Landlord and tenant – Service charge – Landlord and Tenant Act 1985 – Costs – Appellant landlord applying to leasehold valuation tribunal for determination of service charge payable by lessees of flats in two blocks – Certain lessees making applications under section 20C of 1985 Act that appellant’s legal costs of proceedings not to be included in service charge – LVT making such order restricting recovery of costs through service charge to 50% in respect of all lessees in blocks – Whether LVT having jurisdiction to make such order by reference to terms of applications – Whether procedural irregularity vitiating order – Appeal allowed
The appellant applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act, for a determination of the service charge payable by lessees under long leases of flats in two blocks of which it was the landlord. The application was made against the lessees of 10 of the 140 flats in the blocks.
At the start of the hearing, the LVT directed that any application under section 20C, for an order that the appellant’s costs of the proceedings should not be recoverable through the service charge, would be heard at the conclusion of the hearing. It indicated that if any party wished to serve evidence in relation to the section 20C, application, it should be included with and served on the other party together with the statement of case or response.
The lessees of five flats made section 20C applications either orally or in writing. The written applications were on a standard form that included a question as to whether the order was sought for the benefit of persons other than the applicants. In each of the applications of which the appellant was aware, that question had been left blank. Although the appellant did not receive a copy of the applications, as required by regulation 5(1) of the Leasehold Valuation Tribunals (Procedure) (England) Regulations 2003, it agreed to waive that irregularity.
Having determined the substantive issues, the LVT proceeded to make an order, under section 20C, that only 50% of the appellant’s legal costs incurred in connection with the proceedings could be taken into account when determining the amount of service charge payable by all the lessees paying service charges in the blocks. The order did not specify by whom the relevant section 20C application had been made. However, after the LVT’s decision was issued, it emerged that a further written section 20C application, of which both the appellant had been unaware, had been submitted by another lessee on the last day of the hearing in terms that did request an order for the benefit of all lessees in the two blocks. The appellant appealed against the section 20C order.
Held: The appeal was allowed.
(1) The LVT had no jurisdiction to make a section 20C order in favour of persons who were not specified in the relevant application. Although the LVT had a wide discretion under section 20C(3) to make “such order on the application as it considers just and equitable in the circumstances”, that discretion was limited by the terms of the application itself. The scope of the order that could be made under section 20C was therefore constrained by the terms of the application seeking that order. The LVT did not have jurisdiction to make an order in favour of any person who had neither made an application of their own under section 20C or been specified in an application made by someone else: Volosinovici v Corvan (Properties) Ltd [2007] PLSCS 210 and Conway v Jam Factory Freehold Ltd [2013] UKUT 592 (LC); [2014] PLSCS 15 considered.
It would be surprising if a power were conferred on the LVT to relieve parties of their contractual obligation to contribute to costs incurred by their landlord, which would otherwise be recoverable through the service charge, in circumstances where no interested party had requested such an order. There would additionally be a serious risk of unfairness if the LVT had jurisdiction to make an order in very much wider terms than the order that it had been asked to make, and of which the respondent to the application had been given notice. It was relevant that the consequences of an order under section 20C could be extremely serious, particularly in the case of orders made against companies whose only asset was the freehold interest in a building entirely let on long leases at a ground rent, as was the case with the appellant.
(2) In the instant case, the LVT had possessed the necessary jurisdiction to make an order in favour of all the lessees in both blocks, since, unknown to the appellant and possibly even to the LVT, it had in fact received an application asking for an order in those terms. The order should none the less be set aside because it had been made without giving the appellant a proper opportunity to respond to the only application made in sufficiently wide terms to give the LVT jurisdiction to make it.
Since an order under section 20C interfered with the parties’ contractual rights and obligations, it should not be made lightly or as a matter of course, but only after considering the consequences of the order for all those affected by it and all other relevant circumstances. An order could fairly be made only if the landlord, or other person whose right to recoup the costs of proceedings was being taken away, had a proper opportunity to put its own case in reply to the application. Although that was what the 2003 rules, and the LVT’s own procedural directions, provided for, there had been a departure from those elementary safeguards. It was the responsibility of the first-tier tribunal to ensure that the respondent named in any application was served with a copy of it, but that had not happened in the instant case. Although procedural irregularities could be waived by the party who was prejudiced by them, it was not possible for a waiver to extend to an irregularity of which a party was unaware. While the appellant had been willing to waive the irregularity of non-receipt of the applications that it understood to have been made, it had been unaware of the application on which the LVT’s wide-ranging order depended. That order was set aside accordingly and, in its place, an order was made in favour of those lessees who had made their own applications, in writing or orally, to which the appellant had been given an opportunity to respond.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
