Assethold Ltd v. Nelio Patricio Teixeira Franco (LANDLORD AND TENANT – SERVICE CHARGES – ADMINISTRATION CHARGES – burden of proof – scope of costs incurred for the purpose of the preparation and service of a notice under section 146 of the Law of Property Act 1925) (2022) UKUT 285 (LC)

There is a complicated history to the Upper Tribunal appeal, which I’m not going to unpick. Suffice it to say that in September 2019, Assethold had brought a County Court claim against Mr Franco for:

a.       £1776.63 service charges demanded in June 2019;

b.       £1,208.72 estimated service charges demanded in June 2019 (including for intended works to a meter cupboard);

c.       £3,600 administration costs demanded in respect earlier proceedings;

d.       £2,045 administration charges in respect of the current proceedings.

e.       Ground rent and interest.

The claim was allocated to small claims and eventually came to a hearing in May 2021 (!). At that hearing, Assethold’s representative (and employee, not solicitor or barrister), handed up a costs schedule of £6,290, expecting this to be the final hearing. However the DDJ made an order which said “Transfer to First Tier Property Tribunal”, and further “Matters falling exclusively within the jurisdiction of the County Courts are to be heard by the Tribunal Judge sitting as a Deputy District Judge”.

When the matter ended up at the FTT, the claimant was directed to serve a statement of case, and the defendant to serve a response. The claimant did so, the defendant, Mr Franco, didn’t.

After the subsequent FTT hearing

a judgment was delivered setting out the decisions of the FTT made by a judge and member, and the decisions of the county court made by the same judge sitting as a judge of the county court. The FTT decided that the respondent had to pay service charges in the sum of £1,673.16 and costs of £2,000. On the same date the made an order in the county court requiring the respondent to pay the sums determined by the FTT to be reasonable and payable (£3,673.16), together with ground rent of £100 and costs of £555.

The FTT was ‘double hatting’ here, with the Tribunal judge (but not member) sitting as a county court judge on the parts outside the FTT’s jurisdiction.

i) The FTT had reduced the estimated service charges by £531 in respect of the meter works, on the basis that the landlord hadn’t provided any section 20 notices in respect of that work, or shown that it had been done.

ii) The FTT had found the £2045 (actually £2040) administration charge for the current proceedings was not payable as “The tribunal finds the lease makes no provision for the payments of such charges”.

iii) The FTT had found the administration charge for the previous proceedings was “not payable” as “If the applicant had wished to recover the costs of those proceedings, they should have sought the same in Claim no D9QZ449J1.”

iv) Finally, the FTT had found the £6,290 sought in costs of the present proceedings to be “not proportionate” to the sums claimed, although payable under a costs “for the purpose of or incidental to the preparation of notices required for forfeiture” clause and reduced them to £2000.

Assethold appealed these findings.

The Upper Tribunal held:

On i) the FTT had erred. It is for a leaseholder to challenge the reasonableness of a charge, and Mr Franco had raised no issues, not filing a response where it was a standard direction ‘in service and administration charge cases, where the leaseholder is not entitled simply to put the landlord to proof that the charges are reasonable but must first say why they are unreasonable (Schilling v Canary Riverside Pte Limited (2005) EWLands LRX 65 2005)”. Secondly, there is no requirement for section 20 notices for estimated charges in advance. Estimated costs as demanded were payable.

On ii) the FTT had overlooked the ‘costs of section 146’ clause in the lease that it later referred to in iv). Assethold’s claim had made clear that ““The claimant has brought this claim as they require a determination of the outstanding sums for the purposes of section 81 of the 1996 Housing Act pursuant to an intention to serve a notice under section 146 of the Law of Property Act 1925”. The FTT had erred in finding the administrative charge not payable, and no challenge had been made to the reasonableness of the amount.

On iii) the charge for the costs of the previous proceedings, the FTT appeared to have proceeded as if it was being asked to make a costs order, either in the previous county court or Tribunal proceedings. But the FTT was not being asked to exercise a rule 13 jurisdiction. Instead the issue was the payability and reasonableness of the administration charge. So the decision was set aside.

However, there was no evidence that the landlord brought those previous proceedings with the intention of forfeiture (and so preparatory to a s.146 notice).  So the charge was not payable as it did not fall under the lease’s s.146 costs cause.

On iv) – the costs sought in the current proceedings – although the FTT had at this point come alive to the ‘costs of s.146’ clause, it had erred in subjecting the costs to an assessment of ‘proportionality’. These were live costs in the current proceedings, not an administration charge. They therefore fell outside the FTT’s jurisdiction to consider reasonableness of amount under Schedule 11 of the Commonhold and Leasehold Reform Act 2002. The FTT’s order was set aside.

(No replacement order was made, which presumably will leave the costs to be sought as an administration charge after all, as the FTT’s decision was in the form – via double hatting – of a County Court order, and the matter would not return to the County Court).

Comment

We’ve seen problems with ‘double hatting’ before, but here the issue is mostly with the FTT’s decisions within its jurisdiction, though mixing up what was and wan’t within the Tribunal/CC jurisdiction.

The point about it being for the applicant/leaseholder to raise reasons for charges not being reasonable in amount is one that does get overlooked. It is not enough for the applicant/leaseholder to say ‘the charge is not reasonable’ and then say no more.