Service Charge: Contesting issues of fact in reasonableness of service charges application (Smith v Waterloo Warehouse RTM Co Ltd – 2023)

The Upper Tribunal considers an appeal of a First-tier Tribunal decision which found against a leaseholder in an application for determination of reasonableness of service charges, whereby a decision was made by the FTT relying solely on written representations and without hearing evidence from the parties.

The background

In Smith v Waterloo Warehouse RTM Co Ltd [2023], the leaseholder held long leases of 2 flats in a building in Liverpool. Both leases were in identical form and allowed for quarterly demands service and administration charges by the agents for the RTM company respondent.

The respondent sought recovery of service and administration charges under both leases for years 2015-2018; the total sought for flat 6 was £9,083.20 and the sum in respect of flat 47 was £11,567.58, both sums plus interest and costs. The application was transferred to the First-tier Tribunal for determination of reasonableness and payability of service charges.

Under s47 of the Landlord and Tenant Act 1987, demands for service and administration charges should contain prescribed information including the landlord’s name and address for service. Where such information was not included, the sum demanded was not due until the information was provided. Under s.21B of the Landlord and Tenant Act 1985, a summary of leaseholder rights and obligations is to be supplied with service charge demands.

The leaseholder in this case stated that the demands had not been sent in the correct form, and that the demands submitted by the Respondent to the FTT had been doctored, with a separate sheet having been added which contained the leaseholder rights and obligations summary. The FTT found, on the papers, that the demands were in correct form and had been accompanied by the relevant summary of rights and obligations, stating that – in the FTT’s experience – demands raised by professional management companies are produced in the correct form, and that if demands had not been made correctly then it would be likely that the leaseholders would have challenged them (which there was no evidence of). Further, the FTT found no evidence that the documents supplied by the Respondent RTM company had been doctored.

The FTT also made other findings including:

1. That there had been no evidence of an agreement between the parties not to allocate the leaseholder’s payments towards the oldest debt;
2. That the Respondent could not recover sums for 2019 given that it had accepted that demands had not been served for that year;
3. That charges for the work of third-party suppliers, totalling £292.00 were not payable because of the lack of information about them.

As a result of the Respondent having been mostly successful, the FTT refused to make an order under section 20C Landlord and Tenant Act 1985 that prevented the Respondent from recovering its legal costs from the proceedings through the service charge.

The decision

The Upper Tribunal allowed the leaseholder’s appeal, setting aside the FTT’s decision and remitting the section 27A application to a different panel in the FTT.

In making its decision, the UT considered the following grounds of appeal:

1. Whether the FTT had been wrong to determine contested issues of fact without a hearing; and
2. Whether the FTT reached the wrong conclusion in its reasoning that demands had been made and/or sent correctly.

Given that one of the parties submitted that the demands were properly sent and the other submitted that they were not, the case turned on its facts and the credibility of witnesses. However, the FTT had reached a conclusion without a hearing. In its judgment, the FTT gave no reasoning for preferring the Respondent’s evidence in relation to allocation of payments made by the leaseholder and the UT found this to be insufficient as a basis for a decision in the Respondent’s favour. The FTT stated that neither party had requested a hearing, but the leaseholder was unrepresented and the UT found that an unrepresented party in a case such as this may not recognise the difficulty in determining issues of fact outside of a hearing, but based only on written representations. Without a hearing, and where the FTT was unable to identify facts from written representations alone, reaching a decision was unfair and unreliable.

The UT found that the FTT’s conclusions as to the Respondent’s evidence in respect of the content of its demands were not adequate. Even if many other managing companies produced demands that met the prescribed requirements, there was positive evidence in this case that the Respondent had not. This necessitated a hearing.

The UT also relied upon other decisions of the Tribunal where an appeal had succeeded because a disputed issue of fact was decided without a hearing (Enterprise Home Developments LLP [2020] UKUT 151 (LC) and Webb v Sunley (Findlay Close) Residents Limited [2022] UKUT 171 (LC)).

The leaseholder’s appeal was therefore successful on both grounds.

Advice

This decision demonstrates that whilst it is not always true that issues of disputed fact can never be decided without a hearing, where those disputed facts turn on credibility they cannot realistically be decided fairly or reliability without one.