Service Charges


The appeals of Jarowicki & Prokhorova [2016] UKUT 435 (LC)

Paragraph 3 of Martin Rodger QC’s judgment in these two service charge appeals says all one needs to know about the cases of Prokhorova v Old Ford Housing Association and Jarowicki v Freehold Managers (Nominees) Limited which came together on appeal:

 Each of these short appeals concerns a decision of the FTT under section 27A in a dispute over the amount of the service charge payable by the tenant of a leasehold flat. Although there is no other connection between the appeals we have determined them together because they share one striking feature, that is that in neither case did the decision of the FTT determine the fundamental question raised by the application, namely what amount was payable by the tenant to the landlord as a service charge.

As to what should happen, the answer is at paragraph 11:

” We do not underestimate the practical difficulty of quantifying the sum payable in certain cases. In this case, for example, the FTT stated that the necessary information had not been made available by the Housing Association during the hearing. Nevertheless, the FTT has adequate case management powers under rule 6 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to direct at any time that a party should provide the information necessary to enable the tribunal to determine the amount of the service charge payable. Where the necessary information is not available at the hearing, or where it is not reasonable to expect the FTT to devote its own limited resources to the task of calculating what may be a large number of individual figures, the appropriate course is likely to be to direct the landlord or management company to recalculate the service charge in light of the tribunal’s decision and then to submit it to the leaseholder for agreement, giving both parties the right to apply to the tribunal if agreement cannot be reached. In all cases, however, the final responsibility for determining the sum payable lies with the FTT.

Interestingly the landlord in the Jarowicki appeal resisted it on the basis that the sum owing could be worked out easily enough or could be corrected under the slip rule; both arguments were given short shrift at paras 17 & 18:

17. … In circumstances where the potential for confusion and uncertainty was so great, it was incumbent on the FTT to make clear the answer to the statutory question posed by section 27A(1)(c) by determining the amounts payable as service charges. It should have stated those amounts as absolute figures rather than as percentages or proportions of unspecified sums which it left to the parties to interpret. Its omission to do so is was a breach of its duty to record its decision clearly and to provide proper reasons. If it was unable to do so on the basis of the information provided (which we think likely) it should have followed the course suggested in paragraph 11 above.

18 Nor do we accept that the omission of the FTT to state the amount of the service charges payable is a matter which could have been dealt with under the slip rule. That failure was not a clerical mistake or an accidental slip or omission. It was fundamental to the statutory question which the FTT was required to determine. For that reason we allow the appeal.

It is noteworthy that in Jarowicki, the Upper Tribunal did not simply remit the case to the the FTT for the appropriate figures to be calculated, at 19, Martin Rodger QC said this:

In this case we consider it appropriate not simply to remit the decision to the FTT for further consideration, but to set it aside and require that the application be re-determined. It is apparent from the tribunal’s inability to specify figures, from the appellant’s application for permission to appeal and from the request of the respondent to provide further documents that the material presented to the FTT was incomplete and confusing. At the joint request of the parties the FTT made its decision on the basis of their written representations alone, without either party or the tribunal having the opportunity to seek or provide clarification of disputed facts. Many of Mr Jarowicki’s complaints concerned the quality of services provided and his evidence consisted of his own first hand observations supported in some cases by photographs. The FTT did not explain why it did not accept that evidence and it is difficult to see how it could evaluate it without hearing from the parties in person. In all of these circumstances we consider that the parties should be given the opportunity to present their cases in full, before either the same or a differently constituted tribunal.

The two decisions must be seen as welcome in making clear the need for the rigour which should be applied by FTT in determining service charge liabilities.

One Way of avoiding the Problem

In the latest leg of the Phillips v Francis litigation – PCTA v Francis – before the FTT in October, it proved possible to deal with a 5 year tranche of service charges in a little under 5 days (notwithstanding that the trial bundle ran to 20 lever arch files)  by using Scott Schedules, which, I would suggest, ought to be the norm in larger service charge disputes. Furnishing the FTT with an electronic copy may not save it from having to determine individual liabilities but it should ensure that when a judgment is produced there will be no doubt about what has been awarded and in respect of which invoice.

Don’t Forget Service Charges are Contractual

My only slight carp about this otherwise admirably robust judgment is that the opportunity was not also taken to remind the FTT that whereas there is no burden of proof on landlord or tenant in relation to determining reasonableness, service charge claims are claims for a contractual liability and the burden of proving that a sum is contractually due in the first place lies on the landlord.

Although there is no direct authority on the point in relation to the FTT, I would suggest that the reasoning in Foilagen v Ritjo Properties (1981) The Times, 12 October 1981 (CA) applies which means that, in cases where what is contractually due is at issue, it is the landlord who should go first, regardless of by whom the application has been made.

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