BASILDON DISTRICT COUNCIL v PETER GOOCH LRX/51/2004

UPPER TRIBUNAL

LANDS CHAMBER

LRX/51/2004

Case No LRX/51/2004

Between

BASILDON DISTRICT COUNCILApplicant

PETER GOOCHRespondent

Before

P R Francis FRICS

Venue Procession House, 110 New Bridge Street, London, EC4V 6JL

Date 18 July 2005

Hearing 8 June 2005

Property: 19 Norwich Walk, Basildon, Essex, SS14 3QP

Catchwords: SERVICE CHARGES – Recoverability of cleaning costs – reasonableness - construction of lease – Landlord and Tenant Act 1985 s.19 – held works effected to a reasonable standard, costs reasonably incurred and reasonable in amount - appeal allowed

[1]This is an appeal, with the permission of the President given on 29 September 2004, against certain aspects of a decision by the Leasehold Valuation Tribunal for the Eastern Rent Assessment Panel (“the LVT”) dated 5 March 2004. By that decision, the LVT determined under section 19(2A) and 19(2B) of the Landlord and Tenant Act 1985 (“the 1985 Act”) a number of questions relating to the reasonableness of costs in respect of which service charges were claimed to be payable under the terms of a lease of 19 Norwich Walk, Basildon which commenced on 25 August 1983, and into which the respondent entered on 20 July 1987.

[2]In granting permission the President determined that the appeal should be limited to the decision on the £822.36 costs of cleaning, and that it should be by way of rehearing so that evidence will be required on the issue of the reasonableness of the standard of cleaning services.

[3]Having heard evidence from Mr Gooch (the applicant) relating to the council’s alleged failure to carry out cyclical maintenance, and from the council, The LVT, who had also inspected the block in which Mr Gooch’s maisonette is situated, said in its decision of 5 March 2004:

“On this issue the Tribunal preferred the evidence of Mr Gooch. The Tribunal accepted that some cleaning had been carried out, but the Tribunal had grave reservations that cleaning was carried out on a weekly basis. The Tribunal noted the state and condition of Norwich Walk at the time of its inspection. The accumulation of debris and dead leaves in the bin area did not support the contention of a weekly service. On the evidence, the Tribunal could not be satisfied that the service was provided to a reasonable standard, justifying a cost [to the block] of £822.36.”

The LVT went on to say that it was also not satisfied the expenditure came within the provisions of the lease as cleaning was not expressly referred to. They said they were not persuaded that the cleaning came within the ambit of “usual environmental services” in para 1 of Part 1 of the Seventh Schedule of the lease as such services would include items like council rates and taxes and payments to statutory undertakers. In conclusion, they said: “Having regard to the foregoing, we decide the sum of £822.36 was neither reasonably incurred nor was it reasonable in amount”.

[4]In its grounds of appeal, the council said that the LVT had determined that recovery of expenditure on cleaning was not permitted under the terms of the lease, and that it was not satisfied, in any event, that the cleaning was carried out to a reasonable standard. It therefore disallowed the entirety if the costs for the 2002/2003 service charge year, and allowed nothing on account for the 2003/2004 service charge year. It is the council’s case that the LVT erred in law and/or acted unfairly. Firstly, as to the construction of the lease, it was pointed out that the application to the LVT was made on 8 September 2003, before the new s.27A of the 1985 Act came into force (30 September 2003). Therefore, the application was to be considered under s.19 – the jurisdiction that was then in force. In the light of this, it was doubted if the LVT had power to determine the issue of construction of the lease without the 2 consent of the parties – which had neither been sought nor obtained. However, the council said it was not seeking to appeal on the grounds that the LVT simply exceeded its jurisdiction in reaching a conclusion on the construction of the lease, rather that the LVT reached an erroneous conclusion on how it was to be construed. As to the question of reasonableness, it was submitted that the LVT erred in holding that no sum was recoverable at all. Even if it did not consider the total amount to be allowable, it should have determined what proportion would have been reasonable if it was held wrong on its conclusions as to recovery – see Yorkbrook Investments v Batten

(1985) 18 HLR 25

[5]The matter of the ability to recover cleaning costs was of wide importance to the council as it has 359 other properties, apart from the respondent’s, where the lease provisions are the same.

[6]The subject property comprises a second and third floor maisonette being one of 7 such units in a 13 unit 4 storey block on the Craylands Estate, Basildon. The leases of those units that do not have their own private access (eg the ground and first floor maisonettes) are in a common form.

[7]In opening the appellant’s case, Mr Bhose said that as a preliminary matter the council wished to record that the sum originally claimed for the 7 properties in the respondent’s block, and upon which the LVT made its decision (£822.36) had been wrongly calculated. The overall costs incurred by the council in 2002/2003 in cleaning the communal areas to the two estates where these standard leases apply, at £25,500, had been split between 217 units. The correct number was, in fact, 360 and the charge should therefore be £495.81 for the 7 properties in the appellant’s block, or £70.83 per unit.

[8]Mr Bhose then set out the bases upon which it was clear, in the appellant’s view, that the provisions of the lease permitted the recovery of cleaning charges. Firstly, the respondent’s liability to pay a service charge is contained in Schedule 6, clause 17 which provides:

“…Any costs or expenses incurred by the lessor…in providing services to the Lessee and other Owners of Flats or in employing porters or other servants shall be deemed to have been properly incurred by the Lessor in pursuance of its obligations under the Seventh Schedule notwithstanding the absence of any specific covenant by the Lessor to incur them and the Lessee shall keep the Lessor fully indemnified from and against her due proportion thereof under Clause 20 of this Schedule accordingly”

Further, by clause 20, he covenanted to pay on demand:

“… a reasonable part of all costs and expenses incurred by the Lessor in carrying out its obligations under and giving effect to the provisions of Parts I and II of the Seventh Schedule hereto…”

Whilst there was no specific reference to the recovery of the costs of cleaning, it was submitted that a proper construction of these clauses would include such costs within the provision of services to the lessee. 3

[9]If that were not sufficient to establish the point, Mr Bhose said that the Fourth Schedule, which sets out the lessee’s rights included in the demise (including the right to use the “gardens, drive, paths and forecourts and such other communal facilities”) contains the proviso that:

“ALL THE RIGHTS and benefits specified in this Schedule are subject to and conditional upon the Lessee paying his share of the Lessor’s expenses in accordance with the covenants in that behalf contained in the Sixth Schedule”

. He said the meaning of that clause and proviso is clear – the council is entitled to recoup the costs of such matters as cleaning of the communal areas.

[10]Furthermore, the Seventh Schedule sets out the lessor’s obligations, the costs of which it is entitled to recover under the terms of clause 20 to the Sixth Schedule.

(c) of the Seventh Schedule, the lessor covenants to:

“(c) ensure so far as practicable that any services which are to be provided by the Lessor and to which the Lessee is entitled (whether himself or in common with others) are maintained at a reasonable level and keep in repair any installation in connection with the provision of those services”

. This, Mr Bhose said, clearly contemplates that there are services which the appellant provides, and for which it may then demand payment. The relevant services, contemplated by the proviso to the Fourth Schedule (either expressly or by implication) are those which the appellant would supply to enable the respondent fully to enjoy the rights and benefits contained in that Schedule.

[11]Finally, Mr Bhose referred to clause 1 of Part 1 of the Seventh Schedule which provides:

“(1) The lessor shall pay all existing and future rates (including water rate and general rate) taxes assessments and outgoings now or hereafter imposed on or payable in respect of the Reserved Property and in addition shall pay the charges for the water supply and sewerage and usual environmental services in respect of the Estate (which for the avoidance of doubt includes the Premises) the Lessee to reimburse the Lessor for the appropriate proportion thereof in accordance with clause 2 of the Sixth Schedule”

. The LVT had decided that “usual environmental services” did not include cleaning of communal areas, but related to such matters as the charges of statutory undertakings. Mr Bhose submitted that that was wrong and that cleaning was encompassed.

[12]Turning to the question of reasonableness of cleaning costs, Mr Bhose called Mr John Richardson, Home Ownership Team Leader, and Mr Russell Ward, Manager of Public Spaces and Street Scene at the council. They explained how the charges were calculated, and acknowledged that the figures before the LVT were incorrect. The right figure for the respondent’s property was £70.83 for the 2002/2003 service charge year, being the £25,500 cost of providing a full time operative, a van and requisite materials to clean, on a once weekly basis, the communal areas and entrances divided by the 360 properties accessed from them across the Craylands and Felmores estates. The total charge for the block in which Mr 4 Gooch’s property was located was £495.81. The cleaning scheme for these two estates had commenced in 2001 as a pilot along with a programme of improvements, and the feedback from residents had been generally positive. The year in question – 2002/2003 was the first year in which the charges had been passed on to the residents. It was accepted there were times when rubbish accumulated in the communal areas, but Mr Ward said that there was a £500 budget within the overall cleaning cost to pay for additional call-outs on top of the weekly cleaning regime.

[13]Mr Gooch explained that he did not personally reside at the subject property, but said that his tenant had advised him that he had never seen anyone carrying out the cleaning duties for which the residents were being charged. He made a number of submissions relating to repairs and improvements that were either required or had not been satisfactorily carried out, and whilst accepting that they did not directly relate to the matter before this Tribunal, said that a damaged and dislodged gate to the communal drying area in his block would have prevented cleaners obtaining access.

[14]It was the respondent’s view that the LVT was correct in interpreting the provisions of the lease as it had, and he said that the document needed to be considered in its entirety. In cross-examination Mr Gooch admitted that he had no evidence as to whether or not the cleaning for which the residents were being charged had actually been effected, and said that he was not suggesting it had not. He said he was not pursuing the question of the standard of cleaning works, but it was the matter of recoverability which he was fighting. Conclusions

[15]This appeal follows applications dated 5 September 2003 pursuant to section 19 of the 1985 Act which provides:

[19]Limitation of service charges: reasonableness “(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 on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise. (2A) A tenant by whom, or a landlord to whom, a service charge is alleged to be payable may apply to a leasehold valuation tribunal for a determination- 5 (a) whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred, (b) whether services or works for which costs were incurred are of a reasonable standard, or

(c) whether an amount payable before costs are incurred is reasonable. (2B) An application may also be made to a leasehold valuation tribunal by a tenant by whom, or 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 (c) what amount payable before the costs are incurred would be reasonable

[16]The LVT in deciding the issue of reasonableness in respect of cleaning costs for the 2002/2003 service charge year gave two reasons:

[1]that it was not satisfied on the evidence that the service was provided to a reasonable standard, justifying a cost (for the block in which the respondent’s property is located) of £822.36.

[2]that it was not satisfied that cleaning costs came within the terms of the lease. It decided the issue of the on-account charge for the 2003/2004 year apparently on the same basis.

[17]Looking at the second reason first, the LVT was, in my judgment, wrong to conclude that the expenditure on cleaning costs did not come within the terms of the lease. It based that conclusion on the provisions of para 1 of the Seventh Schedule and whilst it seems to me to be a perfectly reasonable interpretation that “usual environmental services” would not encompass cleaning costs but would be limited to such matters as charges from statutory undertakings, it is in my view para 17 of the Sixth Schedule that applies. It is not clear whether the LVT was referred to that paragraph, which states:

“17. The Lessee shall comply with and observe any reasonable regulations which the Lessor may consistently with the provisions of this Deed and the Act make to govern the use of the Estate. Such regulations may be restrictive of acts done on the Estate detrimental to its character or amenities. Any costs or expenses incurred by the Lessor in preparing such regulations or in supplying copies of them or doing works for the improvement of the Estate or in providing services to the Lessee and other owners of Flats or in employing porters or other servants shall be deemed to have been properly incurred by the Lessor in pursuance of its obligations under the Seventh Schedule notwithstanding the absence of any specific covenant by the Lessor to incur them and the 6 Lessee shall keep the Lessor indemnified from and against her due proportion thereof under clause 20 of this Schedule accordingly”

. In my view, this clause clearly permits the provision of cleaning services to the communal areas together with the recovery of those costs (so long as they were reasonably incurred), and the wording also covers the fact that cleaning of communal areas was not specifically referred to. I therefore agree with counsel for the appellant that, aside from any question on jurisdiction under section 19 (which is not a matter for determination in this appeal), the LVT did reach an erroneous conclusion on construction.

[18]Turning now to reasonableness, on the basis of the evidence provided in the witness statements of Mr Richardson and Mr Ward, together with that of Ms Carol Adams, a Service Improvement Team Analyst with the council (which related solely to historical improvement works which were not the subject of this appeal), all of which I accept, I consider that it was perfectly reasonable for the council to incur cleaning charges alongside the improvements, it having been acknowledged that the estates had become run down and were in need of attention and sprucing up.

[19]As to whether or not the works were to a reasonable standard, the parties agreed that there was nothing to be gained in my inspecting the property some 3 years after the event and I rely therefore upon the evidence before me, this being a re-hearing rather than a review of the LVT’s decision. I have already concluded that the costs were reasonably incurred, and therefore determine that, upon the council’s evidence, they were. Regarding the question of whether the costs incurred were reasonable in amount, the council has now admitted that the original calculation was incorrect and the claim is therefore reduced from £822.36 to £495.81 for the block, or £70.83 per unit. The original amount was therefore not reasonable, but in my judgment, at just over £1 per week per unit, the revised sum is.

[20]Turning finally to the question of the sum of £830 claimed for the following service charge year under section 19(2B), on the basis of the above findings I must conclude that that would not be reasonable, but on the basis of the revised claim, I determine that £500 would be.

[21]This determines the substantive issues in this appeal which is allowed. It will take effect as a decision when the question of costs is decided and at that point, and not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and Order 61 rule 1(1) of the Civil Procedure Rules will come into operation. A letter accompanying this decision sets out the procedure for submissions in writing. DATED 21 June 2005 (Signed) P R Francis FRICS 7 ADDENDUM

[22]No submissions on costs having been received, I determine that there shall be no order as to costs. DATED 18 July 2005 (Signed) P R Francis FRICS 8