were reasonable within the meaning of section 19 Landlord and Tenant Act 1985.

Issue 1: Were the rents and equipment hire costs fixed or variable service charges?

22.         Under section 27A, Landlord and Tenant Act 1985 the F-tT has jurisdiction to determine whether a service charge is payable and, if it is, the amount which is payable.  A “service charge” for this purpose is defined in section 18 of the 1985 Act, as follows:

“18 – Meaning of “service charge” and “relevant costs”

(1)           In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent –

                                       (a)          which is payable directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and

                                      (b)          the whole or part of which varies or may vary according to the relevant costs.

(2)           The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord or a superior landlord, in connection with the matters for which the service charge is payable.

(3)          For this purpose –

(a) “Costs” includes overheads, and

(b) costs are relevant costs in relation to the service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period.”

It is apparent from section 18(1) that, to be a service charge within the meaning of the section, the amount payable by the tenant must satisfy two conditions: it must be a payment for services, repairs, maintenance etc, and it must be capable of varying, in whole or in part, according to the costs incurred by the landlord; for this purpose the expression “landlord” includes a management company.  It was not disputed that, if the three relevant charges were fixed charges which did not vary in the required manner, the F-tT would have had no jurisdiction to consider them. 

23.         Mr Bates advanced two arguments in support of his contention that the three relevant charges were not service charges within the meaning of section 18.  First, he contended that the costs were rent, and that they were not payments for services, repairs, maintenance, improvements, insurance or management at all.  Secondly he contended that the costs do not vary according to relevant costs: the costs of the gym and concierge office varied according to an external index, RPI, and not according to the cost of providing any service, while the cost of the CCTV system was a fixed monthly amount.

24.         On the first of his arguments Mr Bates relied on the comments of Sir Stanley Burnton in Bolton v Godwin-Austen [2014] EWCA Civ 27.  The Court of Appeal was not concerned in that case with the quantification of service charges, but with claims brought by the sub-lessees of three flats for new leases under Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993.  Where such a lease is granted section 56 of the 1993 Act requires that it be at a peppercorn rent.  The sub-lessees held their leases on terms which required them to contribute, as part of their service charge, a sum equal to a portion of the rent payable by their immediate landlord to its own landlord, the freeholder.  By the time sub-lessees sought to enfranchise, the rent payable under the head-lease has risen to £161,000 pa and the lessees were liable to meet all but £4,000 of that sum.  The question for the Court of Appeal was whether the obligation to contribute a proportion of the head-lease rent should be carried forward as a term of the new leases, or whether it was to be substituted with a peppercorn rent.  The other members of the Court determined the appeal on the basis that the terms of the new leases had been the subject of a binding agreement but Sir Stanley Burnton considered whether the contribution was properly to be regarded as a service charge at all.  At paragraph 61 he said this:

“What is rent for the purposes of Chapter II cannot depend on what the money or the obligation is called, since otherwise it would be possible for a lessor to draft himself out of the constraints of section 56.  An obligation to pay the rent payable by a head lessor to his freeholder is not a service charge or part of a service charge.  The definitions of service charge in section 18 of the Landlord and Tenant Act 1985 and of management functions in section 96 of the Commonhold and Leasehold Reform Act 2002 broadly reflect the normal usage of the expression “service charge”, and could not include the payment by a head lessor of his rent.  In my judgment the obligation of a lessee to pay to his lessor the rent payable by the lessor to his freeholder (or head lessor) is itself an obligation to pay rent.”

25.         As is apparent, Sir Stanley Burnton was concerned with the scope and operation of section 56 of the 1993 Act.  Nothing in the passage relied on by Mr Bates is controversial in that context, but nor is it relevant in this context.  The normal usage of the expression “service charge” is to refer to a payment in return for services provided by a landlord to a group of tenants.  An obligation to contribute towards the rent payable by the landlord to its own head landlord, and which has nothing to do with the provision of a service, is an additional payment for the use of the land or, in other words, a rent.  Sir Stanley Burnton did not say, and cannot be understood to have meant, that a rent can never properly form part of a landlord’s expenditure recoverable through a service charge.

26.         The leases of flats in The Gateway do not oblige the lessees to contribute a proportion of the rent paid by the appellant to its landlord for the concierge office or the gym, or to the finance company for the CCTV equipment.  The lessees’ obligation is to pay to the appellant the costs and expenditure which it incurs in respect of the categories of expenditure listed in the Fifth Schedule.  The Lease does not positively require the appellant to provide a gym, but it is agreed that if it does provide a gym as an additional service it is entitled to recoup the cost of doing so through the service charge.  The fact that part of the expenditure incurred in providing that service is in respect of the cost of providing the premises does not convert the lessee’s obligation to contribute to the cost of providing the service into an obligation to pay a rent.  The lessee’s payment is for the provision of the gym, which can only be provided in a space over which the appellant either already has a right or must obtain a right.  The payment made by the lessees in the Bolton case was not for any service, but was simply to reimburse the cost incurred by the intermediate landlord in paying its own rent due under the head-lease.  Even in those leases where there is express reference in paragraph 7 of the Fifth Schedule to the provision of a room for use as a gym (including all rents and other costs), the obligation of the lessee to contribute towards that cost is an obligation to contribute towards the cost of providing a service, and properly forms part of a service charge within the meaning of section 18(1)(a) of the 1985 Act.

27.         In Warwickshire Hamlets Limited v Gedden [2010] UKUT 75 (LC), the Tribunal (HHJ Huskinson) considered the liability of leaseholders to pay a service charge to a management company, part of which was a rent payable by the management company to the freeholder for the use of common parts of the building, including a flat for a resident warden.  It was argued on behalf of the management company that the obligation to pay this component was not to pay an amount either directly or indirectly in respect of services, repairs, maintenance, improvements or insurance or the landlord’s costs of management but was rather an obligation to reimburse the rent.  On that basis it was argued that the Tribunal had no jurisdiction to consider the recoverability of any part of the common parts rent.  The Tribunal gave two reasons for rejecting that submission.  The first was that the lessee’s obligation was to pay a single amount, the service charge, rather than a whole series of separate amounts in respect of individual items.  That charge plainly was payable for services, repairs etc.  The Tribunal explicitly rejected the suggestion that it was necessary “when considering jurisdiction, to sub divide the maintenance expenses into each and every separate ingredient and then to treat each such ingredient as though it was a separate amount charged in addition to the rent and then to see whether this separate amount falls within the provisions of section 18.”  Secondly the Tribunal gave this reason at paragraph 40 of the decision:

“Quite apart from the foregoing, and even if the foregoing were wrong, there is the following point.  If the common parts rent is recoverable by the Management Company it would be part of the expenses to the Management Company of providing the services, but if the Management Company did not pay the common parts rent then the common parts lease could be forfeited and the Management Company could be excluded from the development and it would therefore be unable to provide the matters mentioned in section 18(1)(a) namely the services, repairs, maintenance, improvements, insurance or management.  Accordingly for the purposes of section 18 the common parts rent (if payable at all) is payable directly or indirectly for these items.”

28.         Mr Bates criticised the Tribunal’s decision in Warwickshire Hamlets.  I see some force in that criticism so far as it extends to the Tribunal’s first reason.  If a charge levied by a landlord includes an element which, whether directly or indirectly, had nothing to do with services, repairs, management etc, then the Tribunal would not, I suggest, be given jurisdiction to rule on the recoverability of that sum by section 18 and section 27A(1) simply because the sum was aggregated with the costs of other matters which were services.  The obligation to contribute towards the cost of the intermediate landlord’s own rent in the Bolton case might be an example.  If the first line of reasoning in Warwickshire Hamlets (at paragraph 38, 39 and, perhaps 41) is open to that interpretation I respectfully disagree.  I have no disagreement, however, with the Tribunal’s second strand of reasoning at paragraph 40 of the decision.  The cost of rent for premises to be used in connection with the provision of services (whether the rent of a gym, a managing agents office or a warden’s flat) is sufficiently connected (“directly or indirectly”) to the provision of the service of the gym, management or concierge to be recoverable as a service charge within the meaning of section 18.  The costs which form part of a service charge are to include overheads as is made plain by section 18(3)(a).  Premises costs are exactly the sort of overheads which are included.

29.         The second strand of Mr Bates argument was that, even if they were service charges, the rent and CCTV costs were fixed, rather than variable according to the costs incurred by or on behalf of the appellant in connection with the provision of the service.  That seems to me to be an impossible argument.  A service charge is an amount payable by a tenant which may vary according to the costs incurred by the landlord; it matters not that for the time being the costs incurred by the landlord are fixed.  All that matters is that the cost to the tenant may vary in accordance with the cost to the landlord.  Not only are the costs of providing the office accommodation and the gym subject to review under the terms of the gym and office leases, but those leases themselves are for only a relatively short period of the total term of the respondents’ leases.  If in 2017, when the gym lease expires, the appellant proposes to renew the lease, no doubt a new rent will be negotiated, and will be recoverable (subject to reasonableness) under the terms of the respondents’ leases.  The cost of providing the gym is a variable cost and the amount payable by the lessees varies in accordance with it.  Nor is the fact that the charges for the provision of the CCTV equipment are fixed for the duration of the five year agreement sufficient to prevent them from forming a component of a variable service charge.  The cost of providing the CCTV service plainly may vary from time to time during the term of the lease as the cost to the landlord of hiring or purchasing the equipment varies, so the fact that for any particular period the payments which the landlord is required to make for the equipment are fixed is nothing to the point.

30.         I therefore reject Mr Bates first ground of appeal and I am satisfied that the F-tT was right in its conclusion that it had jurisdiction to determine the reasonableness of the service charges under section 27A of the 1985 Act.

Issue 2: The sufficiency of the F-tT’s reasons for its decisions

31.         Mr Bates alternative ground of complaint concerned the adequacy of the F-tT’s reasons for its decision, and in presenting that complaint he combined his submissions on the second and third grounds of appeal.   

32.         Mr Bates referred to the summary of the relevant principles contained in the judgment of Lawrence Collins J in Lucie M v Worcestershire County Council and Evans [2002] EWHC 1292 (Admin).  The tribunal whose decision was under consideration in that case was the special educational needs tribunal, but the summary of principles has been adopted by this Tribunal in a number of cases including London Borough of Havering v Macdonald [2012] UKUT 154 (LC) and Rossman v Crown Estate Commissioners [2015] UKUT 288 (LC).  The overarching requirement is that a tribunal must give proper and adequate reasons for its decisions which are intelligible and which deal with the substantial points which have been raised in a way that is sufficiently specific and clear to leave no room for doubt as to what has been decided and as to why the decision has been reached. 

33.         It goes without saying that the F-tT is not required to deal with arguments which have not been raised.  The reasons which it is obliged to give need only respond to the arguments and evidence which have been presented to it, to explain why they have been rejected or to endorse them.  The F-tT may not proceed by way of unfounded assertions, but if the evidence and argument on which the parties rely amounts to little more than assertion, the reasons given by the F-tT’s for own conclusions need not be sophisticated, especially where the sums in dispute are modest.  The parties must know what has been decided and why it has been decided but the detail included in the F-tT’s reasons may legitimately reflect the value of the claim before it. 

34.         Those preliminary observations are particularly apt in this case where key documents were missing and, on the appellant’s side, no effort was made to provide the F-tT with evidence supporting the charges which were levied.  Mr Dean did the best he could to inform the F-tT of his understanding of the basis of the arrangements for the gym, concierge office and CCTV, but he had no first hand knowledge of those arrangements and, it would appear, no access to the leases or finance agreements.  On the respondent’s side no evidence of alternative costs for the provision of similar services was adduced and the limit of their case appears to have been that the area occupied by the gym was approximately that of a two-bedroom flat for which an annual rent of £10,000-£15,000 would have been appropriate. 

35.         Mr Bates realistically invited me to consider the whole of the F-tT’s reasoning in relation to the charge for the gym and not simply paragraph 17 in which it had stated its conclusion that the sum charged to the service charge account was approximately twice as high as was reasonable.  Having done so I am satisfied that the F-tT’s decision was specific and clear so as to leave no room for doubt as to what had been decided.  In paragraph 12 it identified the costs in issue as a sum of £49,231 for the year ended March 2012, of which the evidence was that £39,000 was the annual rent for the gym.  The average cost per flat of £73 per annum was an average based on the higher of these figures.  When the F-tT referred in paragraph 17 to “the amount paid per apartment for the gym” and concluded that “the sum charged to the service charge account was approximately twice as high as was reasonable” it is clear that it was referring to the average of £73 per annum based on the total cost of £49,231.  It was this figure (and the comparable figure for the remaining months of the period under investigation) which it intended should be reduced by 50%.

36.         The respondents’ case before the F-tT does not appear to have included any challenge to the annual sum of just over £10,000 relating to the costs of running the gym other than the rent.  By allowing recovery of a sum of just over £24,600, the F-tT may have been adding to the undisputed running costs a further sum of almost £15,000 in respect of the rental element.  £15,000 was at the top of the bracket of rents which the respondents had suggested to Mr Dean would be reasonable.  Mr Dean does not appear to have dissented from that suggestion and was recorded by the F-tT as conceding that the rent of £39,000 “did seem to be expensive”. 

37.         Whether that is correct or not, it is clear that the F-tT was not purporting to apply any particular expertise in relation to the cost of gyms in residential blocks of flats.  The core of its reasoning was that “the overall amount charged to the service charge account for the gym was unreasonably high for what was being obtained.”  The F-tT had inspected the premises and had seen “what was being obtained” and it explained its decision specifically by reference to the value of that facility.  I am satisfied that the F-tT was taking its cue from the evidence given by Mr Dean that the rent was high, and was endorsing the approach of the respondents that a charge of up to £15,000 would be reasonable.  In my judgment the F-tT’s reasoning in paragraphs 12-17 did not fall below the minimum required of a Tribunal faced with evidence and argument of this quality.

38.         As far as the CCTV charge is concerned the decision to reduce the sum included in the service charge accounts by 20% was clearly based on the evidence of the landlord’s own managing agent that the equipment leasing agreement which the appellants had inherited from the developer obliged the appellants to pay a sum which was greater than was justified - it was “a way for a developer to defray their construction costs by passing these costs into the tenants.”  Faced with that evidence the F-tT could not fail to be satisfied that the charge had not been reasonably incurred and was more than the reasonable cost of providing the CCTV service.  The only issue for the F-tT was by how much the charge should be reduced.  Once again the F-tT was provided with little or no assistance from the parties.  It made its own assessment of the quality of the equipment, which it inspected, and was satisfied that a significant cost would be incurred.  Given that the total sum being challenged was a modest one (when divided amongst the whole body of lessees) the F-tT was entitled to take a fairly robust approach by making a deduction of 20%.  Having regard to Mr Dean’s evidence it was not necessary for the respondents to show that the charge was unreasonable because alternative CCTV systems could have been obtained at significantly lower cost.  Rather, in light of that evidence, it was for the appellants to establish the reasonable cost of providing a comparable CCTV service without a contribution towards the developer’s construction costs.  As there was no such evidence the F-tT might have been rather more swingeing in the deduction which it required to be made.  Despite the paucity of evidence the F-tT was nonetheless required to make a decision on the reasonable cost of providing the service.  Having seen the equipment it did the best it could and, in my judgment, cannot be faulted for the reasons it gave.

39.              The final sum in issue is the concierge office rent which was dealt with in paragraph 17 of the F-tT’s second decision of 13 December 2013.  The appellants once again failed to provide any evidence of how the charge was made up and did not produce the lease.  Neither party adduced any evidence of rental values for comparable office suites.  The F-tT could not address the question of whether the cost had been reasonably incurred because there was no evidence of what arrangements for the office had been entered into other than that they were made between the developer and the appellant.  It had already been conceded that the similar arrangement for the gym has resulted in a rent which was “superficially…expensive”.  There being no evidence of how the charge was made up, the F-tT was entitled in my judgment to adopt the same robust approach and to reduce the charge by the same proportion as it had the gym rent.  Mr Bates submitted that there was no justification for concluding that because the charges for the gym were double what they ought to be, the charges for the office were necessarily inflated by the same proportion.  I agree that there is no necessary identity between the two figures but the question for me if whether the reasons given by the F-tT adequately explained how they had arrived at their conclusion.  In my judgment they did.  The value of accommodation in Leeds to support concierge services is a matter which the F-tT is well equipped to decide and, on the basis of the limited evidence available, the conclusion it reached was one which was open to it.

40.         Mr Bates also referred me to the decision of the Tribunal (HHJ Gerald) in Country Trade Limited v Noakes [2011] UKUT 407 (LC) in which the problems faced by tribunals where little or no evidence is presented were considered. At paragraph 16 and 17 the Tribunal discussed the situation where it was clear that work or services of some value had been undertaken, but where the charges which a landlord purported to be entitled to recover were not credible.  In those circumstances the F-tT could not award nothing as the reasonable cost of work which it was satisfied had been undertaken.  The Tribunal gave the following guidance:

“In those circumstances, the LVT is entitled to apply a robust, commonsense approach and make appropriate deductions based on the available evidence (such as it is) from the amounts claimed always bearing in mind that it must explain its reasons for doing so.  The circumstances in which it may do so will depend on the nature of the issues raised and service charge items in dispute, and will always be a question of fact and degree.  In some instances, such as insurance premiums, it will be very difficult for the LVT to disallow the landlord’s claim in the absence of any comparative or market evidence to the contrary.  In other cases, such as gardening, cleaning or such like, the position may be different but the nature and complexity of the work is fairly straightforward.  It is only where the issue is finely balanced that a result need be had to the burden of proof.”

41.         Mr Bates submitted that gym rents, office rents and the cost of CCTV installations were more specialist or esoteric expenses more akin to the cost of insurance than to gardening or cleaning bills, of which the F-tT was likely to have an extensive experience from other cases.  I can see a case that some of these charges were of a relatively unusual nature and were incurred in connection with a particularly high specification building.  Nonetheless, for the reasons I have given, I do not consider that the absence of comparative evidence precluded the F-tT from making a reduction or from applying “a robust, commonsense approach” in circumstances where the landlord’s own managing agent had given evidence that the costs sought to be recovered were structured to recoup the developer’s costs of erecting the building. 

42.         Where the evidence indicated that a charge was not negotiated in the open market but was a route for the recovery of expenditure which had nothing to do with the service being provided to lessees, the F-tT would, in my judgment, have been failing in its duty if it had declared the charge to be reasonable simply because there was no evidence available of charges for comparative facilities being provided elsewhere.  The F-tT could have adjourned the hearing to allow an opportunity for the appellants, whose evidence it was that the charge was inflated, to provide market evidence establishing a different charge but the total sums involved in this case were modest and such an approach would have imposed an unreasonable burden on both parties.  By taking a decisive line, despite it being rough and ready, the F-tT was adopting a proportionate response to the issues and evidence in accordance with its overriding objective.

43.         I therefore dismiss the second ground of appeal.  In doing so I should make it clear to the respondents that they cannot assume that the service charge for future periods will necessarily be limited to the level the F-tT thought appropriate on the basis of the evidence it heard in this case.  The F-tT could only make a decision on the basis of the evidence before it, including Mr Dean’s evidence, but Mr Dean seems to have been poorly briefed by his client and was not able to produce copies of documents necessary to enable him better to understand, and to justify, the charges he was engaged to collect.  The appellant is not prevented by the decision of the F-tT, despite my dismissal of the appeal against it, from presenting more considered evidence in support of a claim for future service charges.

44.         I indicated at the conclusion of the hearing that I was minded to make an order under section 20C of the 1985 Act in relation to the costs of the appeal, the appellants having been unsuccessful on both points.  Mr Bates did not seek to dissuade me from that course and I therefore direct that no part of the costs incurred by the appellant in connection with this appeal may be included in any service charge payable by the respondents.

 

 

Martin Rodger QC

Deputy President

 

16 June 2015