Landlord and tenant – Service charges – Costs – Appellant management company appealing against order under section 20C of Landlord and Tenant Act 1985 that costs of proceedings not part of service charges – Whether tribunal having jurisdiction to make order in favour of all leaseholders on estate where applicant had no consent or authority to make application on their behalf – Appeal allowed
Plantation Wharf was a substantial mixed-use development situated in York Road, London on the south bank of the River Thames between Battersea and Wandsworth Bridges. It comprised 13 blocks of residential and commercial units. The predecessor in title of the current landlord granted long leases of the residential units in common form, to which leases the appellant management company was also a party. The two blocks central to the proceedings, Ivory House and Calico House, initially comprised residential units on the upper floors and commercial units on the lower floors. Although all units were required to contribute to the service charge, a greater ratio was payable by the commercial units. The blocks were redeveloped so as to become more predominantly residential, as a result of which there was a re-apportionment of the service charges conducted by the landlord, as permitted by the terms of the leases. The re-apportionment exercise was challenged by various leaseholders in proceedings before the First-tier Tribunal (FTT).
Section 20C of the Landlord and Tenant Act 1985 allowed the FTT to order that costs incurred by a landlord in FTT proceedings could not be recovered from the leaseholders through the service charge. Having made its determination on the merits, the FTT heard applications for orders under section 20C. One of the respondents applied for a section 20C order on behalf of himself and all the other leaseholders on the estate even though he did not represent those leaseholders and did not have authority to act on their behalf. Nonetheless the FTT made an order under section 20C in favour of all the leaseholders on the estate. The appellant appealed.
Held: The appeal was allowed.
(1) In general, section 20C provided a tenant with an opportunity to apply to the FTT for an order that the costs of proceedings incurred by the landlord were to be disregarded when the service charge was calculated: on the assumption that the service charge clause would otherwise permit their recovery, they were not to be recovered from the tenant by way of service charge. The costs in question might typically be legal costs (fees payable by the landlord to solicitors or counsel for the preparation and conduct of the litigation), or costs incurred in instructing surveyors or other professionals. While those were the costs most usually subject to a section 20C order, the wording of the statute was wider, referring to costs incurred “in connection with” proceedings. There was no jurisdiction to make an order outside the statutory regime, and it was important to recognise its limitations. Section 20C(3), by its express reference to the application, underlined the essential point that in the absence of an application there was no power vested in the tribunal to make an order at all.
(2) Section 20C(1) made clear that a section 20C application was to be made by a tenant and that the application had to relate to the amount of any service charge “payable by the tenant or any other person or persons specified in the application”. The order, if and when it was made, would restrict the recovery of service charges from the tenant and/or from any other person(s) so specified. It would have no such effect in relation to any other persons (such as tenants in the same block or building as the tenant who had made the application). The FTT had jurisdiction to make an order in favour of a class of leaseholders only if each member of the class had applied for such an order or authorised another party to apply on their behalf.
(3) A section 20C order in favour of all the residential lessees on an estate had serious consequences for any landlord (or management company). In allowing the application in this case, the FTT denied the landlord or the management company the opportunity to recover their costs of the proceedings by levying service charges from any of the tenants of the estate. Such an order comprised a significant interference with the landlord’s contractual rights. It might be argued, on the particular facts of a case, that the conduct of the landlord had been such that justice demanded that the landlord be denied the right to recover any of its costs from any of its tenants. If the FTT was satisfied that the landlord’s conduct had fallen so far short of the mark, it had power to impose such a sanction, but only where all the tenants had made an application, or where, having given their consent or authority to other tenants who had applied, they were specified in the application. Where no such consent or authority had been forthcoming, the making of a section 20C order would not only be punitive, it would be made without the FTT having the jurisdiction to do so.
(4) A section 20C order ought not to be made lightly or as a matter of course, but only after considering the consequences of the order for all of those affected by it and all other relevant circumstances. It was essential that the FTT considered carefully the scope and extent of the order it was making, and that any section 20C order clearly stated the persons in whose favour it was made. The jurisdiction of the FTT was entirely statutory and was exclusively derived from the application. The identity of the applicant was crucial when one came to consider the FTT’s power to make a section 20C order. For a person to be validly “specified” under section 20C(1) that person had to have given their consent or authority to the applicant in whose application the person was specified (named or otherwise identified). The order made by the FTT in the present case was far too wide. In the absence of any proof of the consent or authority of leaseholders being given, the order had to be set aside save and insofar as it provided protection to the applicant himself: Re Scmlla (Freehold) Ltd [2014] UKUT 0058 (LC); [2014] PLSCS 83 followed.
Justin Bates (instructed by Direct Access) appeared for the appellant; the respondents appeared in person.
Eileen O’Grady, barrister
Click here to read a transcript of Plantation Wharf Management Ltd v Fairman and others
