Spender v FIT Nominee Ltd, FIT Nominee 2 Ltd [2024] UKUT 175 (LC)
02 December 2024
Twos abound in this appeal:
The landlords were joint;
Both the landlord and the leaseholders appealed the FTT’s decision;
The leaseholders raised two grounds of appeal. They succeeded on their first however, and therefore the second was not determined, and
The landlord’s appeal related to a contract entered into in 2000.
The leaseholders’ appeal
Witness not available to be cross-examined
The appeal turned on insurance commissions payable to FirstPort Insurance Services Ltd (“FPIS”), a broker that arranged insurance for the landlord.
The leaseholders argued that the FTT had been wrong to make a finding of fact in favour of the landlord when the landlord’s witness was not present for cross-examination at the hearing.
Judge Elizabeth Cooke set out the starting point for disputes about the cost of a service:
The general rule in a challenge to service charges under section 19(1)(a) [Landlord and Tenant Act 1985] is that the leaseholders must raise a prima facie evidential case, generally by showing that the service concerned could have been obtained more cheaply. In this case the leaseholders could not do that. Instead their argument was that there was obviously something wrong because the commission was inexplicably high. The landlord’s answer, which the FTT accepted, was that unless there was evidence that the insurance premiums were inflated by the level of commission payable to FPIS there was no basis for a challenge to the cost the landlord had incurred.
The Upper Tribunal’s decision
In Judge Cooke’s judgment, the FTT was wrong to accept the landlord’s argument.
She accepted that the leaseholders had set out a prima facie case that there was “obviously something wrong”. Once that prima facie case was raised, the landlord was required to put in the legwork to defend its position. That meant putting in evidence to support the charges that it had made.
Judge Cooke continued:
It was … for the landlord to show either that the commission was a reasonable price to pay for the services provided by FPIS in light of the extent of those services, or that it could not have obtained a better deal by making a different arrangement, whether with that broker or a different one, that did not involve those services. The landlord chose to do the former, which means that [the witness’s] absence did matter and the leaseholders should have had the opportunity to challenge her evidence.
In Judge Cooke’s judgment, the landlord’s failure to produce its witness at the hearing had prevented it from discharging the evidential burden that it carried, once the leaseholders had raised a prima facie case.
In determining this issue in favour of the landlord, the FTT had failed to take all relevant points into consideration. Its decision on this point was set aside.
Judge Cooke declined however to send the case back to the FTT, saying that it would be “disproportionate” given the small amounts involved.
Instead, she determined that:
… the landlord has not shown the commission retained by FPIS was reasonably incurred. Insofar as those costs are part of the charges challenged by the leaseholders for the three years in question in this appeal, they are not payable; but I have not made any positive finding that the costs were not reasonably incurred so that the point remains open in any future challenge.
The landlord’s appeal
Whether costs were reasonably incurred
The FTT held that certain costs had not been reasonably incurred by the landlord.
Judge Cooke summarised them thus:
The costs in question were rental and maintenance charges paid by the landlord to Countryside Communications Limited for the security system for the estate including the door video intercom and remote release systems, TV and satellite services, car park gates and barriers and leisure centre CCTV and alarms. This was a substantial charge each year, just over £200,000 altogether in 2018 and similar sums in 2019 and 2020; the charge to the individual leaseholder was several hundred pounds each year, which the leaseholders said amount to 10% or 11% of the total service charge.
The leaseholders argued that it would have been considerably cheaper to replace the various systems rather than to continue to rent them.
The landlord’s response was that it was tied into the contracts, having entered a 20 year rental and maintenance agreement in 2000. The contracts provided that they were to continue on an annual basis thereafter.
The landlord “missed the boat” for terminating the agreement in 2020, but had more recently renegotiated the charges: they were now running at 50% of their previous amount. The leaseholders argued that the true reduction should be 80%.
The Upper Tribunal’s decision
Judge Cooke again stepped back and looked at the general principle first:
[T]he mischief at which [section 19(1)(a), Landlord and Tenant Act 1985] aims is the landlord’s committing to too high a price, and therefore the section requires an examination of the background to the presentation of the invoice. The question is whether it was reasonable – in the sense of producing a reasonable outcome for the landlord and the leaseholders as explained in Waaler v London Borough of Hounslow [2017] EWCA Civ 45 – for the landlord to have incurred the costs by entering a contractual commitment and thereby making itself liable to incur the costs, whether it did so a short while before invoicing in the case of a one-off contract or years before as in this case.
Thus, the question before the FTT is whether the landlord acted reasonably at the time when they entered into the contract and committed to incurring the cost that they then intended to pass on to leaseholders.
In the light of that question:
The FTT was therefore right to look at what happened in 2000, and to ask whether it was reasonable for the developer/landlord to enter into the contracts with Countryside at that date, on the information then available.
Consequently:
I take the view that the FTT’s conclusion was not open to it on the evidence, not because it was wrong to look at the arrangements made in 2000 but because there was no evidence before it to justify the judgment that it made about those arrangements; its decision is set aside.