Case No. UKUT-169-(LC)-UTLC-Case-Number:-LC-2021-607

is from a decision of the First-tier Tribunal (“the FTT”) about the payability and reasonableness of leasehold service charges in the sum of £430,411.50, said to be the appellants’ share of the costs accrued between 2014 and 2020 by the freeholder of 89 Holland Park, the building in which they hold a long lease of a flat. 3.The appellants were represented at the hearing of the appeal by Mr Mark Loveday and Ms Mattie Green, and the respondent by Mr Shomik Datta, all of counsel, and I am grateful to them.The factsThe dispute with Ms Hicks4.The respondent is the freeholder of 89 Holland Park, a detached Victorian Villa at the end of a line of similar properties. In 1965 the then freeholder sold a small plot of land to the south of the building (“the garden plot”), measuring about 23 feet by 140 feet. The purchaser entered into a Deed of Covenant with the freeholder of 89 Holland Park, dated 10 July 1968. She covenanted not to make any application for planning permission in respect of the land without first having the plans approved by the freeholder of number 89, nor to start to develop the land until drawings and specifications had been so approved.5.89 Holland Park is divided into five flats. The respondent was incorporated in 1990 and later that year acquired the freehold of the building on behalf of the leaseholders, who each hold a share in it. 6.The lease of flat 5 was granted in 1989 for a term of 90 years from 25 March 1981. There followed two deeds of surrender and re-grant of the lease, the first in 2006 which extended the term to 25 March 2113, and the second in 2007 which extended the term to 999 years. All the rest of the terms of the lease remained as in the 1989 lease, which were incorporated by reference in the 2007 deed. The appellants acquired the lease in 2006.7.Ms Hicks bought the garden plot in 2012, with the intention of developing it. Her plan for an underground dwelling with a glass structure above ground was unwelcome to the leaseholders of number 89. They were concerned about the threat to the structure of their building, to the trees beside it, and to the appearance and amenity of the surrounding. There followed a dispute which I can summarise as follows:a.In November 2012 the respondent and the leaseholders of 4 of the 5 flats (including the appellants) issued proceedings in the High Court (“the First Claim”) seeking a declaration that they had the benefit of the Deed of Covenant; Ms Hicks counterclaimed for a declaration that any consent or approval could not be unreasonably withheld. In the course of the First Claim the claimants obtained an interim injunction to prevent Ms Hicks applying for planning permission; they then accepted an undertaking so that no final injunction was sought. The outcome of that action was a declaration that the respondent and the leaseholders had the benefit of and could enforce the covenants, that Ms Hicks was bound by them, that the relevant consent was that of the respondent and that consent was not to be unreasonably withheld (89 Holland Park Management Limited and others v Hicks [2013] EWHC 391 (Ch)).b.After that, Ms Hicks sought the consent of the respondent to her plans, which was refused. In June 2014 she commenced proceedings (“the Second Claim”) against the respondent for a declaration that consent was unreasonably withheld. She discontinued that action in March 2017.c.Meanwhile she had continued to seek the approval of the respondent for her plan, which went through a further iteration. Consent was refused, and in August 2017 Ms Hicks served further High Court proceedings on the respondent (“the Third Claim”) again asserting that refusal was unreasonable.d.Ms Hicks also applied for planning permission, in 2018 (not in breach of covenant, because the undertaking given in the course of the First Claim allowed Ms Hicks to make an application on her undertaking to abide by the outcome of the litigation). The respondent objected, with the agreement of all the leaseholders. At the request of the first appellant it had legal representation at the planning committee meeting. Planning permission was granted in January 2019.e.In June 2019 judgment was given in the Third Claim. It was held that while the respondent had not refused consent for an improper motive, it had unreasonably refused consent on the basis that it was not entitled to consider the leaseholders’ interests but only its own and therefore could not withhold consent on aesthetic grounds. The respondent appealed that decision and was successful; 89 Holland Park Management Limited v Hicks [2020] EWCA Civ 758. The Third Claim was remitted to the High Court, where Judge Pelling QC on 29 April 2021 delivered judgment to the effect that the respondent had reasonably refused consent to the proposed development on aesthetic grounds and on the basis that the building was going to extend beyond the rear building line of 89 Holland Park (although not on the basis of damage to the trees or of the disturbance during construction) (Hicks v 89 Holland Park (Management) Limited [2021] EWHC 930 (Comm)). 8.And there the litigation with Ms Hicks rests, at least for now. Costs orders were made in favour of the respondent and the leaseholders in the First Claim; the discontinuance of the Second Claim meant that Ms Hicks had to pay the respondent’s costs; and in the Third Claim she was ordered to pay 40% of the respondent’s costs of the action.The funding of the dispute and the charges in issue9.The cost of the dispute to the respondent has been eye-watering. The summary narrative of events that I set out above does not convey the scale of professional advice and representation that it has had, including expert reports on arboriculture, engineering, heritage and aesthetics, as well as legal representation by solicitors and by leading and junior counsel. By 2021 when the FTT gave its decision the total costs incurred were over £2.7 million. Costs paid or to be paid by Ms Hicks are to be deducted from that figure, but further costs have been incurred since it was calculated; overall the costs to the respondent will have been in the region of £2 million - a salutary reminder that the recovery of costs in litigation may still leave a successful party seriously out of pocket.10.The respondent is owned by the lessees and they have funded the litigation. They acted unanimously and shared the costs without dissent until the summer of 2014. The costs were demanded of the lessees (through the respondent’s managing agent) as service charges under the lease. They were demanded as ad hoc charges, rather than being added to the regular interim charges in respect of maintenance and insurance etc. 11.The first appellant, Mr Andrew Dell, was a director of the respondent from 2006 to 2013, when he resigned because the appellants had moved abroad and so it was difficult to attend meetings. So he was at the heart of the resistance to Ms Hicks’ plans from the outset and the appellants were no less involved than their fellow lessees. However, they were in a slightly different position from the others in practical terms; their flat is on the top floor and so they cannot see the garden plot from inside.12.On 9 July 2014, while the Second Claim was still on foot and after an unsuccessful attempt at mediation with Ms Hicks, the first appellant sent an email headed “without prejudice” to the other lessees:“We are perhaps less concerned by the eventual outcome (rightly or wrongly), but have tried to be neighbourly and supportive to date. We have now reached a conclusion that we do not wish to spend any more on this series of legal actions. We also wanted to be very clear that we have no objection to anyone continuing with an action but we do not wish to be a party, either in law or financially.”13.The next service charge for legal costs demanded after that was in December 2014, and that is the first of the charges in issue in this appeal. The total charges in issue amount to £430,411.50, demanded between December 2014 and January 2020; whilst the December 2014 charge was £10,000, just under £20,000 was demanded for 2016, and the 2019 charges amounted to nearly £245,000 because the respondent spent over £1.2 million on the dispute that year. To put that in context, in 2019 the respondent spent £30,645 on routine insurance and maintenance, of which the appellants’ share would have been about £6,000.14.On receipt of the appellants’ email of 9 July 2014 the directors of the respondent replied to explain what had been achieved in the proceedings so far and why they felt that it was right to continue to resist Ms Hicks’ plans. On 19 January 2015 the second appellant replied to say that the appellants’ position had not changed , and said “We are unclear about the legal fees being classified as service charges and would be grateful if you could clarify.” The respondent took advice from counsel and confirmed that the legal costs were properly demanded as service charges. The first appellant responded in May 2015 thanking the directors for taking advice on the point.15.Later, the appellants paid the charges demanded in December 2014, and the further charges demanded until March 2017; after that they paid 50% of the charges demanded; all these payments were made without prejudice to their contention that the charges in issue were not payable as service charges. In correspondence with the other lessees from November 2016 onwards the appellants stated that their only concern was with the structural integrity of 89 Holland Park and repeatedly suggested a “more equitable split” of the charges on the basis that “the balance between structural and aesthetic is 50/50”.16.The appellants continued to attend meetings with lawyers alongside their fellow lessees, they asked the directors to submit an objection to planning permission in 2018 on their behalf, which was done; and they asked that the respondent have legal representation at the planning committee meeting, which it did.The action in the FTT17.In March 2020, after the first judgment in the Third Claim and before the Court of Appeal decision, the appellants made an application to the FTT for a determination of the reasonableness and payability of the service charges demanded in respect of the costs of the dispute from December 2014 onwards. The FTT had to decide four issues. 18.The first was whether the appellants had already agreed to pay some of the charges, so that the FTT had no jurisdiction to determine their reasonableness (section 27A(4) of the Landlord and Tenant Act 1985). The FTT found against the respondent on this issue and there is no appeal from that decision.19.Second, were the charges recoverable as service charges under the lease? The FTT found that they were.20.Third, the appellants challenged the validity of the demands for the charges. The FTT found that they were estopped from raising that challenge, and there is no appeal from that decision.21.Finally the FTT assessed the reasonableness of the service charges pursuant to section 19 of the Landlord and Tenant Act 1985, which provides that service charges are not payable unless they were reasonably incurred. It found that they were reasonable, and refused permission to appeal its decision on this point.The appeal22.The FTT gave permission to appeal the second of those issues. This Tribunal gave permission on the issue of reasonableness, and the appellants have broken down that ground into three, namely the reasonableness of the charges representing the costs of the Second Claim, of the costs incurred in the course of objecting to the application for planning permission and of the costs of the Third Claim. So there are four grounds of appeal, but only two legal issues, namely the construction of the lease (whether the charges fall within the scope of the service charge) and, second, the reasonableness of the charges. The second is relevant only if the appeal fails on the first ground.23.At the hearing I asked counsel to present their arguments about ground 1 before I heard either of them on grounds 2 to 4. Argument on ground 1 took the whole of the day listed for the hearing. At the end of the day I said to counsel that the appeal succeeded on ground 1, and by agreement with them I did not therefore list the appeal for a further day for grounds 2 to 4 to be argued.24.So the rest of this decision is about ground 1. The issue to be decided is simply whether the lease entitles the respondent to demand the charges in question, incurred as they were to fund the defence of proceedings brought against it by a third party (the Second and Third Claim) and to fund legal representation and expert advice taken for the purpose of objecting to Ms Hicks’ planning application in 2018 (“the 2018 planning costs”).25.It is therefore irrelevant that the appellants for much of the course of the dispute were content with what the respondent was doing, even to the extent of asking that the respondent be legally represented at the planning committee meeting in 2018. Equally irrelevant is the fact that in 2015 the appellants asked the respondent whether the charges were properly demanded as service charges, and the respondent took counsel’s advice before confirming that they were. The respondent does not argue that the appellants are estopped from denying that the charges are properly so demanded (the point was raised by the respondent in its Statement of Case before the FTT, but the FTT made no decision on it and perhaps it was not pursued; at any rate there was no application for permission to appeal on the point). Therefore the only question before me is the construction of the lease and the appellants’ behaviour makes no difference to that. The outcome of this appeal does not rule out the possibility that the appellants are liable to pay some or all of these charges for a different reason and on a different legal basis. All that I can decide is whether or not the charges in issue are service charges under the lease. 26.I record the FTT’s findings of fact that the respondent consulted the appellants and kept them informed of the charges being incurred, and that there is no doubt about the respondent’s motives nor about the legal justification for incurring the costs that make up the disputed charges. It acted at all times on the basis of legal advice and with advice from technical experts, and its concerns about the threat to the structure of the building (which the appellants shared) were valid. None of this is relevant to the construction of the lease.