[2025] UKUT 115 (LC)

The FTT first issued directions in the Application on 28^th April 2023. By that date Dr Hakobyan had made an additional application for the appointment of a manager pursuant to Section 24 of the Landlord and Tenant Act 1987. I understand that the remainder of the Applicants were also identified as parties to this application (“the Manager Application”). Cudweed was identified as the respondent to the Manager Application.

I have not seen a copy of the initial directions given by the FTT on 28^th April 2023. As I understand the position the FTT, by those directions, set down both the Application and the Manager Application for a case management hearing on 30^th May 2023.

The case management hearing duly took place on 30^th May 2023, attended by the parties. At that stage, the Applicants had solicitors, Jobsons Solicitors Limited (“Jobsons”), acting for them. At the case management hearing the Applicants were represented by a Ms Collins of Jobsons. The Appellant was represented by two of its leasehold property managers. Cudweed was represented by counsel. The FTT provided a short written decision on the case management hearing, accompanied by directions (“the May 2023 Directions”).

The May 2023 Directions were subsequently amended on 14^th August 2023, but the amendments are not material for the purposes of the appeal. For present purposes the following directions, within the May 2023 Directions, are relevant.

The Appellant was joined as a respondent to the Manager Application, and Cudweed was joined as a respondent to the Application. The FTT noted the agreement of the parties that Dr Hakobyan should be the lead Applicant and stated that the FTT would restrict itself to the issues raised by “her application”. I am not entirely clear whether the reference to “her application” was a reference to the Application or to both of the Application and the Manager Application.

In terms of disclosure the FTT gave the following directions:

“4.

By 27 June 2023, the Lead Applicant shall email to the First and Second Respondents all the demands for heating and hot water charges which she has received since 1 November 2019.

5.

By 27 June 2023, the First Respondent shall email to the Lead Applicant and the Second Respondent copies of (i) all service charge demands made to the Lead Applicant since 1 April 2019; (ii) the service charge budgets for the years 2019/2020, 2020/21, 2021/2o22 and 2022/23; (iii) the budgets for these years; and (iv) any reconciliation between budgeted and actual expenditure.

6.

By 27 June 2023, the Second Respondent shall email to the Lead Applicant and the First Respondent copies of (i) all service charge demands made to the First Respondent since 1 January 2019; (ii) the service charge budgets for the years 2018, 2019, 2020, 2021, 2022 and 2023; (iii) the budgets for these years; and (iv) any reconciliation between budgeted and actual expenditure.”

So far as statements of case were concerned the FTT noted, in its written decision, that Dr Hakobyan had not particularised the service charges which she sought to challenge, while also finding that it had been difficult for her to do so “given the difficulties of reconciling the respective accounts maintained by the First Respondent (under the sublease) and the Second Respondent (under the headlease)”. The FTT gave the following directions for the service of statements of case:

“The Lead Applicant’s case

7.

By 25 July 2023, the Lead Applicant shall email to the First and Second Respondents a Statement of Case identify the service charge items which are challenged and any legal submissions on why this Tribunal has jurisdiction to determine the same.

The Respondents’ cases

8.

By 29 August 2023, the First and Second Respondents shall file their Statements of Case in response together with any legal submissions as to the Tribunal’s jurisdiction.”

The FTT directed a hearing of “the preliminary issues” to take place on 25^th September 2023. By reference to the terms of the FTT’s decision, in giving the May 2023 Directions, these preliminary issues appear to have been issues raised by Cudwood’s counsel as to whether the charges in dispute were in fact service charges amenable to the Section 27A jurisdiction; see paragraphs (14) and (15) of the decision.

So far as the Manager Application was concerned, the Applicants were given the option of withdrawing the Manager Application. As I understand the position, this came about because the FTT had identified to the Applicants’ solicitor that the Manager Application might be misconceived, on the basis that a management order could not be obtained against the Appellant, as a social landlord; see paragraph (16) of the decision. Paragraph (17) of the decision recorded that Ms Collins, for the Applicants, had agreed to notify the FTT by 9^th June 2023 as to whether the Applicants would be continuing with the Manager Application.

The parties then proceeded to file and serve their statements of case, pursuant to the directions given by the FTT. The content of these statements of case is central to the issues raised by the appeal. It is therefore necessary to spend some time on each statement of case.

The Applicants’ statement of case was dated 18^th August 2023. It bears a statement of truth signed by Ms Collins, the Applicants’ solicitor. It is therefore reasonable to proceed on the basis that the statement of case was prepared either by or with the assistance of the Applicants’ solicitors (Jobsons). Paragraph 1 of the statement of case identified the challenge made by the Applicants, in the following terms:

“1.

The Applicants in this matter are the leaseholders of 45 Millharbour, London, E14 9TR and they bring this application for a determination of reasonableness as they consider that, for the period from 2019 to date the service charges which they have paid are an unreasonable amount. On that basis the Applicants seek a determination of reasonableness in respect of the charges levied in the years to November 2019-March 2020, April 2020-March 20[2]1, April 2021-March 2022 and April 2020-March 2023.”

The statement of case went on to set out the items of expenditure which were said to be unreasonable, and complained about the alleged lack of response and lack of information provided by the Appellant. Paragraph 8 made reference to various provisions in the Occupational Underleases, in the following terms:

“8.

The Applicants rely on the following parts of the Lease to the apartments:

(i)

Schedule 7 Clause 1: This requires the Management Company to provide an Account of Estate Service Charge Costs. This has now been provided however, this is significantly late.

(ii)

The Managing Agent has throughout the Tribunal process, failed to provide data to the Respondent in a timely fashion which is indicative of their general lack of care and attention.

(iii)

Schedule 7 Clause 1 h; This requires the Management Company to hold an annual meeting to discuss matters pertaining to the previous service charge year. The Management Company is in breach of this covenant.

(iv)

3.2: The Applicants will state that the Service Charge Certificate fails to give a “fair summary” of the Management Company’s expenditure and outgoings.”

Various service charge records were attached to the statement of case. The other attachment to the statement of case was a schedule, which set out individual items of expenditure which were being challenged. The items of expenditure were grouped by service charge year. This schedule (“the Schedule”) was divided into columns. The Applicants’ case, in relation to each challenged item of expenditure, was set out in a separate “Tenant’s Comments” column. This column (“the Tenant’s Column”) also made use of a key, whereby the following numbers were used to denote the type of challenge being made to each item of expenditure:

“*1) Chargeable under lease?

*2) Reasonable in amount/standard?

*3) Correctly demanded?”

The number “2)” appeared in the Tenant’s Column for every item of expenditure which was challenged. “1)” and “3)” did not appear. This was consistent with the Applicants’ statement of case and the comments in the Tenant’s Column, which raised no issue of contractual liability to make the Payments. The challenges made by the Applicants were all based on reasonableness grounds. To be more accurate, the consistent complaint in the Tenant’s Column was absence of information and absence of explanation in relation to the challenged items of expenditure. In the statement of case itself, the challenges were more widely expressed, including complaints of excessive costs and poor service.

The Appellant’s statement of case was dated 13^th September 2023. The Appellant adopted what was characterised as a neutral stance, the grounds for which were explained in paragraph 2 of the statement of case, in the following terms:

“2.

Network Homes Ltd has very little to say in this case. It is itself a tenant at this development and, in practice, largely acts as a “pass through” vehicle. It anticipates adopting a largely neutral stance. It is supportive of the rights of the Applicants to challenge their service charges and, in particular, to challenge the actions of Cudweed Management Co Ltd as the party who is largely responsible for the service charges. But, as Network Homes Ltd is simply a pass through vehicle, if there should be any finding that the service charges (as incurred by Cudweed Management Co Ltd) fall to be reduced under s.19, Landlord and Tenant Act 1985 and/or for any other reason, it seeks to have the same benefit applied to its service charge liabilities, so as to ensure consistency in the workings of the service charge regime.”

The statement of case went on to set out some of the terms of the Headleases and the Occupational Underleases, and to explain how charges were made to the tenants of the Flats. The statement of case then briefly responded to the individual paragraphs of the Applicants’ statement of case. The essential point made in this section of the statement of case was that the Appellant was a “pass through” body for the Flats. This was explained in paragraph 12 of the statement of case, in the following terms:

“12.

The application challenges the costs incurred under the headlease (see, e.g. the exhibited accounts, which are from Cudweed Management Co Ltd). That is obviously correct. Network Homes Ltd is, in large part, a “pass through” body for this block. The parties that control the costs are the freeholder and management company under the headlease.”

Cudweed’s statement of case was also dated 13^th September 2023. Cudweed asserted that the Applicants’ case was insufficiently particularised and further directions were likely to be required from the FTT in that regard. Subject to that opening qualification, the statement of case then set out Cudweed’s case.

The statement of case set out the title structure of the Flats and the service charge provisions in the Headleases. The statement of case then turned to the question of whether there was a preliminary issue in the Application; in particular as to “whether the Applicants were liable to pay a service charge to the First Respondent at all under the terms of the Occupational Leases”; see paragraph 10 of the statement of case. As Cudweed pointed out, at paragraph 11 of the statement of case, the Occupational Underleases did not contain conventional service charge provisions, but only what was recoverable by virtue of clause 3.3 of the Occupational Underleases, which I have quoted above. Cudweed summarised its construction of clause 3.3 in paragraphs 12 and 13 of the statement of case, in the following terms:

“12.

Neither §3.3.1 or 3.3.2 are apt to enable the First Respondent to recover from the Applicants the service charges it pays to the Second Respondent under the Superior Lease, given the definition of Outgoings at §1.2.22 of the Occupational Lease; outgoings are sums assessed against the property in the nature of taxes / rates, not service charges.

13.

However, given (a) the terms of §3.3.3 (sums due to the Superior Landlord under the Superior Lease), (b) the fact that under the Superior Lease, whilst in reality the service charges are payable / paid to the Second Respondent not the Superior Landlord, nonetheless the Service Charge is (arguably at least) ‘due’ to the Superior Landlord given the terms of §2.3 of the Superior Lease whereby the tenant must pay ‘the Landlord and/or the Management Company’ the rents, and (c) the fact that it is agreed between the Applicants and the First Respondent that in fact a service charge is due, the Second Respondent does not consider that a preliminary issue falls to be determined on this point.”

It will be noted that paragraphs 9-13 of Cudweed’s statement of case raised the issue of whether the Appellant actually had any right, under the terms of the Occupational Underleases, to recover from the tenants of the Flats the Service Charges which the Appellant was obliged to pay to Cudweed under the terms of the Headleases. Cudweed’s position was that a preliminary issue was not required, for the reasons set out in paragraph 13 of the statement of case, which included the assertion that it was agreed between the Applicants and the Appellant “that in fact a service charge is due”. Nevertheless, Cudweed’s statement of case was an articulation of the question of whether the Applicants were liable, as a matter of contract, to make any Payments pursuant to the terms of the Occupational Underleases.

Subject to a reiteration of its complaint of lack of particularisation in the Applicants’ case, Cudweed then proceeded, in the last section of its statement of case, to respond to the complaints of excessive charging and poor service in the Applicants’ statement of case. The statement of case also made a brief response to the Schedule.

The May 2023 Directions, as given by the FTT on 30^th May 2023, were amended on 14^th August 2023. As I have said, the amendments are not material to the appeal. The amended version of the May 2023 Directions did record that the FTT had consented to the withdrawal of the Manager Application by the Applicants, on 14^th June 2023. For this reason none of the statements of case dealt with the Manager Application.

A further hearing took place before the FTT on 25^th September 2023. The Applicants were again represented by Ms Collins. The Appellant and Cudweed were each, respectively, represented by counsel. The FTT again provided a short written decision, accompanied by further directions (“the September 2023 Directions”). It is not necessary to go through the detail of the September 2023 Directions (subsequently amended on 11^th January 2024). Essentially, the FTT gave directions which were intended to take the Application to a substantive hearing. The decision recorded that although Scott schedules and statements of case had been exchanged, it was agreed that these needed to be refined. This was reflected in the September 2023 Directions, which provided for a revised form of the Schedule to be provided by Dr Hakobyan, in the form attached to the September 2023 Directions, to which the Appellant and Cudweed could then respond, by completing the respective columns in the Schedule for their comments. The prescribed form of the Schedule used the same key as in the original form of the Schedule for identifying the nature of the issue raised in relation to each challenged item of expenditure.

The September 2023 Directions also required each party to serve a statement which was required to set out “the relevant service charge provisions in the lease”, and “any legal submissions in support of the service charges claimed, including argument, if liability to pay is at issue”. The September 2023 Directions also set down the Application for hearing in an eight week window from 19^th February 2024.

The Applicants served a revised statement of case pursuant to the September 2023 Directions, which is dated 12^th October 2023. In this revised statement of case the Applicants renewed their case that they had been given inadequate information regarding the relevant charges. The revised statement of case then went on to deal, at some length, with various individual heads of expenditure. No case was advanced, in the Applicants’ revised statement of case, that there was no contractual liability at all, under the Occupational Underleases, to make the Payments.

The revised statement of case of the Applicants concluded with a statement of truth, signed by a solicitor. The solicitor’s firm was not identified, but I assume that it was Jobsons. The revised statement of case was accompanied by various supporting materials and documents.

The Appellant’s revised statement of case was dated 31^st October 2023. The Appellant set out its basic position in response to the Applicants’ revised statement of case in the following terms, at paragraphs 3-6:

“3.

It does not appear that the Applicants are making any substantive challenge against Sovereign Network Homes (“SNH”) (the Scott Schedule, for example, only refers to challenges, questions, disputes etc with the Second Respondent).

4.

If would not be surprising if they were not seeking any remedy against SNH. After all, SNH is itself a tenant at this building. Save for an exceptionally modest internal management cost charged by SNH to its own tenants, the service charges are under the control of the freeholder and/or Second Respondent.

5.

If no remedy is sought against SNH then, whilst SNH would remain a party for the purposes of ensuring it is bound by the decision, it will likely adopt a “watching brief” approach (although it will seek its own order under s.20C, LTA 1985). If the Applicants succeed in reducing any of the service charge costs for which the Second Respondent is responsible, then SNH (as leaseholder) would seek the same reductions as regards the charges raised by the Second Respondent, so that SNH can then pass the proportionate reduction on to the relevant applicant.

6.

If a remedy is sought against SNH, then the Applicants are requested to please confirm by return what remedy is sought and which items of service charge it relates to.”

The Appellant then set out its response to the complaints set out in the Applicants’ revised statement of case. The response was limited on the basis, as repeatedly asserted by the Appellant, that the matters raised were for Cudweed to respond to. The revised statement of case concluded, at paragraph 26, with the following assertion:

“26.

As far as SNH can see, they have nothing to answer in this application and, indeed, have very little to say about this case at all. They reiterate the “Introduction” to this document and their previous statement of case, including, in particular, paragraph 19.”

Cudweed’s revised statement of case was also dated 31^st October 2023. The revised statement of case was accompanied by a form of the Schedule, with the column for “Landlord’s Comments” completed by Cudweed. So far as I can see, the form of the Schedule in which Cudweed set out its responses was the original version of the Schedule attached by the Applicants to their original statement of case. Cudweed was thus replying to the comments in the Tenant’s Column, as they were set out in the original version of the Schedule, all marked with a “2)” to denote the type of issue being raised by the Applicants.

So far as the revised statement of case itself was concerned, Cudweed reiterated its complaint of lack of particularity in relation to the Applicants’ case, both in relation to the Applicants’ statement of case and in relation to the Applicants’ case in the Schedule; see in particular paragraphs 12-14 of the revised statement of case. Subject to that complaint Cudweed then set out its case in response to the Applicants’ revised statement of case. This was prefaced by a repetition of Cudweed’s summary, in its original statement of case, of the service charge provisions in the Headleases. So far as the Occupational Underleases were concerned, Cudweed essentially repeated its point that the Occupational Underleases contain no conventional service charge provisions, and quoted clause 3.3 of the Occupational Underleases. Paragraph 11 of the revised statement of case then repeated paragraph 12 of Cudweed’s original statement of case, but with the addition of the following sentence (shown by underlining):

“11.

Neither §3.3.1 or 3.3.2 are apt to enable the First Respondent to recover from the Applicants the service charges it pays to the Second Respondent under the Superior Lease, given the definition of Outgoings at §1.2.22 of the Occupational Lease; outgoings are sums assessed against the property in the nature of taxes / rates, not service charges. It is understood to be the case that the First Respondent relies upon §3.3.3 for passing on the service charge costs it incurs under the Superior Leases.”

The relevant point here is that Cudweed did not repeat paragraph 13 of its original statement of case, which I have quoted above. I infer that this was because Cudweed was assuming that the contractual liability of the Applicants to make the Payments under the Occupational Underleases was not in issue in the Application.

The September 2023 Directions also provided for the exchange of witness statements. Both Dr Hakobyan and Ms Labruzzo made witness statements. In these witness statements Dr Hakobyan and Ms Labruzzo set out their complaints about the services which they had received. These complaints included complaints about lack of information concerning the Payments demanded of them. As I read the witness statements however, there was no suggestion that there was not a contractual liability to make Payments under the Occupational Underleases. The matters in issue were whether the Payments which had been demanded were reasonable and whether the Applicants had been provided with adequate information. The Appellant served a witness statement of Nicoy Musarurwa, Head of Leasehold Compliance, which concentrated upon explaining the system employed by the Appellant for passing on the Service Charges payable under the Headleases to the tenants of the Flats, by the Payments. The witness statement also reiterated the Appellant’s perception of itself as the effective “middle man” in the service charge structure, between Cudweed and the tenants of the Flats. Cudweed served three witness statements, which were essentially concerned with answering the Applicants’ complaints of poor services and lack of information.