MacGregor v B M Samuels Finance Group Ltd [2013] UKUT 471 (LC) was, I’m afraid, handed down over two months ago. Such is the state of the NL backlog that I’m only getting to it now. Sorry about that. As those of you who could not wait must have already realised, there has already been some excellent commentary on the case from Amanda Gourlay, here.
The case concerned some disputed service charges for electricity and insurance costs. The appellant held two flats in a 44 flat development in two blocks; the respondent was a mortgagee in possession (itself rather unusual). The case proceeded as a re-hearing (again, rather unusually).
Preliminary issues
The appellant took two preliminary issues.
First, he made a number of allegations of professional impropriety (conflict of interest, breach of trust) against the managing agents, who (it was alleged) had used connected companies to carry out certain tasks at the building (debt collection and placing insurance, I think). It was also said that this gave rise to breaches of the RICS Service Charge Code.
Secondly, he contended that, if he was successful in reducing any of the service charges, then that would apply automatically to all leaseholders at the development, even though they played on role in the appeal.
The Upper Tribunal rejected both arguments. I’ll deal with the first when looking at the insurance dispute below. As regards the second, the Tribunal was limited to dealing with the obligations of the parties to the dispute. There was no power to award remedies to leaseholders who were not parties to the Tribunal.
Pausing here for a moment, the second of these conclusions is plainly right. A non-party would not normally expect to get the fruits of any judgment. As the respondent argued, non-parties may have their own reasons for not wanting to challenge the service charges (e.g. in a lessee-owned company, every reduction will simply have to be met by the members in their capacity as members). There is also a broader issue here (and an exceptionally important one). The Tribunal does not order refunds. It has no power to order X to give money to Y. It simply declares what rights parties have and leaves them to enforce those rights elsewhere. It is widely assumed that this would involve a claim in the county court for restitution.
Electricity charges
Although the arguments covered a wide range of issues, the judgment is much narrower. The important point is that the respondent had been charging VAT at 20% on the electricity costs (which, in fairness, is what the supplier had charged) and had passed on the Climate Change Levy. Both of these were wrong. VAT on communal electricity should be 5% and the Levy is not payable by residential leaseholders (said the Upper Tribunal), relying on this (Guidance on gas and electricity re-sale, OFGEM) and this (Guidance on Fuel and Power, HMRC).
I rather suspect that this is a more common error than one might otherwise appreciate and no-doubt there are going to be leaseholders/landlords/agents excitedly/wearily/nervously checking bills.
In addition, the evidence established that something had gone wrong with the electricity usage in one of the blocks; it was unreasonably high when compared to the other block (see, along the same lines, this case, which always makes me laugh). It might have been a faulty meter or it might have been theft, but, in any event, the Tribunal reduced the costs based on an assumed fair usage as per the other block.
Insurance
The first issue here was the admitted failure of the landlord to comply with s.47, Landlord and Tenant Act 1987. As there had been non-compliance, it followed that the sums were not yet due.
The (potentially) interesting point was whether late compliance would now render the sums due. But we know it can. In Johnson v County Bideford Ltd, the Tribunal had held that late compliance was possible and, in particular, the “18 month rule” in s.20B, Landlord and Tenant Act 1985 did not prevent late compliance. The UT appears to have considered that the Johnson case was still good law.
That being so, the question became how much would be due, once s.47 was complied with. The appellant focused on the fact that the managing agents used linked companies to procure the insurance and he relied on an earlier LVT case in which the agents had been criticised (most unfairly in my view – and in the view of the UT – as they hadn’t been present to defend themselves!). It was no part of the role of the Tribunal to “police alleged breaches of the professional and ethical standards of the RICS”. There was nothing per se wrong with using connected companies: see Country Trade Limited v Noakes [2011] UKUT 407 (LC); Skilleter v Charles [1991] 24 HLR 421. Parties – and the Tribunal – should focus on those issues which were within the jurisdiction of the Tribunal, namely reasonableness under s.19, Landlord and Tenant Act 1985. On the facts, the insurance costs were entirely reasonable.
Conclusion
A helpful little case on VAT and CCL but, more than that, a really important reminder to parties (especially, if I may say so, unrepresented leaseholders, who – in my experience – tend to be most guilty of this) to focus on what the Tribunal can actually do and can determine.
I am grateful as I am sure are others in this sector for the comments particularly on energy charges, here, in law and lease, and the decision itself. This has always been a battle with energy companies and their treatment of common areas as non domestic premises, and which has been confused by the changes in applicability in VAT and levies. It is common that when tendering energy on a regular basis, the argument is renewed with each new supplier, despite the fact that they are supplying other premises under the correct arrangements and charges. Oh how I long to get back the hours lost on the phone to the various numpties at energy companies!