[2023] UKUT 108 (LC)

To understand what happened next we have to look at the long residential leases granted by GP Ilfracombe to the appellants and others. They were tripartite, made between a lessor, a lessee and the management company GPIMCL. The lessee in each case covenanted to pay a service charge to GPIMCL, which in turn covenanted to maintain and manage the property.

Mr Gubbay, the shareholder and director of Tuscola (106) Limited, is an experienced property manager. His company paid around £9 million for its head leases, and expected to receive ground rents by way of a return on investment. Obviously the result of the events described above was that that did not materialise; the long lessees who are seeking to have their leases rescinded are paying no rent. Mr Gubbay’s position is that he too, like the residential lessees, has been defrauded by Messrs Spence and Kewley.

To summarise Mr Gubbay’s evidence to the FTT in the service charge proceedings: he took the view that something had to be done in a situation where, if nothing was done, the property would fall further into disrepair and would not generate any income for anyone, to the detriment both of his company and of the residential long leaseholders (whose interests he saw as aligned with his in this respect). He arranged with Messrs Spence and Kewley, the shareholders of GPIMCL, to be appointed director of GPIMCL and he set to work to get things moving. The holiday park was shut down for most of 2020 because of the pandemic, but in January 2021 he set a budget and arranged for service charge demands to be sent out on behalf of GPIMCL on 12 January 2021. The total demanded by way of service charges from the 273 residential unit holders and the commercial lessees was £2,634,000. GPIMCL then immediately (on 12 January 2021) made an application to the FTT for a determination of the reasonableness and payability of those charges under section 27A of the Landlord and Tenant Act 1985, because Mr Gubbay knew that service charges were going to be contentious.

The service charge demands were sent out by Epworth SW Limited, the third respondent in this appeal. Epworth SW is a company wholly owned by Mr Gubbay and he arranged for it to act as the managing agent for GPIMCL. The application to the FTT gave Epworth SW Ltd’s postal and email addresses for correspondence with the applicant.

On 17 May 2021 Mr Gubbay was removed from his directorship of GPIMCL by its shareholders; being unaware of his removal, on that date he signed and filed the company’s Statement of Case in the service charge proceedings.

On 1 September 2021 GPIMCL applied to withdraw the proceedings.

On 7 September 2021 GPIMCL applied to withdraw the application to withdraw, and on 9 September 2021 the FTT decided that the application should proceed. On 10 September 2021 GPIMCL authorised Mr Gubbay to represent it in the proceedings.

There was a hearing on 30 September 2021 and 1 October. Mr Gubbay’s submissions included allegations of fraud against Mr Kewley and Mr Spence; he stated that he “would pay nothing to any company controlled by Messrs Spence and Kewley” (paragraph 114), despite representing the applicant management company and therefore asking the FTT to order the respondents to do just that.

The FTT gave its decision on 29 November 2021. It found that the service charge demands were invalid because the charges had not been correctly apportioned between the lessees. Moreover, and in case the FTT was wrong about that, it found that the service charge budget for 2021 “was not reasonable in its entirety and was not payable” (paragraph 99 of the decision) because it was not calculated having regard to any reasonable cost (paragraphs 100 – 103), that certain of the items were not payable under the terms of the lease (paragraphs 104 to 109) and that management fees and staff costs were too high (paragraphs 110 – 113).

As I said above, following that decision the 195 residential leaseholders made an application for costs under rule 13(1)(b) against the management company, Mr Gubbay, and Epworth SW Limited. The costs sought by the 195 leaseholders were in the region of £164,000. The leaseholders also applied for orders under section 20C of the Landlord and Tenant Act 1985 and under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 so as to prevent GPIMCL recovering its costs of the service charge proceedings under the terms of the lease.