Garrick Estate Ltd v Balchin [2014] UKUT 407 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF A LEASEHOLD VALUATION TRIBUNAL OF THE LONDON RENT

UT Neutral citation number: [2014] UKUT 407 (LC)

Venue ASSESSMENT PANEL

Between

Garrick Estate Ltd

Balchin

[1]The appellant is the freeholder and has been the landlord of 2 Hogarth Way, Hampton, Middlesex. TW12 2EL since 1995. The respondent holds a long lease of the subject premises.

[2]The appellant appeals against the decision of the Leasehold Valuation Tribunal (the “LVT”) dated 18 November 2012 in which it was held that the appellant had no right to claim on account service charges in respect of expenditure anticipated to be incurred in the following service charge year.

[3]On 8 January 2013 the appellant applied to the LVT for permission to appeal which was refused on 27 February 2013. Permission to appeal was granted by the Deputy President of the Upper Tribunal, (Lands Chamber) on 29 July 2013. On 2 September 2013 the respondent filed a lengthy respondent's notice in response to the appellant's statement of case to which the appellant has replied.

[4]The factual circumstances which give rise to this appeal can be shortly stated and are not in dispute. The service charge year for the subject premises runs from 1 January to 31 December in each year. When raising the service charge for the 2013 service charge year the appellant sought to charge a reserved fund for expenditure which it anticipated incurring in the following year. That reserve was set at one quarter of the budgeted expenditure for 2012.

[5]It is agreed that the sole issue for determination on this appeal is whether or not the terms of the lease in respect of the subject premises permit the appellant to charge a reserve in 2012 to cover the service charge expenditure that it anticipates incurring in the first quarter of 2013. The reasonableness or otherwise of actual amount demanded of the respondent, £245, is not the subject of any determination by the LVT from which it follows that it is not the subject of any appeal.

[6]The answer to this question is to be determined by consideration and construction of the lease of the subject premises. That lease is dated 8 April 1970. The material provisions are to be found in clauses 1 and 2. The material parts of those clauses are as follows:

“1. The Lessors hereby demise unto the Lessee ALL THAT plot of land numbered 2 on the Estate... TO HOLD the demised premises unto the Lessee for the term of nine hundred and ninety-nine years... YIELDING AND PAYING until the Lessors on demand by way of service charge the due proportion as hereafter defined of the expenditure incurred or to be incurred by the Lessors in respect of the following: “(a) the cost from time to time of maintaining repairing renewing cleansing and keeping in good condition the Estate road and the lighting equipment thereof and the cost of electricity for such lighting “(b) the cost from time to time of maintaining in good and orderly condition the lawn grounds and the lawns thereof and everything growing thereon including the re-laying of lawn and replanting of shrubs and trees wherever necessary “(c) the cost from time to time of maintaining repairing renewing cleansing operating and keeping in good order and condition all main sewers drains pumping chambers and pumping machinery soakaways cables and other main conducting media of the Estate and all apparatus thereof and the external walls fences and other appurtenances and amenities of the Estate not hereinbefore in paragraphs (a) and (b) of the Clause expressly mentioned “(d) the amount of any rates taxes assessments and outgoings now or hereafter imposed or charged upon or in respect of any part of the Estate not compromised within the curtilage of the dwellinghouse and the cost of effecting and maintaining any insurance against any liability towards third parties in respect of nuisance personal injury or damage caused by any act and neglect or omission in the control user or occupation thereof “(e) the administrative or management costs of the Lessors including any fees payable to any professional advice in respect of any of the matters mentioned in paragraphs (a) (b) (c) and (d) of this Clause. “AND the said expression "the due proportion" shall mean the proportion certified by the Lessor's Surveyor or Accountant for the time being as being the proportion of such expenditure properly attributable to the demised premises and the rights and interests hereby granted full regard being had to the total number of dwelling houses erected or to be erected by the Lessors on the Estate and the proportion so certified shall be final and binding upon the Lessee “2. The Lessee HEREBY COVENANTS with the Lessors as follows:- “(1)(a) To pay the rent and other sums and service charge hereby reserved and made payable at the times and the manner aforesaid without any deduction “(b) Without prejudice to the covenant pay the service charge on demand hereinbefore contained to pay on the First day of February in each year on account of the service charge payable hereunder for the year commenced on the last previous First day of January (hereinafter in this paragraph (b) referred to as "the appropriate year") two-thirds of such sum as shall be estimated by the Lessors’ accountant and notified to the Lessee as being the anticipated amount of service charge payable to the Lessee for the appropriate period PROVIDED ALWAYS that in the event that any sum so paid on account shall prove to be in excess of the amount of service charge payable by the Lessee for the appropriate year then the amount of excess shall be held to the credit of the Lessee on account of such sum as shall become payable by the Lessee under this paragraph (b) in respect of the next appropriate year.”

[7]The question in issue before the LVT was whether or not those provisions of the lease enabled the appellant landlord to recover on account service charges of £245. The LVT dealt with that question succinctly. "12. There is simply no provision in the Lease which allows the respondent to demand service charges outside of the current year. We therefore find that the demand of the on account service charge of £245 for the first quarter of 2013 is unreasonable."

[8]Unfortunately in that part of the LVT's decision where clause1(a) of the Lease was cited, the LVT omitted the critical wording of clause 1(a) reserving to the appellant landlord the right to "demand by way of service charge the due proportion as hereinafter defined of the expenditure incurred or to be incurred by the Lessors." The words "incurred or to be incurred" make clear that the appellant landlord is entitled to include in service charge demands not only expenditure which had been incurred at the time of the demand but also was "to be incurred" in the future, which would include the following service charge year provided or course that that expenditure falls within one of the five categories of expenditure adumbrated in the remaining part of clause 1(a) already recited and that same was reasonable.

[9]The LVT also overlooked the fact that that very question had been determined in proceedings between the same parties in respect of the same provisions of the subject lease by a differently constituted LVT whose decision is dated 15 December 2010. That decision had and has not been appealed and was therefore binding not only upon the parties to the instant application, they being the same as the parties to the 2010 application, but also upon the LVT itself.

[10]Having referred to the Lands Tribunal decision of Leicester City Council v Master LRX/175/2007, the LVT concluded in its October 2010 decision as follows:

"6. The Tribunal agrees with the reasoning in Leicester City Council v Master and the submission that it applies equally to the clause in the current case. Therefore, the Respondent is entitled to budget by a reserve fund and to make service charge demands accordingly. However, what it may not do is hold any surplus which it happens to accrue as some kind of extra reserve. The surplus is an almost random sum which is only known at the end of the year there is no relationship to any “properly prepared reasonable estimate of costs oF repairs to be incurred."

There is no reason why the reserve fund may not include provision for an unanticipated expenditure so long as the sum in question is a reasonable estimate of the kinds of anticipated expenditure which occur from time to time."

[11]Apart from the odd (but incorrect) observation that there is no provision in the subject lease permitting the appellant landlord to demand service charges outside of the current year, there is no reasoned explanation as to why and how the LVT reached its November 2012 decision. As I have said, the LVT omitted citing the critical part of clause 1(a) of the lease. That may well be an explanation for why it reached the decision it reached. Had it addressed its mind to the actual wording of the lease it no doubt would, or should, have reached the conclusion that the landlord appellant was and is permitted to demand service charges outside of the current service charge year provided that the expenditure in respect of which the service charge is sought falls within one of the five categories set out in clause 1(a) and, of course, satisfies the statutory requirements of reasonableness.

[12]Equally, had the LVT addressed its mind fully to the October 2010 decision of the LVT it would, or should, have reached the conclusion that it was bound by that decision which as I have said has not been appealed and is therefore binding upon these parties to this application and appeal as well. The reasoning of the LVT back in October 2010 is somewhat fuller than appears from the extract recited above. It fully sets out the material passages from the Leicester City Council case from which it is clear that the well-hallowed words "incurred or to be incurred" enable past and future anticipated expenditure to be raised and demanded in a service charge provided of course those sums fall within what is recoverable under the service charge provisions and also satisfy the requirements of reasonableness.

[13]For those reasons I allow this appeal. In reaching this decision I have not overlooked the very lengthy response of the respondent. Much of the argument raised in that document focuses upon the reasonableness of the sums demanded on account. However in my judgment none of that is on point in this appeal because the sole question which is being appealed is the question of whether or not the appellant is entitled to demand service charges outside of the current year under the provisions of the lease. In other words, whether it is entitled to demand expenditure anticipated to be incurred in the following service charge year. As a matter of construction of the lease, the answer is “yes” the landlord may.

[14]The LVT did not consider the reasonableness or otherwise of the amount, namely, the £245 which the appellant sought and demanded from the respondent in respect of anticipated expenditure in the following service charge year. It follows that there has been no determination of whether or not that was a reasonable sum from which it follows that there can be no appeal in respect of something which is not the subject of judicial or tribunal determination.

[15]It is not necessary for me to deal any further with any of the other extensive points made in the respondent's response simply because the issue is narrow and it is plain from the wording of the lease itself and also from the October 2010 decision of the LVT, which as I have said is binding on all, that the landlord is entitled to claim on account sums for future expenditure. Dated: 11 September 2014 His Honour Judge Gerald

Garrick Estate Ltd v Balchin [2014] UKUT 407 (LC)

Cited in 3 later judgments