[2024] UKUT 400 (LC)

I agree with the appellants that the lease makes no reference to solar panels and that the appellants are under no contractual obligation to use solar-powered electricity at all. Nor does the planning condition require them to use the solar panels for the common parts of the building; it requires only the use and maintenance of the approved system, without saying what the power output is to be used for, although it was obviously the intention of the local planning authority that it be used to supply power to the building.

More generally, where the freeholder of a building with solar panels on its roof has chosen to grant long leases of flats in the building, it is under no contractual obligation to use those panels for the benefit of its leaseholders unless it has covenanted in the leases to do so.

However, the factual background to the present proceedings, and the nature of the FTT’s jurisdiction, mean that that is not the end of the matter.

The FTT’s jurisdiction under section 27A of the 1985 (set out at paragraph 9 above) Act is to determine whether service charges are payable, and if so in what amount. When it is invoked by leaseholders, they must raise a prima facie case that indicates that a cost was not reasonably incurred, or that an estimated charge was not reasonable. Once they have done so the evidential burden shifts to the landlord or management company (both in this case, although the FTT focused on the first respondent as landlord) to show that the expenditure, or the charge (as the case might be), was reasonable.

In my judgment the respondents did all that was required to shift the burden to the appellants in the FTT. The essence of their case was this: first, that the development was given planning permission on condition that it benefited from solar power up to at least 10% of its needs, second, that the solar panels are connected up so as provide power for the common parts, and third, that for three years they appear to have done so with the result that the leaseholders were not required to pay anything. The respondents therefore wanted to know why the appellants were paying an outside supplier for electricity for the common parts from 2019/20 onwards. It is hardly surprising that they took the view that the appellants must be using the panels for their own ends. Why waste them?

At first sight the FTT’s decision lacks findings of fact. The FTT did not decide whether the absence of a charge in the first three years was because the solar panels were providing it for free, nor did it decide when they were switched off, nor why. It did not make any finding of fact to the effect that the panels would provide all the power needed for the common parts. My initial reaction, which I discussed with the parties at the hearing, was that the matter needed to be remitted to the FTT for further findings to be made.

On reflection, I take the view that the FTT did not make those findings because it did not need to. It heard the respondents’ prima facie case and it looked to the appellants (as respondents in the FTT) to show that the costs and charges were reasonable. It heard Mr Gurvits’ evidence and rejected it as neither useful nor reliable. It concluded that “there is no satisfactory evidence before us in relation to the position on Avon’s part”; in other words, the appellants had not discharged the evidential burden. The FTT was left with the respondents’ prima facie case that the power for the common parts could be and had been provided by the solar panels. That was consistent with its own observation that the solar panels were connected to a switch on the control panel labelled “Communal solar” and that it is off, whereas the panels for the individual flats are switched on (there is a picture of the control panel in the appeal bundle). In the circumstances, where the appellants had provided nothing to refute the respondents’ evidence that the solar panels had powered the common parts for three years, and no explanation for their being unused and apparently wasted, the FTT found that the costs for the first three years in issue had not been reasonably incurred and (as I agree we can infer) that the estimated charges for the last two years were not reasonable.

I see no flaw in that finding and the appeal fails insofar as it is a challenge to the FTT’s findings about the years 2019/20 to 2023/24.

That does of course leave the appellants unable to charge the respondents for their share of the communal electricity for the three years from 2019/20. But the appellants did not adduce any satisfactory evidence to explain why a mains supply was needed from that year onwards when it apparently had not been in the first three years. The FTT’s finding was therefore inevitable.

As to the two years 2022/23 and 2023/24, only the estimated charges were in issue before the FTT. If the leaseholders choose to challenge the final charges for those or any later years then the appellants will need to answer that challenge, and the FTT’s decision gives them a lot of assistance by setting out the points on which they will probably need to produce evidence.

However, the appellants’ concern is that the FTT’s decision in paragraphs 7.4 to 7.6 appears to impose a precondition that they must satisfy before any future charges, including presumably the final demands for 2022/23 and 2023/24, can be regarded as reasonable.

It is not entirely clear to me whether that was what the FTT intended to do. But it is easy to see the appellants’ point; it appears that the FTT was making a judgment, rather than merely obiter observations, about future charges. And in its refusal of permission to appeal the FTT appeared to confirm that view of what it said in paragraph 7.6 by saying:

“Our decision is that unless and until the obvious discrepancies in the estimated charges on which the bills are based has been investigated with the supplier and if necessary challenged, it is not reasonable for the Respondent either to pay those bills or to seek to recover them from the lessees.”

The FTT has jurisdiction under section 27A(3) to decide “whether, if costs were incurred for services … of any specific description, a service charge would be payable for the costs…”. But in the present case the respondents did not apply for any such determination; their application was made only in relation to the electricity charges for the years 2019/20 to 2023/24. There was no application to extend the scope of the application to future years and to costs then not yet incurred, and the appellants did not know they had to meet a case that related to future charges. For that reason paragraphs 7.4 to 7.6 are set aside insofar as they purport to make a judgment about the reasonableness of future charges or to restrict the appellants’ ability to incur costs or demand service charges after the date of the FTT’s decision.

That said, as a matter of commonsense it will be apparent to the appellants that there are points they will probably need to address if further service charges are challenged, and they may find it useful to contemplate the FTT’s words in paragraphs 7.4 to 7.6. It may or may not be right that it is not possible to tell whether the solar panels are providing 10% of the building’s electricity needs, but the planning condition is something of a red herring; the real question they are likely to have to answer is why are the solar panels are not all being used. There may or may not be a good answer to that. And even if charges to external providers are found in principle to have been reasonably incurred, again the appellants can anticipate that it may be difficult to justify charges that are all estimates and have never been reconciled. I say that by way of obiter comment intended to assist both parties to the appeal, and of course the Tribunal makes no determination about what points will have to be proved in future proceedings.