J H WATSON PROPERTY INVESTMENT LIMITED v JOHN COWPERTWAIT LRX/14/2001

UPPER TRIBUNAL

LANDS CHAMBER

LRX/14/2001

Case No LRX/14/2001

Between

J H WATSON PROPERTY INVESTMENT LIMITEDApplicant

JOHN COWPERTWAITRespondent

Before

P H Clarke FRICS

Peter S T Petts (instructed by Gordons Cranswick, solicitors) for Appellant

Venue 48/49 Chancery Lane, London WC2A 1JR

Date 29 May 2002

Hearing 28 May 2002

Property: 30 Arcadia Court, 45 Old Castle Street, London E1

Catchwords: SERVICE CHARGE – management fee – whether calculated on a percentage or on a fixed basis – LVT found management fee to be reasonably incurred but reduced it due to reduction in service charge expenditure – misunderstanding by LVT – evidence that management fee calculated on a fixed basis – appeal allowed – no order as to costs – Landlord and Tenant Act 1985, s19(2A)(a)

[1]This is an appeal against part of the decision of the leasehold valuation tribunal of the London Rent Assessment Panel given on 18 January 2001 relating to a service charge in respect of 30 Arcadia Court, 45 Old Castle Street, London E1. The tribunal refused leave to appeal on 29 March 2001. This Tribunal (N J Rose FRICS) gave leave to appeal on 26 June 2001 subject to two conditions, that the appeal be limited to the part of the tribunal’s decision reducing the management fee for 1998 and that the appellants be responsible for their costs of the appeal in any event.

[2]The relevant parts of the decision of the leasehold valuation tribunal are as follows. The tribunal found that part of the cost of the entryphone was not reasonably incurred (para 4.4):- “The Tribunal accepted the Applicant’s explanation for the need for repeated work in the updating of an old system but did not accept that the inclusion in the costs listed for 1998 of £2279.50 (contained in Document number 142) was reasonable. Document 142 refers clearly to property in Goulston Street and Document 190 (an invoice in the sum of £4868.49) appears to duplicate the items being charged under the Document 142 Goulston Street invoice.” Consequent on that decision the Tribunal reduced the management fee for 1998 (para 4.7):- “Having listened to the parties and considered the Documents the Tribunal concluded that the items covered were reasonable. They did not consider, however, that the management charges levied by way of the service charge were sufficiently transparent on the face of the documents for a tenant to understand them. The sums charged, it emerged during the hearing, incorporated not only general administration costs but also surveyors, accountancy and audit fees. Having established this the Tribunal concluded that the management charges were reasonable and reasonably incurred for both years the subject of the application. The sum of £2279.50 (in respect of 1998) has however been determined by this Tribunal not to be reasonably incurred. The Tribunal therefore determines that since the management fee for the years the subject of the application is calculated on a % basis the management fee should be reduced for the year 1998 from £11,280 to £10,842.34.” The tribunal therefore made two deductions in the service charge for the year January to December 1998: £2,279.50 for the entryphone and £437.66 for the management fee (para 4.8). It is this latter item which is the subject of this appeal.

[3]Mr Peter S T Petts of counsel appeared for the appellants; the respondent did not appear and was not represented, having previously advised the Tribunal that he did not intend to appear. 3

[4]Mr Petts referred to paras 4.4, 4.7 and 4.8 of the decision of the leasehold valuation tribunal and said that the tribunal, having reduced the entryphone cost due to an admitted error in calculation, had then reduced the general management fee by a percentage of that reduced cost on the mistaken assumption that management fees are calculated as a percentage of the total service charge. These fees are assessed on a fixed basis calculated on the estimated number of hours a year required to manage a single flat, multiplied by the number of flats. That fee is then split on a percentage basis between the tenants, depending upon the percentage of the service charge which the tenant pays under his lease. The total of the service charge for any one year has no bearing on the management fee charged. The leasehold valuation tribunal may have assumed that the annual management fee is a percentage of the total service charge expenditure due to the evidence given by the respondent. In support Mr Petts produced a witness statement prepared by Ms Jean Bramhill of the appellants.

[5]I agree that this appeal should be allowed. The lower tribunal were clearly in error in deciding that the annual management fee for 1998 was a percentage of the total service charge (see para 3.4 of their decision) and that, if the service charge expenditure is reduced, then the management fee must also be reduced. They were probably misled by the way in which the respondent put his case. The evidence before me was in the form of a witness statement prepared by Ms Bramhill. The appellants managed the flats themselves. They charge a management fee, which forms part of the service charge expenditure, for their work as managers in accordance with para 2.4 of the RICS Service Charge Residential Management Code:- “Your charges should be appropriate to the task involved and be pre-agreed with the Client wherever possible. When there is a service charge, fees are usually quoted per accommodation unit rather than as a percentage of outgoings or income. This is considered to be preferable so that Leaseholders/Tenants can budget their annual expenditure.” Ms Bramhill’s evidence confirms that the appellants’ management fees are not calculated as a percentage of the total service charge: the total service charge has no bearing on the management fee charged. I accept this evidence. The leasehold valuation tribunal found that the management fees for 1998 and 1999 “were reasonable and reasonably incurred” (para 4.7) and therefore, in my judgment, the 1998 fee should not have been reduced due to a small reduction in the total expenditure. The appeal is allowed. I determine that the whole of the management fee for 1998 (£11,280) was reasonably incurred under section 19(2A)(a) of the Landlord and Tenant Act 1985.

[6]Mr Petts asked for the appellants’ costs in the sum of £500 on two grounds. First, that this appeal could have been determined on written representations but the respondent failed to respond to this suggestion by the appellants. Second, that the respondent did not respond to the appeal and failed to appear at the hearing. If the question of costs had been at large I might well have awarded the appellants their costs. But that is not the position. Leave to appeal was granted on condition that the appellants will be responsible for their costs of the appeal in any event. Even if I have power to award costs in these circumstances, I do not 4 think that I should overrule this condition attached to the leave to appeal. I make no order as to costs. DATED: 29 May 2002 P H Clarke FRICS Member of the Lands Tribunal 5