Service charge – Reasonableness – Application to leasehold valuation tribunal under section 27A of 1985 Act – Respondent tenant applying to LVT challenging service charge demanded by appellant landlord – Respondent disputing liability to pay for administration costs – LVT finding such costs recoverable but finding total amount of management fee to be unreasonable – Whether LVT erring in deciding issue not raised by parties by reference to own knowledge – Whether decision vitiated by procedural unfairness – Appeal allowed
The appellant was the landlord and the respondent was the tenant under a long lease of a flat granted under the right-to-buy provisions of the Landlord and Tenant Act 1985. The respondent made an application to the leasehold valuation tribunal, under section 27A of the 1985 Act, on which she disputed her liability to pay the service charge levied for 2011. She contended that certain items had been overcharged and others, including the costs of administration, should not be included. The respondent later revised her position and accepted that the items demanded were properly recoverable under the lease subject to service of the correct notice. The LVT went through the schedule of items with the respondent and she conceded that most sums, as estimated, would be reasonably incurred; one exception was the management charge of £292.
The LVT then put it to the appellant that the management fee was high. The appellant did not demur from that statement, but made no concession as to whether or not it was reasonably incurred. The LVT went on to state that, in its opinion, there was no great management burden and that the overall charges were excessive and therefore not reasonably incurred for the purposes of section 19(1)(a) of the 1985 Act. It concluded that, applying its knowledge as an expert tribunal, the reasonably incurred management charge would be no more than £200 pa.
The appellant appealed. It contended that it was entitled to make a management charge under the terms of the lease and that the respondent had not challenged the payment of such a charge, or advanced any evidence as to the proper amount, but had merely claimed that administration costs should not be included. The appellant submitted that the LVT had therefore acted improperly in coming to a conclusion without evidence to support it.
Decision: The appeal was allowed.
The LVT’s decision to reduce the management element of the service charge was vitiated by procedural unfairness. The pre-hearing procedures were designed to ensure that each party’s case was made clear in advance of the hearing and that the issues for the LVT’s determination were thus defined. The respondent’s position was that administration charges should not be included and the appellant’s was that it needed to recover such costs from all tenants.
The reasonableness of the amount of the management charge was not raised as an issue between the parties. Although it was not unlawful for the LVT to question a service charge item, or an aspect of an item, that had not been identified as being in dispute between the parties, it should be slow to do so. Proceedings under section 27A were essentially inter partes and an LVT should not regard itself as having a roving commission to mete out justice as it saw it, regardless of the contentions advanced by either party. Further, if it questioned an item, or an aspect of an item, that had not hitherto been in dispute, problems of evidence were likely to arise since the parties would not have prepared their cases, or sought to produce material, to deal with the new question.
Since there was no issue between the parties as to the amount of the management fee, the lack of any concession on that point by the appellant was a complete answer to the LVT’s general observation that the fee was high. If the tribunal was not satisfied with the appellant’s answer and considered that the question of reasonableness needed to be pursued, it should have invited the appellant to produce evidence justifying the level of the management charge. That would have necessitated an adjournment since the appellant could not be expected to have the necessary material at its fingertips. It was manifestly unfair for the LVT to determine that the management charge was unreasonable without affording that opportunity to the appellant.
As it was, the LVT had had no evidence before it on the reasonableness of the management charge. It had erred in reducing the management fee by reference to its knowledge as a tribunal. No part of that “knowledge” had been put to the parties, as fairness required. The mere statement that the LVT had applied its own knowledge did not explain why £292 was not reasonable and £200 was reasonable. Formally, there were substantial procedural defects and the decision itself was unlawful since it was based on no evidence. Accordingly, the decision could not stand: Arrowdell Ltd v Coniston Court (North) Hove Ltd [2007] RVR 39 applied.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister