Liverpool Quays Management Limited v Carol Ann Moscardini [2012] UKUT 244 (LC)

The appellant was the management company for a residential development constructed in about 2002 on the Liverpool waterfront. The respondent was the lessee of a flat in one of the blocks on the development. She had paid no service charges since 2006. The management company made an application under s.19 of the 1985 Act as to the reasonableness of service charges for 2007, 2008 and 2009.

The LVT’s decision on the amounts payable by the tenant was set out in a table annexed to its decision.

The Appellant appealed three items in that table. The grounds of appeal are not particularised in the decision, but I suspect that they arose from an absence of satisfactory or adequate reasoning on the part of the LVT.

The three items at issue on appeal were:

• Security costs
• Service charge collection fees
• Legal fees

The appeal succeeded on the first two items, and failed on the second.

Having heard evidence on the annual increase in the cost of providing security, the President determined that the costs of providing security were reasonable.

The recoverability of these fees depended on the construction of the terms of the lease. The President concluded that the costs of collecting service charges were recoverable under the lease. The managing agent gave evidence to the effect that where fees were recovered from tenants directly, they would be credited to the service charge account.

These fees had nothing to do with recovering service charges: they were legal fees charged to the service charge account for legal advice given in connection with defects to the block and a potential claim against the developer.

The lease contained two clauses entitling the Management Company to recover:

“All other expenses (if any) incurred by the Management Company in and about the maintenance and proper and convenient management and running of the Property including in particular any interest paid on any money borrowed by the Management Company to defray any expenses incurred by it and specified in this Schedule, and

“All costs and expenses (other than those specified above) of whatsoever kind incurred by the Management Company (including any proper sum for future or contingent liabilities and any reasonable reserve) and a certificate under the hand of the Secretary of the Management Company as to the amount under this paragraph at any time shall be conclusive.”

On its face, the second clause allows recovery of pretty much everything – including the Easyjet air tickets, food and beverage payments that the LVT disallowed at first instance (and which, perhaps unsurprisingly, were not appealed).

The Management Company must have considered that it had a clear run at success on this part of its appeal. Not so. The President disallowed the fees, holding that:

• Although it could be said that the financing of legal advice to enable the lessees to take proceedings against the developer was related to the maintenance of the property – if the proceedings were successful, the amount that the company would have to spend on maintenance would be reduced – the cost of such financing was not incurred “in and about the maintenance” or “the proper and convenient running” of the property. That clause prescribed a much more immediate connection between the expenditure and the maintenance, and
• The second clause was expressed so widely that it was hard to see what it might cover: if it covered everything that the company might choose to spend money on, it would render of no significance all the limitations contained, expressly or impliedly, in earlier, specific paragraphs of the lease. For that reason it was not possible to give effect to it in the terms in which it was expressed. The fact that the costs in question were related to proceedings taken collectively by individual lessees but not by the management company put them even further beyond whatever scope the paragraph may have.

The most peculiar aspect of the LVT’s decision was not appealed. It concerns the obligation to provide, on request from the tenant, a “summary of relevant costs” under s.21 of the 1985 Act.

The LVT recorded that the lease required accounts to be provided to the tenants, and held that accounts had not been provided, even when requested.

Accordingly, it found that the management company was in breach of s.21(1) of the 1985 Act.

So far, so logical.

However, for the LVT, the consequence of breach was relief from liability to pay the service charge until accounts, prepared in accordance with the lease, were supplied.

To my mind this does not follow for two reasons.

First, on the terms of the lease: at para 15 of his decision, the President, having considered the lease, held that liability to pay the service charge was not contingent on the accounts being supplied, at least in respect of the security costs. From the excerpts of the lease recited in both the LVT and Lands Chamber decisions, it is difficult to see how this finding could fail to apply to other service charge costs;

Second, on the 1985 Act: breach of s.21(1) is a criminal offence, but at present there is no express civil sanction in the 1985 Act for failure to provide a summary of service charge costs.

Section 21 & 21A of the 1985 Act

These two sections of the 1985 Act are fraught with amendment and partial enforceability.

Section 21, as currently in force, entitles a tenant to request a summary of relevant costs from the landlord.

The Commonhold and Leasehold Reform Act 2002 enacted a new version of s.21 – and introduced s.21A.

New s.21 is only in force for the purpose of making regulations, but has already been the subject of amendments – again only in connection with regulation-making – by the Housing and Regeneration Act 2008.

S.21A entitles a tenant to withhold payment of a service charge if the landlord has failed to comply with a request under s.21.

As of today (30 July 2012) however, s.21A is not in force, save to the extent that it permits the Secretary of State to make regulations.

Therefore, whilst a landlord may be exposed to prosecution for failure to comply with a request under s.21(1) of the 1985 Act (in its current form), unless the lease provides for it, a tenant cannot yet rely on s.21A as justification for withholding service charge payments.