35 High Street, Kings Langley, WD48AB CAM/26UC/LIS/2022/0003

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case No CAM/26UC/LIS/2022/0003

Between

Migel and Penelope MukaApplicant

Purbeck Holdings LimitedRespondent

Before

Judge Shepherd

In person for the Applicant

Wendy Mathers for the Respondent

Date 18 October 2020

Property: 35 High Street, Kings Langley, WD48AB

Type of application: For a determination of reasonableness and pay

DECISION

[1]In this case the Applicants, Migel and Penelope Muka (“The Applicants”) the leasehold owners of 35 High Street, Kingsland Langley, Hertfordshire WD48A (“The premises”) are seeking a determination as to the liability to pay and reasonableness of service charges pursuant to section 27A of the Landlord and Tenant Act 1985. The Respondent is Purbeck Holdings Limited (“The Respondent). The Respondent is the freeholder of the premises. The Applicants are challenging service charges for the period 2020 until 2022. Following directions by Judge Wyatt issued on 7th July 2022 after a case management hearing the case was narrowed somewhat. Originally the Applicants were seeking a variation of the lease. Subsequently they decided not to pursue that and the sole challenge relates to the reasonableness of the service charges and in particular (following the striking out of other challenges) they challenge insurance payments and payments for water and sewage. Background

[2]The premises are a Grade II listed cottage which is let for a term of 999 years from 1 January 2016 by a lease dated 30 March 2016 between Raphael Colome and Josephine Colome and the Applicants as tenants. The demised premises consist of the ground floor of 35 High Street and the first floor of 35 and 37 High Street together with some land.

[3]The Respondent acquired the freehold on 16 October 2019. Adrian Parker is a director of the Respondent.

[4]The covenants relevant to the matters in issue (sewage, insurance and water) in these proceedings are set out in clause 2 of the Lease and clauses 26 to 28 of the Fifth Schedule.

[5]By clause 2 of the Lease the Applicants are required to pay: “2.2 the Lessee’s share of the insurance premium payable in respect of the Building pursuant to clause 26 of the Fifth Schedule 2.3 the Lessee’s share of the water and sewerage charges in respect of the Building payable pursuant to clauses 27 and 28 of the Fifth Schedule”

[8]By clause 26 of the Fifth Schedule the Applicants covenanted: “To pay to the lessor on demand a reasonable and fair contribution towards the cost of insuring the Building in compliance with the Lessor's obligation contained in paragraph 3 of the Sixth Schedule.” .

[6]Clause 3 of the Sixth Schedule sets out the Respondent’s obligation to insure in the following terms: 3 “To keep the Property including the Demised Premises insured to its full reinstatement value against loss or damage by fire and such other of the usual comprehensive risks as the Lessor may in its discretion reasonably think fit and to produce to the Lessee on demand but not more than once yearly a copy of the policy of insurance and the last premium receipt and to cause all monies received in respect of any such insurance as aforesaid (other than for loss of rent and architects' and surveyors' fees) to be paid out with all convenient speed in rebuilding repairing or otherwise reinstating the said Building or the part thereof so destroyed or damaged PROVIDED THAT the Lessor shall be under no liability to the Lessee under this Clause to make good to the Lessee any deficiency of such insurance monies by reason of the insurable value of the Demised Premises having been increased on account of anything or matter done or brought thereon by the Lessee”

[7]By clause 27 of the Fifth Schedule the Applicants covenanted: “So long as the Demised Premises and the remainder of the Building are served by a common water supply which is billed to the owner or occupier of the Building as a whole to pay to the Lessor (or if other the occupier to whom such bill is payable) forthwith on production of an invoice for the same one half of the water supply services to the Building.”

[8]By clause 28 of the Fifth Schedule the Applicants covenanted: “So long as the Building is billed for foul and surface water drainage charges as a whole to pay to the Lessor (or if other the occupier to whom such bill is payable) forthwith on production of an invoice for the same one half of the charge for sewerage services to the Building.” Scott Schedule

[9]The parties helpfully produced a Scott Schedule in which the Applicants identified the specific challenges brought. In relation to water rates the Applicants expressed concern about the fact that the Respondent was pursuing a proportion of charges which they considered unreasonable in view of the fact that there were commercial premises using the same water supply. They also questioned why the Respondent had not arranged for a water meter to be fitted. They said that the Respondent was using a pressure washer to clean several vehicles and the outside area at the premises. They said it was ridiculous to suggest a small residential property should pay half of the water 4 cost whilst two commercial businesses pay the other half between them. They produced some evidence of their neighbour’s costs.

[10]In relation to the insurance the Applicants said they were being over charged. The current insurance charge to them was £578.72. The considered that the charge should be nearer £250. They gathered evidence from the Internet and from a neighbour. The quotes from the internet range from £223.57 -£239 annually. Their neighbours said they were paying “ a bit over £200”.

[11]The Respondent maintained that the costs were reasonable and payable. They were open to the suggestion of a water meter but it was something which the Applicants would need to pay for. The Respondent felt unable to respond to the neighbour’s costs because they did not have detailed knowledge of their properties, their layout, what appliances they contain or their water habits. They said that the business to the rear of the premises is a car business which sells specialist vehicles. It is not a full - time business nor is it one that sells cars frequently and therefore the cleaning required was limited. Also there is one single toilet on site but this is rarely used and if it is it is by one person. They also stated that the charges do not just reflect the water but also sewerage. In relation to insurance they stated that they were following due diligence as freeholders to ensure the premises were properly insured. They said the Applicants’ internet searches were simply online searches and didn't reflect the final amount due for a policy. They also said that the evidence given by the Applicants in the searches had discrepancies including the rebuild cost and the fact that property had a kitchen as well as the fact that building has had cracking and movement. They said that the comparison with the neighbour does not include the actual policy but an e-mail with no final figure included in any event the neighbouring property is not a like for like property and is a conventional two storey cottage with no associated commercial buildings. The hearing

[12]Mr and Mrs Muka, the Applicants, attended the telephone hearing on 13th October 2022 in person and the Respondents was represented by Wendy Mathers of Counsel. She relied on a witness statement from Adrian Parker.

[13]With reference to the water meter the Applicants said that they had spoken to the water authority who told him that they had to go through the freeholder. They said that there were two businesses at the back of the property, one was a shutter company and one sold cars.

[14]Miss Mathers said that the property was always of mixed-use and the supply was not metered. She said that the amount charged for the water was fixed 5 and could not reflect the amount used. She said that the water meter idea had been explored but not pursued by the Applicants

[15]In relation to the insurance the Applicants said that they've been trying to get evidence of the insurance from the Respondent but it was not forthcoming. It took several months to get the policy. They paid the premium in the second year but had not paid it in the third year of their occupation. Ms Mathers said in 2019 -2020, the first year of the Respondent’s ownership they did not ask for a contribution towards the insurance. In 2000 - 2021 the Respondents sent the information to the Applicants, similarly in 2021-2022.

[16]Ms Mathers said the Applicants were wrong to challenge the level of insurance on the basis that it was only a two-bedroom flat. She said it was not a straightforward title. The freehold title including the cellar of number 33 and part of the first floor of number 33. The commercial properties on the ground floor made the situation complex and property liability insurance was needed as it was a residential property. She said that her clients had gone to reputable brokers and the fact that the insurance was changing every year showed the landlord was shopping around. She said the process was reasonable and the apportionment was reasonable. She said the rebuild cost for the flat was £490,000 whereas the cost for the cellar and the shop was £275,000 therefore the apportionment for insurance purposes ( 20%) was reasonable. She said that the neighbours next door who had given a quote for their insurance costs did not have commercial units underneath. In addition, the Applicants’ property was tenanted. She said that the landlord received no commission and had been reasonable and diligent in their inquiries. She said that the landlord was not obliged to get the cheapest quote. She also said that the Applicants had been invited to get an RICS surveyor to do a report but they had failed to do this. She said that we did not know if the other properties relied on by the Applicants were underinsured. This was a listed building and evaluation was different. She identified the fact that the physical layout was unusual. She said that the quotes provided by the Applicants were not compatible and we did not know if they were underinsured The Respondent had recently obtained evidence from a surveyor in relation to rebuild costs and the Applicants had not obtained any evidence to contradict that evidence.

[17]Ms Mathers said that the information obtained from the Internet was based on an algorithm which did not reflect rebuilding costs and the information provided by the Applicants was not in accordance with the plan. She repeated that much of the cost of rebuilding would be taken up by the flat and therefore the proportion of payment was reasonable.

[18]In relation to section 20C of the Landlord and Tenant Act 1985 the Applicants said that they both worked full time they didn't have spare money to pay 6 increased costs. They had properly brought the challenge. Ms Mathers resisted the s.20C application on the basis that the landlord had incurred significant sums in defending sums due under the lease. In addition, she identified the fact that the Applicants had not made partial payment for the sums that they considered they owed. Determination Insurance

[19]The Applicants were not charged for insurance in 2019-2020. Nor were they charged for the £100,000 spent by the Respondent on structural works to the building in 2020.

[20]It is clear that the Respondent secures insurance on the open market through a reputable broker. There is no profit derived by the Respondent from the insurance. The approach adopted by the Respondent, going out to market through a broker and organising insurance with an insurer of repute in the ordinary course of business is reasonable.

[21]The quotations gathered by the Applicants from a price comparison website are not a comparison of like with like, relating as they do solely to the demised Premises. The layout of the building is complex. It is not simply a flat. It is as a two bedroomed cottage, with a reception room on the ground floor, a bathroom, kitchen, dining room and two bedrooms on the first floor. The freehold property of 35-37 as a whole is not regular. There is a horizontal gap of one floor in part of the demise. The particulars provided by the Applicants to obtain the quotation omit at least one room and fail to disclose that the building includes commercial premises.

[22]In addition the reinstatement cost of the demised premises is said to be £380,000 . However, the building reinstatement assessment obtained from Simon Ayles, BSc (Hons) MRICS for insurance purposes notes the rebuilding costs for the demised premises alone would be £490,000, being 31.5% of the cost of rebuilding the freehold property as a whole. The Applicants are, however, being charged 20% of the insurance premium. This is entirely reasonable in my view.

[23]The Applicants were invited to seek appropriate advice from an RICS qualified surveyor as to the appropriate level of insurance payable in respect of the demised premises but did not do so.

[24]The process by which the Respondent has sought to insure the property has been rational and, has led to a reasonable outcome. It is not necessary for the Respondent to show that the insurance premium sought to be recovered from the Applicants is the lowest that can be obtained in the market, instead the Tribunal must be satisfied that the charge in question has been reasonably 7 incurred (Cos Services v Nicholson

[2017] UKUT 382 (LC)

at [48]). I am so satisfied. Water and sewerage rates

[25]The Respondent is not opposed to the installation of a separate metered water supply to the demised premises. In any event this is not an issue that the Tribunal can deal with.

[26]The Applicants were the original signatories to the Lease which provides for payment of 50% sums. The demised premises remains, at present, served by a common water supply and the sums are payable in accordance with the proportions expressly negotiated under the Lease.

[27]This has always been a mixed use building and the water rates payable were always going to be subject to the business retail market prices. In any event the Tribunal accepts that the usage for the commercial property is not significant. Accordingly I find that the sums claimed in respect of water and sewerage have been reasonably incurred and are reasonable in amount. S.20C

[28]The Tribunal will not exercise its discretion under s.20C of the Landlord and Tenant Act. The Respondent has been successful and has been put to cost in defending a challenge which is misconceived for the reasons given in this determination. Judge Shepherd 18th October 2022 ANNEX 1- RIGHTS OF APPEAL Appealing against the tribunal’s decisions 1.A written application for permission must be made to the First-tier Tribunal at the Regional tribunal office which has been dealing with the case.

[2]The application for permission to appeal must arrive at the Regional tribunal office within 28 days after the date this decision is sent to the parties. 8

[3]If the application is not made within the 28-day time limit, such application must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit.