[2023] UKUT 197 (LC)

This part of the appeal is concerned with two sets of administration charges. The first relates to the costs of the proceedings in the FTT in 2014, which were found to be payable in the full amount claimed, £2,400. The issue in relation to that sum is whether those costs were within the scope of the contractual charging provisions in the lease. The second concerns the costs of the current proceedings which were claimed at £14,300 and were reduced by the FTT on assessment to £8,197. Whether the FTT had jurisdiction to make that determination is the subject of issue 4.

The important point about an administration charge is that it is a contractual charge. So far as relevant to this appeal, an administration charge is defined by paragraph 1 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 as “an amount payable by a tenant of a dwelling as part of or in addition to the rent which is payable, directly or indirectly … in respect of a failure by the tenant to make a payment by the due date to the landlord …” Where such a charge is variable (in the sense it is not fixed by the lease or determined in accordance with a formula) it is subject to statutory control and is payable only to the extent that it is reasonable (paragraph 2, Schedule 11, 2002 Act). The first question, however, is whether there is a contractual obligation to pay the charge.

By paragraph 33 of the Sixth Schedule to the Lease Mr Davies covenanted with the Lessor, the Management Company and the owners of other apartments to pay the following:

“(a)

all expenses including Solicitors costs and Surveyors fees incurred by the Management Company incidental to the preparation and service of a Notice under Section 196 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under Sections 146 and 147 of that Act notwithstanding in any such case forfeiture is avoided otherwise than by relief granted by the Court

(b)

[…]

(c)

all costs charges and expenses which may be incurred by the Management Company in connection with the recovery of arrears of the Rent and the Service Charge”

It is agreed that after the RTM Company acquired the right to manage, the payment obligation applied to charges incurred by it for the same purposes.

Mr Davies has always maintained that he has never been in arrears with his rent or service charges. I have already decided that he was mistaken in believing that he was entitled to a credit extinguishing his liability to pay the outstanding part of the 2014-15 interim service charge, nor was there any agreement discharging his liability for that sum. For those reasons, his assertion that he has never been in arrears cannot succeed. From May 2014 until May 2020 he owed £616.60 and was therefore in arrears; that history was not rewritten when, as I have also found, the RTM Company’s right of recovery was barred by the expiry of the limitation period.

Miss Gourlay submitted in her written argument that the costs of the 2014 FTT proceedings were recoverable under paragraph 33(a) and (c) of the Sixth Schedule because they were connected with the recovery of those arrears of service charge. She suggested that, had there been no dispute as to the standing of the RTM Company to claim service charges from Mr Davies, he would have paid the service charges demanded and the RTM Company would not have applied to the FTT in 2014.

Paragraph 33(a) is concerned only with costs incurred incidentally to “the preparation and service of a notice under section 196 of the Law of Property Act 1925” or incurred “in or in contemplation of proceedings under sections 146 and 147 of that Act”. Section 196 of the 1925 Act is a general provision dealing with the method of service of notices of all types, and it was not suggested that it was relevant to the appeal. Sections 146 and 147 of the 1925 Act are concerned with forfeiture. There has never been any suggestion that the 2014 FTT proceedings were in contemplation of the forfeiture of Mr Davies’ lease, and Miss Gourlay made no submission to that effect.

Paragraph 33(c) is wider and allows the RTM Company to recoup any costs incurred “in connection with the recovery of arrears” of rent or service charges. But the 2014 FTT proceedings were mainly concerned with the question whether the RTM Company’s management extended to Mr Davies’ property. It is true that when the Company applied to the FTT on 20 January 2014 it asked for a determination of the payability of service charges from 2011 to 2014. But at the case management hearing on 13 May 2014 the FTT struck out the claim so far as it related to the sums identified for the period up to 31 March 2014, because Mr Davies had already been found not to be liable to pay those sums by the County Court. It follows that, when the proceedings were commenced, there were no arrears of rent or service charges. The costs incurred in commencing the proceedings and preparing for and attending the case management hearing on 14 May 2014 are therefore not recoverable under paragraph 33(c).

On the day after the case management hearing a new service charge demand was issued for charges of £1,279.02 demanded on account for 2014-15 on 15 May 2014. The demand stated that payment was due immediately, but it was not paid by Mr Davies for over a year, and then only in part. If that charge was in arrears between 15 May and 28 August 2014, when the hearing before the FTT took place, then costs incurred for work in connection with the proceedings during that period would be recoverable under paragraph 33(c). Mr Davies suggested in his written material that the 2014 proceedings were never about money due, but only about the principle of entitlement to charge, but it is clear from the statement of case filed on behalf of the RTM Company on 27 May 2014 that it did seek to recover the sum it had just demanded for 2014-15.

Mr Ward submitted that a service charge cannot be in arrear until it has been found or agreed to be reasonable, but that is not the effect of section 19, Landlord and Tenant Act 1985. The statutory ceiling does not prevent a liability arising for the amount which is reasonable.

Mr Ward’s next point was that the 2014-15 charge was not validly demanded, and so was never due or in arrears. Mr Davies had made that point in his defence to the County Court claim in June 2021 and in his statement of case for the FTT proceedings in March 2022. The FTT did not refer to the point in its decision.

I have quoted the payment provision in paragraph 3 of the Twelfth Schedule of the Lease at paragraph 8 above. It provides for payment by 10 instalments, not by a single lump sum in advance. My reading of the clause is that those instalments are payable on ten dates nominated by the Management Company with at least a month between each date; the Management Company is given power to vary those dates so that payment can be required on “such other dates as shall from time to time be nominated”. How many “other dates” is not specified but there must be at least two, and arguably ten, since the clear intention is that the payment in advance is to be by instalments, rather than in a lump sum. I do not know whether the demand on 14 May 2014 was the first occasion on which a request was made for the full year, and up to February 2013 at least instalments seem to have been demanded half yearly.

Mr Davies’ obligation was to pay the service charge in the manner stipulated in the Twelfth Schedule to the lease. The 2013 County Court claim was dismissed not only because the RTM Company could not prove that it was entitled to manage but also because it could not show that the Management Company had nominated dates for payment as required by paragraph 3 of that Schedule. The demand served on 15 May 2014 did not cure that problem as it purported to require payment on a single date (which, oddly, was 1 April 2014, which had already passed) rather than by instalments. For that reason I am satisfied that it created no liability to pay and did not give rise to arrears.

At the hearing before the FTT on 28 August 2014 Mr Davies did not dispute that, if the RTM Company was validly constituted and entitled to manage his property, he should pay the charge for 2014-15. The FTT found in the Company’s favour and directed that payment should of the £1,279.02 should be made by 19 November 2014. It made no determination of the date at which that sum had become payable. In my judgment, neither Mr Davies’ decision not to question the validity of the demand, nor the FTT’s decision that the sum demanded was payable, caused the interim service charge retrospectively to have been in arrears at any time before 19 November 2014. It had not been in arrears before that date because it had not been properly demanded. The FTT’s determination that the sum was due was of course definitive and meant that any defences which could have been taken became irrelevant to Mr Davies liability. But the FTT specified a date for payment in the future and it did not consider or determine when the sum had first fallen due. Its decision does not prevent Mr Davies from maintaining, correctly, in these proceedings that he was not in arrears at any time before 19 November 2014 and that the 2014 proceedings were not concerned with the recovery of arrears because there had been no arrears.

The FTT was therefore wrong to find that the cost incurred in the 2014 proceedings were incurred in connection with the recovery of arrears of rent or service charges.

The other administration charges which the FTT found to be payable were for four letters demanding payment of arrears which were sent in November 2016 and then in February, March and July 2020, totalling £840.

As a result of Mr Davies’ non-payment of the full sum the FTT found to be due on the date it specified, 19 November 2014, he fell into arrears for the first time. Despite the absence of a valid demand, he cannot claim that the 2014-15 payment on account was not due because the FTT had found that it was and there was no appeal against that decision. He remained in arrears by leaving £616.60 outstanding when he paid the balance of the sum on 31 May 2015 and has been in arrears ever since because of his misguided claim to be entitled to a credit for that amount.

Although the letters sent by Urang demanded payment of a greater sum than was owed (because they included the irrecoverable costs of the 2014 proceedings) they were nevertheless proper attempts to recover arrears which Mr Davies is liable to pay under paragraph 33(c).

The FTT found that the sums claimed for debt collection letters were payable by the RTM Company under the terms of its contract with Urang and that the sum charged was reasonable. Mr Davies disputed the reasonableness of the charges in his grounds of appeal, but there is no basis on which this Tribunal could interfere with the FTT’s assessment.

In conclusion on this part of the appeal, therefore, the administration charges which the FTT should have found to be payable are limited to the sum of £840.