Brief notes on some recent Upper Tribunal cases.

Davies v Benwell Road RTM Company Ltd (LANDLORD AND TENANT – SERVICE CHARGES) (2023) UKUT 197 (LC)

Following a complicated and muddled history of County Court and FTT proceedings between the parties, a ‘double hatting’ FTT/County Court judge had found Mr D was not entitled to a credit had had been pursuing since 2013, and had to pay costs of county court and FTT proceedings, being recoverable under the lease assessed at some £8500. A county court order was made on sums to be paid by the Tribunal judge sitting as a county court judge.

The UT allowed an appeal in part.

A demand for £616 made in May 2014 should not have been awarded by the FTT because the Management Company had not issued proceedings in the county court for that sum until 2021. Limitation was six years and there was a limitation defence to the claim which had not been considered.

Costs of proceedings. There were two sets claimed as administration charges. Costs of FTT proceedings in 2014 concerning the extent of the management company’s right to manage, in which the management company had been successful, of some £2400, and of the current proceedings demanded at some £14,000 and assessed by the FTT at some £8,500.

The first FTT proceedings were not costs incurred in connection with the recovery of arrears of rent or service charges, which was the basis for any contractual entitlement to those costs under the lease. So those should not have been found payable.

On the second proceedings

The FTT was entitled to determine the sum which it was reasonable for Mr Davies to pay under paragraph 33(c) of the lease, because it was a variable administration charge over which the FTT is given jurisdiction by paragraph 5(1) of Schedule 11, Commonhold and Leasehold Reform Act 2002. Once it had made a determination, however, the charge would not become payable until it was properly demanded. By paragraph 4 of Schedule 11, 2002 Act a demand for the payment of an administration charge must be accompanied by a summary of the tenant’s rights and obligations and a tenant is entitled to withhold payment until that requirement is complied with.

In determining the sum payable, the FTT assumed that the RTM Company had succeeded in respect of the full amount it was claiming in the proceedings. It is now clear that it should not have done, and that it should have determined the costs recoverable under paragraph 33(c) on the basis that the £616.60 service charge, and the £2,400 administration charge dating from 2014 were not payable, and that the only sum payable was £840 for four debt collection letters. It cannot be said that its assessment would have been the same if it had appreciated that the RTM Company had succeeded in only a little over 20% of its claim. Its decision must therefore be set aside.

The FTT also failed to determine an application made by Mr Davies under paragraph 5A of Schedule 11, 2002 Act, which gives it jurisdiction to reduce or extinguish a tenant’s liability to pay an administration charge in respect of litigation costs (meaning the costs of proceedings before the FTT; the County Court has the same jurisdiction in respect of the costs of the proceedings before it).

It was the FTT making the determination, not the county court. As per Mayor and Burgesses of the London Borough of Tower Hamlets v Khan (2022) EWCA Civ 831, the county court had no jurisdiction to make orders for costs in respect of Tribunal proceedings.

However, the county court order would have to be the subject of a separate application to the county court to have it set aside on the basis that the sum for which judgment was entered was not payable, as the UT had no jurisdiction to do so.

Double hatting remains the subject of procedural and jurisdictional confusion… Now two appeals/applications needed in respect of one decision.

Douglas & Ors v RMB 102 Ltd & Anor (LANDLORD AND TENANT – SERVICE CHARGES) (2023) UKUT 207 (LC)

Appeal of an FTT decision striking out an application by leaseholders challenging the reasonableness of insurance premiums. The FTT had struck out the application against the freeholder, RMB, on the basis that the tri-partite lease meant that the management company took out the insurance and demanded the service charge, so there was no jurisdiction under s.27A to bring an application against the freeholder. The freeholder relied on Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd (1997) 1 EGLR 47 in support of this.

The Upper Tribunal allowed an appeal.

The lease provided for the freeholder to ‘nominate’ the insurer, with the management company then taking out the nominated insurance, paying for it, and then charging the leaseholders. The residents managment company effectively had no choice in the insurer.

The relevant part of the Berrycroft judgment was technically obiter, but in any event, subsequent clarification in Cinnamon Ltd v Morgan (2001) EWCA Civ 1616 established that there could be two ‘landlords’ for the purposes of s.20 Landlord and Tenant Act 1985, where the freeholder had the right to enforce the tenant’s covenants and a management company had the right to demand service charges.

I have already explained that the payment by the management company to the insurer is not a service charge. No payment has yet been made by the leaseholders to the landlord which could be the subject of scrutiny by the FTT under section 27A. Nevertheless, in my judgment, that does not mean that that the application should be struck out or there is nothing for the FTT to consider under section 27A.

There is no doubt who is liable to pay the service charge (the leaseholders) or, to whom it is payable (the management company) but the amount which is payable is a matter on which the leaseholders are keen to obtain a determination. Making that determination will involve considering whether the costs incurred by the management company (or on its behalf, as in the year in question it would appear that the insurance was procured by E&J Estates rather than by the management company) was reasonably incurred within the meaning of section 18(1)(a). If it was not (and the tenants say that multiple layers of commission which they suspect inflate the policy mean that the cost was not reasonably incurred) the service charge payable by the leaseholders to the management company will be limited accordingly.

The Tribunal emphasised the breadth of s.27A Landlord and Tenant Act 1985, and the potential value to the leaseholders of determination in other ways.

The UT does add a cautionary note, given that as per Bandar Property Holdings Ltd v J S Darwen (Successors) Ltd (1968) 2 All ER 305 there was no requirement for an obligation to insure with an insurer ‘of repute’ did not have an implied term that the landlord would act reasonably in placing insurance so as not to impose an unnecessarily heavy burden on the tenant, and, via Havenridge Ltd v Boston Dyers Ltd (1994) 2EGLR 73, the insurance placing would have to be ‘outside the ordinary course of business’.

However, the UT also noted the leaseholder’s suspicions as to substantial commissions being paid on the insurance and the insurance premisum having risen by 180% as against 17% for other buildings in the development with different freeholders:

There is no doubt that the comparison which the leaseholders are able to make in this case between the rate of increase of their insurance premiums since 2019, and the rate of increase in premiums payable by leaseholders of similar properties on the same estate in blocks owned by different freeholders, is striking and calls for an explanation. In my judgment the FTT was wrong to strike the application out, and I remit the matter to it for determination.

FirstPort Property Services Ltd v Various Leaseholders of Switch House (LANDLORD AND TENANT – SERVICE CHARGES) (2023) UKUT 219 (LC)

At the conclusion of a decision on the reasonableness of service charges, reducing a charge of £69,136.85 by £3,161.85 the FTT had made a s.20C order. (Other challenges on it not being reasonable to dispense with consultation, and on historic neglect had failed.) The section 20C order prevented the landlord from recovering any of the tribunal costs through the service charge, including for any leaseholders who were not applicants. The FTT was particularly concerned with the landlord’s failure to establish proper trust accounts for the reserve funds.

The landlord appealed and the appeal was allowed.

The trust account issue was irrelevant to the s.27A application and the reasonableness of the charges.The actual reduction in charge achieved was minimal and did not justify a s.20C order.