Our first picture shows a turnaround in the core leasehold work carried out by the LVT with enfranchisement and lease extension applications down and service charge disputes up. The fall in old LVT work probably stems from the collapse in the housing market and poor availability of credit. I would like to think that better publicity of the service charge jurisdiction has pushed s.27A applications higher, but that may also be due to increasing financial straights in which leaseholders find themselves and a concomitant reluctance to pay anything that is not strictly required.

Our second chart (to the same scale) shows that fair rents determinations still outnumber those for market rents despite the diminishing number of rent act protected tenancies. Even I, well known as a specialist in the odd and obscure, do not see many cases involving such tenancies any more. Despite an overall decline in the number of fair rent cases over 4 years, both series are up on last year. Perhaps also an indication that people fight harder for their money when there is less of it about.

The other jurisdictions carried out by the residential property tribunal service’s tribunals are miniscule by comparison. Even Housing Act 2004 work, which has shown a steady rise, amounts to less than 3% of all cases.

Happy 2010.

First up, those practicing in this field should note the the Right to Manage Companies (Model Articles) (England) Regulations 2009 SI 2009/2767 and the guidance issued by the DCLG on the Regulations. The Commonhold and Leasehold Reform Act 2002 confers on qualifying leaseholders of flats a right to establish and join a “Right to Manage company” (RTM company) which can then exercise the management functions of the freeholder. The RTM company is a “normal” company and was previously required to have articles and a memorandum of association. The Companies Act 2006 replaced these two documents with one new document called simply “the articles.” These regulations prescribe the form of articles for RTM companies in England. All new RTM companies are bound by the new articles and all existing companies have until September 30, 2010 to adopt them.

Secondly, the Upper Tribunal (Lands Chamber) (aka the Lands Tribunal) has given judgment in Circle Thirty Three Housing Trust Ltd v Segovia LRX/66/2008 (link is to a .pdf) [Also on Bailii]. The respondent was the tenant of the appellant. The tenancy agreement provided for a weekly service charge of £1.80 and £1.42 for heating and hot water, with a power to vary such sums in accordance with ss.102 and 103 Housing Act 1985

(I pause at this stage to ask whether this is actually a service charge within the meaning of s.18 Landlord and Tenant Act 1985? See Home Group Ltd v Lewis LRX/176/2008 and Chand v Calmore Area Housing Association Ltd LRX/170/2007)

The appellant did vary the amounts and reduced the service charge to £1.02 per week but increased the heating and hot water charge to £17.39 per week. This was in an attempt to recover a previous shortfall. The respondent applied to an LVT for a determination as to the reasonableness of these charges.

The LVT concluded that:

(a) the service charge could not be varied. The charge was payable for certain items specified in Appendix A of the tenancy agreement. There was nothing specified in Appendix A, so the costs could not possible change;

(b) the shortfall related to a year or years prior to the commencement of the respondents tenancy and so could not be recovered from her.

The Lands Tribunal allowed an appeal against (a) but rejected the appeal against (b). There clearly was power to vary the service charge (and, as part of that, the heating and hot water charge) and the LVT had been wrong to focus on the fact that Appendix A had been left blank. That was an obvious error and, applying Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, HL, the Lands Tribunal was entitled to remedy the error through construction of the contract.

However, there was nothing in the agreement to suggest that a reasonable tenant would understand that they were obliged to contribute towards shortfalls incurred prior to their tenancy having commenced. There was no objection to recovering shortfalls during the tenancy, but shortfalls which pre-dated the tenancy were not, as a matter of construction of the contract, recoverable.

The reasonableness of the increase for the future years was, however, remitted to the LVT for determination.

In addition, by s.167 Commonhold and Leasehold Reform Act 2002 (and the regulations made thereunder), a landlord may not bring proceedings for forfeiture where the debt owed is less than £350.

In Glass v McCready LRX/122/2008, the LVT managed to confuse itself with the interplay between these two provisions and has had to be put right by the Upper Tribunal (Lands Chamber).

The landlord was the freehold owner of an estate in Enfield, consisting of five blocks, each containing 4 maisonettes. The leaseholders were obliged to insure the properties through an insurer nominated by the landlord and to provide copies of the relevant insurance details to the landlord, etc. In the present case, one leaseholder did not pay the necessary premium and the landlord applied to the LVT under s.168 CLRA 2002 for a determination that the leaseholder was in breach of covenant.

The LVT held that it had no jurisdiction to consder the matter. It held that, because the sum demanded was less than £350, there could be no forfeiture in any event, and so it had no jurisdiction to consider the matter. Alternatively, the insurance premium was a service charge and so the application should have been made under s.81 HA 1996.

The landlord appealed to the Upper Tribunal (Lands Chamber) where Judge Huskinson, with what seems to me to be a rather resigned sigh, allowed the appeal. The obligation was not just to pay a sum of money, but included (a) to place the insurance and (b) to provide a copy of the policy documentation to the landlord. In any event, the mere fact that less than £350 was claimed did not oust the LVTs jurisdiction. There was a conceptual difference between determining whether or not a breach had occured and whether or not the landlord would be able to go on to forfeit the lease (although not cited, see Swanson Grange v Langley-Essen LRX/12/2007 in support of this proposition). The LVT was entitled to determine the former question, even if the landlord would not be entitled to go on to forfeit the lease.

Further, even if the landlord had only been challenging a failure to pay a sum of money there would have been a strong case for treating the application as being made under s.81 HA 1996 and not simply for declining jurisdiction.

So, the LVT got it totally and utterly wrong.

Service charges. Much more interesting than tolerated trespassers. Honestly.

Sections 18 – 30 Landlord and Tenant Act 1985 contain a detailed regulatory framework for service charges in residential property. In broad terms, leaseholders can dispute their service charges if they are said to be unreasonable in some way. (For those of you who want a detailed discussion of this area, see Davey & Bates Leasehold Disputes, 2nd Edition, April 2008).

What, however, is a service charge? By s.18 of the 1995 Act, a service charge is “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.”

The company was the freehold owner of a residential property in Maida Vale. That property comprised some 104 flats. Mr Di Marco was a member of the appellant company and a leaseholder of a flat in the property, indeed, each flat owner had one share in the appellant company.

Mr Di Marco’s lease contained provisions for service charge computation in the normal way. The appellant company, pursuant to its Articles of Association, decided to establish a reserve fund to be used to defray the costs of the company in connection with its obligations towards the building. It compelled all members of the company (including Mr Di Marco) to make total payments of £4,000 towards this fund.

The company was quite clear that it had decided to take this route and not to levy the charges as a service charge in order to avoid delays and challenges to the service charge under ss 18-30 Landlord and Tenant Act 1985.

Mr Di Marco declined to pay these sums and, when the appellant company sued for the monies, contended that the charges were service charges within the meaning of s.18. His defence was successful in the county court and the company appealed.

The company contended that the charges could not be a service charge because:

(a) they were not payable by Mr Di Marco in his capacity as a tenant;

(b) rather, the charges were payable because of the company / member relationship, not because of the landlord / tenant relationship;

(c) the £4000 fee was not chargeable for services, repairs, maintenance etc, but could be used for any purpose, such as litigation costs;

(d) the costs did not vary according to the landlord’s costs of performing certain tasks, but were set by resolution of the company in a general meeting.

The Court of Appeal allowed the appeal. There was a distinction between charges payable by a tenant under a lease (which were likely to be service charges) and charges payable by a shareholder to a company. It did not matter that the landlord was the company or the tenant was a shareholder. The legal relationships were different and separate. The county court had erred in upholding the defence. The monies claimed were payable by Mr Di Marco in his capacity as a shareholder.

This is – to my mind – a sensible and manifestly correct decision. I confess to being slightly uncomfortable that the protections of ss 18-30 can be avoided in this manner, but, given the definition of “service charge” in s.18, this decision is right. It’ll be interesting to see if other lessee-owned freehold companies start taking this approach. It certainly seems to be quicker and easier than levying service charges.

This case concerns the not uncommon situation of a court or tribunal (in this case, a Leasehold Valuation Tribunal) taking a point which the applicant / claimant had not expressly pleaded and the respondent / defendant then losing the case on that very point.

Mr Wood and a number of his fellow leaseholders applied to the Leasehold Valuation Tribunal (LVT) for a determination of their service charge liabilities for the years 2004 – 2007. The extent of the challenge was described as “request fully detailed itemised dated of each charge on list (this had not been forthcoming) assess what should be covered by buildings insurances establish which work actually carried out, and by whom. Proof of what has been paid to whom.” A list of disputed items was also attached.

Some of the items related to costs had clearly been incurred at least 18 months before being demanded. This was important because, by virtue of s.20B Landlord and Tenant Act 1985, a landlord must demand service charges within 18 months of incurring them or he is not entitled to recover anything from the leaseholders in respect of the expenditure in question. However, Mr Wood made no express reference to a challenge under s.20B.

The landlord filed a statement in reply, setting out its factual response to each disputed item. It also contended that there had been compliance with s.20 Landlord and Tenant Act 1985, more commonly known as the consultation requirements (i.e. that the leaseholders had been properly consulted in respect of the disputed items). If the consultation requirements are not complied with, the amount of money which the landlord and recover by way of service charges is severely limited, unless the LVT can be persuaded to grant the landlord dispensation from the consultation requirements.

At the hearing, the LVT took two points which Mr Wood had not raised himself. Firstly, they suggested that a number of the disputed items fell foul of s.20B in that they had not been demanded within 18 months of being incurred and, secondly, that the landlord had not properly complied with the consultation requirements contained in s.20. The landlord was given a short adjournment of 30 minutes in order to produce evidence relating to these points. The evidence which was produced did not satisfy the LVT and, as a result, the service charges of Mr Wood and the other leaseholders were reduced by £71,019.18.

The landlord appealed on two grounds. Firstly, it was said that the LVT was wrong in law to take points which had not been pleaded. Secondly, it was said that the LVT had not afforded the landlord a fair hearing in that it had not allowed the landlord sufficient time to respond to the points.

The first ground of appeal failed. The Lands Tribunal concluded, in very robust terms, that the LVT was entitled to raise the points that it did. It is quite right that the LVT clarify the issues between the parties, particularly where one side is not legally represented. It was quite possible that the leaseholders were not aware of the rights which Parliament had conferred upon them. The LVT was not required to sit in silence and find the applicants liable for service charges when the LVT had good reason to query as to whether the charges were legally due. Whilst there was no obligation on a landlord to disclose documents on matters which had not been pleaded, a prudent landlord which was certain that it had complied with the law would have disclosed all relevant documents relating to both the s.20 consultation point and the s.20B point.

The second ground of appeal, however, succeeded. The LVT had erred in law by only allowing 30 minutes for the landlord to produce the relevant documents. It should have granted an adjournment to the next day in order to allow the landlord to address the point and find the relevant evidence.

The case was remitted to a differently constituted LVT with directions for the disclosure of the relevant notices and for the leaseholders to file written submissions as to whether or not they had received the notices.

It is not uncommon for a leaseholder to challenge their service charges in the most general terms, often with only a basic understanding of the relevant law and it is very encouraging to see the Lands Tribunal encouraging the LVT to take a robust approach to such cases and to make sure that all relevant matters are dealt with, regardless of whether the leaseholders have expressly raised the point. Landlords will consider that this represents further evidence of the alleged pro-leaseholder bias of the LVT but, as the Lands Tribunal pointed out, a well organised and prudent landlord should have access to the relevant paperwork and should be able to disclose it without too much difficulty. Now, just to find a well organised and prudent landlord… it can’t be that hard, can it?