United Kingdom Upper Tribunal (Lands Chamber)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 58 (LC)

LT Case Number: LRX/110/2012

LRX/111/2012

 

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charges - costs - section 20C, Landlord and Tenant Act 1985 - jurisdiction to make an order in favour of tenants not identified in application – failure to give notice of application to respondent – waiver of procedural irregularity - appeal allowed

 

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

LONDON RENT ASSESSMENT PANEL

 

 

BY

 

SCMLLA (FREEHOLD) LIMITED Appellant

 

 

 

Re: Cleveland Mansions, and Southwold Mansions

Widley Road,

London W9

 

 

Before: Martin Rodger QC, Deputy President

 

 

Decision on Written Representations

 

© CROWN COPYRIGHT 2014

The following cases are referred to in this decision:

 

Tenants of Langford Court (Sherbani) v Doren Limited LRX/37/2000

 

Volosinovici v Corvan (Properties) Limited LRX/67/2006

 

Iperion Investments Corporation v Broadwalk House Residents Limited [1995] 2 EGLR 47

 

DECISION

Introduction

1.       Who may benefit from an order under section 20C, Landlord and Tenant Act 1985?  That question arises in this appeal from a decision of the leasehold valuation tribunal for the London Rent Assessment Panel ("the LVT") made on 29 May 2012 in proceedings between the appellant landlord (whose name is an acronym for Southwold and Cleveland Mansions Long Leaseholder's Association) and a number of its lessees concerning service charges payable under the long leases of flats at Cleveland Mansions and Southwold Mansions, Widley Road, London W9.

2.       Having determined the substantive issues regarding the disputed service charges, the LVT made an order under section 20C of the Landlord and Tenant 1985 Act (“the 1985 Act”).  The LVT first disallowed the costs of separate applications under section 168(4) of the Commonhold and Leasehold Reform Act 2002 which had been withdrawn at the start of the hearing.  It then went onto order that:

"The legal costs incurred by the [appellant] in connection with proceedings before this Tribunal are to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by all the lessees paying service charges on these blocks, but are limited to 50% of the amount demanded as shown in the summary of [the appellant's] costs."

3.       Section 20C of the 1985 Act provides as followings:

20C Limitation of service charges: costs of proceedings

(1)  a tenant may make an application for an order that all or any of the costs incurred or to be incurred by the landlord in connection with proceedings before a court, residential property tribunal or leasehold valuation tribunal, or the First-tier tribunal or the Upper Tribunal, or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application.

(2)  The application shall be made -

(a)-(aa) ...

(b) in the case of proceedings before a leasehold valuation tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any Leasehold Valuation Tribunal; ...

(3)  The Court or Tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances."

4.       The appellant is the landlord of all 140 flats at Cleveland and Southwold Mansions whose lessees stand to benefit from the LVT's order limiting the costs which may be added to the service charge.  It appeals to the Tribunal on the grounds that the LVT had no jurisdiction to make an order in such wide terms.  The jurisdiction under section 20C, the appellant submits, is limited to making an order in favour of two classes of people: first, tenants who have made an application of their own for an order, and secondly, “any other person or persons specified in the application”.  As far as the appellant is concerned no application had been made by (or for the benefit of) all of the lessees in the two buildings.

5.       Permission to appeal was given by the Tribunal (George Bartlett QC, President) on 18 December 2012.  None of the lessees who had been party to the proceedings before the LVT has responded to the appeal and it has therefore proceeded unopposed.  The appeal has been dealt with by me on the basis of written representations, after inspecting the file of the LVT relating to the original proceedings in order to fill in a number of significant gaps.

The proceedings before the LVT

6.       The proceedings before the LVT were concerned principally with an application made by the appellant under Section 27A of the 1985 Act for a determination in relation to service charges payable in the years 2009 and 2010 and sums payable on account for the year 2011.  The application was originally made against twenty-one lessees who had refused to pay some or all of the charges demanded of them.  By the first day of the hearing a number of the applications had been resolved by agreement and the case proceeded against only ten lessees of whom two were from Cleveland Mansions (flats 3 and 40) and the remainder from Southwold Mansions (flats 6, 7, 22, 25, 31, 38, 48 and 68).

7.       On 13 December 2011 the LVT gave directions for the conduct of the applications.  It informed the parties that “any application under section 20C will be heard at the conclusion of the hearing” and directed that “if any party wishes to serve evidence in relation to the section 20C application it shall be included with and served on the other party together with the statement of case or response as appropriate”.

8.        The proceedings were heard over four days in March and April 2012.  In paragraph 1B of its decision the LVT recorded that on the first day of the hearing (said to have been 21 April, but in fact 21 March), an application under section 20C of the 1985 Act to limit the appellant's costs of the proceedings before it had been added.  The LVT did not state by whom the application under section 20C had been made. 

9.       Inspection of the files of the LVT discloses that a section 20C application dated 21 March 2012 was made by Mr and Mrs Zaki, the lessees of flat 6 Southwold Mansions.  The application was made on a standard printed form which draws attention to the opportunity for the applicant to specify other persons whom he or she would wish to have the benefit of the order.  Under the heading "Other affected persons" paragraph 2 of the standard application form asks the following question:

"Are you seeking an order that is also for the benefit of any other person or persons? (e.g. other tenants in the same block or development)?  Is so, please specify and provide the names and addresses of those persons if available.  If this is not possible or is impracticable, then a written statement to that effect should be provided with this application."

10.    A further section 20C application dated 23 March 2012 (the third day of the hearing) was submitted by the lessees of flat 31 Southwold Mansions, Ms C and Ms K Pesaran.  Both the Zakis’ application and the Pesarans’ application left paragraph 2 blank. 

11.    A third section 20C application is on the file of the LVT, completed by Mr E L Nwawudu, the lessee of flat 40 Cleveland Mansions.  That application is dated 13 April 2012, the last day of the hearing before the LVT. In answer to the question at paragraph 2 of the standard application form (whether the order was also being sought for the benefit of any other person or persons) Mr Nwawudu said this:

“All tenants of SCMLLA (Freehold) Limited on Widely Road, in particular tenants in block 1-10 & 31-40 Cleveland Mansions.”

12.    In its statement of case the appellant has stated that applications in writing for orders under section 20C were made in respect of three flats namely, flat 6 Southwold Mansions (leaseholders, Mr and Mrs Zaki) and 7 Southwold Mansions (leaseholder, Mr C Renwick) and flat 40 Cleveland Mansions (leaseholder, Mr E L Nwawudu).  The appellant has also states that at the hearing before the LVT oral requests for section 20C orders were made by Mrs Peseran of 31 Southwold Mansions and Mr Nwawudu on behalf of his sister, Ms D I Nwawudu (the leaseholder of 3 Cleveland Mansions).

13.    No copies of the written applications have been provided by the appellant, because, it says, copies of the applications were never served on it.  Regulation 5(1) of the Leasehold Valuation Tribunals (Procedure)(England) Regulations 2003 (“the 2003 Regulations”) required that on receipt of an application (other than an application relating to the variation of leases) “the tribunal shall send a copy of the application and each of the documents accompanying it to each person named in it as a respondent”.  That appellant’s statement that it did not receive copies of any section 20C application is consistent with the LVT’s file, which does not include a copy of any letter to the appellant’s solicitors enclosing a copy of any of the applications which the LVT received.

14.    The appellant records at paragraph 7 of its statement of case on the appeal that it was conceded by its solicitor at the hearing before the LVT that five applications (three written applications and two oral applications) had been made.  I take this as an acknowledgement that at the hearing the appellant's representative waived the irregularity and breach of the requirements of regulation 5(1) of the 2003 Regulations.  The appellant seems to have been unaware that an application was made by Mr Nwawudu or that it included the answer to the paragraph 2 question which I have recited at paragraph 11 above.  The appellant seems also to believe that an application was made in writing by Mr C Renwick (who was represented at the hearing by counsel) but no such application appears on the LVT’s file.

15.    Other material on the LVT’s file causes me to doubt whether, when submissions were made at the conclusion of the hearing, the LVT itself was aware that an application had been made on behalf of all of the tenants of the two blocks.  The application by Mr Nwawudu, although dated 13 April 2012, does not have a stamp showing the date it was received by the LVT, and the LVT referred in its decision only to having received an application on the first day of the hearing (presumably the application by Mr and Mrs Zaki).  On 9 May 2012, almost a month after the hearing, the LVT received a letter from Mr Zaki which records that the panel had “asked me to gather signatures of remaining respondents who had not yet submitted a s.20C application”.  Assuming that to be correct, it is difficult to understand why the LVT would solicit individual applications if it was aware that an application had already been made referring to all lessees. In the weeks following the close of the hearing, but before the decision was issued, three lessees signed and submitted a form prepared by Mr Zaki stating that they “wish to be included” in an application under section 20C (the lessees of flats 32 Cleveland Mansions and of 22 and 38 Southwold Mansions).  There is no suggestion on the LVT’s file that copies of these documents or of Mr Zaki’s letter were sent to the appellant.

The Issues

16.     The issues raised by this appeal concern both jurisdiction and procedural fairness.  Was the LVT entitled to make an order in favour of "all the lessees paying service charges on these blocks” in circumstances where the only applications before it were made by the lessees of five flats?  If the answer to that question depends on the content of the application submitted by Mr Nwawudu, what is the consequence of the fact that that application seems not to have been served on the appellant which was therefore unaware of the terms in which an order was sought? 

17.    The appellant has not been granted permission to appeal any other issue concerning the LVT's exercise of its discretion under section 20C.  A ccordingly, if the LVT did have jurisdiction to make the order which it purported to make under Section 20C, all of the lessees will be entitled to the benefit of it and the appellant will be debarred from seeking to recover approximately £30,000, (based on the figures given to the LVT) which it expended in legal costs in the proceedings.

Discussion

18.    The appellant's submission is simply that the LVT's jurisdiction is limited to making an order of the scope sought by a tenant, as referred to in section 20C(1).  The application is required to specify whether the order is sought for the protection of the tenant "or any other person or persons".  In this case (as far as the appellant was aware) the written applications specified only the tenants by whom those applications were made, and did not identify any other tenants as the intended beneficiaries of an order.  The oral applications were, the appellant submits "patently made only on behalf of the two stated flat owners." 

19.    It is clear from section 20C(3) that the LVT has a wide discretion to make “such order on the application as it considers just and equitable in the circumstances”.  In Tenants of Langford Court (Sherbani) v Doren Limited LRX/37/2000 (at paragraph 28) the Lands Tribunal (Judge Rich QC) identified the "only principle upon which the discretion should be exercised" as being "to have regard to what is just and equitable in all the circumstances".  He went on, at paragraph 31, to state that:

"In my judgment the primary consideration that the LVT should keep in mind is that the power to make an order under section 20C should be used only in order to ensure that the right to claim costs as part of the service charge is not used in circumstances that make its use unjust."

20.    The question arises whether the indication in section 20C(3) that the court or tribunal "may make such order on the application as it considers just and equitable in the circumstances" is limited by the terms of the application itself, and in particular whether the scope of the order is confined to the tenant and any other person or persons specified in the application.

21.    This question has not, as far as I am aware, previously been the subject of a decision by the Tribunal but there have been indications in two decisions that the terms of the application define the scope of the LVT's jurisdiction.  In Volosinovici v Corvan (Properties) Limited LRX/67/2006 the Lands Tribunal, (His Honour Judge Huskinson) considered an application under section 20C and drew attention (at paragraphs 6 and 7) to the concluding words of section 20C(1), as follows:

"Accordingly an order under section 20C that certain costs are not to be regarded as relevant costs can properly be an order made in favour of a particular tenant, such that the landlord is disabled from including certain costs within the relevant costs when calculating that particular tenant's service charge but is not so disabled as regards other tenants in the relevant buildings...  I do not read the Applicant's application under section 20C as an application on behalf of any person other than herself.  There are no other "person or persons specified in the application" within the words of section 20C(1).  Even if this is not the correct reading of the appellant's application I conclude that in any event on the particular facts of this case it is just and equitable for the order that I proposed to make to be only an order in relation to the appellant's position."

That seems to me to suggest that the Lands Tribunal considered that its ability to make an order in favour of any person other than the appellant herself was conditional on such other person being specified in the appellant's application.

22.    More recently in Conway v Jam Factory Freehold Limited [2013] UKUT 592 (LC) I construed an otherwise ambiguous order made under section 20C as being limited in its effect to the appellants identified in the application itself.  At paragraph 71 I said this:

"On an application made by a tenant under section 20C the benefit of any order made extends only to "the tenant or any other person or persons specified in the application."  The application in this case was made by the appellants … but no other tenant was specified in the application either expressly or implicitly as being an intended beneficiary.  The order itself does not state to whom it is intended to apply.  No formal order appears to have been drawn up and the decision itself says only that "the applicant's application under section 20C is allowed."  In those circumstances no person other than the applicants themselves is entitled to the benefit of the order.”

23.    In the Jam Factory case for forensic reasons it was in the interests of the appellants (who were respondents to a cross-appeal by their landlord against the LVT's exercise of its discretion in making the order under section 20C at all) to seek to restrict the scope of the order and to limit it to themselves alone, rather than for it to benefit the whole body of leaseholders in a large development.  It was also in the interests of the respondent freeholder, whose ability to recover its costs of protracted proceedings was constrained by the order, to accept that the order was of narrower effect than all parties had originally assumed.  No argument was presented to the Tribunal on the effect of section 20C but, nonetheless, I reached the clear conclusion that an order under section 20C could only be made in favour of a tenant or other person specified (whether by name or otherwise) in an application made by a tenant. 

24.    It would be surprising, in my view, if a power was conferred on the LVT to relieve parties of their contractual obligation to contribute to costs incurred by their landlord, which would otherwise be recoverable through the service charge, in circumstances where no interested party requested such an order.  There would additionally be a serious risk of unfairness if the LVT had jurisdiction to make an order in very much wider terms than the order which it was asked to make and of which the respondent to the application has been given notice.  The consequences of an order under section 20C can be extremely serious, particularly in the case of orders made against companies whose only asset is the freehold interest in a building entirely let on long leases at a ground rent, as in the Jam Factory case and as, from the acronym which makes the appellant's name, I infer is the case in this appeal.  In Iperion Investments Corporation v Broadwalk House Residents Limited [1995] 2 EGLR 47 at 49M, Staughton LJ, drew attention to those consequences:

"We were not asked to make any similar order under section 20C of the Landlord and Tenant Act 1985 in relation to the other tenants and do not do so.  Indeed it would be a disaster for the defendant, a company owned by residents of Broadwalk House, if such an order was made; the company would presumably be insolvent unless it could raise further capital.

25.    I am satisfied that, as one would normally expect in civil proceedings, the scope of the order which may be made under section 20C is constrained by the terms of the application seeking that order.  Although the LVT (and now the First-tier Tribunal) has a wide jurisdiction to make such order as it considers just and equitable in the circumstances, it does not have jurisdiction to make an order in favour of any person who has neither made an application of their own under section 20C or been specified in an application made by someone else.

26.    In this case, unbeknown to the appellant and possibly even to the LVT, the LVT did receive an application from Mr Nwawudu asking for an order under section 20C in favour of all of the lessees of both blocks.  It therefore had jurisdiction to make the order which it made on 29 May 2012.  Nonetheless I am satisfied that the order must be set aside because there is every reason to believe that the order was made without the appellant having been given a proper opportunity to respond to the only application made in sufficiently wide terms to give the LVT jurisdiction to make it.

27.    An order under section 20C interferes with the parties’ contractual rights and obligations, and for that reason ought not to be made lightly or as a matter of course, but only after considering the consequences of the order for all of those affected by it and all other relevant circumstances.  An order can only fairly be made if the landlord or other person whose right to recoup the costs of proceedings is being taken away, has a proper opportunity to put its own case in reply to the application.  That is what the 2003 rules, and the LVT’s procedural directions both provided for; but in this case these elementary safeguards were departed from. 

28.    It is the responsibility of the first-tier tribunal to ensure that the respondent named in any application is served with a copy of it, which seems not to have happened in this case.  Procedural irregularities can of course be waived by the party who is prejudiced by them, but it is not possible for a waiver of procedural irregularity to extend to an irregularity of which a party was unaware. In this case, while it is clear that the appellant’s representative was willing to waive the irregularity of non-receipt of the applications which were understood to have been made, there is no reason to doubt the assertion that the appellant was unaware of the application made by Mr Nwawudu on which the LVT’s jurisdiction to make its wide ranging order depended. 

29.    It is therefore necessary for these reasons that the order be set aside.  In those circumstances the Tribunal may make any alternative order which could have been made by the LVT.  The appellant has not been given permission to appeal against the decision of the LVT so far as it related to the exercise of its discretion and there is, in my judgment, no unfairness in those circumstances in the Tribunal making an order under section 20C in favour of those lessees who made their own applications (in writing or orally) which the appellant had an opportunity to respond to.  In place of the order made by the LVT I therefore substitute an order in the following terms:

"That the legal costs incurred by the appellant in connection with the proceedings before the Leasehold Valuation Tribunal are to be regarded as relevant costs to be taken into account in determining the amount of the service charge payable by the lessees (or their successors in title) of flats 6, 7 and 31 Southwold Mansions (Mr and Mrs Zaki; Mr C Renwick; and Ms C and Ms K Peseran) and flats 3 and 40 Cleveland Mansions (Ms D I Nwawudu; and Mr E L Nwawudu), but are limited to 50% of the amount demanded as shown in the summary of costs provided to the LVT (such summary to exclude costs incurred in connection with the applications under section 168(4) of the Commonhold and Leasehold Reform Act 2002 referred to in paragraphs 2 and 122 of the decision of the Leasehold Valuation Tribunal dated 29 May 2012).

30.     If Mr Nwawudu wishes his application dated 13 April 2012 to be re-considered with a view to an order being made in favour of additional lessees, he should apply to the First-tier Tribunal within one month of the date of this decision.  If any other lessee wishes to make their own application for an order under section 20C, they should do so promptly.  In the event that any such further application is made, it will be for the First-tier Tribunal to determine the constitution of the tribunal which considers it.

 

 

Martin Rodger QC,

Deputy President

11 February 2014