Various flats at the Power Mill and Loom, Holcombe Road, Rossendale BB4 4AZ, as listed in the Annex hereto Lead Applicant : Rebecca Simms (assisted by Vincent Hughes and Philip Suthers) MAN/30UM/LSC/2022/0123

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case No MAN/30UM/LSC/2022/0123

Between

Rebecca Simms (assisted by Vincent Hughes and Philip Suthers)Applicant

Prescott Business Park LtdRespondent

Before

Mr J R Rimmer

Mr J Gallagher MRICS

Date 5 April 2024

Property: Various flats at the Power Mill and Loom, Holcombe Road, Rossendale BB4 4AZ, as listed in the Annex hereto

[1]FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : MAN/30UM/LSC/2022/0123

[2]Property : Various flats at the Power Mill and Loom, Holcombe Road, Rossendale BB4 4AZ, as listed in the Annex hereto

[3]Lead Applicant : Rebecca Simms (assisted by Vincent Hughes and Philip Suthers)

[4]Respondent : Prescott Business Park Ltd (represented by Regent Management Group Limited)

[5]Type of Application : Reasonableness and payability of service charges Landlord and Tenant Act 1985 section 27A Applications under Section 20C Landlord and Tenant Act 1985 and Schedule 11(5) Commonhold and Leasehold Reform Act 2002

[6]Tribunal Members : Mr J R Rimmer Mr J Gallagher MRICS

[10]The service charges for the years 2020-21, 2021-22 and 2022-23 are reduced by the amounts stated in paragraphs 42 and 43 herein for the respective years.

[11]For the purposes of certainty and to record the views expressed at hearing the Tribunal makes orders in favour of the Applicants under section 20C Landlord and Tenant Act 1985 and Schedule 5 paragraph 11 Commonhold and leasehold Reform Act 2002

[13]1 The Applicants are the long leaseholders of the majority of 42 flats within two buildings now known as The Power Mill and The Loom, situated on Helmshore Road in Rossendale. Each building contains 21 flats. The Respondent is the management company responsible for provision of the services required under the terms of the leases of the flats and which acted through Regent Management Limited as its managing agents, until the leaseholders recently exercised their collective right to manage.

[14]2 The Application for consideration of the payability of service charges under Section 27A Landlord and Tenant Act 1985 is predicated upon the fact that in establishing effective management of the services the right to manage company found that it could provide buildings insurance cover for the sites at a considerably lower premium that was hitherto paid to the respondent’s agent for cover they had sourced.

[15]3 The issue of the insurance premium also served to highlight for the Applicants certain other costs that had been incurred. All the costs that the Tribunal is being asked to consider relate to the service charge accounting years 2020-21, 2021-22 and those budgeted for 2022-23. Those matters where concerns were still apparent are set out in a “Scott Schedule”, appearing at pages 289 to 291 in the bundle of documents provided to the Tribunal.

[16]4 All parties provided the Tribunal with submissions upon the issues raised by the Applicants and an extensive bundle of agreed documents was provided to assist the Tribunal in its task.

[17]5 The Tribunal also received applications under Section 20C Landlord and Tenant Act 1985 and Schedule 11(5) Commonhold and Leasehold Reform Act 2002 to consider whether or not it should allow any relevant costs relating to these proceedings to be recovered either ass service charges, or administration costs, in future years.

[18]6 At the hearing which took place on 26th February 2024 in Rochdale the Respondent’s agents indicated that no such recovery would be contemplated. This indication conceivably had some sense of inevitability about it, given the change of management in any event, but it is recorded in a formal order, set out above. The Tribunal has not sought to deliberate further upon these applications. 7 The law relating to jurisdiction for service charges, falling within section 18 Landlord and Tenant Act 1985 is found in section 19 of the Act which provides: (1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period- (a) Only to the extent that they are reasonably incurred, and (b) Where they are incurred in the provision of services or the carrying out of works, only if the services are of a reasonable standard. 8 Further, Section 27A of the Act provides; (1) An application may be made to a (First-tier Property Tribunal) for a determination whether a service charge is payable and, if it is, as to (a) The person by whom it is payable (b) The person to whom it is payable (c) The amount which is payable (d) The date at or by which it is payable, and (e) The manner in which it is payable And the application may cover the costs incurred in providing the services etc. and may be made irrespective of whether or not the Applicant has yet made any full or partial payment for those services (Subsections 2 and 3) Subsection 4 provides for certain situations in which an application may not be made but none of them apply to the situation in this case. The Leases 9 The leases of the flats, a copy of one being supplied within the bundle of documents, would appear to be identical in their provisions. No suggestion has been made to the contrary, nor has there been any dispute between the parties as to whether any of the charges to be considered fall outside the terms of the lease as being permitted to be recovered as service charges. The Tribunal does not intend to enter into any further consideration of such matters. Inspection 10 The Tribunal had previously given an indication that it was not intended that an inspection of the buildings should be carried out by the Tribunal and no matter was raised at the hearing to cause the Tribunal to change its collective mind upon that matter. Submissions 11 Both the Applicants and the Respondent’s agents provided clear and relevant statements of their respective cases that allowed the Tribunal to consider the matters raised in a concise manner at the hearing and they assisted the tribunal in establishing why concerns had been raised in the context of the building, its residential development and its subsequent management. 12 Those matters may therefore be considered sequentially according to the submissions and the expanded narrative provided by the parties at the hearing. Insurance 13 The Applicants raise this in each of the years 2023-4, 2022-3, 2021-2 and 2020-21 years. The App

[19]33 This item is raised for 2o21-22 on a similar basis to the preceding item. There is a significant difference by which the amount paid exceeds the budgeted amount. Again documentation is provided by the respondent to justify the actual costs incurred and there is nothing by way of evidence to suggest that those costs are unreasonable.

[21]34 These appear in an amount of £268.00 for the 200-21 accounting year. A copy invoice is provided for this amount for an item which would appear to have been mistakenly missed from the head of charge relating to fire maintenance and equipment. The amount appears to be reasonable for such an item.

[23]35 The majority of the matters raised by the Applicants relate to situations where the costs incurred exceed those budgeted. A Budget is often based upon the costs incurred in the previous year, with allowance for inflation and any other costs that may be incurred that were not incurred in the preceding year. There is not necessarily any science to it. Concerns may often be addressed by way of communication. Analysis of all the costs which the Tribunal has been asked to address, with the exception of the buildings insurance appear to show justification for what has been incurred and no compelling evidence that, in hindsight, they are unreasonable.

[24]36 The Tribunal does consider that the insurance premiums are worthy of more thorough examination. The tribunal proceeds on the premise that there is an assumption that such costs are reasonable if a reputable broker is used and that the insurance is placed on the basis that the proposals are accurate.

[25]37 The Tribunal is firmly of the view that this is not the position that pertains here. There are two significant errors made by the Respondent or its agents in relation to the building. As findings of fact the Tribunal has noted that there are no housing association tenancies in respect of flats within the buildings, nor are they listed buildings.

[26]38 Furthermore, the Tribunal has serious concerns as to the real world competitiveness of the policies negotiated, given the commission payable to the brokers (25%) and the Respondents (20%). The Tribunal is in no way satisfied that the amounts are reasonable for either of those parties.

[27]39 The Respondent seeks to justify its commission by reference to the work done in relation to administration and claims management. Setting aside the question of what falls in any event within ordinary management, the amount of work required to administer the policies and the small number of claims dealt with suggests that the amounts are not reasonable.

[28]40 Similarly, the work suggested being done by the brokers in the open market to place the policy, as detailed in paragraph 21 merely indicate scratching at the surface of proper market enquiries. Those factors take the premiums beyond the scope of reasonableness and give considerable support to the Applicants’ views that considerably lower premiums were available, evidenced by their own enquiries in respect of very similar cover.

[29]41 The Tribunal reminds itself that its duty is not simply to consider whether the evidence suggests merely that the Applicants’ quotation is more reasonable, but that the combination of the extent of the market enquiries and the situation surrounding the premiums paid by the Respondent indicate that they are unreasonable. The Tribunal considers emphatically that it is unreasonable.

[30]42 On the amounts of the premiums available to the Tribunal for the years in question the Tribunal has sought to consider below what is a reasonable premium, providing a reasonable level of commission and appropriate cover. 2020/21 – actual premium £22,568

[31]2021/22 – actual premium £35,629 (a factor increase of 1.58 for the year)

[32]2022/23 – actual premium £44,751 (a factor increase of 1.26)

[33]All of which include 25% broker and 20% Respondent commission.

[35]The Tribunal is satisfied that an appropriate and reasonable level of commission would be 10% for the Respondent’s duties. No commission should be payable to the broker in the light of the observations above. A further 5% should be included to reflect any possible differences in insured values and sums insured

[36]Although the Applicants have not obtained quotations for years before 2022/23 it is possible to work backwards using the annual factor increases to assess reasonable premiums in the earlier years.

[37]2022/23 Actual £44,751 Applicants’ quote + 15% £24,168 Overpayment £20,583

[38]2021/22 Actual £35,629 £24,168 adjusted (1.26/1.00) £19,181 Overpayment £16,448

[39]2020/21 Actual £22,568 £19,181 adjusted (1.58/1.00) £12,140 Overpayment £10,428

[40]Total overpayment £47,459

[41]43 The service charges for the years in question should therefore be reduced by the amounts shown above.