Kullar & Anor v Kingsoak Homes Ltd [2013] UKUT 15 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE
UT Neutral citation number: [2013] UKUT 15 (LC)Venue LEASEHOLD VALUATION TRIBUNAL FOR THE, MIDLAND RENT ASSESSMENT PANEL, BETWEEN (1) SONIAN KULLAR Appellants, (2) PRIORY PLACE RESIDENTS ASSOCIATION, and, KINGSOAK HOMES LIMITED Respondent, Re: 27 Abbey Court,, Priory Place,, Fairfax Street ,, Coventry, CV1 5SA, Before: Her Honour Judge Alice Robinson, Sitting at: Victoria Law Courts, Corporation Street, Birmingham B4 6QA, David Warner directly instructed the Appellants, Patrick Darby instructed by Wood Glaister Solicitors for the Respondents, The following cases are referred to in this decision:, Forcelux v Sweetman [2001] 2 EGLR 173, Yorkbrook Investments Ltd v Batten (1986) 18 HLR 25, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook PLC v Persimmon Homes Ltd [2009] 1 AC 1101, KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336, Continental Property Ventures Inc v White [2007] L&TR 4, Jollybird Ltd v Fairzone Ltd [1990] 2 EGLR 55, Thinc Group Ltd v Armstrong [2012] EWCA Civ 1227, Iperion Investments v Broadwalk House Residents (1995) 27 HLR 196, Tenants of Langford Court (Sherbani) v Doren Ltd [2001] EWLands LRX-37-2000, The following further cases were referred to in argument:, Lloyds Bank plc v Bowker Orford (1992) 31 EG 67, Garside & Anson v RFYC Ltd [2011] UKUT 367, Barrington Court Developments Ltd v Barrington Court Residents Association [2001] 29 EG 128, DECISION, Introduction
Between
Kullar & AnorKingsoak Homes Ltd
Date 14 November 2012
[1]These are appeals from decisions of the Leasehold Valuation Tribunal Midland Rent Assessment Panel (“LVT”) dated 6 June 2011 and 27 July 2011 whereby the LVT determined to what extent service charges payable in respect of flats known as Priory Place, Fairfax Street, Coventry CV1 5SA (“the Flats”) were reasonably incurred for the purpose of s.19(1)(a) of the Landlord and Tenant Act 1985 (“the 1985 Act”) and whether an order should be made under s.20C of the 1985 Act. There are in fact 3 appeals, an appeal by the Appellants on the grounds that the LVT should have made a further deduction from the service charges on 8 grounds, a cross appeal by the Respondents that the LVT wrongly made a deduction from the service charges on 2 grounds and a separate appeal by the Respondents against the LVT’s decision to make an order that none of the Respondents costs of the LVT proceedings were to be regarded as relevant costs recoverable as service charges. Leave to appeal was granted in each case by the Upper Tribunal (Lands Chamber) on the basis that the appeals are to be heard by way of review.[2]Priory Place is a mixed use development comprising 85 residential flats in two blocks - Abbey Court (59 flats) and Benedictine Court (26 flats) and on the ground floor commercial units. The buildings are arranged around a piazza to which the public have access. There is a car park at basement level. The development was completed in about late 2003.[3]The First Appellant is the lessee of 27 Abbey Court, Priory Place pursuant to a sub-underlease dated 19 th December 2003 for a term of 150 years less 4 days from 22 nd October 2003. The Second Appellant is the Residents Association representing other lessees of the Flats. I shall refer to them collectively as the Tenants. The Respondents are themselves a sub-lessee of the Flats by virtue of a lease granted by the freeholder Coventry City Council on 21 st October 2003 for a term of 150 years less three days from 31 st January 2002. The demise is of the 85 flats and the common areas on the third to sixth floors of the buildings with access to the car park. Subsequently Coventry City Council granted a lease of the reversion to CDP Priory Place Limited of the whole of the site. The Respondents are entitled to the reversion immediately expectant on the term of years granted to the individual sub-underlessees and I shall refer to them as the Landlords. Facts 4. I was referred to an example of the sub-underleases which are apparently all in the same terms for present purposes, that relating to 25 Abbey Court dated 30 th October 2003. It was common ground at the hearing that in the document the phrases “Sub-Lessor” and “Lessor” meant the same thing namely the Landlords. The Term is defined as 150 years less four days from the Commencement Date, 22 October 2003. Clause 3 which contains the demise provides for the payment of rent subject to review and “by way of further or additional rent the Sub-Lessees Proportion” which is 1.161% of “the Maintenance Expenses.” Clause 1 defines “the Maintenance Expenses” as “the monies actually expended or reserved for periodical expenditure by or on behalf of the Sub-Lessor at all times during the Term in carrying out the obligations specified in the Sixth Schedule.” 5. It is necessary to refer to the following provisions of the Sixth Schedule:
“2. Repairing maintaining inspecting and as necessary reinstating or renewing the Service Installations forming part of the Accessways of the Maintained Property 8. Inspecting rebuilding repointing renewing redecorating or otherwise treating as necessary and keeping the Maintained Property and every part thereof in good and substantial repair order and condition and renewing and replacing all worn or damaged parts thereof 12. Inspecting maintaining renting renewing reinstating replacing and insuring the fire alarm and fire fighting appliances electronic door and gate entry system(s) security and surveillance systems… 21. Generally managing and administering the Maintained Property and protecting the amenities of the Maintained Property and for that purpose if necessary employing a firm of managing agents (Provided Always that the payment of such managing agents shall be met exclusively from the fees more particularly detailed in paragraph 2 hereto) or consultants or similar and the payment of all costs and expenses incurred by the Lessor: 22 in the running and management of the Development and the collection of the rents (if any) and service charges and in the enforcement of the covenants and conditions and regulations contained in the Sub-Underlease of the Dwellings and any Estate Regulations 23 in making such applications and representations and taking such action as the Sub-Lessor shall reasonably think necessary in respect of any notice or order or proposal for a notice or order served under any statute order regulation or bye-law on the Sub-Lessee or any Under Sub-Lessee of the Properties in the Development or on the Sub-Lessor in respect of the Development or the curtilages thereof or all or any of the flats or parking spaces therein and 24 in the valuation of the Building from time to time for insurance purposes 25 in the preparation for audit of the service charge accounts 30. The reasonable and proper fees of the Sub-Lessor or his agent for the general management of the Development 33. All other expenses (if any) incurred by the Sub-Lessor in and about the maintenance and proper and convenient management and running of the Development including in particular but without prejudice to the generality of the foregoing any expense incurred in rectifying or making good any inherent structural defect… any interest paid… any costs imposed on the Sub-Lessor… any legal or other costs….”
[6]The Tenants applied to the LVT for a determination as to whether the services charges were reasonably incurred for the purposes of s.19(1)(a) of the 1985 Act for the years 2003/04, 2004/05, 2005/06, 2006/07, 2007/08, 2008/09 and 2009/10. In accordance with directions given by the LVT a Scott Schedule was prepared which lists all the service charges challenged by the Tenants and sets out the parties’ respective contentions on each item. The structure of the Scott Schedule is chronological; for each service charge year in turn the items complained about are listed and comments made. In its decision dated 6 June 2011 the LVT dealt with the issues not by year but by 12 topics listed in paragraph 29 of the decision. Although this approach was suggested by the LVT at the hearing and the parties agreed to it, the Tenants complain that as a result of it the LVT has overlooked some items in the Scott Schedule.[7]The LVT’s conclusions are summarised in paragraph 67 which sets out a list of those items where a deduction was made by the LVT on the ground that the sum claimed was not reasonably incurred. In summary the LVT made a £12,500 deduction for cleaning in 2006/07, a 10% deduction in management fees for all years and reduced the charge to nil for lift maintenance in all years and legal fees in 2008/09. 8. The Tenants appeal on the following grounds and assert that further deductions should have been made from the service charges:(1) The LVT failed to have regard to 2003/04 where the Landlords had failed to provide invoices for all of these charges and sub-underleases were not granted until part way through the service charge year so the Tenants should not be liable for the whole of the year’s charges.(2) The LVT failed to give sufficient weight to criticisms of the managing agents and a greater than 10% reduction should be made for their fees.(3) The LVT failed to have regard to the fact that no managing agents fees were recoverable by virtue of the terms of the sub-underleases and the fact that there was no contract between the Landlords and the Managing Agents.(4) When concluding that there was no evidence that doors were inadequate or defective the LVT had failed to have regard to evidence to that effect.(5) The LVT had erred in its approach by having regard to an irrelevant consideration, namely that the Tenants had not obtained alternative quotes for insurance and by wrongly concluding that the Tenants questions about insurance had been answered by the Landlords.(6) The LVT had failed to have regard to the Tenants case that the Landlords were making a profit out of selling door entry fobs.(7) The LVT failed to have regard to the fact that invoices had not been disclosed to cover electricity bills and wrongly concluded that it was reasonable to provide 24 hour lighting.(8) The LVT wrongly concluded that issues relating to the water pump were agreed. 9. The grounds of the Landlords’ cross appeal are that (1) The LVT failed to have regard to evidence that the Benedictine Court lift was not causing problems in the same way as the Abbey Court lift and as a result wrongly deducted all costs relating to lifts instead of just the Abbey Court lift costs. (2) The LVT decided that legal fees were not owed on a ground never relied upon by the Tenants, namely that the invoice was addressed to another company not the Landlords, and it was a breach of the rules of natural justice for the LVT to decide the issue on this ground without first giving the Landlords an opportunity to call evidence about it.[10]I will deal with each of these issues in turn and then deal with the Landlords appeal against the LVT’s decision on s.20C in the light of my conclusions on the service charge issues. Law 11. Section 19(1) of the 1985 Act provides:
“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.”
[12]In Forcelux v Sweetman [2001] 2 EGLR 173 the Tribunal (Mr P R Francis FRICS) held that in determining whether costs are reasonably incurred for the purpose of s.19(1)(a) two questions must be asked. First, whether the action taken in incurring the costs was reasonable. Second, whether the amount of those costs was reasonable. 13. Section 27A(1) of the 1985 Act provides:
“An application may be made to a leasehold valuation 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.”
[14]On an application under s.27A it is for the tenant to establish a prima facie case that the service charge expenditure has not been reasonably incurred after which it will be for the landlord to meet those allegations, see Yorkbrook Investments Ltd v Batten (1986) 18 HLR 25 at p.35. 15. It is common ground that in paragraph 5 of its decision the LVT correctly identified the 3 questions which should be asked:
“(1) Whether the costs to which the service charges relate have been incurred. (2) The extent to which they have been reasonably incurred. (3) Whether the services or works to which the charges relate were of a reasonable standard.”
It is also clear from s.27A of the 1985 Act that the LVT also has jurisdiction to determine the extent to which a particular cost is recoverable as a matter of contract under a lease. The appeal (1) Service charge year 2003/04[16]The accounts for this year show a total service charge cost of £25,108. The Scott Schedule identifies 6 items in the accounts with which issue was taken in 2003/04: management fees, insurance, cleaning, door entry, car park passes/maintenance and electricity. As already indicated, these were considered by the LVT under those subject headings rather than specifically by reference to the year 2003/04.[17]It was submitted by Mr David Warner, counsel for the Tenants, that the LVT decision does not deal with the arguments raised by the Tenants in the Scott Schedule and there were no invoices for many items. The service charge year runs from 1 July to 30 June and therefore not all charges in 2003/04 were recoverable from the Tenants whose sub-underleases were granted later in the year and only entitle the Landlords to recover service charges incurred during the currency of the demise. The amount of the charges for management fees, insurance and electricity strongly suggested that they covered the whole year. Further the LVT did not deal with the Tenants arguments about the other items: the standard of cleaning was poor and should have been carried out by the builders, the cost of providing door fobs on the grant of the sub-underleases is not recoverable and the builders should be responsible for maintenance as the development had barely been completed.[18]Finally it was submitted that the managing agents had already stated that the deficit for that service charge year of £25,108 was the landlord’s responsibility in a letter dated 16 September 2004. However, the full amount had been carried forward into the next service charge year as a deficit.[19]Counsel on behalf of the Landlords, Mr Patrick Darby, submitted that this ground was based in effect on a misunderstanding. The service charge accounts for 2003/04 did indeed cover the whole of that service charge year. However, he informed the LVT at the hearing that each tenant had only been charged the relevant percentage contribution relating to the period of their sub-underlease. He asked the LVT and counsel then acting for the Tenants if either of them wished the Landlords to call their solicitor to confirm this fact and both declined. Further, it would have been open to any of the Tenants to give evidence that their service charge bill included a proportion of expenditure incurred before the term of the sub-underlease but none of them did so. Therefore it was not open to the Tenants to complain now that there was no such evidence. The LVT dealt with the Tenants arguments about cleaning in paragraphs 40 to 45 of the decision. As to entry fobs, he submitted that Mr Winstanley, a Senior Property Manager with Curry & Partners, the Landlords managing agents, had given evidence that the cost related not to the provision of initial fobs but to buying a pool of fobs for future use which when sold to a tenant would be reimbursed to the service charge account, an argument which the LVT dealt with in paragraph 57. As to maintenance, the argument that a new building should not need any maintenance was not pursued at the hearing, there was no cross examination of Mr Winstanley about it nor were submissions made on the subject.[20]As to the £25,108 service expenditure for 2003/04 being carried forward, Mr Darby submitted that this issue had never been raised at the LVT hearing, a point which was conceded by Mr Warner although he argued that it was inherent in the Tenants case. 21. More generally Mr Darby submitted that it was not open to the Tenants to now complain about the lack of invoices because they had not challenged the service charge accounts i.e. had not argued that the costs had not actually been incurred. He drew attention to paragraphs 5, 6 and 68 of the LVT decision. Paragraph 5 refers to s.27A of the 1985 Act and indicates that the LVT was required to consider three questions the first of which was:
“(1) Whether the costs to which the service charges relate have been incurred.” 22. Paragraphs 6 and 68 state as follows: “6. In this case, the [Tenants] did not at first suggest that the costs which the [Landlords] sought to recover under the service charge provisions in the lease had not been incurred, that is to say question (1) did not arise. When they did raise the point for the first time, in the course of the third day of the hearing, we invited them to consider making a new or amended application. There was an adjournment of a month between the third and fourth days of the hearing during which time the [Landlords] provided further disclosure so that the [Tenants] could consider if they wished to amend their application. They did not do so. However, on the resumed fourth day of the hearing the [Tenants] did request an adjournment so they could consider the issue further. We refused this request for the reasons given at paragraph 68 below. 68. As we explained above on the fourth day of the hearing the [Tenants] asked for an adjournment to consider further whether they wished to challenge the service charge account. Disclosure had been provided on 7 th March of the invoices for the 2008/09 service charge year. The [Tenants] had not and did not plan to instruct an independent expert accountant to review the invoices and the accounts provided by the [Landlords]. [Counsel for the Tenants] was not able to put forward any prima facie evidence that his clients had been charged for something that had not been done. In the circumstances we did not believe that a further adjournment would achieve anything and we refused the application.”
[23]Accordingly, he submitted, the Tenants had been given an opportunity to challenge the service charge accounts and argue that some expenditure claimed had not actually been incurred but did not do so. It was too late for them to do so now.[24]In my judgment Mr Darby’s submissions are a complete answer to the Tenants’ case on the main thrust of this ground, namely as to whether the Tenants had been charged for costs incurred prior to the term of the sub-underleases. Although he was not present at the LVT hearing Mr Warner did not dispute, on instructions, Mr Darby’s account of what had happened at the hearing. Nor did he point to any evidence that any of the Tenants had in fact been charged for expenditure incurred prior to the term of the sub-underleases. Accordingly there was no longer any dispute about that issue for the LVT to deal with.[25]The same applies to the complaint that not all invoices were produced by the Landlords. The Tenants were given the opportunity to challenge the accounts and chose not to do so until very late in the day and the LVT refused to adjourn for the purpose. It is too late to raise it now. There is no challenge to the LVT’s refusal to grant another adjournment to enable the Tenants to challenge the accounts or the reasons for refusal as described in paragraphs 6 and 68 of the decision.[26]Further, the argument relating to treatment of the £25,108 2003/04 service charge expenditure in the accounts was not expressly raised with the LVT and again it is too late to do so now. If it had been raised, evidence would need to have been given about it. For example, the service charge accounts for 2004/05 show £22,185 received as ‘Developer contributions less void units’ suggesting that the Tenants were not being asked to meet the whole of the previous year’s deficit. This appeal is being dealt with by way of review and it is not for me to speculate what evidence could have been given on this issue or what the LVT’s conclusion about it might have been.[27]Moreover, the letter dated 16 September 2004 does not have the effect contended on behalf of the Tenants. After referring to the accounts for 2003/04 the letter states “…a number of properties were sold during the period and therefore paid an apportioned service charge sum rather than a full sum which would have been levied if they had been purchased at the commencement of the financial year. We believe that the deficit will be made up by [the Landlords]…” This accords precisely with the Landlords position at the LVT hearing.[28]As to the other matters, I consider that the substance of the Tenants complaint relating to entry fobs in the 2003/04 service charge accounts was the same as that raised in other years. This was dealt with by the LVT when those issues were addressed in relation to all years and the Tenants arguments about this item stand or fall with the sixth ground of appeal.[29]So far as cleaning is concerned, the complaints made were again the same as those raised in other years and I accept Mr Darby’s submission that these issues were dealt with by the LVT. Paragraph 40 of the LVT decision refers to the Tenants argument that cleaning was inadequate and the LVT then go on to deal with it in paragraphs 41 to 45. In paragraph 42 the LVT record Mr Winstanley’s evidence that when the builders made a mess which required cleaning up there was no extra cost to the Tenants. In paragraph 45 the LVT concludes that the sums spent on cleaning were reasonable, that by definition cleaning is not continuous so it will often be the case that some parts of the building require cleaning and go on to make a deduction for 2006/07 the charge for which was out of kilter with other years. In my judgment it cannot be said that the LVT failed to have regard to or deal with the Tenants complaints about cleaning. It is to be noted that no complaint is made about the way the LVT dealt with the same issues relating to cleaning in other years.[30]Finally as to maintenance, in his Skeleton Argument Mr Warner’s point was that the LVT had failed to deal with an argument that external maintenance was not justified as the building had only just been completed. However, this point is not taken in the Scott Schedule and Mr Warner did not dispute that this argument was not pursued at the LVT hearing. A ccordingly in my judgment it cannot be raised now. In his oral submissions Mr Warner referred to car park maintenance which is raised in the Scott Schedule. Insofar as the complaint was that the builders were responsible for any problem, this was the same complaint as was raised in other years and I will deal with it under the fourth ground of appeal. Insofar as the complaint was that a new building should not require maintenance, again this was not pursued at the LVT hearing and it is too late to raise it now. (2) and (3) Management fees 31. In relation to management charges the LVT said this:
“46. As we have said, Priory Place is managed by Curry & Partners on behalf of the [Landlords] and has been since June 2005. The tenants’ complaints were a failure to investigate and resolve problems, e.g. the fact that the lifts were out of action for so frequently, a failure to collect service charges. Mr Schrivjer explained that there were problems with rough sleepers and vandalism which could have been reduced or avoided with more intensive management. As an example of a case of poor management he reported a door handle broke in Abbey Court on 14 th December, it was not fixed 20 th December, by the third visit it had not been fixed, it was still loose on 6 th January. 47. Mr Winstanley explained that the charge per unit was currently £180 (+VAT). He accepted that there was no management contract. His complaints procedure was to acknowledge a complain in 24 hrs and to respond in 7 days. He was hampered by cash flow problems, including the fact that some of the tenants had not been paying the service charge so the [Landlords] had to fund the provision of service. step in. He couldn’t personally assess the lift repairs, relying on trusting a reputable contractor Kone. He made a site inspection every six weeks but didn’t check repairs unless they were major works. He described Priory Place as a “high maintenance site” because of its city centre location next to the bus station a comment with which we agree. 48. In our view the central problem that the tenants cace is here is that Priory Place is indeed a high maintenance block, in the city centre, with mixed residential/commercial use, including a lit of flats which are not owner occupied but let on short term tenancies. We do not consider the fee of £180 per unit unreasonable from our experience. However, we do consider having heard the evidence that there are examples of failure to communicate and inadequate management on the part of Currys. We consider that it is unfortunate that there is not a signed management agreement and that no budgets are provided to tenants. In the round we consider that it would be fair to reduce the management charge by 10% in each year. 49. It is right to say that because of the particular features of the development Priory Place could do with more intensive management but this would undoubtedly be significantly more expensive and thus lead to an increase in the service charge. 50. One matter relating to the management of Priory Place that caused us some concern was the fact that in response to the decision of some tenants to stop paying their service charges the [Landlords] had decided to withdraw certain services, notably the security guards. In his skeleton argument Mr Darby referred to paragraph 1 of the Tenth Schedule (which sets out the [Landlords] management covenants) of the lease and provides: “Conditional on the Sub-Lessor having first received payment of the Sub-Lessee’s Proportion then to carry our the works and do the acts and things set out in the Sixth Schedule as appropriate to each type of Dwelling…”
Mr Darby’s persuasive submission was this payment of the Sub-Lessee’s proportion was a condition precedent for the provision of the services. 51. The problem with this submission however is that the ‘Sub-Lessee’s Proportion’ is defined in the lease as the payment specific to the demised premises in question. Therefore it is not, in our view, open to the [Landlords] to withdraw service from all of the tenants when there is default by a few, or even many. We recognise that it is impractical for the [Landlords] to provide services only to those tenants who pay, however, we do not consider that the lease permits the collective to suffer for the sins of the few. 52. That said, we do not consider that the withdrawal of service in this case has been so significant as to require another separate deduction in the management charges and indeed we note that the service charge budget has in fact been subsidised by the [Landlords] during the course of this dispute.”[32]Mr Warner submitted that the Tenants evidence raised very substantial deficiencies in the performance of the managing agents to which the LVT had not had proper regard. There had been a very significant failure to comply with the RICS Service Charge Residential Management Code which put in issue whether the sums claimed had been reasonably incurred. If the LVT had had proper regard to that evidence it would have made a deduction of 50% not 10%.[33]However, Mr Warner also went further than that and submitted that under the terms of the sub-underleases the Landlords were not entitled to claim any fees for employing a firm managing agents at all. He accepted that this point had never been raised at the LVT hearing but submitted that because it was an error of law relating to the Landlords powers he could raise it now. He submitted that paragraph 21 of Schedule 6 to the sub-underlease contained a clear proviso which was intended to limit the amount of managing agents fees recoverable by stating that they could only be met from certain fees. The limit was stated to be that “the payment of such managing agents shall be met exclusively from the fees more particularly detailed in paragraph 2 hereto”. He acknowledged that this made no sense as paragraph 2 of the Sixth Schedule made no provision for fees, only for expenditure on maintenance of service installations. He submitted that the fact that the proviso broke down did not mean the Landlords could charge an unlimited amount for managing agents. The clear intention was that the amount to be charged should be limited and therefore the Landlords were unable to charge anything. This was not unworkable as paragraph 21 entitled the Landlords to claim management costs provided they were charged in house and the management duties were carried out by employees of the Landlords.[34]Further, Mr Warner submitted that the amounts charged by the managing agents in addition to the flat fee of £180 per flat per annum could not be recovered because there was no management contract in place, the amounts had been charged to a different company not the Landlords and the money was for services not covered by the sub-underleases.[35]In response Mr Darby submitted that the Tenants argument amounted to an assertion that the LVT had given insufficient weight to the Tenants criticisms of the managing agents. That is not a proper ground on which the LVT’s decision could be impugned as the weight to be attached to the evidence was a matter for them.[36]As to the proper construction of paragraph 21 of the Sixth Schedule to the sub-underleases, he did not argue that because this had not been raised before the LVT it could not be raised now. If I thought the point had merit the proper course was to remit the matter to the LVT so that evidence could be called and findings made as to the factual matrix within which the construction issue had to be decided in accordance with the House of Lords decision in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 . On the merits, he submitted that the proviso to paragraph 21 was such an obvious mistake it ought to be corrected by construction. In any event, he submitted that the cost of managing agents could also be recovered by virtue of paragraphs 30 and 33 of the sub-underleases. Further, the additional management costs were recoverable under various other provisions of the Sixth Schedule.[37]I accept Mr Darby’s submissions on the question of whether the LVT had proper regard to the Tenants’ criticisms of the managing agents. The Notice of Appeal paragraph 2 says in terms that the LVT failed to attach any or sufficient weight to the factors listed. The weight to be attached to the evidence is a matter for the LVT and the Lands Chamber will not intervene unless (so far as relevant for present purposes) it can be shown that the LVT has erred in law, taken into account an immaterial consideration or failed to have regard to a material consideration or there was a substantial procedural defect, see paragraphs 4.2 and 4.3 of the Lands Chamber Practice Direction dated 29 November 2010. No legal error is identified save that dealt with below, and, insofar as they were pursued, the criticisms relied on in the Notice of Appeal were specifically taken into account by the LVT as paragraph 2 of the Notice itself recognises. It was not suggested that the LVT had wholly failed to have regard to the breaches of the RICS Code.[38]Turning to the issue as to construction of paragraph 21 of the Sixth Schedule to the sub-underlease, Mr Darby did not dispute that the reference to the cost of managing agents being met from fees detailed in “paragraph 2 hereto” made no sense. Paragraph 2 of the Sixth Schedule refers to expenditure not income or fees and the subject matter of the expenditure (Service Installations) has nothing in particular to do with the appointment of managing agents. However, I do not consider it would be appropriate to remit this matter for rehearing for the LVT to determine the factual matrix against which the construction issue must be determined. The factual matrix does not include actual negotiations or subjective intention but comprises the background knowledge that would reasonably have been available to the parties, see Investors Compensation Scheme per Lord Hoffman at pages 912-913. The LVT is in no better position than the Lands Chamber to ascertain the background and, as an issue of law, if the case were remitted it would always be open to the losing party to appeal again to the Lands Chamber. This would result in further expense and delay. In my judgment the sensible course would be for the Lands Chamber to determine the correct construction of the sub-underlease in this appeal. Section 175(4) of the Commonhold and Leasehold Reform Act 2002 enables the Lands Chamber on appeal to exercise any power which was available to the LVT.[39]The background knowledge that would reasonably have been available to the parties includes that it would be entirely normal for two blocks containing 85 flats to be managed not by the landlord but by a firm of managing agents on his behalf and for their costs to be payable as part of the service charge. The sub-underlease clearly envisages that the Flats could be managed by managing agents and makes specific provision for payment of the cost of employing them. Paragraph 21 (ignoring the proviso) includes “the payment of all costs and expenses incurred by the Lessor” of employing “managing agents or consultants or similar.” However, the proviso purports to provide that the cost of managing agents should be met from a specific source of funds which, because of the drafting error, cannot be identified. It is difficult to imagine what that source of funds might be. Further, the list of jobs in paragraphs 22 to 25 (obviously intended to be sub-paragraphs of paragraph 21) which an agent may be employed to undertake is difficult to reconcile with an intention to prohibit recovery of a significant proportion of the cost of doing such work.[40]In my judgment to accede to the Tenants’ argument that, because the source of funds cannot be identified therefore no costs of employing managing agents is recoverable, flies in the face of the clear intention of the sub-underlease that the cost of managing agents should largely be recoverable. That is evident not only in paragraph 21 but also in paragraph 30. In the absence of any discernable means of limiting the costs in the sub-underlease, I consider that the only sensible meaning which can be given to paragraph 21 is that the managing agents fees are limited to those which would be reasonable. While I accept this would mirror the jurisdiction of the LVT of which the parties could be taken to be well aware, no other construction better accords with “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”, see Investors Compensation Scheme page 912 paragraph (1). On this approach LVT’s decision involves no error of law.[41]Mr Warner submitted that this would amount to rectification by construction without the necessary conditions being met and referred to Chartbrook PLC v Persimmon Homes Ltd [2009] 1 AC 1101 . It should be noted that there is a significant difference between Chartbrook and the present case on the facts. There the definition of ARP had a clear meaning applying normal rules of syntax (albeit one which did not accord with commercial sense) whereas here paragraph 21 cannot be given any sensible meaning consistent with the ordinary use of language. More importantly, in the leading opinion Lord Hoffman emphasised (paragraph 23) that the two conditions which must be met to correct a mistake by construction (a clear mistake and a clear correction) “are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended”, a quote from the judgment of Carnwath LJ in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336 , paragraph 50. Whether the interpretation of paragraph 21 as permitting recovery of managing agents fees that are reasonable is a clear correction or not, the fact remains that the sub-underlease must be construed in order to get as close as possible to the meaning the parties intended. For the reasons already given I consider that the construction which accords with this principle is that the managing agents fees are recoverable but limited to those which would be reasonable.[42]The Tenants final point on management fees related to some specific items the subject of invoices and entries in accounts that it was submitted were not recoverable for a variety of reasons. However, Mr Warner agreed that the only ones which had been challenged in the Tenants Scott Schedule before the LVT were those relating to health and safety inspections. It was said that these were not recoverable because the Landlords did not have a contract with the managing agents and they should be covered by the management fees.[43]In my judgment it is not open to the Tenants to complain that specific service charge sums were not recoverable when that was never raised before the LVT. As to the cost of health and safety inspections, it is right to say that the LVT decision does not deal with this issue separately from the reasonableness of the managing agents fees generally. However, even if it can properly be said that the LVT has failed to have regard to this evidence I would not remit the issue for re-hearing because in my judgment the LVT would be bound to come to only one conclusion. The invoices refer to the carrying out of inspections, reviews and assessments as required by various regulations. Quite apart from paragraph 21 of the Sixth Schedule to the sub-underleases, a number of other paragraphs would permit recovery of these sums: paragraph 12 (inspecting fire apparatus) and paragraph 28 (the cost of complying with regulations relating to the “Development”, which means the whole site (see the First Schedule) so far as not the responsibility of the sub-underlessees). Whether or not it is in writing, clearly the Landlords have agreed as a matter of contract that the managing agents would carry out this work. The fact that they are not the subject of a written agreement cannot possibly of itself prevent recovery. (4) Doors 44. The LVT said this about doors:
“ Door repairs 55. There was again no oral evidence or joint experts’ statement on this issue. However, in distinction from the question of the lifts we are not satisfied that the tenants have raised a prima facie case here. There is no evidence that doors of wrong type installed, nor that they were inadequate or defective; we must assume that the repairs were needed and therefore we allow these sums in full. Car Park Shutter doors 56. The costs here related to the repair of the car park gates and again in our view should be paid. Again, there was no evidence to suggest that these works were unnecessary or could have been done for less.”
[45]In his Skeleton Argument Mr Warner argued that the LVT’s conclusion in paragraph 55 of its decision that there was no evidence the doors were defective was incorrect because there was evidence that the LVT had failed to take into account. In oral argument he accepted that, so far as the pedestrian entrance doors were concerned, the LVT was correct because the Tenants’ surveyor had agreed that the doors complied with regulations when they were constructed. However, he maintained his argument in relation to the car park shutter doors. It was submitted that the original installation was defective and the doors had been damaged by builders so that a claim should have been made against the building contractor rather than charging the Tenants via the service charge. Mr Warner relied on Continental Property Ventures Inc v White [2007] L&TR 38, a decision of the Lands Tribunal (Judge Michael Rich QC) which upheld an LVT decision disallowing the cost of repairs on the grounds that they could have been carried out under a guarantee at no charge. He submitted that no proper consideration had been given to whether to recover the cost of repairing the car park shutter doors from others and that where there was an alternative remedy at lower (or no) cost, the costs of carrying out works were not reasonably incurred for the purpose of s.19(1)(a) of the 1985 Act.[46]Mr Darby submitted that the only fault identified by the Tenants’ expert in the experts’ schedule (p.910-911 of the bundle) was that the access panel had been sited in such a way as to allow unauthorised access and it should be relocated. The expert stated “In addition, we understand but have only witnessed on one occasion that the security shutters continually fail” and recommended a regular maintenance regime. The LVT’s conclusion in paragraph 56 that “there was no evidence to suggest that [the repair] works were unnecessary or could have been done for less” was therefore correct.[47]In my judgment the LVT’s conclusion on this issue was one that was open to it. The Tenants’ expert evidence did not support their assertion that the car park shutter doors were continually breaking down. Moreover, insofar as the Tenants’ were suggesting that others should be liable for the cost of repairs, there is no evidence that the Tenants cited the Continental Property Ventures case to the LVT or otherwise made clear the basis on which others were said to be liable for the cost of repairs. There was no evidence of any guarantee which covered the doors nor any evidence as to from whom and on what basis the Landlords could recover for the cost of damage to the doors. (5) Insurance 48. As to insurance the LVT said this:
“33. In the Scott Schedule the tenants raised the following concerns in relation to the cost of insurance: Was the charge for 2004 for the whole year, if so they should not be liable for all of it; the absence of invoices to prove the cost of insurance; how the premium had been calculated; why was the premium so high. The tenants were also understandably concerned about whether the fact that claims had been made would increase the premiums in the future. 34. Mr Winstanley explained that Curry’s managed 7,000 flats over 400 blocks and that initially they placed insurance under a block policy with AXA. However, since February 2008 insurance has been arranged by CDP via brokers H.W. Wood for the building as a whole. 35. He explained that in January 2010 because of the number of claims made the policy excess had been raised to £5,000, or 10% of the loss for malicious damage/escape of water. However, the premium itself has not been affected by the claims history of the building. 36. The [Tenants] approach to the question of insurance has been to challenge and/or seek clarification of the way that insurance had been obtained. However, they have not obtained alternative quotations. 37. In the circumstances, now that the [Tenants] questions have been answered by the [Landlords], we are not in a position to say that the landlord’s claim for repayment of the cost of insuring the building via the service charge is unreasonable and we determined the amount payable as the cost incurred by the [Landlords] that is set out in the service charge account. 38. For the records, we note that a situation may arise in future years when, if the excess is significantly higher, the costs of these repairs charged as service charges will be higher. Whether in this event the tenants would be entitled to a reduction in the cost of repairs vis a vis the landlord is a matter we must leave open.”
The LVT then went on to deal with an issue relating to VAT which is not relevant to this appeal.[49]It was submitted that the LVT had dealt with the Tenants arguments about insurance in too brief and superficial a manner. Contrary to what was said in paragraph 37 of the LVT decision, the Tenants questions had not been answered. Insurance premiums had increased considerably over the years and multiple claims had been made. The Landlords had given no consideration to alternative courses of action such as pursuing the original builder for defects in construction of the building. Mr Warner again relied upon Continental Property Ventures in support of the proposition that where there was an alternative remedy at lower (or no) cost, the costs of carrying out works were not reasonably incurred for the purpose of s.19(1)(a) of the 1985 Act. Further, the Tenants had not been in a position to obtain alternative insurance quotations because the Landlords had failed to provide information about the level of claims.[50]In addition, Mr Warner belatedly sought to rely on a subsequent LVT decision dated 24 th April 2012 which considered the reasonableness of service charges for the Flats in the year 2011/12. In it the LVT found that insurance premiums had risen owing to, amongst other things, the high level of claims, see paragraph 106.[51]Mr Darby submitted that the Tenants had failed to establish a prima facie case that the insurance costs were unreasonable. In the Scott Schedule the Tenants suggested alternative lower figures for insurance but when Ms Kullar was cross examined about those figures she was unable to support them or explain where they had come from. The Landlords evidence was that the cost of insurance premiums had not risen as a result of claims though the excess had increased. Further, the Landlords relied on evidence from Mr Hands, a Chartered Building Surveyor, as to the causes of leaking water (in respect of which insurance claims had been made) which showed they were not caused by defective construction. Therefore the Landlords did not have an alternative remedy to pursing insurance claims.[52]As to the later LVT decision, Mr Darby submitted the Lands Chamber did not have the evidence which was before the LVT when considering the issue and in any event it related to a different service charge year namely 2011/12. The Landlords conceded that the premium in that year may have been affected by the claims.[53]Ms Kullar’s witness statement says in relation to insurance that the Tenants do now have most of the information, paragraph 46. She then refers to some omissions and concludes “All we want to see is proof of the cost of insurance for the residential parts for each year” (paragraph 52). She also goes on to refer to the claims history. What Ms Kullar was seeking was proof the money claimed as service charge had been spent on insurance. However, as I have already said in paragraph 25 above, the Tenants did not challenge the service charge accounts despite having an opportunity to do so until it was too late and they cannot now complain that the service charge costs relating to insurance have not been incurred. 54. In the light of the evidence of Mr Winstanley of the Landlords managing agents that the insurance premiums had not been affected by previous claims and the lack of any evidence from the Tenants to show that the amount of the premiums was unreasonable the LVT had no alternative but to allow the cost. As the LVT put it in paragraph 37:
“we are not in a position to say that the landlord’s claim for repayment of the cost of insuring the building via the service charge is unreasonable”
[55]I do not accept that the Tenants could not have obtained alternative insurance quotations. The insurance certificates produced by the Landlords show the risks covered, the excesses and sums insured which would have enabled quotes to be obtained. Further, as already stated, the Tenants had information about the claims history. If alternative quotes were less than the service charge costs the onus would have then fallen on the Landlords to justify the difference. The LVT specifically left open for future years the implications of the fact that the excess had gone up because of claims, see paragraph 38.[56]Further, there is again no evidence that the Tenants cited the Continental Property Ventures case to the LVT or otherwise made clear the basis on which it is said that the cost of remedying damage in respect of which insurance claims had been made could be recovered from others. The effect of Mr Hands evidence that damage caused by leaking water was not the result of defective construction was that the Landlords did not have an alternative remedy against the building contractor.[57]Without knowing anything about the background to the later LVT decision, in particular the evidence before the LVT, it is impossible to place any weight on it. Further, as the decision related to a different and later service charge year there is not necessarily any inconsistency between the two LVT decisions. The later decision does not assist the Tenants challenge to this decision. (6) Entry fobs[58]As to entry fobs the LVT said this:
“The tenants’ concern here appears to be that Currys might be making a profit on the resale of fobs to tenants who have lost theirs. The position appears to be that Currys obtain a stock of fobs which is charged to the service charge account which is reimbursed when they are sold to tenants. We accept that the situation appears rather opaque but we cannot identify a loss to the service charge account here and do not consider it unreasonable for Currys to impose an administration charge on the individual tenant who requires a new fob.”
[59]Mr Warner submitted that the evidence showed the Landlords were making a profit out of the sale to sub-underlessees of fobs used to gain access to the building and car park as the cost of them appeared to increase in the Landlords figures. It is well established that a landlord cannot make a profit out of a service charge accounts, see Jollybird Ltd v Fairzone Ltd [1990] 2 EGLR 55. The LVT failed to properly address this issue.[60]Mr Darby submitted that Mr Winstanley was cross examined about the entry fobs and stated that a stock of fobs was purchased which was charged to the service charge account. As and when a tenant lost theirs and asked for a replacement they were charged for it together with an administration fee and both those sums were then credited to the service charge account. The LVT were entitled to accept his evidence.[61]I accept the submissions on behalf of the Landlords. The LVT was plainly aware of the Tenants case on this issue which is set out in the first sentence of paragraph 57 of the decision. The LVT were entitled to accept the Landlords evidence and the Tenants were unable to demonstrate either that the Landlords were making a profit or that there was a loss to the service charge account. (7) Electricity[62]As to electricity the LVT said this:
“The sums charged here are in respect of the supply of electricity to the common parts. It was suggested by the tenants that the charge for electricity could be reduced with time switches but in our view since the building has little natural light it is not unreasonable to have 24 hour lighting in the common parts. Further there was evidence of vandalism or misuse of the light boxes so there was a concern that if timing was used then not work.”
[63]The Tenants complained that electricity charges were too high, very few invoices had been provided and no electricity saving measures were in place as the lights in the common parts were on 24 hours a day. It was submitted that the LVT had failed to deal with the argument about lack of invoices and had wrongly concluded that it was not unreasonable to have 24 hour lighting in the common parts.[64]The challenge to electricity related only to 2005/06 and 2009/10. It was submitted on behalf of the Landlords that the complaint about lack of invoices could not be sustained against the background of failure to challenge the accounts. The challenge to the LVT’s decision relating to 24 hour lighting in the common parts does not appear in the Notice of Appeal.[65]The substance of the Tenants complaint is that the Landlords did not produce invoices to cover all of the electricity charges. Again however, in the absence of a challenge to the accounts there was no issue before the LVT as to whether the costs to which the service charges relate have been incurred. So far as lighting of the common parts is concerned, this is not raised in the Notice of Appeal but in any event the argument does not raise any issue on which the decision may be challenged and is simply as disagreement with the LVT’s decision on the facts. The LVT was entitled to reach the reasoned conclusion that it was not unreasonable to have 24 hour lighting in the common parts and that because of evidence of vandalism, timers might not work. (8) Water pump[66]During the hearing before me Mr Warner accepted that at the LVT hearing this item had been agreed and the Tenants were no longer pursuing this ground of appeal. The cross appeal (1) Lift[67]As to the lift the LVT said this:
“53. This is a matter on which we would have benefitted from oral evidence a joint statement from the experts. It was common ground that the lift in Abbey Court had been out of action for several lengthy periods (twice three months; once two months) causing the tenants immense inconvenience. We are unable to say for certain what caused the lifts to break down but water ingress into the building certainly played a significant part. 54. In respect of this particular issue, the tenants having raised a prima facie case that there was a problem, it was for the landlord to respond to the allegations. We are not satisfied in this instance that the landlord has explained why the lifts required frequent and expensive repair and why the root causes of the lift breakdown were not investigated and resolved at an earlier stage (and indeed they still have not been resolved). This being the case we have decided that none of the costs incurred in respect of this item should be paid by the tenants for the years in question.”
[68]It was submitted by Mr Darby that it was common ground that there were significant problems with the lift in Abbey Court. However, the same was not the case with the Benedictine Court lift and the Tenants accepted in the Scott Schedule that it was reasonable for the Landlords to charge for some of the lift works. Further, a number of items in the experts’ schedule were agreed to be maintenance items for which the Landlords should be able to charge and insofar as they were original installation defects they were minor. The LVT erred by addressing the lifts as one problem and not considering the costs relating to each lift separately. This wrongly led the LVT to disallow all the service charges relating to the lifts.[69]Mr Warner submitted that Tenants Scott Schedule referred to both lifts and the experts’ schedule also identified problems with both lifts. This gave rise to a case which the Landlords were required to answer but they failed to do so and the LVT was entitled to disallow all the costs.[70]It is correct that the Tenants’ Scott Schedule refers to ‘lifts’ plural in the sections complaining about the cost of lift maintenance. In the experts’ schedule the Tenants’ expert starts by observing that “The standard of maintenance to the lift installations in both Abbey Court and Benedictine Court was found to be poor” (bundle page 907). Further, 6 of the 8 specific defects identified relating to the Benedictine Court lift were agreed by the experts to relate to the original construction. The fact that these may not have prevented operation of the lift is nothing to the point; there is no reason why the Tenants should have to pay for them to be remedied via the service charge. The LVT rightly found in paragraph 54 that the Tenants had raised a prima facie case that there was a problem and it was for the Landlords to respond. In my judgment in the light of the evidence to which I have referred the LVT was entitled to conclude “We are not satisfied in this instance that the landlord has explained why the lifts required frequent and expensive repair…” This specifically refers to ‘lifts’ plural and is supported by the Tenant’s experts comment in the schedule quoted above. The fact that the standard of maintenance had been poor was a matter which went to whether it was reasonable for the Tenants to pay for the maintenance costs, quite apart from the cost of remedying original defects. (2) Legal fees71. In paragraph 62 the LVT stated: “This item related to solicitors’ costs for the 2008-09 service charge year at which time solicitors instructed by the [Landlords], not Wood Glaister, were threatening proceedings for unpaid service charges. At our request Mr Darby reassured us that the fees were not incurred in relation to this application. However, on consideration we note that the disclosed invoices are not addressed to the [Landlords] but to another company, Barratts, and therefore we do not think they can be properly recovered as a Maintenance Expense under the lease.”72. It was common ground that this was not a point which had been raised by the Tenants. The Scott Schedule asserts that the Tenants should not have to pay because the only reason they were withholding service charges was because the Landlords had failed to deal with the problem of water leaks. There was also no dispute that the LVT did not raise at the hearing the issue of to whom the invoices were addressed. It was submitted on behalf of the Landlords that as a matter of basic procedural fairness, if the tribunal is considering deciding a point on a ground not raised by the opposing party or tribunal it should inform the parties and give an opportunity for evidence/submissions to be put forward. If the point had been raised the Landlords would have adduced evidence that the Landlords are part of the Barratt Group of companies and the identity of the addressee was irrelevant.73. It was submitted on behalf of the Tenants that this was an obvious point that should have been addressed by the Landlords and they could not now complain they had not been able to deal with it.[74]Although no authorities in support of this ground were cited at the hearing before me, a few days later the Landlords solicitors forwarded a copy of the recent decision in Thinc Group Ltd v Armstrong [2012] EWCA Civ 1227 . In that case Thinc appealed against a decision of the judge at first instance who found that a collateral warranty existed which prevented Thinc from recovering payment made under a service contract. The grounds of appeal included that this was unfair because the collateral warranty had not been pleaded and had not been the subject of evidence or submission. The Court of Appeal rejected that argument on the facts. However, as to the principle, Rix LJ who gave the judgment of the court said this:
“50. …Thus Thinc’s skeleton submits: “26. It is clear on the authorities that for a court or tribunal to determine a dispute on the basis of a case not put forward by a party or not raised by the court or tribunal is unfair and not permissible.” 51. That proposition probably needs no citation of authority, but nevertheless the authorities cited by Thinc's skeleton are instructive. We were referred first to The Vimeira [1984] 2 Lloyd's Rep 66 (CA) , where a shipowner claimed damages from his charterer because of damage suffered by his ship as a result of being ordered to an unsafe port. The unsafety was alleged to consist in insufficient depth of water. However the arbitrators, while rejecting that case, instead fastened upon an entirely different factual case, unpleaded and unargued, and one which the arbitrators had not even raised with the parties. Robert Goff LJ said this: “but the fact remains that the award was made on the basis of a point which was never raised as an issue or argued before the arbitrators. There is plain authority that for arbitrators so to decide a case, without giving a party any warning that the point is one which they have in mind and so giving the party no opportunity of dealing with it, amounts to technical misconduct and renders the award liable to be set aside or remitted… [at 74 rhc] In truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal. In my judgment, the arbitrators in the present case failed to give that opportunity to the charterers in respect of an issue not raised in the arbitration that the turning space at the entrance to the dock was insufficiently wide” [at 75 lhc]. 52. We were also referred to Zermalt Holdings SA v. Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 , another case from arbitration. The arbitrator there was appointed to determine rent under a rent review clause and had relied on matters of his own expertise which had never been the subject of reliance or comment at the arbitration. Bingham J said (at 15 rhc): “Nevertheless, the rules of natural justice do require, even in an arbitration conducted by an expert, that matters which are likely to form the subject of decision, in so far as they are specific matters, should be exposed for the comments and submissions of the parties. If an arbitrator is impressed by a point that has never been raised by either side then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way then that again is something that he should mention so that it can be explored. It is not right that a decision should be based on specific matters which the parties have never had a chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him. That is contrary both to the substance of justice and to its appearance…”
[75]The Tenants argument before the LVT was that they should not have to pay the legal fees because the only reason they were withholding service charges was because the Landlords had failed to deal with the problem of water leaks. In my judgment it is far from obvious that the Landlords should have anticipated that the LVT might be concerned that the invoice for the fees had been sent to another company and was therefore not money expended by the Landlords which could be recovered as Maintenance Expenses pursuant to the sub-underleases. 76. That is particularly so in the context of this case. In the application to the LVT for a certificate recognising the Second Appellant as a tenant’s association, the name of the landlord given by it was Barrett Homes West Midlands. That certificate was granted on 19 April 2010 by Mr J De Waal, the Chairman of the LVT whose decisions are challenged in this appeal, a matter of days after he gave directions in this case. Further, although in this appeal Mr Warner sought to challenge the LVT’s decision relating to management charges on the ground that some invoices were addressed to Barrett Homes, that was not a point taken by the Tenants before the LVT either. Indeed the Tenants appear to have regarded Barrett Homes and Kingsoak as interchangeable, see Ms Kullar’s witness statement paragraph 53 which states:
“We understand that all [insurance] claims should have been reported to Kings Oak or Barrett Homes West Midlands, who as our landlord should have….”
[77]In my judgment the ground on which the LVT disallowed the legal fees was a ‘specific matter’ (see the quote from Bingham J above) which the rules of natural justice required should have been raised for the parties to comment and call evidence upon. Not to do so was unfair and unlawful.[78]Accordingly the Landlords cross appeal is allowed in part and the LVT’s decision on the s.27A application will be remitted for redetermination but limited to the issue relating to the £10,541.53 legal fees in 2008/09. The Tenants appeal is dismissed. Section 20C – the costs appeal 79. After determining the s.27A applications, the LVT gave directions for the exchange of draft and then final written submissions on the issue of costs and whether an order should be made under s.20C of the 1985 Act. So far as relevant this provides:
“(1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, residential property tribunal or leasehold valuation tribunal, or the Upper Tribunal , or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application. (3) The court or tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances.”
[80]In their written submissions the Landlords argued that no order should be made in respect of costs relating to 3 specific matters and that as to the balance, only 10% of their costs should not be regarded as relevant costs and recoverable as service charges. The Landlords had succeeded wholly on 8 out of 12 issues and they had recovered about 90% of the service charges, thus the Tenants had substantially failed. The submissions go on to make detailed points about the issues on which the Tenants succeeded.[81]In their written submissions the Tenants pointed out that they had reduced the service charge bill by around £127,000 which was a notable success and covered a lengthy period of time. The Tenants were justified in bringing the applications and had not conducted the proceedings in an unreasonable or improper way. They submitted that the Landlords should pay all of their own costs and they should not be permitted to recover them through the service charge. Finally, the submissions state that the Landlords incurred excessive costs by having several fee earners present during the entirely of the hearing. 82. In its decision dated 27 July 2011 the LVT began by deciding that the Landlords costs of the s.27A applications were recoverable as service charges as a matter of contract pursuant to the terms of the sub-underlease. There is no challenge to that conclusion. Then after referring to a passage in Iperion Investments v Broadwalk House Residents (1995) 27 HLR 196 the decision continued:
“6. In this case the [Tenants] were partially but not wholly successful in their Application in that they obtained a decision which will lead to a reduction or re-assessment of the service charge they have had to pay in respect of the costs of cleaning, management fees, the lift and legal fees. Cleaning and management charges were of course two of the three principal items of service charge which were discussed at the hearing, the third being insurance. It is fair to say that the [Tenants] did not obtain a reduction in respect of the cost of insurance nor some of the other smaller items. 7. If ‘success’ were the only criterion then a broad brush approach might suggest that both [Tenants] and [Landlords] had done equally well out of the hearing. However, we consider that the phrase in s.20C(3) ‘just and equitable’ requires us to look beyond just the outcome of the Application to the conduct of the parties and the process itself. 8. In our view, subject to the caveat set out in paragraph 9 below, we consider that it would be unjust and inequitable to require the tenants to pay the landlords’ costs of the section 27A application. That is for the following reasons: (a) It is apparent to us that the [Tenants] found it very difficult in the early stages at least to get clear information and relevant disclosure of documents from the [Landlords] managing agents. Effectively the [Tenants] were ‘flying blind’ for a long time and the true facts and issues only found shape at the hearing. (b) The column in the [Landlords] Statement of Case as set out in the Scott Schedule ‘if wrong, what would be reasonable’ was not completed. (c ) The experts’ reports and the experts’ Scott Schedule were almost entirely irrelevant to the issues we had to decide, focussing as they did on a different debate which was who was liable for design defects in the building. It would be unfair to make the tenants pay for the landlords reports as well as their own. (d) Overall the striking feature of this Application was the fact that despite three preliminary directions hearings and indeed and ‘pre-hearing review’, it only became apparent that the principal matters which divided the parties (i.e. the plumbing and water ingress) were not in fact relevant to the s.27A application as the hearing progressed.” 83. In paragraphs 9 and 10 the LVT went on to agree with the Landlords submissions that no order should be made in respect of the costs of 3 specific items. The LVT stated in paragraph 11 that, save for those, the Landlords costs of the s.27A applications are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the Tenants. Finally the LVT said this: “12. We have some sympathy with [counsel for the Tenants] point that on occasion the [Landlords] seemed to be (our phrase) ‘over-lawyered’ at the hearing. In our view it should only be necessary for a party to an application such as this to be represented by one lawyer, whether counsel or solicitor, and it would not be fair to re-charge the tenants for attendance by both.”
[84]The short point at the heart of Mr Darby’s submissions in support of this appeal is that the reasons given by the LVT in paragraph 8 of its decision were not arguments ever put forward by the Tenants as to why a s.20C order should be made and, because the issue was dealt with in writing, there was no hearing at which the LVT itself could put these points to the Landlord. Therefore, it was unfair for the LVT to make the s.20C order on grounds the Landlords had never had an opportunity to deal with. Thus the same point is taken here as in relation to the second ground of appeal relating to legal fees in the cross appeal against s.27A decision. Mr Darby also went on to make various points as to why the Landlords considered the reasons given in paragraph 8 did not justify making a s.20C order. He submitted that the LVT’s approach was contrary to the guidance given by the Lands Tribunal in Tenants of Langford Court (Sherbani) v Doren Ltd [2001] EWLands LRX-37-2000 , in particular paragraphs 28, 31 and 32.[85]On behalf of the Tenants, Mr Warner submitted that s.20C confers a very wide discretion and the LVT was entitled to go beyond simply consideration of which side was successful. The Landlords could have addressed such matters in its representations and the reasons given in paragraph 8 were pre-eminently matters for the LVT to assess. The LVT was not required to give the parties advance notice of the grounds on which it proposed to exercise its discretion.[86]There is no dispute that in deciding what was just and equitable in the circumstances, the LVT was entitled to consider not only the outcome of the proceedings but also the conduct and circumstances of the parties, see Tenants of Langford Court paragraph 28. Even though neither party cited the case to the LVT, I do not consider the decision is at odds with the principles set out in Tenants of Langford Court . The matters set out in paragraph 8 relate to the reasonableness of the Landlords conduct and, irrespective of the reasonableness of their conduct, whether it would be unjust that the Tenants should have to pay the Landlords costs, see Tenants of Langford Court paragraph 31. Further, the LVT was well aware that it was depriving the Landlords of a property right because it formed the clear view in paragraph 4 of its decision that the Landlords were entitled to recover their costs through the service charge pursuant to the terms of the sub-underlease, see Tenants of Langford Court paragraph 32.[87]In my judgment, a cautious approach should be adopted towards the application of the principles set out in Thinc Group Ltd v Armstrong to a decision about costs. Such a decision involves the exercise of a very broad discretion having regard to all the circumstances and is not circumscribed by pleadings or grounds of appeal. This is no less true of the exercise of the discretion in s.20C even though, as was pointed out in Tenants of Langford Court paragraph 24, it is not the same as the courts power to award costs in civil actions. There may be a wide range of factors a LVT would wish to consider when exercising its discretion, whether raised by the parties or not, and it would be inappropriate to require the LVT to revert to the parties on every point that it may wish to rely upon in reaching a decision. This would be tantamount to giving the parties an opportunity to comment on the substance of a draft decision. On the other hand, the discretion must be exercised judicially and that includes fairly, having regard to the way in which the parties put their cases.[88]In their written submissions on costs both parties focussed almost exclusively on the merits and outcome of the case rather than the conduct and circumstances of the parties. The exceptions relate to two discrete topics:(1) the 3 specific issues which were addressed in paragraphs 9 and 10 of the LVT decision and(2) the Tenants complaint about excessive legal representation dealt with in paragraph 12 of the LVT decision. No criticism is made of the LVT on these matters. The Tenants case, as set out in paragraphs 6 and 13 of the written submissions, was that it had been substantially successful and therefore it would be inappropriate to allow the Landlords to recover their costs through the service charge. Reference was made to the reasonableness of the Tenants actions but in the context of there being no unreasonable conduct such as to justify a s.20C order being withheld. There was no suggestion anywhere in the Tenants submissions that the Landlords conduct had been unreasonable (save in relation to excessive legal representation) or that there was some other reason (apart from the outcome of the case) why it would be unjust for the Tenants to pay the Landlords costs through the service charge.[89]In that context it was not surprising that the Landlords written submissions focussed on the outcome of the case and I do not consider that they could reasonably have anticipated the possibility that the LVT would make a s.20C order in respect of all of their costs (save as to the 3 specific issues) on grounds unrelated to the outcome of the case. Further, the LVT have quite properly given reasons which are very specific rather than e.g. a general comment about the reasonableness of the Landlord’s approach. In all the circumstances I consider that it unfair of the LVT to make the order it did without giving the parties an opportunity to comment on the matters set out in paragraph 8 of the decision.[90]My view should not be taken as in any way circumscribing the ambit of the LVT’s discretion under s.20C. Nor should it be seen as any reason for such issues not to be determined in writing which plainly will often be an entirely appropriate way of dealing with a s.20C application. As I have already said, there is no obligation on the part of the LVT to in effect invite comment on a draft decision and it will not normally be necessary for it to refer a point back to the parties unless the matter lies wholly outside the scope of any representations made.[91]Finally, although the case will be remitted to the LVT for redetermination it is necessary to deal with the Landlord’s argument that the reasons given by the LVT could not justify the order they made, even if the Landlords had been given notice of them.[92]Criticism was made of paragraph 7 of the LVT decision and Mr Darby submitted that overall the Landlords had succeeded, it was not a case where the parties had done equally well. In my view the LVT was entitled to reach the view that it did. Success may be measured in a number of ways: by reference to the proportion of service charge which was found not to be reasonably incurred, by reference to the number of items of service charge challenged on which the Tenants won or lost, or by reference to the time taken up with issues which were won or lost. The LVT appear to have placed more emphasis on the latter and Mr Darby did not suggest that paragraph 6 of the decision is factually incorrect. Assessment of such matters is pre-eminently for the LVT and in my judgment its decision was well within the ambit of the extensive discretion open to the LVT.[93]As to paragraph 8(a), Mr Darby did not dispute the statement that “the [Tenants] found it very difficult in the early stages at least to get clear information and relevant disclosure of documents”. His point was that the Tenants had the documents by the time of the hearing which is quite different. Ms Kullar’s witness statement refers repeatedly to difficulties obtaining information. Further, whether the facts and issues only found shape at the hearing is pre-eminently a matter for the LVT and is a point repeated in its reasons for refusing permission to appeal.[94]As to paragraph 8(b), Mr Darby submitted that the Landlords case was that all the charges were reasonable so no alternatives figures were put forward. However, the whole point of the Scott Schedule was to elicit alternative figures without prejudice to the Landlords’ case. He also submitted that that it would have made no difference if figures had been inserted. That may or may not be correct but it could potentially have assisted in the resolution of some issues and the conduct which may be taken into account for the purposes of s.20C is not confined to that which can be demonstrated to have increased costs. 95. As to paragraphs 8(c ) and 8(d), Mr Darby submitted that the expert evidence was produced in response to the Tenants arguments that they were being required to pay to remedy a defective building. As the Tenants had raised this point the Landlords could be expected to respond to it. I note from paragraph 27 of the LVT decision on the s.27A application that some experts’ reports were not prepared for the LVT proceedings. Further, it would have been open to the Landlords to simply rely on the point which in the event led the LVT to say that the issues were irrelevant, namely that as set out in paragraph 30 of the LVT’s decision:
“…the problems in the flats have been or are being remedied at the developer’s expense and not the tenants’ and the problems in the common parts have been or are being remedied by the Landlords’ insurers.”
This should have been a simple matter to prove by reference to the service charge accounts and supporting documentation without the need for extensive expert evidence as to the building, plumbing and electrical installations.[96]In my judgment the LVT were perfectly entitled to make the findings that it did and rely upon them in support of the order made. Whether the LVT remains of that view when it has had an opportunity to consider the Landlords’ representations on the redetermination of this issue is a matter for it.[97]For all these reasons the s.20C decision will be remitted to the LVT for redetermination having regard to(1) any comments which the parties wish to make on the matters set out in paragraph 8 of the LVT’s s.20C decision and(2) the decision it makes on the redetermination of the s.27A application relating to legal fees in 2008/09.[98]As agreed at the hearing, the parties are now invited to make any submissions as to costs and a letter concerning costs accompanies this decision. This decision will become final when the question of costs has been determined. Dated: 17 January 2013 Her Honour Judge Alice Robinson Addendum on costs 99. “The Tenants made no application for costs or for an order under s.20C of the 1985 Act. The Landlords made submissions on 3 costs issues:(1) an application for costs relating to fees paid pursuant to rule 10(6) of the Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010 (2010 SI No. 2600),(2) an application for the costs of the appeal and cross appeal pursuant to rule 10(7)(c ) of the 2010 Rules on the grounds of unreasonable behaviour limited in accordance with rule 10(8) to £500 and(3) they sought to resist any application the Tenants might make for an order under s.20C in respect of the costs of the Lands Chamber proceedings. I deal with each of these in turn. 100. In relation to fees, the Tenants accepted the Landlords’ submission that the Lands Chamber should exercise its power to order reimbursement of fees in the same manner as a court would exercise its costs discretion. However, they went to on to argue that it is far from obvious that a court would exercise its discretion in the way contended for. It is pointed out that the Landlords lost on the more valuable aspect of the cross appeal and all that was achieved in relation to the other aspect of the cross appeal and the s.20C appeal was remission to the LVT so that costs would not normally be awarded. 101. A court will normally order the losing party to pay the winning party’s costs. The Landlords cross appeal and s.20C appeal both succeeded. The fact that they have been remitted to the LVT for reconsideration rather than the decision being retaken by the Lands Chamber does not detract from that success. Further, I do not consider that the fact that the cross appeal was only successful on one point justifies depriving the Landlords of the fees which would have had to be incurred in any event even if the unsuccessful point were not taken. Accordingly the Tenants shall pay the Landlords the sum of £950 in respect of the fees paid in the proceedings. 102. In relation to costs more generally, these may only be ordered to be paid if the Tribunal considers that the Tenants acted unreasonably in bringing, defending or conducting the proceedings. The Landlords submit that it was unreasonable of the Tenants to bring the appeal having regard to the complete lack of merit in the various grounds, unreasonable to resist the cross appeal and s.20C appeal on the ground which succeeded which was said to be ‘incontestable’ and that, notwithstanding the Landlords lost the other ground of the cross appeal, the overall balance of unreasonableness lies decisively with the landlord. 103. It goes without saying that success is insufficient to justify an award of costs under rule 10(7)(c ). Some of the grounds of the Tenants appeal had more merit than others but I do not consider any of them can properly be described as so lacking in merit that to pursue them was unreasonable such as to justify an award of costs. In this context I note the considerable complexity of the LVT proceedings and the fact that some of the issues raised in the appeal were not straightforward at all, particularly those relating to management fees. No evidence has been drawn to my attention to the effect that the inclusion of ground 8, which was not pursued at the hearing before me, resulted in any overall increase in costs. Moreover, far from it being unreasonable to resist the s.20C appeal, in my judgment this raised a difficult question which so far as I am aware had not previously been considered, namely the ambit of the principle outlined in the Thinc case to costs decisions. Further, save for the issue of unfairness, I held that the Landlords’ criticism of the LVT’s s.20C decision were unfounded. As for the cross appeal, one ground succeeded and one failed. Even though the Landlords case on the ground which succeeded was strong, in all the circumstances I do not consider it was unreasonable of the Tenants to resist the cross appeal. 104. Finally, no application was made by the Tenants for a s.20C order in relation to the costs of the Lands Chamber proceedings nor, in the light of their outcome, is that surprising. I have some sympathy with the submission that the Landlords should not be able to recover their costs of resisting an application which was never made. In fact, the only aspect of the Landlords costs submissions which has succeeded is the request for reimbursement of fees, an application which could have been easily made in a solicitors’ letter without the involvement of counsel. In my judgment, having regard to the conduct and circumstances of the parties as well as the outcome on the question of costs, it would be unjust for the Landlords to be able to recover counsel’s costs of settling the Respondents’ Costs Submissions through the service charge and I order that those costs are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the Tenants.” Dated 26 February 2013 Her Honour Judge Alice Robinson

Cited in 3 later judgments