[2024] UKUT 81 (LC)

The appellants’ application form stated that they wanted a determination for 6 past years, 2012/13 to 2017/18, and for 2018/19 (the year 2019/20 was later added by the FTT’s direction).

The brief statement accompanying the application form in June 2019 said “It has not been possible to establish the amount in dispute” and “The entire service charge is in issue”. At paragraph 18 the applicants listed a number of issues including “What the applicants have been charged for”, “whether the work charged for has been done”, “whether the standard of work done and complained of has been carried out to a reasonable standard” and “whether the applicants are entitled to set-off any claim for breach of covenant against the service charges demanded and if so how much”.

In the course of the hearing of the present appeal Ms Gourlay stated that what the appellants seek from the FTT is not a determination of whether the interim charges that they have paid were payable. The interim charges, said Ms Gourlay, are “water under the bridge”. What they seek is a determination of what are the final service charges for the years in issue – which the appellants do not know because the balancing exercise prescribed by the lease has not been followed. Those charges are, necessarily, those payable only in respect of Block E (because of the decision in Triplerose). That the interim charges are not in issue came as a surprise to Mr Walsh (instructed only on the appeal) and to the respondents (whose individual directors are recently appointed and therefore new to these proceedings), and indeed to me during the appeal hearing. Ms Gourlay explained that the appellants’ application is made under section 27A(1)(c), for a determination of “the amount which is payable” for the years in dispute. Whether that was clear to the FTT is uncertain, as we shall see, but I note from the transcript of the FTT hearing (page 309) that Ms Gourlay said to the panel “My clients are not challenging the on-account demands. My clients are challenging costs that have been incurred”. Whether the panel took that on board, or considered what difference that made to what they had to decide on the two preliminary issues it was looking at, I do not know.

This is an unusual use of section 27A. Applicants usually challenge a specific charge demanded of them, on the basis that it is not payable either under the terms of the lease, or for failure to meet the requirement of section 19 of the 1985 Act. In such a case a leaseholder must produce enough evidence or argument to raise a prima facie case, which the landlord or management company then has to answer. But as we have seen the FTT can make a decision about charges not yet demanded in respect of expenses not yet incurred under sub-section (3); what is wanted here is a determination under sub-section (1) about charges, final not estimated, not yet demanded in respect of expenses already incurred.

From the pleadings in the FTT it is clear that, once provided with accounts in the course of disclosure, the applicants have taken issue with specific items of expenditure over the years and regard the respondent as being in breach of covenant because of the disrepair in Block E, so if a prima facie case is necessary in these circumstances it has certainly been raised.

What will be the consequences of such a determination is not known at this stage; there remains the very considerable task of determining what the respondent has spent on Block E since 2012/13 and how much of that was reasonably incurred. Then there is the appellants’ claim for set-off for breach of covenant, which may be evidentially very difficult because they will have to show what losses they have actually incurred as a result of any work that has not been done or has been done badly or late. It is not known whether final service charges will ever be demanded by the respondents. But the first appellant is now in considerable arrears with interim charges; it may be that what the appellants want is ultimately to force a balancing exercise, putting together the amounts paid by way of interim charges from 2012/13 to 2017, the amounts actually payable in respect of Block E during all the eight years in dispute, and any set-off for breaches of covenant during those years. On any reckoning that is not a risk-free strategy for the appellants and is going to cost them and the respondents dearly in terms of time and money.

But that is for the future. For now the proceedings are, if I may be forgiven for saying so, bogged down in preliminary issues, to which I now turn.