LRX/10/2005
LANDS TRIBUNAL ACT 1949
Service Charges – Procedure – Landlord and Tenant Act 1985 s.20(4) – Failure to serve copy of estimates – fees part of cost of qualifying work but not required to be included in estimate.
IN THE MATTER OF AN APPEAL AGAINST THE DECISION OF THE
LEASEHOLD VALUATION TRIBUNAL
BETWEEN RICHMOND HOUSING PARTNERSHIP Appellant
and
(1) Tania Smith Respondent
(2) Peter Rickman
Before: His Honour Michael Rich QC
Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL
on 13 January 2006
Mr Stan Gallagher instructed by Devonshires for the Appellants
Mr Jon Ward representing the First Respondent
The Second Respondent did not appear.
The following cases are referred to in this decision:
Gilje v Charlegroves Securities Ltd [2001 L&TR 17
London Borough of Haringey v Ball ( His Honour Judge Cooke sitting in the Central London County Court on 6th December 2004 unreported),
Marionette v Visible Information Packaged Systems Ltd [2002] All ER (D) 377
DECISION
- This is the Landlord's appeal against the decision of the Leasehold Valuation Tribunal ("LVT") dated 16th November 2004, in so far as it restricted the amount recoverable as service charge in respect of works to the roof and to the Door Entry System at Beaufort Court, Richmond, in each case, to an amount calculated in accordance with the Service Charge (Estimates and Consultation) Order 1988.
- The rest of the proceedings before the LVT affected the second respondent who is the lessee of Flat 40, but only the first respondent (the lessee of Flat 51) was affected by the part of the decision the subject of the appeal. Accordingly the second respondent gave no notice of intention to respond to the appeal and has taken no part in the appeal. The first respondent was represented before this Tribunal by her partner, Mr Jon Ward.
- Section 20 of the Landlord and Tenant Act 1985, as originally enacted is agreed to regulate the recoverability of the relevant service charges as provided by subsection (3). It so limits the amount which may be recovered "where the relevant costs incurred in carrying out any qualifying works exceed the limit [of £500] specified in subsection (3)", unless either the requirements of the Section as to estimates and consultation have been complied with, or compliance is dispensed with by the County Court. The Decision of the LVT, and therefore of this Tribunal is concerned only with whether the requirements have been complied with. The appellant has not, as yet, applied to the County Court for dispensation, although aware of the procedure which was adopted in Gilje v Charlegroves Securities Ltd [2001 L&TR 17, to enable such application to be heard concurrently with an appeal, such as the present.
- In the case of tenants not represented by a recognised tenants' association the relevant requirements of s.20 are set out in sub-section (4), of which Paragraphs (a) and (b) are material. They provide:
"(a) At least two estimates for the works shall be obtained, one of them from a person wholly unconnected with the landlord.
(b) A notice accompanied by a copy of the estimates shall be given to each of those tenants or shall be displayed in one or more places where it is likely to come to the notice of all those tenants"
No evidence was adduced before the LVT that the estimates which were admitted to have been duly obtained had been displayed in accordance with the alternative requirement of Para (b), and so the issue before the LVT and this Tribunal was whether the notice served on the respondent in order to comply with s.20 of the Act was "accompanied by a copy of the estimates [so obtained]".
- The LVT held, in regard to the roof works (paragraph 11)
"The Section 20 notice showed the costs of the three lowest tenders (the lowest being £339,362.36) but did not have attached to it details of the tenders. Moreover, the costs shown did not include VAT or the contract administration fees."
In respect or the Door Entry System they held (paragraph 21):
" A Section 20 notice was served on Ms Smith, dated 18 January 2001. It was in the same form as that covering the roof renewal in that it showed the costs of the three lowest tenders (the lowest being £128,205.88) but did not attach details of the tenders. Moreover the costs shown did not include VAT or the contract administration fees."
The LVT concluded in respect of both notices (see paragraph 24 in respect of the Door Entry System) as follows in paragraph 16 of their Decision:
"The tribunal considered that the Section 20 notice served on the applicant was not only in breach of the respondents' [that is the landlord's] own guidelines but was not in accordance with the requirements of Section 20. In particular Section 20(4)(b) requires that "a notice accompanied by a copy of the estimates shall be given to each of those tenants". This was manifestly not done."
- Mr. Gallagher, for the appellant, submits that "the estimate" is merely the lump sum estimated by the contractor and therefore setting out such lump sums against the names of the relevant contractors, as the S.20 notices did, is a sufficient compliance with the requirement of paragraph (4)(b). If that were so, then paragraph (4)(a) could be satisfied by obtaining an oral estimate because there would be no need of a document which could be copied. Mr Gallagher found himself surprised by this improbable effect of his submission. In my judgement it is clear that the reference to "estimates" is a reference to a document, capable of being copied. I do not find any assistance in the Decision in London Borough of Haringey v Ball ( His Honour Judge Cooke sitting in the Central London County Court on 6th December 2004 unreported), to which Mr Gallagher referred me, in regard to this issue, with which Judge Cooke was not concerned.
- That "copy" means a copy of the actual document is apparent from a comparison of the provisions of subsection (4) with the requirements of sub-section (5) which apply when the tenants concerned are represented by a recognised tenants' association. In such case paragraph (b) makes the same requirement as to the obtaining of two estimates as is found in paragraph (4)(a). In such case, however, paragraph (c) requires that
"A copy of each of the estimates shall be given to the secretary of the association."
The provision as to the notice to be served on the tenants themselves however, then requires only that it "shall … (ii) summarise the estimates". It seems to me to be impossible, in the face of such contrasting provision, to construe the requirement to serve a copy of the estimates, as being satisfied by merely incorporating into the notice what at its best might be described as a summary of them.
- Mr. Gallagher asks me to apply a purposive construction to the paragraph and submits that to construe it strictly would "impose an unnecessary and empty formality to attach estimates as separate pieces of paper". In my view the apparent purpose of the provision that such estimates must either be served on the Residents' association, where there is one, or upon the affected tenants or displayed, where there is not such an association, is to provide evidence from a copy of a signed document that the estimates required to be obtained, have in fact been obtained.
- Mr Gallagher's submission moreover depends upon the notice in each case containing all the information which would be obtained by perusal of the estimates themselves. That is not so. In each case the estimates state that the price quoted is "excluding VAT". Even if it was right, as Mr Gallagher separately submitted, that VAT is not part of the cost of the "qualifying works" as defined by subsection (2) of section 20, that is, obviously useful information for the tenant beyond that which was contained in the s.20 notices, as served. The notices therefore not only were unaccompanied by copies of the estimates, they did not incorporate an accurate or complete copy of what was contained in each estimate.
- These reasons are sufficient to uphold the LVT's decision for the reason which the LVT gave in paragraph 16 of their Decision. The appellants' grounds of appeal, however, treat the final sentences of paragraphs 11 and 21 as constituting a second basis upon which the consultation notices were held to have failed to satisfy the requirements of s.20(4), namely that "the estimates were given exclusive of VAT and contract administration fees".
- It seems to me to be obvious that a proper estimate, capable of comparison with another estimate in order to determine which is for the lower sum, must contain the information as to whether the price given is inclusive or exclusive of VAT or will not be subject to VAT. If a landlord were to obtain estimates from contractors which did not contain such information, I think that it would be at least doubtful that he had properly complied with the requirement of paragraph (4)(a) to obtain estimates. That is specifically provided for the purposes of section 20, as now amended, by the Service Charges (Consultation Requirements) (England) Regulations 2003. Mr Gallagher referred me to this provision in aid of an argument that the need for such subordinate legislation should lead me to construe s.20(4)(a) as not having had that effect. It seems to me to be a wholly illegitimate mode of construction of an Act passed in 1985 to rely on subordinate legislation made under statutory provisions contained in that Act as a result of amendments made in 2002, and I derive no assistance from those Regulations. In fact however the estimates obtained by the appellant in the present case did contain such information and were therefore proper estimates.. As, however, I have pointed out in paragraph 9 above, it is one of the defects of the notices served, that they do not contain that information. That however merely explains the practical need for compliance with paragraph (4)(b), at least in the circumstances where the landlord, as in the present case, cannot, as I understand a local authority landlord can, recover VAT, and so would require the tenants to pay VAT as part of the cost of the works . I nonetheless accept that failure to refer to VAT in the notices, is not a separate failure to comply with subsection (4), but I am by no means sure that the LVT was suggesting that it was.
- So far as the "contract administration fees" are concerned, Mr Gallagher explained to me that these are fees payable to a surveyor or other professional agent to prepare the specification for the works and to supervise them, payable under an agreement with such surveyor, rather than with the contractor undertaking the building works. It may be that this was not clear to the LVT, who may well have been misled by being shown so-called "Final Accounts" which include the fees as part of the cost of the works. I accept that the requirement of sub-section (4) is to obtain "estimates for the works" and that sub-section (2) defines qualifying works in terms of works "on a building or any other premises", thus meaning physical building works. There is no obligation to obtain alternative estimates for design or supervisory work. It is only the estimates for building work which must be copied in order to comply with paragraph (4)(b). If therefore these charges are indeed for the work as explained to me by Mr Gallagher then I do not think that a failure to refer to them in the "estimate" would render the s.20 notice defective. There is in any case a somewhat obscure reference to those fees in the notice when it sets out the tenant's share "including fees", although unhelpfully without explaining what the fees are or how the share has been calculated.
- Mr Gallagher referred me to a decision of Mr Nicholas Warren QC (as he then was) reported as Marionette v Visible Information Packaged Systems Ltd [2002] All ER (D) 377, in which he said at paragraph 98:
".. the services for which such fees are paid are not part of the works themselves as I have identified them. The works are the physical works which subsection (4)(c) requires to be described; it is only in respect of those works that estimates are required to be provided."
That is a conclusion with which I entirely agree. In paragraph 97 he had said in respect of such professional fees that they are
" … certainly incurred in relation to the works (being qualifying works) and it may well be correct, although it is unnecessary to decide, that these fees are "incurred on the carrying out of any qualifying works" within subsection (2) especially in the case of supervisory fees in relation to an actual project in contrast with design fees incurred in relation to a proposed project."
That is again an analysis with which I wholly agree, although it also unnecessary to decide it for the purpose of this appeal. The result would be that unless the appellant obtains a dispensation, the fees which were incurred upon these works will not be recoverable in so far as the cost of the works exceed the limit calculated in accordance with the regulations.
- For these reasons the appeal will be dismissed. If either party wishes to make application for either an order under s.20C of the Act of 1985, or for costs within the limit allowed by S.175(6) and (7) of the Commonhold and Leasehold Reform Act 2002 they must make application setting out the conduct upon which they wish to rely within 14 days of the date of this Decision.
Dated 23 January 2006
His Honour Michael Rich QC
