Windermere Marina v Wild & Barton – Service Charges

Windermere Marina Village Ltd v Wild & Barton [2014] UKUT 163 (LC)

This is just a quick post to draw attention to this case in the Upper Tribunal. It is about apportioning a service charge among various residents of a lakeside development. Normally the actual apportionment (eg 1.73% each) would be set out in the lease, but as the developer intended to build more properties later the leases contained a clause saying that each tenant would pay a fair apportionment of the cost of services:

to be determined by the surveyor for the time being of the Lessor whose determination shall be final and binding

The surveyor carried out a formal apportionment, the tenants objected and the case found its way to the LVT (now the FTT) and then on appeal to Martin Rodger QC the Deputy President of the Upper Tribunal.

The questions were

  1. How can the “final and binding” determination in the lease fit in with the terms of s27A LTA 1985? and
  2. If applicable, what is the correct split?

Now lots of leases have provisions that charges have to be certified by agents, accountants and so on before being payable. The LVT/FTT have had no problem in overruling them when they want, but a “final and binding” determination is something different.

Superficially it ought to be easy as s27A gives lots of powers to the tribunals to decide how much service charges should be and who they are payable by. It goes on to say that

(6) An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination—

(a) in a particular manner, or

(b) on particular evidence,

of any question which may be the subject of an application

However, one of the matters which cannot be brought before the tribunal is any matter which

(4) a) has been agreed or admitted by the tenant,

It was clear law that a tenant couldn’t raise the actual apportionment set out in the lease (eg 1.73%) so was this similar? Some previous decisions seemed to think so. And many tribunal decisions don’t need to alter apportionments, just the figures themselves, in fact apportionment disputes are very rare (up until now) so is this caught by s27A(6) at all?

The decision this time was clear. The Surveyor’s decision was wholly void, and was treated as not having been made. The matter had to be decided afresh by the tribunal. The LVT had done this, and the Upper Tribunal dismissed the landlord’s appeal.

There is an excellent (and far more detailed) summary of the decision in the Law and Lease blog and another in Nearly Legal , so I’ll just stop here. But this is a decision that will see a lot of action in the future, I’m sure.

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How do we Pay for the Repairs? – Two Recent Decision

Like with buses, there are often large gaps when there are no interesting developments in an area and then two come along at the same time. In this case the particular area is the recovery of service charges by landlords , and the two cases are Phillips v Francis [2012] EWHC 3650(Ch), a decision of the Chancellor in the High Court in December 2012, and, much more recently, Daejan Investments Limited v Benson and others [2013] UKSC 14, a decision of the Supreme Court on 6th March 2013.

They are both of considerable interest, although operating in essentially opposite directions. However, before I get into things properly we need to set out the broad outlines of the problem that they tackle in their own ways.

The Law

Under s 20 Landlord & Tenant Act 1985 landlords of residential premises that levy a service charge are required to consult with tenants before contacting for qualifying works, or a qualifying long-term agreement. If they don’t do this then they can only recover £250 per tenant (or £100 per tenant if it is a QLTA). Unless the Leasehold Valuation Tribunal (LVT) gave dispensation, either before or after the event. The requirements for public sector housing are slightly different and I won’t cover them specifically in this article, so as to keep it a sensible length. And although the obligation is to consult and not necessary to agree with the tenants, in practice the landlord has to be prepared to justify his decision before the LVT if the tenants ask them to find that the service charge, including the cost of the works, is unreasonable, under s27A of the 1985 Act. So the provisions have real teeth.

Now the consultation procedure is quite a lengthy one as set out in the Act and prescribed regulations, lasting at least 2 months and requiring the landlord to give 30 days’ notice of the proposed works and to invite observations and nominations for invitation to estimate. Then once the estimates are in the landlord has to give another 30 days to allow for observations on the estimates, and finally they must give notice that the contract has been awarded and justify the choice if it isn’t the lowest estimate, or a contractor nominated by the tenants. The procedure for works under a QLTA is slightly different, and only involves one consultation, once the QLTA has been entered into at the outset. In either case there is a lot of scope for getting things wrong, and if there are many tenants the cost of all the consultation, tendering and so on can be considerable.

However, things are even worse if there are only a few tenants, because it means that even small maintenance projects get caught in the net. If there are 2 tenants anything over £500 has to be subject to the procedure , and you can’t get much done for that, especially in London. There is no way for tenants to waive their rights or to abbreviate the generous time-limits. So it becomes important to know what counts as a project: if repairing 2 doors is going to cost £750 can you split this into two projects of £375 each and save time and effort all round? What about minor works such as repairing a downpipe, changing light bulbs, and so on that add up to more than £250 a head over a year but individually cost a lot less than that?  And it also matters to know whether the LVT will dispense with the requirement, either if you go there first, or if you do the work first and then have to go and seek permission afterwards, possibly because you have messed up the procedure in some minor way.

It is important to note that although we normally call them “building works” the Act describes them as “works on a building or other premises” ie anything that is not purely the provision of services. So touching up the paintwork is covered as well as replacing the roof.

In practice landlords consulted on major projects , or faced the consequences, but didn’t if the cost worked out at less than the £250/head figure, and the tenants, and the LVT went along with this, more or less – the individual LVT members are well known for providing a wide range of views to the same facts. But you could very rarely get the LVT to agree to dispense with the procedure beforehand, unless the project was large and urgent, and virtually never get them to dispense with it afterwards. It was a far from ideal situation but al least we knew where we were, and could advise accordingly.

The Problem

Well, things have changed. Phillips v Francis was an appeal to the High Court from Truro County Court about the service charges payable on a holiday estate near Padstow. The landlords embarked on what appears to have been a rather disorganised scheme to improve the facilities, where one thing lead to another without any overall plan. But as it was a large site, with over 150 houses on it, the £250/head limit came out at about £41,000. And the county court judge had decided that no individual part of the scheme cost more than that in any year, so it wasn’t caught by the limit.

The Chancellor wasn’t having any of this. He looked at the CA decision Martin v Maryland (1999) which the landlord relied on and which indicated that you looked at the individual projects to see if they needed consultation, and said that he wasn’t bound by this because of changes in the scheme brought in by the Commonhold and Leasehold Reform Act 2002. You  no longer had to look at the overall cost of the project but had to look at the annual cost to each tenant. There is no “triviality threshold”:

Accordingly, I see nothing in the present legislation which requires the identification of one or more sets of qualifying works. If the works are qualifying works it will be for the landlord to assess whether they will be on such a scale as to necessitate complying with the consultation requirements or face the consequence that he may not recoup the cost from the tenants’ contributions. As the contributions are payable on an annual basis then the limit is applied to the proportion of the qualifying works carried out in that year. Under this legislation there is no ‘triviality threshold’ in relation to qualifying works; all the qualifying works must be entered into the calculation unless the landlord is prepared to carry any excess cost himself.

Commentators are unsure what exactly this means, but the most natural meaning is that if there is qualifying work in a year that adds up to more than £250/head then the procedure has to be complied with, even if each individual project is under £50. The decision by a High Court Judge is binding on the LVTs and on County Courts, but not other High Court Judges, and so until the CA clarifies things it stands, albeit subject to the possibility of alternative interpretation by other judges. But the parties have apparently confirmed that they are not going to appeal, so the matter is not going to be clarified soon.

ARMA and other landlord organisations are horrified. It means that not only are landlords probably going to have to consult at the beginning of every year if they want to do virtually anything, but also that tenants may now be able to claim back all excess service charges that they have made over the last 6 years, by going to the LVT under s27A(2) of the 1985 Act.

Commentators are puzzled, and some of them are looking forward to a raft of decisions in the LVT and the UT(LC) when the detailed implications are thrashed out. Many just say that the decision is wrong. The best summary is, as ever, in the Nearly Legal blog. The answer may be come in the form of legislation, or an amended regulation defining the limit for qualifying works, although given the present government’s track record this cannot be relied on with any certainty. Or a greater use of QLTAs to cover smaller maintenance, which would reduce the consultation but not remove it entirely.

I’m not sure whether you can say that the decision is wrong, as the previous interpretations certainly did some violence with the wording, and were open to abuse. But it cannot be disputed that the judgement did not consider the extremely wide implications of what was being said, or spell out the consequences in enough detail. And for a decision that expressly disagreed with the CA decision in Martin v Maryland

save in its reference to the need to use common sense

this is at the least disappointing.

The Answer

None of the above. For yet again the Supreme Court ride to the rescue. I am immensely impressed with the way that the SC looks at a problem, works out the sensible answer, and then gives it to us, by a combination of energetic distinguishing of inconvenient authorities, or if need be just overruling them. I have commented previously on their efforts in Day v Hosebay (on enfranchisement) and in Berrisford v Mexfield (on leases without terms), when they rescued the law from the inconvenient and downright idiotic position that a long succession of entirely logical but cumulatively daft decisions have left it in, by going back to basics.

In Daejan v Benson the court, lead by Lord Neuberger, looked at the provision in s20ZA of the 1985 Act allowing the LVT to dispense with the need to consult on qualifying works, as set out above. The provision itself is a simple one:

Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.

It would appear to give the LVT a wide discretion if it is satisfied that it is reasonable, and normally you would expect such a power to be exercised fairly frequently. However, a succession of cases had built up guidance that meant that it was virtually impossible to get dispensation beforehand, unless the matter was extremely urgent, and impossible to do so in practice after the event. The CA in Daejan itself had said that consultation in itself was what the Act was trying to achieve and so if consultation had not been carried out in full (in this case the decision to award the contract was made shortly before the consultation ended, rather than afterwards as it should have been) then the tenants had suffered prejudice, and the landlords could therefore not show there was none. The financial consequences (£280,000 here) were not even relevant.

Lord Neuberger made pretty short shrift of that. He said that

Given that the purpose of the Requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the LVT should focus when entertaining an application by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the Requirements

And so if the quality, extent and cost of the works haven’t been affected by the failure to properly consult then dispensation ought to be granted in virtually all cases. If there is some prejudice, such as additional cost, this can normally be compensated for by imposing conditions, such as payment of compensation, or more usually restricting the amount the landlord can recover. In Daejan itself the landlord proposed a reduction of £50,000 in the amount that they were seeking, to cover any potential losses. And if need be the landlord could pay the tenants’ reasonable legal and surveyors’ costs in investigating the matter, and being represented at the tribunal.

There was no benefit in itself in having a consultation. It was just a mechanism for achieving the end of only having to pay an appropriate amount for appropriate works. And virtually all applications for dispensation should succeed, subject to the grant of compensation in cases where the works have cost more than they should because of the failure to consult properly.

Which, given Phillips v Francis, is just as well, because there are going to be an awful lot more applications in future.

Some commentators say this is a bad decision, that openness and transparency are good in themselves, and the result means that s20 adds very little to the existing power under s19 to disallow inappropriate costs. But I disagree. Law is the servant of man, not his master, and our laws must work in practice. This law was no longer working in any useful way, and has now been brought back to life. The management of blocks of flats on long leases is difficult enough without making the escape clause impossible to use. Tenants often don’t want to pay for repairs, and landlords often charge more than they ought. You have to have an effective mechanism for resolving these matters, and thanks to the Supreme Court the useful tool that is s20ZA(1) has now been dusted off and restored to the front line.

Notice the Notice

From time to time there is a decision from a court or tribunal that shows you

  • how complicated housing/L&T law has become; and
  • the dangers of letting the court/tribunal getting bored.

What happens is that the judge or chairman stops listening to the advocate rambling on about his case and flicks through the paperwork in the bundle, and comes upon a legal quirk that they hadn’t noticed before. They take it away over lunch and look things up in the books to hand, not because it really matters in the case in question, but because asking awkward questions was why they got to the bench in the first place, and there is nothing that they like more than putting a boring advocate on the spot.

The result is usually amusing, because the questioner has only looked at a small piece of a big problem,  the advocate hasn’t thought about this point at all previously, having thought that it was a non-issue, and gives an answer on the hoof that they wouldn’t if they had prepared for things properly, and strange things happen.

This is what happened in Beitov Properties v Elliston Martin [2012] UKUT 133 (LC)  recently. The LVT were listening to an argument about the reasonableness of some service charges, which was more boring than usual because the tenant hadn’t attended, and so the chairman flicked through the bundle, found the demand for payment, noticed that it gave the landlord’s name but the managing agent’s address and asked the landlord’s solicitor if this was allowed.

The problem is s47 Landlord & Tenant Act 1987 which applies to all residential tenancies that aren’t business tenancies under Part II LTA 1954. This requires all written demands for rent or other payments to contain the landlord’s name and address, plus an address for service in England and Wales if the address given is elsewhere. The bite is in s47(2):

“Where

-a) a tenant of such premises is given such a demand, but

b)  it does not contain any information required…

then…any part of the amount demanded which consists of a service charge…shall be treated for all purposes as not being due from the tenant to the landlord at any time before that information is furnished by the landlord by notice given to the tenant.”

Note that  the info is needed for all demands, including rent, but if you don’t have it in a demand for service charges the charge isn’t due until the info is given, while it doesn’t affect the liability for rent (presumably because you don’t normally have to demand rent, but do have to demand service charges).

The LVT decided that the section meant what it said, and that the agent’s address wasn’t the landlord’s address and so the demand was invalid. The address given should have been the landlord’s trading address, or one of their trading addresses, or their registered office. So the service charge element wasn’t due. And the Upper Tribunal agreed, albeit with some comments to the Tribunal on springing this sort of thing on a party.

The obligation in s47 is quite separate to the obligation in s48 to provide a tenant of residential premises with a notice in writing of an address for service in England and Wales of any notices. This goes on to say that rent and service charges are not due until this has been complied with. The UT commented that “an address for service” is different from ” the name and address ” and unless it was there would be no point in having both s47 and s48. In this case there was a valid s48 notice giving the agent’s address, but it didn’t do the landlord any good.

There are two lessons to learn from this:

  1. Don’t let tribunals get bored; and
  2. Make sure you give the landlord’s name and address on all demands for rent, service charges, or other payments. You can give the agent’s address as well, but you can’t give it instead.

And all managing agents, and landlords ought to be checking their procedure on this right away, as no doubt tenants’ advisers will be taking this point until the novelty runs out.