Avon Ground Rents Ltd, Highview Management Ltd v Pilgrim, Pilgrim [2024] UKUT 400 (LC)
07 December 2024
There were two issues in this appeal.
First, we move into the exotic world of electricity generated by solar panels, examined at some length by the FTT in paragraph 7 of its decision, and determined by the Upper Tribunal on the burden of proof.
We then return to the rather more prosaic: a dispute about management fees.
Electricity charges
The question before Judge Elizabeth Cooke was this:
Is it reasonable for a landlord to incur, and to charge to leaseholders, the cost of electricity to the building without using the solar panels on the roof which could have generated a cheaper supply?
Highview Court in Luton was developed in 2014. It was a condition of the grant of planning permission that it must be able to produce 10% of its energy requirements through renewable energy.
For that reason, solar panels were installed on the roof.
There are 52 flats in the block. Some of the solar panels were connected to individual flats, whilst others were linked the common parts of the building.
The Pilgrims were joint long leasehold owners of one of the flats that was directly connected to a solar panel.
Their lease did not refer to the solar panels at all. So far as electricity to the common parts was concerned, the landlord was required to supply electricity, and the Pilgrims were required to contribute to the cost.
Avon Ground Rents Ltd acquired the freehold in 2016 and appointed Y&Y Management Ltd as its managing agent.
The section 27A application
The Pilgrims applied to the FTT for a determination of their liability to pay their service charges for the years 2017/18 to 2023/24, the latter two years being estimated, as opposed to actual, costs.
Electricity charges
The charges
For the first three years of the lease, the Pilgrims had paid nothing for electricity, and inferred that to be the result of the solar panels providing the supply.
From 2019, charges were raised:
In 2019/20 £9,141 was charged,
In 2020/21 £10,442 was charged,
In 2021/22 £29,200 was charged,
In 2022/23 the provisional charge was £6,500 and
In 2023/4 the provision was for £20,000.
The Pilgrims assumed that the landlord had diverted the solar generated electricity for its own use, hence the charges.
In the FTT
At the hearing, evidence was given for the landlord and management companies by Mr Ronnie Gurvits, a senior manager. He was not directly involved in the management of Highview Court, and the FTT was not altogether very impressed with his evidence, saying that:
… the only result of Mr Gurvits’ inability to provide us with any useful/reliable information is that there is no satisfactory evidence before us in relation to the position on Avon’s part.”
The FTT relied on the Pilgrims’ evidence, and its own inspection of the electricity fuseboard, where it had noted that the circuit for solar-generated electricity to be supplied to the common parts was switched off. On the other hand, the circuit was engaged for supply to the flats themselves.
The FTT concluded that:
… unless and until Avon is able to establish that: the 50 or so solar panels which were installed on the roofs of the Building as a condition of the planning consent and which are required by that consent to be maintained in good working order so that 10% of the Building’s total electricity needs are met from them are not operational; that they cannot economically be made operational, having regard to the feed in tariff revenue which they would generate; and/or that the feed in tariff which they do generate is not sufficient to discharge the communal electricity costs, it will not be reasonable for [the landlord/management company] to demand payment of any communal electricity charges from the leaseholders. That is to say, that these charges were not reasonably incurred.
Accordingly, the FTT found that nothing was payable by the Pilgrims for electricity in the years in dispute.
The appeal on the electricity charges
In the Upper Tribunal, Judge Cooke reminded herself that the landlord was not required to apply any solar-generated electricity to the common parts electricity liability. The leases were silent on the issue.
It is here that she turned to the burden of proof, saying:
The FTT’s jurisdiction under section 27A of the [Landlord and Tenant Act 1985] is to determine whether service charges are payable, and if so in what amount. When it is invoked by leaseholders, they must raise a prima facie case that indicates that a cost was not reasonably incurred, or that an estimated charge was not reasonable. Once they have done so the evidential burden shifts to the landlord or management company (both in this case, although the FTT focused on the first respondent as landlord) to show that the expenditure, or the charge (as the case might be), was reasonable.
In her view, the Pilgrims had raised a prima facie case. The burden of proving that the expenditure on electricity was reasonable therefore lay on the landlord/management company.
Unfortunately for the landlord/management company, the FTT had rejected Mr Gurvits’s evidence and had decided there was “no satisfactory evidence before [it] in relation to the position on Avon’s part”.
In other words, said Judge Cooke, pithily, the landlord/management company had not discharged the evidential burden.
In yet further other words, the landlord/management company had “not refuted [the Pilgrims’] evidence that the solar panels had powered the common parts for three years, and [had given] no explanation for their being unused and apparently wasted.
Judge Cooke could find no defect in the FTT’s decision on the issue.
That element of the appeal was dismissed.
Did the FTT impose a precondition?
To recap: the FTT said that “unless and until” Avon Ground Rents was able to establish a number of things, it would “not be reasonable” to demand payment of electricity charges.
Judge Cooke agreed with Avon Ground Rents that the FTT did not have the power to make a decision or impose a precondition on the Pilgrims’ liability to meet future electricity demands. After all, the Pilgrims’ application related to five specific years up to 2023-2024. Those years were therefore the boundaries of the FTT’s jurisdiction. It could not make determinations about other years.
That said however, she continued:
… as a matter of commonsense it will be apparent to the appellants that there are points they will probably need to address if further service charges are challenged, and they may find it useful to contemplate the FTT’s words…
Management charges
The fees
The Pilgrims disputed two sets of management charges.
First, the general management fee charged by the managing agent, Y&Y Limited. They alleged that the management was poor.
The FTT reduced the charge by 50%. There was no appeal from that decision.
The second management fee was charged for management of a consultation under section 20, Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements) (England) Regulations 2003.
The consultation related to the installing of a key fob entry system. Y&Y proposed to charge a fee of 15% of the contract price.
In the management agreement pursuant to which Y&Y were appointed to manage the building, it was agreed that Y&Y would be entitled to raise additional charges for additional tasks, including “monitoring building works” and “dealing with s20 consultations, including serving the required notices”.
The FTT’s decision
The FTT found that the contract price of £10,800 was reasonably incurred, but it did not allow the 15% fee.
It determined that Y&Y should manage projects such as the key fob installation contract as part of its management fee.
The appeal to the Upper Tribunal
In the Upper Tribunal, Judge Cooke accepted the landlord/management company’s arguments that:
the management agreement did not include work done in connection with statutory consultation, but, more relevantly,
Based on the tasks that Y&Y were to perform under the management contract, the FTT had reduced Y&Y’s management fee by 50%. It was illogical for the FTT then to decide that that price was also a reasonable charge for work that was not within the scope of that contract.
The Pilgrims argued that both the consultation procedure and the works had been poorly done: the building still was not secure.
Judge Cooke held however that the landlord/management company’s were right “as a matter of logic”.
Y&Y’s fee was:
… reduced by 50%, to produce what the FTT regarded as a reasonable annual charge for the regular work done by Y & Y. That must have been intended as a charge for the work done in return for the annual fee according to the terms of the contract. To then say that further work should have been done at no extra charge is inconsistent, because that reasonable charge for the regular management should not have included any slack, so to speak, for additional work that was not within the terms of the contract.
She therefore set aside the FTT’s decision on this issue, and substituted her own determination of the amount payable by the Pilgrims:
The respondents’ share of that management charge was £16, and it is not proportionate to remit the matter to the FTT for it to be decided afresh. The FTT made clear the very dim view it took of Y & Y’s management performance. I substitute the Tribunal’s decision – taken on an extremely broad brush pragmatic basis – that the charge for the section 20 work was reasonable at half the level charged, namely 7.5% of the contract price plus VAT, and that the respondents’ share should be adjusted accordingly.
The outcome overall
The result was a little akin to a score draw. The landlord/management company’s appeal:
failed on the communal electricity, the issue that Judge Cooke considered to be the “main point in issue”;
succeeded on the FTT’s “unless and until” observation, and
succeeded on the management fee for consultation and supervising works, albeit that the 15% claimed was reduced to 7.5%.