2013: A MONTH BY MONTH REVIEW

We started the year in a state of flux.

In late December 2012, the outgoing Chancellor had bowled us all a googly with Phillips v Francis [2013] 1 WLR 2343, the effect of which was that, in any given year, the cost of all and any works on a building counted towards the £250 per lessee ceiling beyond which consultation was required. The service charge world was alive with the patter of fingers on keyboards. Perplexity was expressed in a multitude of blog posts, articles and briefing notes.

Happily, the Court of Appeal’s case tracker suggested that the landlord had sought permission to appeal pretty darn quickly – and then it became apparent that the application for permission had been withdrawn for lack of funds.

In the Upper Tribunal, LB Lewisham v Luis-Ordieres [2013] UKUT 14 George Bartlett QC, the outgoing President, determined that it is open to lessees to challenge the cost of major works where the local authority has followed the EU public procurement process and is contractually obliged therefore to pay certain sums to the contractor.

The second month of the year saw the first of two cases in 2013 involving that highly litigated building, Morshead Mansions. Morshead Mansions Ltd v Mactra Properties Ltd [2013] EWHC 224 (Ch) was also the first of two cases in 2013 which set the accountancy and the legal professions at sixes and sevens.

The lease required an annual “account of the expenses and the service charge payable”. The landlord argued that it should produce a proper set of accounts. The lessee sought something “less sophisticated”, namely a list of the expenses falling within the definition of expenses in the lease. Warren J.’s judgment ran to some thirty pages. He found for the lessee on the wording of the lease.

On lawandlease.co.uk, specialist service charge accountant Gordon Whelan disagreed with him in terms prescient of the Court of Appeal’s judgment in OM Property Management Ltd v Burr [2013] EWCA Civ 479  in May.

06 March was a watershed date because the Supreme Court handed down its judgment in Daejan v Benson [2013] UKSC 14. The majority judgment is clear, but the two dissenting opinions are so much more interesting and verbally fisticuffing. Lord Wilson gave a peerless potted history of residential service charge regulation.

Dispensation from the requirement to consult will now normally be granted unless the lessee can point to relevant financial prejudice. Even then, the landlord may be granted dispensation on terms that the lessee’s prejudice is compensated.

On 25 April 2013, sections 83-88 of the Enterprise and Regulatory Reform Act 2013 came partially into force. The Secretary of State was thereby empowered to make regulations in relation to the redress schemes of which “persons who engage in property management work” may, by statutory instrument, be required to be members.

Morshead Mansions was back in the spotlight at the end of April in Leon Di Marco v Morshead Mansions Ltd [2013] EWHC 1068 (Ch). This was the more exciting of the two Morshead Mansions cases this year. Amongst other issues, Mann J.:

• Held that the criminal sanction in s.21 of the Landlord and Tenant Act 1985 does not preclude a civil remedy, and
• Reviewed an earlier Morshead Mansions case in which Mummery LJ expressed his views of whether a call on shareholders to pay for services is a call for payment of a service charge within the meaning of s.18 of the 1985 Act.

Hold on to your hats: this one is coming up for appeal.

The legal and accounting professions diverged for a second time in 2013 when the Court of Appeal upheld the Upper Tribunal’s decision in OM Property Management Ltd v Burr.

At issue was the question of when a cost is incurred within the meaning of s.20B of the Landlord and Tenant Act 1985. Both the Upper Tribunal [2012] UKUT 102 (LC) and the Court of Appeal [2013] EWCA Civ 479 agreed: it is when an invoice or other demand for payment is raised – or when that invoice is paid.

Can this be reconciled with accruals-based accounts? Accountants: compare, contrast and discuss.

We tackled the life span of the section 20 notice in June with the Upper Tribunal’s (HHJ Karen Walden-Smith and AJ Trott FRICS) decision in Westminster City Council v Jastrzembski [2013] UKUT 0284 (LC).

The moral of the story? Once the consultation process is underway, don’t wait too long before pressing on with the next stage of consultation or the implementation of works: the validity of a section 20 notice is measured in months, rather than years.

July was a very busy month.

First, on the witching date, the LVT in England vanished, and the new First-tier Tribunal (Property Chamber) drew its first breath.

Rent Assessment Committees, Residential Property Tribunals, Rent Tribunals, Agricultural Land Tribunals and the Adjudicator to HM Land Registry also slipped under the new Tribunal’s wing and took its name. A beautiful new set of procedure rules accompanied the changes.

Second, Nicholas Strauss QC, sitting as a deputy judge of the High Court, was unhesitating in finding for the lessor in BDW Trading Ltd & anor v South Anglia Housing Ltd [2013] EWHC 2169 (Ch). We spectators breathed a collective sigh of relief when we read that a landlord is not a landlord until s/he lets property, and accordingly when a putative or future landlord enters into an agreement which would otherwise be a Qualifying Long Term Agreement, there is no requirement to consult in relation to buildings which have not yet been constructed, or which are not let.

Third, in Arnold v Britton [2013] EWCA Civ 902, the Court of Appeal handed down judgment on the meaning of five slightly differing versions of a clause in leases of holiday chalets in Wales. From a purely legal perspective, the Court of Appeal’s judgment is not as noteworthy as Morgan J.’s ([2012] EWHC 3451 (Ch)).

Unfortunately neither judgment was good news for the lessees.

Fourth, Phillips v Francis was back on our radar.

With support from interested parties, the landlord made a second application for permission to appeal. This time matters were complicated by the need to apply for an extension of time for making the application for permission. The application was considered on the papers by a single judge in early July. It was adjourned for an oral hearing. Slowly – oh so slowly! – the case inched towards the grant of permission to appeal.

Fifth, on 24 July, the Supreme Court handed down an addendum to Daejan v Benson, resolving the issues between the parties on the wording of the order resulting from the March judgment. Here is the order as approved by the Supreme Court.

Finally, on 25 July, Law and Lease turned 1. I marked the occasion with a photograph of the stained glass above my front door and some specially commissioned and beautifully silky-nibbed Law and Lease pens. Did you miss out? Let me know and I’ll put one in the post.

On 05 August 2013, the Financial Reporting Council sought comments on Financial Reporting Exposure Draft 50 Draft FRC Abstract 1 Residential Management Companies’ Financial Statements. The document goes by the humanising sobriquet of FRED 50.

The Institute of Chartered Accountants of England and Wales, known to its friends as the ICAEW, said that “the main aim of the paper was to assist residential management companies (RMCs) to determine whether they are acting as principal or agent when undertaking residential service transactions with third parties, and thereby determine which transactions should be recognised in their financial statements”.

The closing date for comments was 11 November 2013. It is proposed that the policy will be applied for periods ending on or after 01 January 2015.

Lewis Carroll prefaced my post of Wallace-Jarvis v Optima (Cambridge) Ltd, Khazai [2013] UKUT 0328 (LC). This appeal about unexpectedly high levels of water consumption brought into play questions of procedure, the burden of proof and the Water Resale Order 2006.

I spent two days of my summer holiday untangling the various ownership interests in London’s Paddington Basin for HHJ Karen Walden-Smith’s decision in Paddington Basin Developments Ltd & ors v Gritz & ors [2013] UKUT 0338 (LC). The dispute turned on the liability of the lessees of flats in one part of the development to pay service charges in respect of costs incurred in respect of the whole.

In early September, I made a podcast (my first) about the new First-tier Tribunal rules for the Leasehold Advisory Service. It was along the lines of “In conversation with …”

Thank you to all those who have listened to it, and who have put up with my terrible received pronunciation. I would have been a shoe-in for the position of BBC announcer in the 1950s.

In the Upper Tribunal, Martin Rodger QC followed the now settled principle of costs being incurred on the raising of an invoice or on payment in Wenghold Ltd v Egleton [2013] UKUT 0420 (LC).

October began with a bang: Tanfield Chambers and News on the Block held the inaugural service charge summit in Central London.

It was well-attended, well-organised, and, judging from the feedback, a welcome addition to the residential service charge calendar. Where else in 2013 was it possible to hear so many barristers who had appeared in so many of 2013’s leading cases? Daejan v Benson? Check. Paddington Basin Developments? Check. BDW? Check. Morshead Mansions v di Marco? Check. Jastrzembski? Check.

On 01 November, ARMA (the Association of Residential Managing Agents) opened its doors to applications for its new accreditation programme, ARMA Q. The scheme goes live on 01 January 2015.

16 November saw the long-awaited hearing of the landlord’s renewed application for an extension of time in which to appeal in Phillips v Francis. Permission to appeal was granted. Hoorah! The appeal itself is listed for May 2014.

In the Upper Tribunal in Macgregor v BM Samuels Finance Group plc [2013] UKUT 0471 (LC), the Climate Charge Levy fell under the scrutiny of AJ Trott FRICS, who determined that it was not recoverable from the lessee as part of the service charge.

The Office of Fair Trading became the Office of Fair Tenanting in the early part of the month:

• On 03 December, it announced that it was considering a market study into residential property management services such as maintenance, cleaning or building work, and invited observations as to the scope of that investigation, and
• On 06 December, it determined that four suppliers of access and alarm systems to retirement properties had breached competition law between 2005 and 2009.

The Secretary of State dipped his toe into the regulatory water and exercised the powers conferred on him in April by the Enterprise and Regulatory Reform Act 2013. On 14 December, the Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013/3192 came into force.

The Order sets out the procedure that applies where an application for approval of a redress scheme is made. Parliament’s website says that a further order requiring agents to belong to a redress scheme should be laid early in 2014.

On 31 December 2013, the third edition of “Service Charges and Management” was published. Authored by members of Tanfield Chambers, the new edition has been comprehensively reviewed and updated.

Fireworks and festivities all round!

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© Amanda Gourlay, 2013. Not to be reproduced without the author’s written permission.