Landlord and tenant – Service charge – Evidence – Appellant landlord seeking to recover cost of repair works from leaseholders of flats through service charge – Whether sufficient evidence to support cost of works in absence of proper invoice from contractor – Whether terms of lease entitling appellant to recover cost of earlier leasehold valuation tribunal proceedings for approval of estimate for works – Appeal allowed in part
The appellants owned the freehold of a four-storey Victorian terraced property in Weston-super-Mare comprising a café on the ground floor with four flats, let on long leaseholds, on the upper floors. The respondent was the leaseholder of the second-floor flat under a 999-year lease dating from 1981. The lease provided for the payment of a service charge in respect of the costs incurred by the appellants in discharging their obligations under the lease plus “any other costs and expenses reasonably and properly incurred in connection with the Landlord’s Property”. In addition to obligations relating to repair and maintenance, the lease conferred a power on appellants, under clause 5(4)(g), to “employ all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Landlord’s Property”. There was also an express covenant by leaseholders, in clause 3(9), to pay the landlord’s costs, including solicitors’, counsels’ and surveyors’ costs and fees, incurred in legal proceedings under sections 146 and 147 of the Law of Property Act 1925.
In 2011, the leasehold valuation tribunal (LVT) approved as reasonable an estimated cost for necessary repair works to the property based on a tender advanced by a contractor. The appellants subsequently applied to the first-tier tribunal (FTT), under section 27A of the Landlord and Tenant Act 1985, for a further determination as to the reasonableness of the service charge that they had demanded from leaseholders for the three years to March 2012 in respect of the cost of the works. The second appellant made a statement as to the sums which had been paid to the contractor.
The respondent contended that: (i) the sum charged was not supported by a proper invoice from the contractor; and (ii) the appellants had improperly included their legal expenses of the earlier LVT proceedings when such expenses were not recoverable under the terms of the lease. The FTT accepted those contentions and disallowed the entire sum of £38,016.19 said to have been paid been made to the contractor, plus the appellants’ legal expenses and certain other items. The appellants appealed.
Held: The appeal was allowed in part.
(1) The FTT had ample evidence on which it could have concluded that expenditure had been incurred by the appellants in the period to March 2012. There was no dispute that work had been carried out and the LVT, in its earlier decision, had found that the company’s tender was reasonable. Although the absence of an invoice from the contractor was relevant in considering whether the expense had been incurred, its significance had to be assessed in the context of the other evidence. The FTT had not asked why there was no invoice or whether its absence led to the conclusion that nothing had been paid for the work, or that some lesser sum had been paid. By ruling that it was not possible, in the absence of a valid invoice, to find that the costs had been reasonably incurred, the FTT had omitted to undertake a full consideration of the evidence. While the FTT had been justifiably critical of the second appellant in certain respects, it had not questioned his honesty. If the second appellant’s credibility as a witness was central to the FTT’s conclusions as to the payments made, it should have made that clear in its decision. Most importantly, if it thought that the second appellant was not telling the truth about the payments, it was essential to put that matter to him and give him the opportunity to respond to it directly.
The FTT should have made it clear whether it regarded the second appellant’s evidence in relation to the payments as untruthful, or as insufficiently reliable to be accepted without further corroboration. If their assessment was the latter, they should have considered the remaining evidence carefully to see whether it supported the second appellant’s account. They FTT had failed to undertake that exercise but had instead taken a shortcut, which deprived the appellants of payments for work which had undoubtedly been done and to which they appeared to have had a strong claim. It followed that the cost of the work should be remitted to the FTT for reconsideration, with the appellants entitled to adduce further evidence in support of the payments.
(2) The appellants’ legal expenses of the tribunal proceedings were not recoverable under the terms of the leases. Looking at the service charge provisions as a whole, the costs of managing and administering the building and the employment of professionals were covered extensively in clause 5(4)(g), which was notable for the absence of any reference to lawyers or the cost of proceedings.
The absence of a specific reference to legal expenses was not in itself fatal if there was other language apt to demonstrate a clear intention that such expenditure should be recoverable. However, when considering the scope of any general words relied on for that purpose it was necessary to have regard to the other relevant provisions of the lease, which included the express covenant by the tenant in clause 3(9) to pay the landlord’s costs, including solicitors’, counsels’ and surveyors’ costs and fees, incurred in a specific category of legal proceedings, namely those under sections 146 and 147 of the Law of Property Act 1925. When the lease was granted in 1981, before residential property tribunals had jurisdiction to resolve service charge disputes in a largely cost-free environment, the parties would have anticipated that a dispute over the liability to contribute towards a service charge would be resolved in the county court and that the successful party would recover its costs from the unsuccessful party by an order of the court. Clause 3(9) envisaged that the landlord’s costs would be recovered from a defaulting leaseholder, rather than through the service charge. It would not have been obvious that leaseholders should be collectively responsible through the service charge for litigation costs which the landlord had failed to recover from one or more leaseholder with which it had been in dispute. The contrast between clause 3(9) and clause 5(4)(g) in dealing with liability for professional fees suggested that the parties did not intend the cost of legal proceedings in connection with the maintenance or administration of the building to be included within the scope of clause 5(4)(g). The parties could not seriously have intended that all legal or other professional expenses incurred by the landlord in connection with the building should be recoverable from all leaseholders through the service charge: Conway v Jam Factory Freehold Ltd [2013] UKUT 592 (LC); [2014] 1 EGLR 111 and Assethold Ltd v Watts [2014] UKUT 537 (LC); [2014] PLSCS 359 distinguished.
Matthew Brown (instructed by Powells, of Weston-super-Mare) appeared for the appellants; the respondent appeared in person.
Sally Dobson, barrister
Click here to read transcript: Union Pension Trustees Ltd and another v Slavin
