MR P A PARKER MR P BECKETT DR J PARHAM v 24 other long lessees LRX/35/2002

UPPER TRIBUNAL

LANDS CHAMBER

LRX/35/2002

Case No LRX/35/2002

Between

MR P A PARKER MR P BECKETT DR J PARHAMApplicant

24 other long lesseesRespondent

Before

The President

Venue 48-49 Chancery Lane, London WC2A 1JR

Date 26 February 2003

Property: Compton Court, Victoria Crescent, London SE19

Catchwords: SERVICE CHARGES – reasonableness of amount payable before costs incurred – approach to be adopted under Landlord and Tenant Act 1985 section 19(2B)(c) – disallowance of landlords’ costs of LVT proceedings under section 20C – held LVT not shown to be wrong in either respect

[1]This is an appeal, conducted under the simplified procedure, by the landlords against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel given on 17 January 2002 under sections 19 and 20 of the Landlord and Tenant Act 1985. The appellants are the freehold owners of Compton Court, a block of 33 flats and 9 garages in the London Borough of Lambeth. The flats appear to have been built in the 1930s and consist of a ground floor with three floors above. They are arranged in one block of 8 flats on one side of Victoria Crescent and three linked blocks of 8, 8 and 9 flats on the other side of Victoria Crescent. The buildings are in reasonable order, but the staircases, entrance doors, gardens and driveways are all somewhat worn and tired. Each of the flats except number 33 (which was formed in the post-war period at lower ground floor level from a pair of former garages) consists of three rooms, kitchen and bathroom/wc, with a gross internal area of about 46m2. The appellants’ family have owned the freehold since July 1982. Of the 33 flats, 25 have been sold on long leases and the remaining 8 are let under either the Housing Act 1988 or the Rent Act 1977. Each of the lessees holds his flat by virtue of a lease for a term of 99 years from 25 December 1980. Each lease contains provisions for the payment of a service charge by way of additional rent. I will refer to these later.

[2]The applications to the LVT which have given rise to the present appeal were made on 14 June 2000 by Mr Beckett on behalf of himself and his sister Mrs Parker as landlords. Mr Beckett is a chartered surveyor and he manages the flats. The application form contains a question, “On which aspect of the service do you require a determination?” For the answer there are boxes relating to “(a) costs incurred, (b) standards of works/services, (c) amount payable before costs incurred” (thus corresponding with paragraphs (a), (b) and (c) in subsections (2A) and (2B) of section 19) and the year. On the form Mr Beckett ticked “(a) costs incurred” and specified the year as 2001. I assume there was another form that was completed similarly, except for the year being specified as 2002, because in a covering letter Mr Beckett said that he enclosed two applications, one under section 19(2A) and one under section 19(2B). He also enclosed a statement of reasons. The statement was quite extensive in relation to the section 19(2A) application but much shorter in relation to the section 19 (2B) application because, as it was put. “the costings cannot be regarded as precise, and are therefore noted as being provisional.” Also enclosed with the applications were the 1998, 1999 and 2000 accounts and other relevant documents.

[3]On 20 August 2001 the LVT held a pre-trial review at which Mr Beckett was present, along with the tenants’ representatives, Mr Winborn and Dr Parham. Directions were given in writing the next day. It was noted that the PTR had “established that the service charge year runs from 1 January to 31 December. The service charge items and costs in dispute for the year 2001 are as stated on Appendix 2 attached; except that many or all these items maybe agreed by some or all of the respondents. Also in dispute for the year 2001 is ‘the 2001 works’ as shown on Appendix 3 attached. For the year 2002, the Tribunal are asked to determine the costs and reasonableness of the 2002 works as shown on Appendix 4 attached, together with the regular service charge items.” 3

[4]The respondents were required by the LVT’s directions to send to the applicants and to the tribunal a reply setting out the areas which were admitted and those which remained in dispute and to include any supporting documentary evidence. The reply, which was sent on behalf of all 25 respondents, objected to elements of the costs in both the applications. In relation to the section 19(2A) application (the 2001 costs) the respondents objected, firstly, to an item (£3,000) relating to the landlords’ costs of the LVT proceedings and, secondly, to the costs of roofworks. On 31 August 2000, on an earlier application by the landlords under 19(2B) the LVT had determined as reasonable a schedule of repairs totalling £93,147. The principal element of this was the cost of roof repairs. The LVT had deducted from the total £8,000, which was to come from the reserve fund, and then divided the resulting (rounded) sum by 33 to produce a sum of £2,575 for each flat. In their reply the respondents said that the amount now being sought under the section 19(2A) application in respect of the same works (£3,602.73 per flat) was excessive and should be reconsidered.

[5]On the section 19(2B) application (the 2002 costs) the reply objected to an item (identical to that in the 2001 costs) relating to the landlords’ costs of the LVT proceedings and to an increased contribution to the reserve fund. While accepting the necessity of all items listed as “2002 works” it disputed an amount (£14,000) for recovering staircase floors, an amount (£45,000) for the replacement of the electrical submains, and the supervision costs of the landlords’ building consultants. The reply went on to say:

“Finally, we request that the tribunal considers an arrangement to spread the cost of the 2002 works over (say) three years.”

[6]In his response, dated 12 October 2001, on behalf of the landlords Mr Beckett responded to this request by saying that spreading the cost as suggested would be a subsidy. He said that he did not think that it lay in the power of the LVT to agree to such a proposal, but that, if it did, the proposal was an unreasonable one. The hearing

[7]The first day of the hearing before the LVT was on 22 November 2001. The respondents were represented by counsel. He raised a matter that had not been foreshadowed in the reply. He submitted, in relation to the 2001 costs, that the application was prohibited because the reasonable costs had already been determined by the LVT in the August 2000 decision on the earlier section 19(2B) application. He placed reliance on section 19(2C), which provides that no application under subsection (2A) or (2B) may be made in respect of a matter which has been the subject of determination by a court or arbitral tribunal. He contended that the LVT was an arbitral tribunal. The argument was rejected. In its decision the LVT said that section 38 of the 1985 Act as amended provides that “arbitral tribunal” has the same meaning as in Part I of the Arbitration Act 1996 and there was no procedure for appointing the LVT as arbitrator and no such appointment had been purported. Accordingly landlords or tenants were free to re-apply under subsection (2A) or (2B) if estimates prove different or circumstances change. The tenants do not appeal against this conclusion. 4

[8]The hearing on 22 November 2001 was adjourned and it was resumed on 10 January 2002. At the resumed hearing the landlords, who previously had been represented by Mr Beckett, now had counsel (Mr Stan Gallagher) to appear for them. The tenants were no longer represented by counsel. The LVT decision

[9]In its decision, which was given on 17 January 2002, the LVT identified five issues that it had to address:

“i. Could the Tribunal ‘revisit’ the costs of the 2001 works? ii. If so, were the increased costs reasonably incurred? iii. Would the costs of the 2002 Works be reasonably incurred? iv. What timing or spreading should apply to the 2002 costs? v. Should the costs of these proceedings be recoverable as service charges?”

[10]The LVT determined issue (i), as I have said, by concluding that the prohibition in section 19(2C) did not apply. On issue (ii), it determined that the total of £118,486 shown as the actual cost of the works was reasonably incurred. On issue (iii) the tenants told the LVT that they only disputed the costs two of the works and the percentage additions for contractors’ preliminaries and overheads, a contingency allowance, supervision and an administration fee. The first item of work concerned the replacement of the electrical submains. The cost of this was included in the landlords’ section 19(2B) application, but on the second day of the hearing the landlords accepted, as the tenants had contended, that the replacement of the submains was not a service charge item. Thus the LVT did not have to make any determination in respect of this item. It nevertheless determined that, if recoverable as a service charge, the reasonable amount would be £43,300. This was the landlords’ expert’s estimate of the costs, but without the amount of £1,700 proposed by the landlords as a contingency allowance. The other item of work was the re-covering of staircase floors. The LVT determined the reasonable cost of re-covering the staircase floors to be £14,000, rather than the £21,800 for which the landlords had contended. It also accepted as reasonable the percentage additions. On issue (iv) the LVT said that under section 19(2B)(c) it was not concerned with when advance payments should be made or with general payments by way of reserves for future expenditure. It did not consider it justifiable to determine that it would be reasonable for any amount to be payable before the actual costs were incurred. On (v) the LVT determined that the costs of the proceedings before it should not be recoverable as service charges. The appeal

[11]No appeal was made by the tenants on issues (i) and (ii), which were decided in the landlords’ favour, nor was there an appeal on issue (iii). The appeal concerns issues (iv) and (v). Leave to appeal was refused by the LVT but was granted by this Tribunal. 5

[12]For the appellant landlords Mr Gallagher said that on an appeal under section 31A(7) of the 1985 Act the Lands Tribunal may exercise any power available to the LVT in relation to the original matters. He submitted that, generally, appeals from the LVT are treated as fresh hearings of the matters under appeal and are not merely reviews of the LVT’s decision. The burden, of course, was on the appellant. He therefore submitted, in relation to the LVT’s decision under section 20C that the costs of the LVT proceedings should not be recoverable as service charges, that the proper course was for the Lands Tribunal to exercise the LVT’s discretion afresh, and similarly that it should consider afresh the spreading issue.

[13]Neither party called evidence. There is an agreed statement of facts (on which I have drawn) and an agreed bundle of documents. Mr Winborn also put in two additional documents, to which I will refer later. “Spreading” the 2002 costs

[14]The LVT recorded that the tenants wanted the tribunal to spread the costs over 3 years, directing a programme for timing payments, as the LVT in its August 2000 decision had done; while Mr Beckett had submitted that such a direction was unjustified, but had sought the tribunal’s approval of an annual contribution of £10,000 by the tenants to a reserve fund, and had further submitted that the sum determined as reasonable for costs to be incurred on the 2002 works should be fully payable in advance.

[15]The LVT’s only relevant jurisdiction, as the decision pointed out, was that contained in section 19(2B)(c). It clearly does not empower an LVT to give a direction of the sort requested by the tenants. Subsection (2B) provides as follows:- “(2B) An application may also be made to a leasehold valuation tribunal by a tenant by whom, or a landlord to whom, a service charge may be payable for a determination –(a) whether if costs were incurred for services, repairs, maintenance, insurance or management of any specified description they would be reasonable;

(b) whether services provided or works carried out to a particular specification would be of a reasonable standard, or

[16]Under the Leasehold Valuation Tribunals (Service Charges, Insurance or Appointment of Managers Applications) Order 1997 a landlord’s application must contain a statement setting out whether the application is made under subsection (2A) or (2B) or both and stating the relevant costs and amounts and the applicant’s reasons for saying that such costs or amounts are reasonable. It does not appear that the landlords’ application to the LVT contained a statement of any matters that would have been required for a determination under subsection (2B)(c); and the PTR had identified as the matters in dispute only the costs for 2001 and 2002 and their reasonableness, ie matters arising under subsections (2A)(a) and (2B)(a). The issue 6 of “spreading” was raised in the tenants’ reply, but they made no application under subsection (2B)(c). In their response of 12 October 2001 the landlords said that the LVT had no power to give effect to such a proposal. They went on to say that the electricity work was extremely urgent and that it was the responsibility of the lessees to pay sufficient into the fund to allow the service fund to meet its obligations in this respect. At the hearing they said that the sum determined as reasonable for costs to be incurred on the 2002 works should be fully payable in advance (although they said that they did not now propose to undertake the electricity work and recover the cost by way of service charge). The LVT evidently proceeded on the basis that an application by the landlords under section 19(2B)(c) had been made.

[17]In their August 2000 decision the LVT, having determined that it would be reasonable to provide for repairs that would impose a charge of £2,575 per flat, went on to conclude that “a reasonable programme” would be payments of £1,500 within one month of the decision, £500 within one month of the services of the section 20 notice, £500 on practical completion, and the balance, if any, on agreement of the current account. On the present section 19(2B) application the tenants sought a decision making similar provision for staged payments.

(c) , went on:

“In context, the Tribunal considered that this envisaged that particular costs to be incurred had been identified and found or agreed to be reasonable so that the question for the Tribunal was how much of those costs should be paid in advance by a tenant to a landlord. Thus it was not the Tribunal’s business when such payments should be made nor was the Tribunal concerned with general payments by way of reserves for future expenditure: both of these aspects of the landlord and tenant relationship would ordinarily depend on the terms of the lease. On that basis, Mr Beckett submitted that the sum determined as reasonable for costs to be incurred on the 2002 Works should be fully payable in advance. Otherwise, in his view, the Landlords would be subsidising works on other peoples’ properties and management of Compton Court might be compromised for lack of funds. This view struck the Tribunal as extraordinarily blinkered: by definition, the Landlords as freeholders are the owners of leased property and incidentally stand to benefit from any repairs, maintenance, insurance and management. Nevertheless, the Tribunal determined that it would be reasonable for the estimated costs of Replacement of entrance doors, Repointing, Boundary walls/fences, Pollard tree and Concrete path block 2, all of which were undisputed, to be payable in full in advance (totalling £10,835). However, in the light of the Landlords’ proposals, as indicated in para 14, the Tribunal determined that it could not be reasonable for any part of the estimated costs of Replacement of the electricity submains to be payable as a service charge before incurred. In the absence of any evidence that any of the other items (eg VAT) would be payable in advance by the Landlords, the Tribunal did not consider it justifiable to determine that it would be reasonable for any amount to be payable before the costs are actually incurred.”

[18]Before I turn to the submissions of the parties on this appeal, I should note that the agreed statement of facts records in relation to the payment for works that the landlords’ practice is to place orders with contractors without paying a deposit at the time of placing the order. In 7 the case of small works, the contractor is paid on completion of the works. In the case of larger items of work, the contractor is paid in stages as work progresses and against a certificate of the supervising officer confirming that the relevant stage has been reached. The landlords have sufficient financial resources to pay for the cost of the works in advance of their being carried out.

[19]Mr Gallagher submitted that the whole of the cost of the works found to be reasonable should properly be recovered in accordance with clause 2(c)(vii) of each lease, which provides as follows:

“The Lessee shall if required by the Lessor with every payment of rent reserved hereunder pay to the Lessor such sum in advance and on account of the Service Charge as the Lessor its auditors accountants or managing agents (as the case may be) shall specify at their discretion to be a fair and reasonable interim payment.”

[20]Mr Gallagher said that unless the whole amount of the costs incurred was payable in advance, the landlords would, contrary to the scheme of the leases, be put in the position of acting as a banker to the leaseholder, as well as assuming the credit risk of any leaseholders who proved to be slow or non-payers. He said that the LVT erred in drawing a distinction between the items of which the cost could reasonably be paid in advance and the items of which the cost could not reasonably be paid in advance. The ground on which it did so – the absence of any evidence that the landlord would have to pay in advance for the latter items – was erroneous. It was not any obligation on the part of the landlords to pay the contractor in advance of the work being undertaken that made it reasonable for them to exercise their contractual right to interim payments. It was reasonable because it was a reasonable protection for the landlord against the cash flow and payment risks arising from delays and lags in the service charge recoupment machinery and late payment by lessees.

[21]Mr Winborn submitted that there were three reasons why it was not reasonable for the cost of three items to be charged in advance to the tenants. Those items were £6,500 for replacement of the entrance doors, £18,095 for re-flooring the common parts and £4,978 for leasehold valuation tribunal costs. The reasons why it was not reasonable for these costs to be charged in advance were, firstly, that together they would increase the annual charge to each tenant by £950. Such a charge would come on top of that arising from the £118,000 cost of the roofworks. This was not reasonable. Secondly, said Mr Winborn, there was the reason advanced by the LVT in its decision – that there is no reason for the tenants to make an advance payment if the landlords do not have to pay in advance for the works. Thirdly, given that the conclusion of the LVT did not affect the landlords ability to include ordinary routine costs by way of advance payment, the landlords would be adequately protected if the three items were excluded. There was no doubt that the landlords had the money to meet these costs without receiving it in advance from the tenants.

[22]What is the correct approach for a tribunal to adopt when considering an application under section 19(2B)(c)? The starting-point, it seems to me, must be that a decision under this provision only has any effect when, under the terms of the lease, the tenant is liable to make payments in advance in respect of service costs. The purpose of the provision is to limit the amount that is payable in advance to such amount as may be reasonable. I accept 8 Mr Gallagher’s submission that the test of reasonableness must be applied in the light of the fact that the scheme agreed between landlord and tenant includes provision for payment in advance. Thus the tribunal is not concerned with the reasonableness of the contractual obligation to make advance payments. It is only concerned with the reasonableness of the amount of such payments. What the Act does is to make void the contractual machinery for determining the amount and to substitute for it determination by the LVT of the question of reasonableness.

[23]I cannot, however, accept Mr Gallagher’s submission that, once the tribunal has determined under section 19(2B)(a) that, if costs were incurred for particular services, repairs, etc, those costs would be reasonable, the tribunal ought to determine as a reasonable advance payment the amount of those costs. There are a number of considerations, in my judgment, that a tribunal either ought, or may properly, have regard to in determining the question of reasonableness under section 19(2B)(c). Those considerations would in particular include the time at which the landlord would, or would be likely, to become liable for the costs, and how certain the amount of those costs is. It is only the costs that the landlord would have to meet, or would probably have to meet, during the contractual period in question – here the calendar year 2002 – that are relevant. It would not be reasonable for the tenant to be charged in advance for such part of the cost of works to be carried out during the period as the landlord would not have to pay for until after the end of the period. If there is certainty about whether the works would in fact be carried out during the period or whether, if they were, the whole of the cost would have to be met by the landlord during the period, that would clearly be an important consideration in determining whether it was reasonable that there should be an advance payment and, if so, how much it should be. On the other hand, if the cost of the works is uncertain, so that there is a wide range of possible outcomes around the amount that the LVT has found to be reasonable, that could well be something that could affect the reasonableness of an advance payment. It may be that, where the cost of works is very substantial, a landlord would find difficulty in showing that an advance payment would be reasonable if he had not yet entered into a contract with a contractor, so that neither the actual cost of the works nor the timing of his own payments was established. By contrast, advance payments in respect of routine expenditure would be likely to need only the evidence of the past incidence of such expenditure to be shown to be reasonable. It is possible, in my view, that the financial position of either the landlord or the tenant could be a relevant consideration, although I think that it would usually not be relevant. The fact that the landlord would be able to fund the works without an advance payment does not seem to me to be a matter of significance. Nor, in the present case, does the fact that the tenants have had to pay high service charges in the previous year constitute, in my view, a consideration that suggests that the advance payment would be unreasonable.

[24]The appellants invite my attention to the schedule on page 299 of the hearing bundle. That identifies two amounts that they say are reasonable for the purpose of section 19(2B)(c) but which the LVT did not include in what it found to be reasonable. The first is £4,978 in respect of LVT costs. I deal with the reasonableness of this amount in relation to section 20C below. The second is £18,075 for re-flooring the common parts. The LVT concluded in para 14 of its decision that £14,000 for this would constitute a reasonable cost. There is no evidence before me to justify the figure of £18,075 rather than the £14,000 that the LVT found to be reasonable. Nor is there anything before me to show when the work would be carried out or when the landlords could be expected to have to pay for it. These are in my 9 view the crucial considerations, because until it is established when the landlords would be likely to have to make payment for the works it is impossible to say that it would be reasonable to require the tenant to make a payment in advance.

[25]In these circumstances the appellants have failed to show that the decision of the LVT was wrong in not accepting as a reasonable amount under section 19(2B)(c) the £18,075 (or indeed the £14,000, which was found to be reasonable under section 19(2B)(a)), and the first ground of their appeal accordingly fails. Costs of LVT proceedings

[26]Before the LVT the tenants submitted that service charges recoverable should not include the landlords’ costs of the LVT proceedings. They put this submission on two bases: firstly, they said that the leases did not provide for such costs to be included, and, secondly, they said that it would not be just and equitable in the circumstances for them to be included. The submission was thus treated as an application made under section 20C of the 1985 Act. The LVT said that it did not consider that it was necessary or appropriate to decide whether on a proper construction of the leases, the costs of the LVT proceedings would be recoverable within the service charges.

[27]It went on:

“However, the Tribunal did consider that it would not be just and equitable in the circumstances for the Landlords to include the costs as service charges in any event and so directs. The reason for this is nothing to do with any court-based rule of thumb about ‘costs following the event’ (cp the principles indicated by HH Judge Rich QC in Langford Court Tenants v Doren Ltd 2001 at paras 28-32). Rather it is because the tribunal has formed the firm impression that these Landlords have been using s.19(2A) and (2B) applications as an automatic management tool to facilitate the enforcement of payments by all the Tenants just in case an individual Tenant might not pay on time. In addition, they have also applied to the Tribunal before undertaking the proper preparations enabling the production of acceptably complete estimates on which to base the s.19(2B) application, with the consequence of their finding it necessary, as here, to apply again under s.19(2A). In general, the Tribunal is of the opinion that this approach is oppressive and unreasonable and that these Landlords should be encouraged to seek the agreement of their Tenants to the payment of reasonable service charges for works of reasonable standard and to think of applications to the Tribunal, as to court, not as a first ball but as a long stop. Accordingly, in the exercise of its discretion under s.20C of the 1985 Act, the Tribunal orders that the costs incurred by the Landlords in connection with the present proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by any of the Tenants.”

[28]In his submissions, as I have noted earlier, Mr Gallagher said that the Lands Tribunal should consider afresh the exercise of the discretion under section 20C but that the onus was on the appellants to show that the discretion conferred by the provision should not be 10 exercised to debar the landlords from recovering their costs of the LVT proceedings. He relied on para 5.8 of the Lands Tribunal Practice Directions and Carl v Grosvenor Estate Belgravia

[2000] 3 EGLR 79

at 80 as establishing that in general appeals from an LVT to the Lands Tribunal are fresh hearings of the matters under appeal. What is said there, however, must now be read in the light of the decision of this Tribunal (Judge Rich QC) in Langford Court Tenants v Doren Ltd (LT ref LRX/37/2000, 5 March 2001). The Member there pointed out (at para 10) that section 31A(7) of the 1985 Act provides, in permissive rather than mandatory language, that the Lands Tribunal may exercise any power available to the LVT in relation to the original matter. Thus, on an appeal against a section 20C decision, the Tribunal is not obliged to substitute its discretion for that of the LVT. If it considers it just and equitable that it should make some order other than that made by the LVT, then it will do so. But how it approaches the appeal, and what order it makes, will necessarily depend on the material that it has before it.

[29]Mr Gallagher says that the reason for the LVT’s decision to disallow the costs was erroneous. It said that the landlords had used section 19(2A) and (2B) applications as an automatic management tool to facilitate the enforcement of payments by tenants, whereas, Mr Gallagher said, the landlords had behaved properly and reasonably in making their applications to the LVT. In particular, he said, they were exercising an additional procedural right that had been expressly conferred by Parliament when the 1985 Act was amended by the Housing Act 1996. The provision was there in order to enable a landlord to obtain an adjudication before committing himself to substantial expenditure. In order for the mechanism to operate effectively applications must necessarily be made at an early stage. Moreover the tenants could have agreed the proposed works at any stage of the proceedings, but they chose not to do so. Agreement would have obviated the need for applications or for an LVT hearing. The fact that the tenants disputed the proposed works down to a contested hearing demonstrated, Mr Gallagher submitted, that agreement was not reasonably practical and hence that it was reasonable for the landlords to pursue the LVT applications.

[30]I see no reason to doubt the correctness of the LVT’s characterisation of the landlords’ approach to the making of applications under section 19(2A) and (2B). Applications to the LVT in respect of routine service charges had been made in May 1998 and May 1999. Prior to the latter application, in a letter to tenants dated 16 December 1998, Mr Beckett had said this:

“Application to the Leasehold Valuation Tribunal Under the Housing Act 1996, service charges are subject to the scrutiny of the Leasehold Valuation Tribunal. This is particularly important if any lessee fails to pay his service charges. The solicitors acting for the block advise that it may be especially difficult to recover service charges from these individuals, unless the Leasehold Valuation Tribunal has certified that the service charges are reasonable. Happily, at present, everyone is completely up-to-date, but the risk remains for the future. I have made an application to the Tribunal to certify the reasonableness of the charges. I have no serious doubt about the outcome, but I think this procedural step, being both a nuisance and an additional cost to all residents (including those who 11 pay their service charges on time and in full), is a most unfortunate thing. I’m sorry to say that the current state of the law effectively requires it.”

[31]The May 1999 application was heard and determined by the LVT without the tenants attending. A further application under section 19(2B) in respect of the proposed roofing works was made in January 2000 and was determined by the LVT in August 2000. The applications in the present proceedings were made in June 2001, following letters to tenants from Mr Beckett dated 27 March 2001. These stated that Mr Beckett proposed to make applications to the LVT in respect of the 2001 works and the 2002 works. Finally, the landlords’ reply in the present proceedings stated:

“Leasehold Valuation Tribunal costs (addressing point 1 on page 4 of the Reply) The Leasehold Valuation Tribunal costs are a budget only. Each year, it is necessary for the Applicants to make an application to the Tribunal to determine the reasonableness of costs, one anticipatory and one actual. If these matters are agreed, then the costs of the application will be quite small. If they are not, then they will be large.”

[32]It seems to me to be clearly the case, therefore, that Mr Beckett did regard the use of section 19(2A) and (2B) applications as “an automatic management tool” (as the LVT put it). I do not accept, as Mr Gallagher contends, that it is clear that the tenants were not going to accept any increase in the amount determined as reasonable as an advance payment for 2001. Mr Winborn said that they might have looked at things differently if they had not been faced with the inevitability of an LVT hearing, and I see no reason to doubt this. The reasons given by the LVT for granting the tenants section 20C application have not been shown to be wrong.

[33]The only matter that makes me hesitate before concluding that the exercise of the LVT’s discretion under section 20C has not been shown to be wrong is the fact that the tenants advanced unsuccessfully the argument of law that no section 19(2A)(c) application could be made in respect of works that had been the subject of a determination under section 19(2B)(c). The contention not only failed but it appears that it was the cause of a second day being required for the hearing. I am not sure in the light of this that, in the LVT’s position, I would necessarily have exercised the discretion wholly in the tenants’ favour. The LVT, however, was able to form a view about the parties’ conduct of their cases in the light of the hearing that it had held, and I am unable to say that in seeking to penalise the landlords for pursuing their application as an automatic course, the LVT was wrong to disallow the whole of their LVT costs. The appeal on this second ground therefore fails.

[34]The appeal is dismissed. It will become final when the question of costs has been determined. Since the case was conducted under the simplified procedure (rule 28 of the Lands Tribunal Rules 1996), no award of costs is to be made unless either there has been an offer of settlement and the Tribunal considers it appropriate to have regard to this or there are circumstances which the Tribunal regards as exceptional. Subject to any representations the parties may wish to make, I would not propose to make any award of costs. A letter setting out the time within which any representations must be made accompanies this decision. It is 12 open to the respondents to apply under section 20C of the 1985 Act for an order that all or any of the landlords’ costs in the Lands Tribunal should not be regarded as relevant costs in determining the amount of any service charge. Any such application, and any response to it, should be made within the times limited for representations on costs. Dated 6 January 2003 George Bartlett QC, President Addendum

[35]On 18 January 2003 Mr Winborn made application on behalf of the respondents under section 20C of the 1985 Act for an order that none of the landlords’ costs in the Lands Tribunal should be regarded as relevant costs in determining the amount of the service charge. Mr Beckett has stated that he has no objection to this. I therefore make an order in the terms sought. Dated 26 February 2003 George Bartlett QC, President 13