Landlord and tenant – Service charge – First-tier tribunal determining service charge dispute between appellant lessees and respondent landlord pursuant to section 27A of Landlord and Tenant Act 1985 – Whether having jurisdiction to make determination where no valid service charge demand made under section 47 of Landlord and Tenant Act 1987 – Whether respondent entitled to recover through service charge for legal fees and surveyor’s fees incurred in respect of FTT proceedings – Whether FTT erring in relation to award of costs – Appeal allowed in part
The appellants were the long leaseholders of a maisonette on the first, second and third floors of a building in London WC1N of which the respondent was the freeholder. The ground floor of the building was let to another tenant as a commercial unit.
A dispute arose between the parties regarding the way in which the service charge payable to the respondents should be apportioned between the appellants and the commercial tenant. The respondent consulted a surveyor, who advised that the respondent’s chosen method of apportionment by floor area was the only logical basis of apportionment.
The appellants also disputed the amount of a management charge demanded by the respondent; the total service charge demanded from the appellants was £3,300 pa, of which £2,500 represented the management charge. The respondent eventually instructed another surveyor, who produced a written report advising that the management charge should be no more than £250. He also advised that, while apportionment of the service charge by floor area was appropriate with regard to expenditure on repairs, the cost of external decoration should be apportioned according to the number and size of the windows. He gave further advice on the apportionment of the premium for building insurance.
The appellants accepted the new management fee as recommended in the report and, on the basis of that report, the parties agreed that the service charge should be apportioned as to 63.9% for the appellants’ maisonette and 36.1% for the commercial unit.
The appellants had previously applied to the first-tier tribunal for a determination, under section 27A of the Landlord and Tenant Act 1985, as to their service charge liability. Although the parties had resolved most of the disputed service charge issues by agreement, there were outstanding issues as to the appellants’ liability to pay for: (i) the respondent’s legal fees of £16,000 incurred in relation to the service charge dispute; and (ii) half of the fee paid for the second surveyor’s report.
The appellants argued that the FTT had no jurisdiction to determine the dispute since the landlord had not served valid service charge demands under section 47 of the Landlord and Tenant Act 1987 and so no service charge would be due until that matter was remedied. The FTT rejected that argument and determined that the respondent was entitled to recover the disputed costs. It also refused to make a costs order in favour of the appellants under r 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. The appellants appealed.
Held: The appeal was allowed in part.
(1) Non-compliance with section 47 of the 1987 Act did not have the effect of depriving the FTT of the jurisdiction that it would otherwise have to make a determination under section 27A of the 1985 Act as to the service charge that was payable. Section 27A was intended to provide a low-cost, easily accessible machinery for dispute resolution, enabling parties to resolve their service charge disputes by referring the issue to the FTT. Consistently with that objective, section 27A was widely drawn so as to require the FTT, having considered the provisions of the lease, to determine whether a charge was “payable”, and if so by whom, in what amount, and at what date. The FTT did not have to be satisfied that the charge was payable here and now.
Section 47 of the 1987 Act had a quite different purpose, namely to enable the tenants to be sure of the landlord’s identity and to provide them with an address at which they could communicate with the landlord: Beitov Properties Ltd v Martin [2012] UKUT 133 (LC); [2012] 3 EGLR 21; [2012] 35 EG 74 applied. Non-compliance with section 47 had a “suspensory” effect, such that no service charge would be “due” until a compliant notice containing the necessary information was given to the tenants. However, a service charge demand that did not comply with section 47 could still nonetheless be treated as a “demand” for certain purposes, including the 18-month time limit imposed by section 20B for making demands for service charges: Johnson v County Bideford Ltd [2012] UKUT 457 (LC); [2013] PLSCS 41 and MacGregor v BM Samuels Finance Group plc [2013] UKUT 471 (LC) applied.
Accordingly, it did not follow that, where the charge was not “due” for the purposes of section 47 of the 1987 Act, the FTT could not consider an application under section 27A of the 1985 Act. So long as there was a service charge, the FTT could be asked, and required to answer, the questions that naturally arose. If a demand had been made that did not comply with section 47, but the FTT took the view that the tenants were otherwise obliged to make payment under the service charge, it retained jurisdiction and might determine that the charge, which it could quantify if required to do so, was payable only the landlord served a compliant section 47 demand on the tenants. Accordingly, the FTT had jurisdiction in the instant case to determine the appellants’ section 27A application.
(2) Whether a landlord was entitled to recover legal costs that had been incurred in relation to tribunal proceedings depended on the true meaning of the lease provisions, determined according to the ordinary principles of construction. While service charge provisions were not required to be construed restrictively, it was reasonable to expect that the parties to a lease would clearly spell out any entitlement of the landlord to receive payment from the tenant in addition to the rent: Arnold v Britton [2015] UKSC 36; [2015] EGLR 53, Phillips v Francis [2014] EWCA Civ 1395; [2015] EGLR 8 and McHale v Earl Cadogan [2010] EWCA Civ 14; [2010] 1 EGLR 51 applied.
Applying that approach, the respondent was not entitled to recover its legal costs of the FTT proceedings from the appellants. The respondent was relying on a general provision relating to the recovery of management costs. While it was not fatal to the respondent’s claim that that clause made no express reference to the recovery of legal costs, it was relevant that the lease contained other provisions that did refer expressly to lawyers and their costs in other situations. Given the highly specific language of those provisions, the parties could not have intended the cost of legal proceedings between landlord and tenant to be included within the scope of the general words of the clause dealing with management costs. The language of the lease was not sufficiently clear to demonstrate an intention of the parties that the landlord should be entitled to recover its legal costs incurred in the course of the FTT proceedings: Assethold Ltd v Watts [2014] UKUT 537 (LC); [2014] PLSCS 359, Geyfords Ltd v O’Sullivan [2015] UKUT 683 (LC); [2016] EGLR 22 and Union Pension Trustees Ltd v Slavin [2015] UKUT 103 (LC); [2015] PLSCS 150 considered.
(3) There was nothing in the appellants’ lease that restricted the number of occasions on which a surveyor could be retained. It was not the case that, once the landlord had instructed one surveyor, it could not instruct another. It was not suggested that the fees of the second surveyor were unreasonable. It followed that the respondents were entitled to seek to recoup those fees from the appellants.
(4) The FTT had misunderstood the nature of the application made by the appellants under r 13 of the 2013 Rules. It had treated the application as an application for costs, which, under r 13(1), could only be awarded in a residential property case against a person who had acted unreasonably in bringing, defending or conducting the proceedings. In fact, the application was properly to be regarded as an application for the reimbursement of fees under r 13(2). The appellants had not instructed solicitors and were seeking reimbursement only of the application fee of £250 and the £190 hearing fee. Reimbursement of fees under r 13(2) did not require proof of unreasonable conduct by the other party. Instead, it was a matter for the FTT to decide in the exercise of its discretion. In the instant case, it was appropriate to order reimbursement of the fees claimed by the appellants.
The first appellant appeared in person for the appellants; Kester Lees (instructed by Memery Crystal) appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Cannon and another v 38 Lambs Conduit LLP
