Enterprise Home Developments LLP v Christopher Richard David Adam [2020] UKUT 0151 (LC) Part II

There were nine heads of cost in dispute:

• Insurance
• Cleaning of the common areas
• Heating, lighting and utilities
• Repairs to the common areas
• Fire alarm maintenance
• Garden maintenance
• General maintenance of the exterior
• Management and administration
• Contributions to reserves.

It might be said, although not by me, that the narration of a dispute about nine service charge items might lose the rapt attention of any audience.

I propose therefore to impose a firm structure on the narrative, to illustrate one approach to ensuring that relevant arguments and evidence are heard.

First, I will set out the service charge years concerned and the amounts in dispute.

Next, I will identify the relevant legal argument. Most straightforward applications to the FTT for a determination of the amount of service charge payable will turn on one, several or all of the following:

• For costs that are said to have been incurred:
  • Whether they are recoverable from the lessee under the lease;
  • Whether they were in fact incurred, and if they were, whether they were reasonably incurred (section 19(1)(a) Landlord & Tenant Act 1985);
  • Whether the works or services charged for were carried out to a reasonable standard (section 19(1)(b));
  • Whether the amount charged for those works or services was reasonable (section 19)).
• For estimated costs:
  • Whether the charge is recoverable from the lessee under the lease;
  • Whether the amount of the charge is reasonable (section 19(2)).

The third stage identifies the evidence put forward by each side.

The final element is Martin Rodger QC’s decision.

It is worth bearing in mind that in this case, all of the 2019 figures were estimates.

• 2016 – £682.09
• 2017 – £352.00
• 2018 – £346.00
• 2019 – £352.60

Legal argument

Mr Adam only disputed charges for 2016 and 2019. He challenged the reasonableness of the amount for those years.

Evidence

2016

Mr Gray of Enterprise explained that the 2016 premium had been relatively high because of the increased risk posed by a building that was not fully occupied, having only just been converted into flats.

Mr Adam, who had only been liable to contribute towards the half year that followed the grant of his lease, accepted that explanation.

2019

Mr Gray said that the estimated 2019 figure was about £30 higher than the actual cost.

Decision

The insurance premiums were payable in the amount demanded. The Tribunal was deciding the reasonableness of the estimate, and Martin Rodger QC observed that the small difference could be taken into account when reconciling the accounts at the end of the year.

Amounts demanded:

• 2016 – £820.00
• 2017 – £960.00
• 2018 – £1,045.00
• 2019 – £992.00

Legal argument

There were two arguments here:

• Whether the costs were contractually recoverable;
• Whether the amount was reasonable.

Evidence

Enterprise described the cleaning as having been done “in house”.

The FTT took the view that those costs were therefore “notional”, and irrecoverable.

Before Martin Rodger QC, Mr Gray explained that Enterprise was a two-person partnership, with no employees. However, he and his co-partner owned a limited company, Ayyaz Homes Ltd, which provided services to 131 St Michael’s Road and invoiced Enterprise accordingly.

Ayyaz employees worked at an hourly rate of £28. Cleaning was done fortnightly by an independent contractor at £35 per hour.

Those rates were unchanged from 2016, when Mr Gray’s daughter had made enquiries as to the market rate. The cleaning invoices varied in amount because the cleaner also occasionally cleaned the windows.

Mr Adam agreed that regular cleaning had taken place, and to a reasonable standard.

He described it as an “extremely thorough job” that took an hour, even though he had been able to clean the same areas in 20 minutes. There had been only one occasion when he had found communal areas dirty.

He took issue however with the reasonableness of the cost.

He believed that the cleaning was not done as often as was claimed by Enterprise. He had obtained a quote from a cleaning company that charged £18 per hour, and was prepared to clean the common areas for £27.

He considered that £18 was a reasonable amount to pay for the one hour that was required to thoroughly clean the common areas.

Decision

Martin Rodger QC allowed the charge in full.

The cleaning costs were recoverable. They were not “notional”, because the cleaning was done by an outside contractor and not therefore in house.

The single occasion of dirtiness did not mean that the cleaning was not being done or done to a reasonable standard, nor did Mr Adam’s finding a cheaper cleaner mean that Enterprise’s charges were unreasonable.

“I am satisfied,” said Martin Rodger QC, “that Mr Gray made arrangements for fortnightly cleaning and there is nothing in the evidence I have heard to cause me to doubt that those arrangements had been implemented.”

Amounts demanded:

• 2016 – £482.00
• 2017 – £515.00
• 2018 – £119.26
• 2019 – £225.00

The services provided were:

• Lighting to the common parts and to one external light, and
• Water, although that element of the charge consisted only of the standing charge, because Enterprise had not installed a tap in the common areas.

Legal argument

Mr Adam did not raise any specific complaint.

Evidence

Enterprise was unable to provide any electricity invoices pre-dating 08 July 2018. Some of those that it did produce were based on estimated, rather than actual, consumption, and Mr Gray also explained that Flat 4’s electricity consumption was once included by mistake.

The invoices for the period 30 March 2019-31 March 2020 were however based on actual consumption, and totalled £182.50.

Enterprise was also able to produce all of the invoices for the standing charge for water.

Decision

Martin Rodger QC used the actual consumption figures as a “solid foundation” for the calculation of the amount payable by Mr Adam for electricity over the years.

He allowed the following amounts, being a combination of the water standing charge and electricity consumption:

• 2016 – £270.00
• 2017 – £270.00
• 2018 – £119.26
• 2019 – £225.00

He made no alteration to the 2016 figure, because the amount demanded of the lessees was lower than the amount assessed.

The estimate for 2019 also remained untouched because any surplus or shortfall could be balanced at the end of the year.

• 2016 – internal decoration of the hallway – £193.00
• 2017 – further internal redecoration – £386.00
• 2018 – internal repairs and maintenance – £465.00
• 2019 – nothing demanded.

Legal argument

The argument here depended on the work done:

• 2016 – whether the cost was incurred, and whether the work was done to a reasonable standard;
• 2017 – whether the cost was incurred;
• 2018 – whether the cost was contractually recoverable and if so, when it had been incurred.

Evidence

2016

Ayyaz Homes produced a schedule showing expenditure of £193 in June 2016 at the agreed rate of £28 per hour. The internal hallway had been decorated after some of the new leaseholders moved in.

Mr Adam pointed to a mark on the wall outside his flat, caused in July 2016 when he moved in.

2017

The Ayyaz Homes schedule showed further internal decoration work in November 2017, after all of the lessees had moved in, at a cost of £386.

Again, Mr Adam mentioned the mark outside his flat.

2018

Mr Gray gave evidence that the charge in 2018 was for repairs to a leak from a shower waste-pipe immediately above flat 1, and replacement of the damaged ceiling of flat 1. He believed the pipe to be a communal drainage pipe.

The work was not done to a reasonable standard. It had to be redone, but the corrective work was not charged to the service charge.

Mr Adam asked whether the service charge should bear the cost of repairs to a waste pipe serving only one flat. He also understood the works to have been carried out in November 2017, nor 2018.

Decision

2016

Martin Rodger QC allowed the cost of redecorating the hallway in full: he had “no reason to doubt” Mr Gray’s evidence, and Mr Adam had not moved into the building until after the decoration had been completed. The lease permitted the landlord to recover contributions for the whole service charge year, even though the lease was only granted in the July of that year.

2017

The cost of further redecoration was also allowed:

“It is likely that damage would be caused to the narrow hallway and stairs by new lessees moving in … the question is whether Mr Gray is to be disbelieved when he says he instructed further internal redecoration. There is nothing in the evidence which persuades me that Mr Gray has sought to exploit the leaseholders by including charges for fictitious work and I therefore accept his evidence and include a sum of £386 as the cost of internal repairs for 2017”.

2018

Mercifully, Martin Rodger QC did not need to determine whether the damaged waste pipe was used by all or just one flat:

• If it was a communal pipe, Enterprise would be entitled to recover the cost of the repair because the lease obliged it to keep “in substantial repair and condition” and “any pipes used in common by more than one tenant”, and permitted it to recover the cost of that expenditure;
• Even if the pipe was used by only one leaseholder, the cost of the repair would be recoverable as “works which in its reasonable discretion [Enterprise] considers necessary or desirable for the proper maintenance of the Building”. The leaseholders were only required to keep in repair the property demised to them, and the pipework outside the flats was not so demised.

• 2016 – £140.00 – five call outs
• 2017 – £190.00 – seven call outs
• 2018 – £240.00 – eight call outs
• 2019 – £60.00 – three call outs

The charges were made by Ayyaz for attendance by their staff to switch off the alarm when it was set off.

Legal argument

The questions here were:

• Whether the costs were contractually recoverable;
• Whether all of the charges had been incurred.

Evidence

The Ayyaz schedule detailed the dates when the call outs had occurred.

Mr Gray said that the charge was £20 per call out in office hours, and £30 outside those hours. The alarm was set off by the culinary activities of the tenant in the unventilated kitchen of flat 2. When the tenant left, the problem stopped.

Mr Adam was not persuaded that there had been 23 call outs in just over three years, albeit that two call outs had taken place before he moved in, and he was prepared to accept that seven call outs was not impossible. He believed that the cause was a faulty sensor in flat 2, and presumably therefore the responsibility of the lessee of that flat.

Decision

Martin Rodger QC allowed the sums claimed in full. He accepted that Mr Gray “was telling the truth about both the cause and the frequency of the fire alarm incidents”.

That acceptance was not simply founded on preference for one party’s demeanour over another’s:

“My confidence that Enterprise has not been trying to defraud Mr Adam or the other leaseholders by inventing fictitious service charge items is strengthened by a January 2018 invoice from a company which had carried out an asbestos survey and a fire risk assessment at a combined cost of £390. When Mr Adam pointed out that this charge did not appear in any of the schedules of service charges, which he took to be a matter of suspicion, Mr Gray explained that he regarded those surveys as “a landlord’s cost” which he did not think ought to be passed on to the leaseholders. There seems to be no reason why they should not be passed on to the leaseholders, and a landlord which regarded the provision of services to leaseholders as an opportunity for fraud would have been unlikely to take the benevolent view that Mr Gray exposed”.

Conversely:

“There is no evidence that the fire alarm in flat 2 was faulty or that it was replaced in 2019. As Mr Adam positively asserted those facts it was for him to prove them and he did not do so.”

• 2016 – £280.00
• 2017 – £420.00
• 2018 – £445.00
• 2019 – £560.00

It transpired that there was no dispute on this issue, and Martin Rodger QC therefore allowed the amounts demanded in full.

• 016 – £95.00 – drains and porch light fitting
• 2017 – £880.00 – drains
• 2018 – £108.00 – drains
• 2019 – £620.00 – drains and external gutter repairs

Legal argument

Whether the costs were incurred, and if so, whether the amount was reasonable.

Evidence

The majority of the cost related to blocked drains resulting from the “inappropriate flushing of wipes by residents in the building” (Mr Gray’s words).

The drains blocked once a year in 2016, 2018 and 2019, and three times in 2017. It took two workers up to three hours to clear the drains each time.

Mr Gray’s evidence was that the gutter works would have been more expensive, had an external contractor been retained instead of Ayyaz Homes staff.

Mr Adam did not suggest that the costs were fabricated, but considered that the charges “seemed a lot for five flats”. He did not put forward a positive case on the porch light and gutter repairs.

Decision

Accepting Enterprise’s evidence, Martin Rodger QC allowed the costs in full.

• 2016 – £360.00
• 2017 – £660.00
• 2018 – £1.088.00
• 2019 – £730.00

Legal argument

Whether the service was provided to a reasonable standard.

Evidence

Mr Gray said that in 2016 and 2017, he had based the charge on two hours of his own time at £29 per hour.

In 2018, he began to charge according to the actual time spent. That year had marked the work to repair the ceiling of flat 1 after the leak, and the beginning of the dispute with Mr Adam.

£1,088 represented a charge of just under £220 per flat, which was less than he was charged for professional managing agents as a leaseholder of other flats.

Mr Adam said that he “did not think that the management was very good”, because:

• No section 21B notices accompanied service charge demands, and
• Utility charges for individual flats had been included in the service charge.

Decision

Martin Rodger QC allowed the charge in full, saying:

“… in some respects the management service provided by Enterprise has fallen below the level which would be expected of a professional managing agent. I doubt very much, however, whether a professional managing agent would be prepared to undertake management of this building at the rate accepted by Enterprise. I also accept Mr Gray’s point that because of his personal involvement in sorting out maintenance issues and his preference not to use a management company or maintenance contractors, the modest expenditure on repairs and maintenance has been kept at a very economical charge. I am satisfied that the service provided by Enterprise was worth at least the sum charged for it in the annual accounts and I therefore allow those sums in full”.

And so (and it must have been wearily), Martin Rodger QC arrived at the final disputed cost.

The FTT reduced only the 2019 contribution to reserves – from £800.00 to £250.00. Rapidly despatching the issue, Martin Rodger QC said:

“It is not clear why the FTT did this, and I am satisfied that £800 is a reasonable contribution towards reserves for 2019”.

The final final issue, so to speak, was legal costs.

The FTT made orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, both of which prevent a landlord from recovering its costs of the proceedings from the lessee(s).

That was no great loss to Enterprise, which had no intention of trying to recover costs which comprised Mr Gray’s management time and two sets of fees: one for the application and the other for the hearing. To try to recover costs those costs would, in Mr Gray’s view, be “unfair on the others”.

Martin Rodger QC nevertheless set aside the FTT’s orders. He did so “in view of the degree of success achieved in this appeal by Enterprise …”

That success was also reflected in his refusal to make a section 20C or paragraph 5A order for the appeal. Indeed, he went further, saying:

“I am satisfied, however, that it is fair to direct that the fee paid by Enterprise when it filed its application for permission to appeal, £220, and the additional fee of £275 which it paid when it lodged the appeal should both be reimbursed by Mr Adam. Although he made it clear that he only ever wanted to pay the reasonable sums due from him, and although there were failings on the part of Enterprise, the final outcome has been that the sums originally claimed by Enterprise have to a very substantial extent been confirmed. It does not seem to me to be unfair or unreasonable that the disbursements incurred in achieving that clarification should be payable by Mr Adam…”

Paper determinations

Martin Rodger QC reproached the FTT for failing to provide guidance on paper-based determinations. It will be interesting to read that guidance when it is finalised.

It seems to me that a paper determination may be suitable where:

• Both parties are legally represented and able to present their case well;
• There are no disputes about the facts;
• The amounts at stake are small;
• The law is uncontroversial;
• Expert evidence is agreed;
• The volume of paperwork to be negotiated by the FTT is moderate.

It is unlikely to be suitable in the opposite situations.

As I write these observations, I have just received some directions from the FTT in which a paper determination is proposed, and directions given to bring the application to a decision.

The FTT knows that at least one side already has legal representation, and it is fair to assume that the other will. Both sides are therefore in a position to take an informed decision on the benefits and disadvantages of a paper determination.

On the other hand, the remainder of the directions are however entirely standard, and take no account of the issues raised in the application, nor that one of the parties has not prepared its statement of case. It is as yet impossible to know for example whether the Tribunal will need to resolve any significant questions of fact.

Litigants in person

This is the first appeal that I have come across that specifically considers the position of litigants in person in the property tribunals. There was some discussion of how the tribunals should approach litigants in person and applications for rule 13 costs orders in Willow Court Management Company (1985) Ltd v Alexander [2016] UKUT 290 (LC), but generally, litigants in person have been treated in the same way as represented parties, as arguably, they should be.

Here however, Martin Rodger QC looked directly at an issue that bedevils so many inexperienced, unrepresented parties: how should a party prepare for a hearing, and what actually happens there?

Before I came to the Bar, I worked in an entirely non-legal capacity in the travel industry. A client brought a small claim against the company for which I was working, and I was asked to put together the documents that were relevant. I had no idea what I was looking for, and – I am embarrassed to confess now – even less that I should put them in chronological order once I had found them. Had I been asked to draft a statement of case, I would have struggled to know what to put in it. Happily, the claim had nothing to do with me, so I was not asked to write a witness statement, but had I been asked, it would not have occurred to me to number the paragraphs or to use headings to flag up different topics. The difference between a statement of case and a witness statement? Not a clue. Closing submissions? What?

I have lost count of the number of times that, at a final hearing, I have heard “I can get it for you if you like” from unrepresented parties in answer to cross-examination on the whereabouts of evidential support for their position.

That response is most frequently given where a litigant in person asserts that a service charge cost is (un)reasonable in amount – depending on whether they are landlord or lessee. Compelling evidence may be easily obtainable to show that a cost is (un)reasonable, but if it is not before the Tribunal when the hearing takes place, absent an adjournment of that hearing, it is as useful as unobtainium.

The FTT plainly has a delicate path to tread between “descend[ing] into the fray” (Birmingham CC v Keddie [2012] UKUT 323 (LC) at §20), and maintaining sufficient objectivity to ensure that all parties consider that they have had fair access to justice. That path is even more delicate where the lease entitles a landlord to recover its legal costs of proceedings, an entitlement which may only come to the attention of the lessee when the demand for payment of those costs is made.

Here, Mr Adam was on the receiving end of a modest order to pay Enterprise’s application and hearing fee, but apocryphal stories abound of demands for thousands of pounds of legal costs following the resolution of a dispute substantively worth many times less.

Evidence

Reading Martin Rodger QC’s decision, questions spring to mind about the quality and nature of the evidence that a party should place before the FTT.

Mr Adam said that he refused to pay any of his 2019 service charges unless he saw “solid documentary proof” of those charges, but Enterprise very clearly did not cover itself in glory in terms of the documentary evidence that it produced, and Mr Gray spent much of his time in the Upper Tribunal explaining the position orally. On the majority of occasions those explanations were accepted by Martin Rodger QC.

Does this case therefore mark a departure, nay, even a reduction, in the quality of the evidence required by the property tribunals? If a party says it is so, is that now enough?

On a cursory glance at the decision, that may appear to be the case, but two points emerge on a more attentive reading.

First, Martin Rodger QC clearly found Mr Gray to be an honest witness who, for example, had not charged certain items to the service charge, even though he could, and considered it unfair to ask the other lessees to pay for the time that he had spent dealing with the dispute with Mr Adam.

Secondly, not only were the parties in person – Mr Adam had not set up a positive challenge to the costs: he simply put Enterprise to proof.

There are interesting comparisons to be drawn here with Urban Splash Works Ltd v Ridgeway [2016] UKUT 0032 (LC), where the Upper Tribunal refused to allow a landlord to recover a charge on a lessee’s service charge statement, where the lessee had challenged the basis for it, and the landlord was unable meet that challenge with either explanation or evidence.

Costs

I cannot let this case go without mentioning the costs order.

The property tribunals have the power to make orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 where it is “just and equitable” to do so.

Much is made of the distinction between the “just and equitable” test and Civil Procedure Rules, where costs follow the event, ie the unsuccessful party pays the successful party’s costs. It is often said that in the tribunals, success is not the determining factor for the making of section 20C and paragraph 5A orders, and yet here…

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