Unfair but not unsatisfactory

Morgan and another v Fletcher and others LRX/81/2008 is an important decision of the Upper Tribunal (Lands Chamber) (aka the Lands Tribunal) on the scope of s.35, Landlord and Tenant Act 1987.

As you’ll remember, Part 4, Landlord and Tenant Act 1987 confers power on an LVT to vary a residential lease in circumstances where the “lease fails to make satisfactory provision” (s.35(2)) with respect to inter alia, the computation of a service charge payable under the lease (s.35(2)(f)). For these purposes, a lease fails to make satisfactory provision if it provides for a total service charge recovery of more or less than 100% of the amount that the landlord expends (s.35(4)).

In the present case, six of the eight lessees of residential flats brought an application under s.35, seeking a variation of the service charge percentages in their leases. They had two concerns:

(a) the total proportion of the service charges payable under the eight leases came to 116 per cent;

(b) the proportions paid by the leaseholders seemed to arbitrary, in that larger flats did not pay a larger service charge.

After the application was issued, the leaseholders of the other two flats (one of whom was also the freeholder) varied their leases so as to reduce their service charges, and therefore reduce the total amount recoverable to 100%.

Those two leaseholders then argued that the application should be dismissed, since the reduction in their service charges meant that the leases now made satisfactory provision for the computation of the service charges i.e. they now totalled 100%.

The LVT rejected this argument, relying on the fact that, notwithstanding that the service charges now totalled 100%, the apportionment was manifestly unfair. One of the two leaseholders held the largest flat but paid a significantly lower (by a factor of 16 in some cases) service charge than the other leaseholders.

The two leaseholders appealed to the Lands Tribunal. They contended that the only circumstances in which an LVT could vary a lease so as to amend the service charge percentages payable was where the total recovery exceeded 100%.

Judge Jarman QC found that s.35 was ambiguous and, hence, that he was entitled to have regard to the Hansard debates that surrounded s.35 and the subsequent amendments, applying Pepper v Hart [1993] A.C. 593, HL. Having so considered the debates (and the Nugee report 1985), the Judge held that s.35(4) had to be read as limiting s.35(2)(f) i.e. the only circumstances in which an LVT may vary the service charges payable under a lease are where the recovery exceeds or is less than 100%. If the percentage payable is 100% then the LVT is not empowered to vary the lease.

The Judge did express “some sympathy” for the respondents, but allowed the appeal. Although not cited, the Judge might have found some support for this approach in the earlier Lands Tribunal case of Southend-on-Sea DC v Skiggs [2006] 2 EGLR 87, where the Lands Tribunal also limited the power of the LVT to go behind an otherwise valid contract.

I’m not wholly persuaded that this is right. Why can an LVT not examine questions of apportionment? It can plainly give rise to “unsatisfactory provision” for the computation of service charges if an unfair apportionment is adopted. Suppose (to borrow an example from the case) that a freeholder converts a house into two flats, each of which pays 50% of the service charges. He reserves the roof space and air space to himself and then builds a third flat at the property. Can he leave that flat with a nill service charge liability? The answer would appear to be “yes” – and, the existing two leaseholders cannot ask an LVT to remedy this situation. Is that really right?

One final point. This was – yet another – appeal where only one party had the benefit of legal representation. The Upper Tribunal (Lands Chamber)  is now a court of record and its decisions have precedential value. It is wholly unacceptable that a body making such decisions should continue to hear so many appeals where only one party is represented. In the absence of a robust and well-funded legal aid system, surely there is a case for the Bar Pro Bono Unit / Law Works to promote their services to via the Lands Chamber. I’m only asking for them to include a leaflet amongst the paperwork which is sent to parties. There are plenty of people – including, I suspect, at least two of your NL team – who would be quite prepared to consider doing Lands Chamber cases on a pro bono basis if the Unit / Law Works would just ask…

About J

J is a barrister in London. He loves service charges and all things leasehold law related. He also likes beating rogue landlords and mortgage companies.
Posted in Leasehold and shared ownership and tagged , .

16 Comments

  1. I was interested to read the above item about an application to vary the lease under S35 of the Landlord and Tenant Act 1987 on the basis that it makes unsatisfactory provision for the allocation of service charges.

    I have a slightly different case coming to the Lands Tribunal on November 11th and 12th 2009 where I am challenging an amendment of the percentage of service charge proportions payable by leaseholders to their detriment under the controversial terms of a seemingly very badly written lease and here instead of trying to vary the lease the application I originally made to the LVT is on the basis that the LVT has the power to decide the “amount which is payable” in relation to the service charges and that it should decide that no alteration of percentages is valid as nothing has physically changed in terms of the range and size and number of properties managed by the management company to justify it.

    [edited by J…]

    • I’ve edited this because:
      (a) we can’t – as the disclaimer makes clear – give advice about an ongoing case;
      (b) you say that you’re already being assisted by the Bar Pro Bono unit, albeit not quite to the extent or manner that you might wish. That is something you need to take up with the Unit. It wouldn’t be right to comment on the approach being taken by lawyers already acting on your behalf.

  2. it wouldn’t have been possible in the case quoted, but can’t lessees make a case under s37 that apportionment be adjusted by the lvt as long as no more than one party objects (if fewer than 10 lessees) and if they deem it to be reasonable to do so.?

    from what is left of country cousin’s post, this seems to be an attempt to resist a freeholder’s attempt to vary apportionment rather than an application to the lvt to vary an existing arrangement. that’s rather different isn’t it? mind you, i wouldn’t mind going along to the lands tribunal on the 11/12th. sounds fascinating (yes really – but i admit i may be alone in thinking so)

    • That is right, s.37 LTA 1987 is an “at large” power to vary the lease. Depending on the circumstances, it may be a more effective remedy.

  3. I’m the Mr Fletcher referred to. This decision means that if a property is significantly altered the only way you can make the proportions reasonable if say a landlord builds extra flats and charges them 0% in service charges so the overall sum is still 100% is to go to a County Court on Breach of Contract.
    And unless your lease states that the proportions must be renegotiated on a change to the building you could well lose. I have a number of leasehold properties one I live in and at best a plan of the whole property is presented in the lease and the number of flats is listed, at worse only a plan of my flat is given. Even if you win it will cost £15K fast track to £30K otherwise to go to a County Court with legal costs and you can only be awarded 60-80% of your costs. Given the amount we will save every 10 years of the lease is only about £10K in total from getting the proportions correct is it worth going to court, as there’s a good chance we could lose and given the costs even if we win we will still have to pay out a considerable amount, even though £10K isn’t an insignificant sum especially as over the 90 years left on the lease that is £90K. Don’t forget as the proportions have to sum to 100% for every winner there is a loser so not all leaseholders, unless their moral conscious dictates, will support the changes. The landlord can also easily circumvent the s37 by agreeing with only 25% of leaseholders to reduce their leases at the detriment of the others. There are many reasons he may wish to do this. I’m now waiting for my appeal before going to my MP to try and get the loop holed created by this appalling decision closed up. Before the Appeal I naively expected the law to protect me against this.
    With regards myself representing the leaseholders, we cannot be awarded costs even if we win at an LVT etc. Only the landlord can put the costs on the service charges. Hence I obtained advice from LEASE, on-line and a little from a solicitor but very quickly your legal costs become more than the amounts you will save. This is why everyone is representing themselves.

    • Mr Fletcher – Are you appealing the decision of the Upper Tribunal to the Court of Appeal?

    • I have asked permission to do this to the Lands Tribunal but haven’t yet had a response.

    • Forgive me, I’m slightly confused. The decision in Morgan and another v Fletcher and another is a decision of the Lands Tribunal (which was itself an appeal from the LVT). From the Lands Tribunal, the appeal is to the Court of Appeal as a second appeal. That means (does it not) that the Lands Tribunal can’t grant permission to appeal but the Court of Appeal has to consider the question of permission itself – thus, I think you’ve asked the wrong body for permission to appeal.

    • 12.1 Application for permission to appeal
      The Tribunal s decision on all matters of fact is final. There is a limited right of appeal to
      the Court of Appeal on a point or points of law and permission is required. It must be sought in
      writing first from the Lands Tribunal within 28 days after the date that the decision of the
      Tribunal has taken effect and was sent to the parties.

  4. Coming back to this thread several years later I see I was not updated on any of the subsequent comment posts in the blog including those by my fellow sufferer of unaffordable landlord and tenant law – Mr Fletcher. I would suggest that the lack of a post update feature where there are further comments on a Blog post is rather a serious defect.

    My research shows that Bar Pro Bono Unit almost never acts for leaseholders at the Lands Chamber. This rather goes to suggest that most barristers working in this field are not actually the least bit interested in justice (I also emailed about 30 leading barristers in the field directly after Bar Pro Bono failed me but not one would help me despite the seriousness of my case) but only in earning enough fees in order to be able to buy themselves a freehold property so that they do not have to suffer at the hands of their own Rough Justice!

    [Edited to remove some details of the commenters case and settlement – we don’t comment on settlements or cases in progress – and some potential libellous accustations – NL]. …The LVT … decided that legal fees could be either an administration charge or a service charge and it didn’t matter which they were […] whilst I had initially applied to the Lands Chamber to contest this I had to withdraw and make a […] settlement out of court because of their threat […] of legal costs if I went on to the Lands Chamber and lost.

    The problem with this whole field of law is that LVT cases don’t qualify for legal aid and that even if they did most leaseholders wouldn’t qualify for assistance because by definition if someone can afford to own a home they more often than not have enough in the way of savings and assets to not qualify for legal aid. Despite this most leaseholders outside Central London are not rich and usually live in a flat because they are not well off enough to afford a house (especially in the London suburbs). I no longer believe in the civil law in this country as it does not work for the middle classes like myself but only for the very poor or the very rich.

    • Country Cousin

      There is a comment update feature – you can follow the comments on a post or be emailed any further comments. It was an option available to you when you commented. Not a defect, but a feature that you overlooked. An apology would be pleasant.

      I have edited your post to remove settlement details, and some accusations against your landlords and their solicitors which are potentially libellous. We don’t allow unsubstantiated accusations on the site.

      However, you are right that the Tribunal system presents real difficulties for leaseholders in terms of legal representation. There is no legal aid for the LVT or UT – a situation that is only going to spread to the other courts for leaseholders – and because there are no costs awards, there is no possibility of a ‘no win, no fee’ agreement. Where the landlords are able to afford representation, there is a clear risk of an ‘inequality of arms’, particularly where no section 20 C order is made on recovery of costs under the lease.

      I must take issue with your comments about pro-bono. I can of course understand your frustration in not being able to find pro-bono representation, but speaking as one of the relatively few solicitors who does leaseholder LVT work, I can assure you that if I did every merited, arguable and good case that was presented to me with an enquiry about pro bono, I would be doing nothing else at all. And I would be out of a job.

      There are very many leaseholders unable to afford full representation but wanting advice and representation at the LVT. There are relatively few lawyers, barristers and solicitors, who are experienced and knowledgeable about service charge matters.

      So, when you say nobody was interested in justice, the reality is that the skilled, experienced lawyers that you wanted to take on your case pro bono receive many such requests. And they sometimes act for no fee or a very reduced fee. But this cannot possibly be for every case, no matter how important to the leaseholder (and they are usually very important).

  5. i do pro bono in the lvt – and a lot of other counsel do. but agree the points as set out by nl above – costs issues make lvt ( and indeed some other tribunals) tough for parties with no chance of their costs (absent ‘vexatious/frivolous’). doubly tough if your LL can recoup their costs through the service charge although s20C usually helps lessees with a good case.

  6. in the event that 6 flats apportionment totals 113% with 5 of the 6 flats being 18% and the other remaining flat 23% would this provide grounds for an application to vary?

  7. if the apportionment is clearly stated as a % where would I find in the lease how this figure was calculated?

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