[2023] UKUT 219 (LC)

Switch House is a residential building of 60 flats on 9 floors, built in 2003. Leases were granted in 2003 for a term of 155 years. The appellant is the management company which is a party to all the leases; it is responsible for the maintenance and repair of the building and the leases require the leaseholders to pay a service charge to the appellant. The respondents are 14 of the lessees. In January 2021 they applied to the FTT for a determination of the reasonableness and payability of service charges demanded for the years 2018-19 and 2019-20 in the sum of £69,136.85 relating to major works for roof repairs.

This was not the first round of litigation about those charges. In December 2020 the appellant had applied to the FTT for dispensation from the consultation requirements for major works under section 20ZA of the Landlord and Tenant Act 1985.

The basis of the leaseholders’ challenge both to the application for a dispensation and to the reasonableness of the charges was that the appellant should have recovered the cost of the roof works from the NHBC or from the builder, and that its failure to do so meant that the dispensation should not be granted or, if dispensation was granted, meant that the charges were not reasonable. The challenge to the dispensation application failed; following Daejan Investments Limited v Benson [2013] UKSC 54 the FTT held that the only relevant matter was whether the leaseholders had suffered any disadvantage from the failure to consult, and they had not. The challenge on this basis to the reasonableness of the service charges, in the present proceedings, also failed; following Daejan Properties Limited v Griffin [2014] UKUT 206 (LC) the FTT held that historic neglect or the failure to get something done earlier is not relevant to the reasonableness of charges for repairs.

However, the leaseholders succeeded in one limited respect; a charge of £5,520 in respect of work done by Ropetech (London) Limited was reduced by 50% to £2,760 on the basis that the work could have been done more cheaply by a different method that did not involve abseiling. A further reduction of £401.85 was ordered as a result of a reduction applied by the contractor. Accordingly the full charge of £69,136.85 was reduced by £3,161.85.

Having dealt with the reasonableness of the service charge, at its paragraphs 22 and 23 the FTT observed that the lease required the management company to keep its reserve fund in a separate trust account. It said:

“23.

Upon questioning from the Tribunal, Counsel for the respondent admitted at the hearing that this had not been done and that reserve funds were wrongly mixed up with all other funds paid as service charges. This is a breach of the lease and is in the view of the Tribunal an obvious example of bad management. The Tribunal would strongly urge the respondent to forthwith correct this error and create the trust account as required by the lease terms.”

There is no appeal from the substantive decision about the reasonableness of the charge (an application for permission to appeal the decision about the RopeTech charge was refused). However, the appellant has permission to appeal the order made by the FTT under section 20C of the Landlord and Tenant Act 1985.

It is relevant, for reasons that will appear, to mention that the leaseholders sought permission from the Upper Tribunal to cross-appeal in respect of the FTT’s decision to allow argument based on Daejan Properties Limited v Griffin [2014] UKUT 206 (LC) to be introduced very shortly before the hearing, but that application was refused.