LRX/40/2004

	LANDS TRIBUNAL ACT 1949
	
SERVICE CHARGES – management charges and surveyors’ fees in connection with programme of works – jurisdiction of LVT – reasonableness – section 20(C) application – appeal dismissed – Landlord and Tenant Act 1985 section 27A 

	IN THE MATTER of an APPEAL from a DECISION 
of the LONDON LEASEHOLD VALUATION TRIBUNAL

BETWEEN	ABARIS LIMITED	Appellant

	and

	Y K SALTOUN and L SALTOUN	Respondents

	Re: 745a Finchley Road, London, NW11 8DL

	Before: P R Francis FRICS

	Sitting at: Procession House, 110 New Bridge Street, London, EC4V 6JL
	on
16 August 2005

C Spitz of Antlow Properties Ltd appeared for the appellant Company with permission of the Tribunal
L Saltoun appeared for the respondents with permission of the Tribunal

	DECISION
1.	This is an appeal, with the permission of N J Rose FRICS, Member of the Lands Tribunal, given on 12 January 2005, against certain aspects of a decision by the London Leasehold Valuation Tribunal (“the LVT”) dated 2 April 2004.  The appeal was heard under the Simplified Procedure (Rule 28, Lands Tribunal Rules 1996).    By its decision, the LVT determined under section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) the service charge payable in respect of the cost of renovation works that had been carried out to 745 Finchley Road, London, NWll 8DL (“ the building”) during 2001.
2.	In its grounds of appeal, Abaris Limited (“the appellant”) (the respondent in the LVT, and the freehold owner of the building) states that the LVT was wrong to reduce the 15% management fee and the surveyors fees claimed in connection with the costs of the renovations in that at no time had the tenants suggested that the fees were excessive.   It had therefore not had the opportunity to make representations on the subject.   Indeed, a letter from the tenant dated 14 April 2003, produced with the application, specifically accepted the basis of management fee contended for by the tenants.   The appellant also seeks recovery of its costs, through the service charges, under section 20(C) of the 1985 Act.   In granting permission to appeal, Mr Rose determined that it appears the LVT may have been wrong to determine as it did in connection with those fees.
3.	In its decision, the LVT said that the applicants (the respondent here) had put in issue the subject of Antlow Properties Ltd’s (the building managers) fees which had been calculated on the basis of 15% of all expenditure incurred on the building (to include that percentage on any VAT chargeable as well) and noted that that basis was not in accordance with the recommendations contained in the RICS Management Code.    It also noted that that fee basis had not been specifically agreed, in writing, with the lessees.    The LVT determined that at £4,725 net of VAT, the total fees of Antlows and Ord, Carmell and Kritzler (“Ords”), the chartered surveyors who had been appointed to complete post-tender work and supervise the project representing as it did 28% of the total works cost amounted to “a degree of overcharging that was wholly unacceptable, not least because of the deficiencies in the service provided”.    Ord’s fee of £1,500 was disallowed and reduced to £700 to reflect the work that they had done.   As to Antlow’s fees the LVT considered that, bearing in mind supervision of the works had been delegated to Ords, 10% of the works cost, and 5% of Ord’s reduced fee was appropriate.  This amounted to a total fee, taking VAT into account on Ord’s fee (there being no VAT on Antlow’s charges) of £1,715.33.   The reduction on the fees claimed amounted to £2,450.63 and one-third of this, £816.88, should be credited to the applicants.    The parties having agreed during the course of the hearing that the service charge due from the applicants would be £3,528.17 less any deductions made by the tribunal, the LVT determined in accordance with section 27A of the 1985 Act that the sum of £2,711.29 would be payable by the applicants on demand.
4.	In connection with the application under section 20(C) of the 1985 Act to limit the recoverability of the cost of the LVT proceedings through the service charge, Antlows had estimated them at £678.   Having considered the terms of the lease, the LVT concluded that if such costs were recoverable, they could only be recovered under sub-clause 5(2) by which the tenant is required to pay to the landlord one-third of the actual expenditure incurred by the landlord in carrying out its obligations under sub-clause 6(B) “including fees for the arranging and supervising of the relative works the sum from time to time so due from the lessee to be as certified by the lessor”.   The LVT said that it did not consider that fees incurred in connection with the proceedings were covered by those provisions as they related neither to the arrangement nor the supervision of the renovation works, and determined therefore that they were not recoverable under the service charge.
5.	The issues for my determination are:
1.	Was the LVT wrong to reduce Antlow’s management fee;
2.	Was the LVT wrong to reduce the supervising surveyors’ fees;
3.	Was the LVT wrong to determine that the landlord’s costs relating to the proceedings were irrecoverable under the terms of the lease.   
Appellant’s case
6.	In respect of both issues (1) and (2), it was the appellant’s principal case that the  reasonableness or otherwise of surveyors fees and management charges had not been before the LVT in the Saltouns’ original application.   The landlord, therefore, had had no opportunity to make reasoned representations to the tribunal.   It was an irrefutable fact that, whilst it was accepted the quantum of Antlow’s management fees had never been specifically confirmed in writing since they took over the management in 2000, they had been agreed with the tenants orally and by implication in the fact that the 15% fees charged on other, earlier items of expenditure had been paid without question.     Indeed, Mr Spitz said, Miss Saltoun’s response to Antlow’s letter of 13 February 2001 claiming the lessees’ proportion of expenditure on roof works, including 15% management fees, was to enclose a cheque for the full amount.   Furthermore, in her letter of 14 April 2003 raising a number of points in reply to two earlier letters from Antlow, Mrs Saltoun had said:
“Thus in response to your letter dated 26 March requesting £406.35, I believe that my share for the expenditures of 17 October 2002 and 26 February 2003 is £157.17 (this figure is inclusive of a 15% management fee)…”
7.	It was, Mr Spitz said, unreasonable for the LVT to single out the 15% management charge in respect of the major works that had been carried out in 2002 and that were the subject of the application.   They had failed to take into account the fact that Antlow made no other management charges – the only time lessees were charged was when there was an item of service charge expenditure, so in many years they, as managing agent, received virtually nothing in fees.    The RICS code does not prohibit charges to be made as a percentage of outgoings, but expresses a preference for a specific annual charge per unit of accommodation.  Whilst this undoubtedly allows lessees to budget for expenditure, Mr Spitz said that Antlow’s normal method of charging where payment is due as and when expenditure occurs, budgeting concerns do not apply.
8.	The LVT had said in its decision, dismissing the respondent landlord’s application to dismiss the case, that all the issues had been aired in lengthy correspondence between Miss Saltoun and Mr Spitz.   Whilst the LVT acknowledged that the applicants’ statement of case was “not perfect”, it had identified the main issues and “the respondent had always known the case it had to answer, and it had been inconvenienced rather than prejudiced”.   However, Mr Spitz said that there was, in fact, no case to answer.   Following Miss Saltoun’s admission before the LVT that all the written issues had been satisfactorily answered by the managing agents, and her withdrawal of them from the claim, there were just four issues remaining in the Scott Schedule that she had introduced just before the hearing.   That Schedule had queried a number of items relating to the contract costs but did not include any reference to management charges or surveyor’s fees.   Those 4 issues were found in the landlord’s favour.  The fact that there was no reference in the Scott schedule to the matters now before this Tribunal was, Mr Spitz said, unassailable and conclusive proof that the LVT was wrong to make a determination on those particular issues.
9.	As to the LVT’s criticism of Antlow’s practice of charging the management fee on the VAT element of any expenditure, Mr Spitz said that the VAT was a part of the expenditure that had to be recovered, and their 15% fee was, in his view rightly, based upon the whole sum expended.     There was no question, Mr Spitz said, that the lease permitted the landlord to claim a management fee from the lessees – this being covered under clause 6(E).  Whilst it was accepted that this particular lease did not specify a particular percentage, a more modern lease on an adjacent flat and worded in almost identical terms included an added rejoinder that said “and including a management charge being not less than 17.5% of all other costs”.  This proved that 15% was not an unreasonable sum to be charged.    Regarding Ord’s fees, again there had been not a single reference to them at the LVT, and the tribunal must therefore have been exceeding its authority to determine as it did.
10.	Turning to issue (3), Mr Spitz said this was the only one that had been before the LVT.   In the landlord’s view, the LVT had clearly misinterpreted the lease by saying that if costs were recoverable, they could only be recovered under clause 5(2).   In the appellant’s view, it is clause 6(E) that permitted recovery.  It reads:
6 (E)	For the purposes of performing the covenants on the part of the Lessors herein contained employ or engage on such terms and conditions as the Lessors shall in their absolute discretion think fit suitable staff and such other persons (including contractors and surveyors) as the lessors may from time to time consider necessary all proper fees charges and expenses thus incurred being deemed part of the respective costs of fulfilling the respective obligations contained in sub clauses (B) (C) and (D) of this Clause 6
Thus, the clause allows the landlord to employ an agent to oppose an application by the lessee to reduce expenditure.   The applicants had failed to obtain a reduction in the costs of the measured works, and the only reduction they did receive was in connection with issues that had not been included within their application.   As such, the landlord had succeeded in opposing the application, and it costs of £678 should, therefore, be recoverable through the service charge account.
Respondents’ case
11.	Miss Saltoun said that she and her brother were happy with the LVT decision, and considered it to be fair and equitable.   She said she had not wanted to appear before this Tribunal, but felt it necessary to do so in order to refute the appellant’s statements.   The assertion that the question of Antlow’s and Ord’s fees had not been before the LVT was, she said, patently ludicrous.   The whole reason she went to the LVT in the first place was to get them to consider all of the charges, and the landlord had been well aware, through pre-hearing discovery, and voluminous earlier correspondence of what her concerns were.   There was also adequate time at the LVT hearing for matters to be fully aired, and, particularly as the landlord had been represented by a solicitor, an adjournment could have been applied for if further time was needed to consider a “defence”.
12.	Furthermore, the LVT had made it clear in its decision – at paras 7, 23 and 24 and in its conclusions at paras 34 to 37 that the matters of fees were, indeed, in issue.   The appellant’s attempt to get the LVT case dismissed had failed, and it was Miss Saltoun’s opinion that its reason for appealing to the Lands Tribunal was because it was aggrieved by the decision rather than it being considered the LVT had made a mistake in law.   The Lands Tribunal, Miss Saltoun said, may only consider an appeal where the LVT has either wrongly interpreted or applied the law; wrongly applied, misinterpreted or disregarded a relevant principal of valuation; took account of irrelevant considerations; failed to take account of relevant considerations or evidence or where there had been a substantial procedural defect.   None of these considerations, she said, applied here.   
13.	As to the suggestion by the appellant that acceptance of the management fees had been confirmed in her letter of 14 April 2003, Mrs Saltoun said it proved no such thing.  In fact, it shows that the tenants were unwilling to pay the bill as claimed in full.  It clearly set out, she said, the moneys they considered were due, and the amounts in contention.  The fact that she had previously paid some invoices that had included a 15% management charge in full did not make it right that it should be charged on that basis in every instance.   It was, she said, only when major work was undertaken that the impact of the management charge became noticeable.
14.	Miss Saltoun said all the claims for payment from the landlord had been muddled and unclear, and, as the copy documentation that she had produced showed, she had to work out the figures for herself.   Not all the bills she had received for payment were backed up by copies of contractors’ invoices, but nevertheless, everything had now been paid up to date (including the sum determined by the LVT), apart from an amount of £249.17 which the landlord was now saying was due.   However, she said she had documentation to prove that was a credit due to her.   
15.	Regarding the section 20(C) application, Mrs Saltoun said the LVT was correct in its interpretation of the lease, and the sum of £678 could not be claimed back from the tenants under the service charge.
Conclusions 
16.	This appeal follows an application dated 22 October 2003 for a determination of liability to pay service charges under section 27A of the Landlord and Tenant Act 1985.   Section 27A(1) 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
Under subsection (2) these provisions apply whether or not any payment has been made, and under subsection (5) payment by a tenant is not to be taken as an agreement or admission which, by subsection (4)(a), would have prevented application to the LVT under subsection (1).   Section 175(1) – (3) of the Commonhold and Leasehold Reform Act 2002 give the right of appeal to the Lands Tribunal (with permission) and subsections (4) and (5) provide that this Tribunal “may exercise any power which was available to the” LVT and allow a decision of the Lands Tribunal “to be enforced in the same way as a decision of the” LVT.   Thus, on appeal, this Tribunal has the same powers, including those relating to enforcement, as the LVT. 
17.	The crux of the appellant’s case, and thus the key issue I have to determine, is whether the LVT was wrong to make a determination on issues that were, allegedly, not before it.  I note the fact that the appellant had attempted, at the LVT hearing on 12 February 2004, to have the case dismissed on the grounds that the applicants had failed to comply with directions that had been issued at a pre-trial review held in November 2003.   Those directions, amongst other things, required the applicants to serve a statement identifying all the issues by 15 December 2003, to prepare and file a bundle of documents upon which they intended to rely by 29 January 2004 and to serve a copy of Miss Saltoun’s witness statement at least 14 days prior to the commencement of the hearing.   The statement of case in the original application was so generalised as to make it difficult for the landlord to know what case it had to answer; the bundle of documents had only been delivered on 2 February, and Miss Saltoun’s witness statement had only been delivered 3 days before the hearing.  The Scott Schedule, prepared by Miss Saltoun and which had identified the specific works costs she was querying, was only presented 20 minutes before the hearing.   In rejecting the application, the LVT concluded that all the issues had been aired in lengthy correspondence and the statement of case, though not perfect, did outline the main areas in dispute.   The respondent landlord had “always known the case it had to answer and it had been inconvenienced rather than prejudiced”. 
18.	I agree that the initial application to the LVT was far from perfect.   In the “description of the question(s) you wish the tribunal to decide”, Miss Saltoun said:
“No S.20 Consultation re £7,594.03.   30-08-01 renovation work evidence necessary and please limit our service charges item in relation to the renovation work to £333.33 to the statuary ltd.  Alternatively, if declaration not given regard to the section 20, we like to challenge the reasonableness of the renovation work charges under section 19 on the Landlord and Tenant Act 1985”.   
However, under section 9 of the application form, regarding limitation of costs, where it asked the question: If you are a tenant, do you wish to make a section 20(C) application, she answered “yes” and wrote:
“Due to behaviour of landlord by charging unreasonable high service charges and we think it is not fare (sic) to allow him to charge his fees and costs as well”.   
In my view, there is nothing in the application which limits the matters for the LVT to consider solely to the cost of works.  The challenge to the reasonableness of the renovation work charges must, by implication, cover all constituent parts of which the management charge and the surveyors fees are but two.   I consider that the LVT was right to reject the application to dismiss the case and agree that the landlord was inconvenienced rather than prejudiced.
19.	Although the Scott Schedule did not specifically refer to the fees issue, Miss Saltoun’s witness statement did (at para 10) and that had been received by the landlord 3 days before the LVT hearing – in advance of the Scott Schedule.   She said (after dealing with the works costs issues):
“10.	I was also invoiced for a management fee of 15% relating to these works.  I believe this is unreasonable as the Managing Agents [Antlow] failed to deal with my queries in relation to the building work in a satisfactory and reasonable way...”
The landlord is not now saying that he had no forewarning of the challenges to the works costs, and this is understandable as it won on all four of those issues that remained outstanding by the time the LVT hearing commenced.   However for it to now say that it was only those issues upon which the LVT found for the tenants that it had no prior notice of, and no opportunity to make representations, I find disingenuous. 
20.	It follows that I do not accept the landlord’s suggestion that because the fees issues were not specifically referred to in the Scott Schedule, that was unassailable proof that the LVT was wrong to make a determination on them.  They are, as I have said, part and parcel of the overall service charge relating to the works and in my judgment, the LVT was perfectly entitled to deal with them.
21.	As to the tenants’ alleged acceptance of the management charge, both by dint of the fact that previous charges that included the 15% management charge had been paid in full, and the purported written acceptance on Miss Saltoun’s letter to Antlow dated 14 April 2003, I find this nothing to the point.   It is a fact that Antlow had never formally quoted their fee structure when they took over the management, and in my view that does not assist their case.   It is also a fact that the lease of the Saltoun’s flat does not specify the amount of management charge that can be applied, but the wording does undoubtedly allow a management charge to be deducted.  I accept Miss Saltoun’s comment that it was only when significant works were carried out that the management fee became an issue.   The LVT was looking at specific costs and charges on a specific works project and made a determination, on the evidence before it as to the reasonableness of the fees.   It was not saying that in no circumstances would a fee of 15% be justified, but that in these particular circumstances, especially as much of the work had been put out to a supervising surveyor, it considered 15% to be unreasonable.   The fact that, with the surveyors fees as charged at almost £1,500 meant the fees in total amounted to 28% of the contract price was, in my judgment, good enough reason for the LVT to determine as it did.
22.	I certainly heard no evidence from which I can conclude that the LVT was wrong to reduce both the management and the surveyors’ fees and therefore determine that the appeal on issues (1) and (2) fails.
23.	Turning to the s20(C) determination, in my judgment the LVT was wrong to conclude that the only machinery for recovery of the landlord’s costs incurred in responding to the proceedings was sub-clause 5(2) of the lease.   I accept the appellant’s submission that sub-clause 6(E) (as set out at para 10 above) permits recovery.   However, in the light of the fact that the tenants succeeded in obtaining a reduction in the management charges and surveyors fees and were thus partially successful in their application, I determine that the landlord’s agents fees estimated at £678 should not be recoverable through the service charge in this instance.
24.	This determines the substantive issues in this appeal which fails.  As the matter was heard under the Simplified Procedure, and there being in my view no exceptional circumstances, I make no order for costs.

	DATED 19 September 2005

	(Signed)				P R Francis FRICS