Breach of Covenant & Service Charge: Liability to pay service charges relating to future expenditure & remedying of breaches of covenant (Vishwaveer Ramjotton v Bhavin Prafulchandra Patel – 2021)

Where a landlord has made demands relating to future planned expenditure and costs incurred in remedying the tenant’s breaches of covenant, the Upper Tribunal considers the tenant’s liability for such costs.

The background

In Vishwaveer Ramjotton v Bhavin Prafulchandra Patel [2021], the landlord was the freeholder of a property containing two flats. The landlord held the long lease of the ground floor flat, and the first floor flat was let on a long lease to the tenant. The lease contained standard service charge and repair covenants common in the sector. The landlord made a demand of the tenant to repair a bathroom water leak and damage caused by it to the ground floor flat and common parts, or otherwise the landlord was to undertake the repair and recover the costs from the tenant.

In the event, the landlord undertook works and invoiced the tenant for two separate sums relating to the leak and damage repairs. The tenant subsequently received a service charge demand for the coming year which included a reminder to pay the earlier expenses. The tenant did not make such payment, and the landlord requested determination by the First-tier Tribunal in respect of:

1. the tenant’s liability to pay the advance service charge;
2. whether the tenant had breached repair covenants contained in the lease causing the leak and damage to common parts; and
3. the tenant’s liability to pay the landlord’s repair costs for the leak and the common parts.

The tenant made his own counter applications:

1. that the landlord’s costs of proceedings were not charged through the service charge;
2. that the costs of proceedings were not charged by way of a variable administration charge; and
3. that the landlord had acted unreasonably by bringing the proceedings, and that the landlord was responsible for the tenant’s costs in the proceedings.

The FTT found that the tenant was liable for the service charges demanded, but that the tenant was not in breach of covenant in relation to the leak, and therefore the costs claimed by the landlord were found not to be payable by the tenant. The tenant appealed and the Upper Tribunal assessed whether the FTT:

1. had sufficient jurisdiction to make an order for the tenant to pay the landlord’s costs; and
2. had given sufficient reasoning to find that the tenant was liable for the £880 bathroom expenses.

The decision

The Upper Tribunal found in favour of the tenant insofar as the appeal succeeded, albeit the net costs payable by the tenant remained largely similar. On each point:

1. The tenant was liable to pay the landlord’s litigation costs but these were reduced by 10%;
2. The tenant’s liability for the £880 bathroom expenses was reduced to £720.

The UT set aside the FTT’s decision that the tenant was liable for the landlord’s costs, finding that the FTT did not have sufficient jurisdiction to make such a finding as the response was not appropriate to the tenant’s application in respect of paragraph 5A of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. Paragraph 5A addresses circumstances where a landlord may contractually recover costs through administration charges, allowing the FTT to make orders relating to this contractual right. The FTT, under the Rules, may order that landlords cannot recover costs of proceedings through administration charges. In this case, the FTT had not made a proper response in respect of paragraph 5A.

The UT therefore reconsidered the point, finding that the tenant was liable for the landlord’s litigation costs in respect of the application for determination of reasonableness of the service charge demand, the application regarding the leak and the application regarding the landlord’s costs of repairing the bathroom. The landlord could not recover costs of the common parts work. Litigation costs were reduced by 10% on consideration of time sheets.

Advice and action

Although the decision turned on more technical points relating to the FTT’s approach, this case will nevertheless provide some comfort to landlords.

Whilst the appeal succeeded due to those technical points, the reality of the outcome is that, barring a small reduction in the amounts claimed, the landlord’s litigation costs were recoverable from the tenant as an administration charge, and the landlord’s costs incurred in repairing the bathroom also recoverable albeit in a slightly lower sum than claimed.