Residential Service Charges Update

hello. Welcome to this data or whether they are entitled Presidential Service charges. Update. In the course of this webinar, I intend to examine a number of different topics, including recent decisions in relation to the singleness of service charges. The form and content on timing of service charge demands issues in relation to a recovery of legal costs on also a recent decision in relation to, uh, contracting out. But first of all, I want to start with a recent case about what is or is not a dwelling for the purposes of the landlord and Tenant Act 1985. Now Section 27 Capital A of the 1985 act entitles either a landlord or a tenant under a qualifying lease of a dwelling toe. Ask the first tier tribunal and subsequently, after tear the upper tribunal to determine whether a service charge or a proposed service charge is reasonable. Having regard to the provisions of Section 20 of the 1985 act section was 38 60 of the 85 act between them. Define a dwelling as and I quote, a building or part of the building occupied or intended to be occupied as a separate dwelling together with any yard, garden, out houses and appurtenances belonging to it or usually enjoy with it now. The last few years have seen very substantial growth in the phenomenon of offering individual student flats or hotel rooms as an investment opportunity by way of a long lease in favor of an investor in the case, whose name appears on the first bullet pointed Jail, K Limited and Emmanuel Ta Do is sick way. In 2017 the other tribunal was required to consider whether Sections 20 and 27 Capital A of the 1985 act applied to such a long lease in this case in relation to a student flat. Now the material facts were as follows. In 2012 a large 19th century commercial building had been converted by a developer to provide 33 units of residential accommodation in a scheme intended for ultimate occupation by students. The majority of the units comprised the bed sitting room with all sweet facilities, while six of the units used shared showers and toilets. Each of the units was then led by the developer on payment of a peppercorn rent, but also a substantial premium to individual investors. Stroke lessees for a term of 250 years on each lease demised the unit together with the right to use communist kitchens, lounges, showers and toilets situated on the same floor, along with other facilities in the common parts of the building, primarily a gym on a laundry and also the use of common services such as heating and hot water, which were provided by a communist boiler. Each lease included a tenant covenant to pay an annual maintenance charge being a proportion of the sums spent by the landlord in the maintenance administration off building after the grant of those long leases. Arrangements with an established by the developer for individual units to be marketed and let to students on a short short hole tendencies and for a share of the rent paid either students to be paid to the individual investors. However, those arrangements subsequently failed when the developer landlord went to administration and eventually a point was reached in which no heating or hot water was being supplied to the building, which resulted in the local authority featuring a prohibition order under section 20 of the housing at 2004 effect of which was to prevent the building from being occupied. After that, the building became vacant and squatters moved it. The building was subsequently acquired by a new developer, jail Kate, who raised new service shark demands on the long lessee tenants in order to refurbish the building in amounts which the applicants as the lessee investors in relation to 50 of those units considered to be unreasonable. On appeal from the first tier tribunal, the upper tribunal held that the applicants were not entitled to the benefit of the 1985 act at all, although the other tribunal rejected the argument that a dwelling had to be a home in order for it to enjoy protection under the act, he did nonetheless except jail Koh's argument based on the House of Lords decision in or attempt ventures and Collins from 2002 that the units were not occupied or intended to be occupied a separate dwellings within the meaning of section 38 of the 1985 act. But he said, we're part only of each student's dwelling, the remainder of which was made up of the communal living space consisting of the lounges, the kitchens and other common facilities. This cross, also interesting to know that the tribunal felt that the prohibition order itself would know alone have prevented the unit from being a dwelling. See Morgan and Kenyon from 1913 where dwelling houses were the subject of a closing order. In the opinion of the upper tribunal premises don't cease to be a dwelling if people stopped living in them due to their poor state of repair or because the law won't allow them to live there anymore. Moving on land two issues in relation to Reasonableness of service charge A landlord is entitled to recover relevant costs by way of a service charge under Section 18 subsections two and three of the 1985 act only to the extent that they are reasonably incurred on and where they're incurred on the provision of services or the carrying out of works. Only if the service is all works are other reasonable standard. The amount payable is limited accordingly. The reasonableness requirement also applies to advance service charges, which 11 before any expenditure is incurred, in which case any necessary adjustments must be made after the relevant costs have been incurred Section 19 of the 1985 in determining the reasonableness of an amount which has been demanded on account of service charge costs before they've been incurred. It is not permissible to take into account facts which were not known, that that they banned but which only became known later. The authority, if that is the up tryingto upper tribunal decision in Napa and Francis from 2000 safety. In that case, the relevant fact which came to light was the part of the anticipated expenditure on which the original demand was based was not in fact, incurred at all during the relevant accounting period. Now the question whether costs have been reasonably incurred involves two issues. First, were the landlord's actions reasonable? If so, it's irrelevant that if the landlord had acted sooner, the costs might have been lower. All of the landlord's choice of repair over replacement might necessitate further repairs or replacement in the future, and secondly, were the amounts charged to the landlord reasonable as to which the landlord doesn't need to accept the lowest quotation. But the amount charged has to be in live with cover with prevailing market prices, nor indeed doesn't land, not have to settle for the cheapest option, but for a recent example of the landlord's decision to incur insurance costs, which was substantially in excess of prevailing market rates, which the upper tribunal described on the rational for the selection of which Walls, in its opinion, a complete mystery C. C, O S Services and Nicholson from 2017. More recently, the upper tribunal hand again to consider the issue off reasonableness of on account service charge demands In the case of a even ground rents and Cowley here, the landlord even was the land old of a mixed use building in relation to which it planned to carry out remedial works. The lease is entitled Avon to Recover, and I quote the reasonable and proper expenditure estimated by the landlord as likely to be incur the background. Facts were that the defects in question were covered by three and HBC warranties. An HBC had accepted liability under those warranties. Aunt had already offered a cash payments toe able Avon issued all accounts service tried demands former works which did not take account of the amount receivable under the warranties. The tenants argued that they're all accounts. Service charge contributions should be reduced to take account of NH BC's offer, whereas Avon argued that it should not be obliged to give credit for the energy and HBC payment until it was actually received. The other tribunal had little difficulty in falling in line with a Vons approach. In the opinion of the other tribunal. A promise of payment, however likely it might be the payment would actually be received in due course was not the same as payment itself. On day phone was not obliged to give credit for an amount which in which it had not yet received. Turning now to the topic of service charge demands. The first case I want to look at is a case called London Borough of Southern after from 2017 uh, where the lease contained a standard form service short regime, which entitled the landlord to issue. And that's the expenditure before the relevant. So it's charged year, which in its Cage man from 1st April 31st March and then to demand four quarterly on account payments, the last payment being due on 1st January. So with that in February 2013 the landlord issued a further and fifth demand in relation to the estimated cost of major works of refurbishment for the period, which was said to be payable in full on 1st April 2030. The upper tribunal held that the demand had to be invalid because it was delivered after the final quarterly in storm that was due for the year ending 31st March 2013. In addition to emphasizing the primacy of the contractual arrangements between the landlord and the tenants in relation to when and how many service charge demands could be issued in any single service charge, year I saw also contains the following guidance in relation to the form of a service charge. Demand. First, a Section 20 be noticed doesn't have to contain the exact wording as set out in the section. Nor does it have to confirm the actual amount to be paid all the proportion you pay equally. A Section 20 being notice is not rendered in Balad. If the aggregate figure given for the costs incurred by the landlord includes costs not chargeable to that particular tenant under their lease and thirdly, the landlord's professional fees and administration fees need not be specifically identified in the Section 20 b notice. In order for them to be recoverable, I want to announce a second issue in relation to service charge demands. And that is the timing of demands in relation to the date on which relevant costs have been incurred. Now. The basic rule is that the service charge demand cannot include any relevant costs which were incurred more than 18 months before the date of the demand. Unless within 18 months of those costs being incurred, the tenant has been notified in writing that those costs have indeed been incurred. On that he will be subsequently required to contribute to them by way of payment of a service charge on all that is set out in Section 20 B of the 1985 act. Where are all accounts Service charge demand was not accompanied by the service of an estimate of the anticipated service charge expenditure, to which that demand related. A subsequent service oven estimate more than 18 months after the demand meant that Section 20 B had been infringed even though the demand was rendered valid by the related sets off the estimate because the notice only became valid after the costs to which the demand related had actually been incurred on the authority. For that is skillful in DBS homes from 2017 where a cost is incurred by a superior land, not in providing services for which a charge is then passed down a chain of intermediate landlords by a succession of invoices or demands before ultimately being paid by the occupational leaseholder. The effect of Section 20 B of the 95 1985 act is to create successive 18 month time limits in relation to each invoice or demand, which means that the occupational leaseholder cannot refuse to pay if the invoice or demand which is sent to him. He's sent more than 18 months from the date on which the cost was first incurred by the superior landlord. On the authority for that is a set out on the slide, which is West Martin. Letting is limited on petty turning now, Teoh recovery of legal costs so you can see of the 1985 revised that a tenant may apply for an order, but or any of the costs incurred, or to be incurred by a landlord in connection with proceedings before inappropriate tribunal or in connection with arbitration proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the talent or any other person or persons specified in the APP cation, That said. And is it? And as he's well known, nothing in that section limits the recovery ability. Off costs as a matter of contract, either fire the service charge regime all from an individual tenant under a contractual liability to indemnify landlord against the cost of proceedings or costs incurred as a result of a breach of contract. This can, in appropriate circumstances, include the cost of dealing with threaten proceedings, which it d was the scenario in Brett, the hall management company and cracked again decision from 2017 where the least permitted recovery off. And I quote any legal or other costs reasonably and properly incurred by the manager, which in this case is the management company on otherwise not recovered in taking or defending proceedings, including any arbitration arising out of the lease or any part off the development. It didn't matter, as was the case in bratty breath itself that the threatened proceedings were in fact those threatened by the persons who became, in due course, the applicants in relation to a challenge to the service charge regime. Turning to Theo the second case on this particular slide. Prime view developments enough meant in exercising the discretion under Section 20 Captain C. Of the 1985 success is only one factor, which is to be taken into account. A la circumstances of the case are to be considered, including the conduct on situation of the parties. If a landlord has behaved improperly or unreasonably, he can't normally expect to recover his costs of defending such Coulter in the post Jackson area era, a refusal to mediate is likely to be met with an adverse order as to costs as indeed, was the outcome in prime view. I want to look now at the position in relation to qualifying works on the consultation obligations which arise in relation to such works, both under the 1985 Act on also under the Service Charges Concentration Requirements, England Regulations 2003. Those regulations are imposed by Implication or Inc under Section 20 said a of the 1985. Those regulations and that section fell for consideration by the Court of Appeal in the very recent case of Read Basin for Tull, which arose out off a proposal to carry out some roof works to terracing in relation to a flat, which was owned and occupied by way of lease old occupation by the applicants in relation to the roof works which the landlord was proposing. The landlord had complied with the first and second stages off the consultation requirements in relation to the works in that it had notified to the appellate talents that it proposed to carry out works. I needed to specify the nature of the works in question, namely coating the surface of a rip of a roof terrace with a damp proof coating before then fixing roof tiles to that coating. Andi In the follow up second stage, the landlord had been invited tenders for works as I've described them, which it had forwarded to the tenants. None of the tenants have made any objections to any of the tenders which were received. However, the landlord was subsequently informed by the manufacturer off the damp proof coating that the warranty, which would ordinarily be supplied with it would be invalidated if the tiles would laid directly onto it. So instead, the landlord agreed to revision to the works under which the tiles would be fixed by a pediment stole system, which involved inserting small plastic wedges between the tiles on the surface coating. This added a further £30,000 of costs to the £300,000 which had been previously notified to the tenants. However, the landlord did not inform the tenants off the variation to the works, nor the additional cost in due course. The total sum of £330,000 was included in the service charge accounts. The appellants argued that they weren't liable to pay that amount, or indeed any amount apart from the £250 which statute provides for in relation to failure to comply with consultation requirements because they said, the landlord had failed to consult with them appropriately as required by the 1985 act and the 2003 regulations. In particular, the tenants argued that loud, but the landlord should have conducted a re tendering exercise in light of the new proposal regarding roof, the Court of appeal noted that although it was sometimes necessary for a landlord to repeat the process required by the 2003 regulations, no other the 85 act itself nor the regulations themselves gave any guidance as to when that should be done. The court of necessity therefore, had to formulate its own test, which it did so in terms of weather in ALS. The circumstances. Their parents have been given sufficient information by the first set of estimates. So Mr Obviates, the need for a second set that required on objective comparison between the information provided about the old and the new proposals. In the opinion of the Court of Appeal, the difference in cost was not the only relevant factor having regard to the earlier decision of the Supreme Court in Dijon Investments and Benson. It was also necessary to consider the statuary purpose behind the protective was afforded to their parents and whether, in a lot of circumstances that protection was likely to be materially assisted. By insisting that the landlord obtain fresh estimates, the Court of Appeal concluded that in the present case, the answer to that question was clearly no. It did so on the grounds that first, the appellants have known about the change in the works on had approved it without suggesting that there should be a fresh tender. This wasn't a case when the landlord was seeking toe ambush the tenants by doing some fundamentally different set of works from those which had originally been proposed. Second, the changing cost was relatively small in proportion to the full cost of the works as to which therefore, the proposals, in the view of the Court of Appeal, remains substantially the same. Third. On the face of it, it was likely to be unrealistic to think that contractors who had estimated for the full works but hadn't obtained contract would be likely to tender for a small part of it in relation to the additional works. There was no effort that they were a bit would have been any saving in cost if a re tendering exercises. Doctor. Fourthly, the re tendering process would have led to a loss of time in completing the works which reboot prejudice to not only the appellants but also the other tenants in the building. Fifthly on Lastly, their parents had continued toe have their protection under section 19 of the 85 act against the inclusion of unreasonable costs in the Service Charge Winch section. They had sought to rely on both before the first here tribunal onto the upper tribunal, Uh, and in relation to which they had been unsuccessful on all occasions. Lastly, I want to turn to contracting out the jurisdiction of the court. All the appropriate tribunal to determine the amount of a residential service charge cannot be ousted by agreement between the parties. That's clear from Section 27 Capital a subsection six of the 1985 act in terms which that section states that an agreement by the tenant of a dwelling other than a post dispute arbitration agreement is void. If the agreement purports to provide for a final determination of any question in relation to the amount of the deterrent is required to pay my way of service charge, be that in a particular manner or on the basis of particular evidence now in Sheffield City Council Oliver, a Court of Appeal decision from the end of last year, the Court of Appeal endorsed to earlier decisions First Windemere, Marina Village and Wild from 2014 where leases contained service charge provisions under which the contribution payable by each tenant was to be a fair proportion of the total service charge costs as determined by Windham Ears Surveyor, whose determination was stated to be final. Binding on also a decision in the same year of Gator and Wellington real estate, where service charge expenditure for a mixed use building was to be divided between the different use elements of the building in proportions that would to be determined by the freeholder surveyor after taking into account relevant floor areas within the building or other reasonable factors. Because in each of those cases there was an attempt by the contractual wording to impose 1/3 party determination, which, on the basis of the decisions of the upper tribunal as indoor subsequently in Oliver was an attempt to oust the court's jurisdiction under Section 27 a. The decision in Oliver itself concerned service charge demands issued by a local authority landlord under leases which allow the Landel to recover a fair and reasonable portion of the relevant service charge costs as determined by the city treasurer. Now I'm making his determination the city treasurer fail to take into account third party funding, which the authority had received in respect of the relevant works that funding had reimbursed costs initially met by the council, the Court of Appeal, having held on the basis of the previous authorities which are referred to on which heating bills but it wasn't bound by that determination, had to decide how the fair and reasonable proportion method was to be applied. The court, in fact, health that the parties to the lease could not sensibly be thought to have made provision for the levying of a service charge which permitted any double recovery by the authority in relation to the cost of carrying out relevant works. The service charge provisions in the least, therefore had to be construed. So is to achieve the objective, preventing double recovery by a majority. Admittedly, the Court of Appeal concluded that, but the fact that part of the cost of incurred by the authority was being funded by 1/3 party was relevant to but had not been properly taken into account in relation to the calculation off what waas a fair and reasonable proportion