[2025] UKUT 120 (LC)

When it quantified the service charge surpluses for each year the FTT said specifically that it took the figures from the amounts shown in the Income and Expenditure Accounts. It then indicated that the respondent’s share of the surplus (which it calculated using 6.1%) should be credited back to her and deducted from her outstanding account.

The appellant submits that the FTT was mistaken in referring to the income and expenditure accounts to calculate the surpluses. These were prepared on an accrual basis and showed liabilities which accrued during the year. In order to identify what had been expended in the service charge year it was necessary to refer to the summaries of expenditure which were certified by the appellant’s accountant. These showed what invoices had been paid during the year. Where an invoice had been received in one accounting year and paid in a later year it appeared in the expenditure summary for the year in which it was paid, but in the income and expenditure accounts it appeared in the year the invoice became payable.

This difference in presentation was particularly important for 2019. The appellant dismissed its former managing agents, replaced its board of directors and instructed new managing agents in October 2018. Mrs Fisher, the new agent, explained in an email to all leaseholders on 3 August 2021 that certain invoices for services supplied before their appointment had been outstanding at the time of their appointment. These were investigated, found to be due, and paid during 2019. The payments certified as having been made during 2019 therefore included payments for services provided, but not paid for, during earlier years. The income and expenditure accounts for 2019 did not include payments made during 2019 for services supplied during 2018. Thus, for example, the summary for 2019 certified that payments of £63,583 were made during 2019 in respect of buildings insurance, whereas the accounts show expenditure of £42,680. The difference between the two figures arose because part of the insurance premium for 2018 was paid during 2019.

When it refused permission to appeal the FTT said that the service charge accounts on which it relied were the only certified record of service charge expenditure provided to it. In making that statement the FTT was mistaken. It also had the annual summaries for each of the disputed years, certified by the appellant’s accountants. The summaries were referred to in the respondent’s statement of case, and in the schedule. The fact that the summaries showed different figures for expenditure from those in the annual accounts was also pointed out and relied on by the respondent as supporting an inference that one or other must be inaccurate. The suggested discrepancies were then the subject of evidence from Mrs Fisher, in her own witness statement. It appears, therefore, that the FTT overlooked evidence when it suggested that the only certified statements provided to it were the annual income and expenditure accounts.

The surpluses calculated by the FTT did not reflect all of the expenditure during the relevant year. The figures calculated by the appellant are very different. Using the summaries of expenditure and omitting the £10,000 contribution to reserves, the appellant suggests that in 2019 service charges demanded from the residential tenants exceeded its actual expenditure (including sums paid in respect of services provided in previous years) by £6,213. The respondent’s 6.1% share of that surplus would be £378.99, not the £1,799.62 suggested by the FTT. The differences in the next two years were very much smaller, but in 2022 the appellant states that there was a deficit, rather than a surplus, and that a balancing payment was required from leaseholders rather than a credit.

I am satisfied that the FTT misunderstood or overlooked evidence, the surpluses it determined cannot be relied on and the respondent is not entitled to the credits it calculated. It is not possible for me to provide alternative figures, nor is it necessary for me to do so. The FTT’s task under section 27A, 1985 Act, was to determine the amount of the service charges payable by the respondent. In the event, the charges were almost all agreed. A mistaken impression was created by the FTT about sums to be credited to the respondent which were different from the sums certified by the accountant or managing agent because they were calculated on a different basis. It is sufficient to set aside the FTT’s determination recorded in paragraph 23 of its decision.